IX. Forbearance from Regulating the Pricing of New Telecommunications Services
Any ILEC or CLEC that wants to introduce a new service in the state first must seek Commission approval through an advice letter process. All ILECs currently are required to file an advice letter thirty days before introducing new products, services, or technologies. An ILEC's advice letter must be accompanied by supporting cost data.638 CLECs also have to file an advice letter for new services, and such advice letters have the same thirty-day effective date. Unlike ILECs, however, the CLECs do not have to provide supporting cost data.
For both ILEC and CLEC advice letters, third parties may protest such advice letters. Protest of an advice letter may delay its approval for anywhere from approximately three months to multiple years, depending on how long it takes the Commission to resolve the matter.
In contrast, other competitors to ILECs and CLECs do not have to make any regulatory filings when offering new or any other services. VoIP providers are not regulated by this Commission, and for wireless carriers, the Commission regulates only "terms and conditions," not prices or offerings. We address this disparate regulatory treatment below.
A. Position of Parties
All four ILECs, DOD/FEA, and CSBRT/CSBA propose that we allow full pricing flexibility for new telecommunications services and we limit our review of these services to a one-day advice letter filing.639 These parties advocate for full pricing flexibility based on competitive parity, and contend that under their proposal, benefits will flow to consumers. AT&T argues that preparing regulatory cost data and meeting the thirty-day approval requirements for new services hinder competition.640 According to Verizon, as long as any competitor is constrained in its ability to respond quickly to consumer demand, to offer new services and new bundles, to innovate, to provide leading edge technologies, to respond to competitors' market moves, and to realize the full risks and rewards of its actions, competition as a whole suffers and so do consumers.641
Like most parties commenting on this issue, DRA urges the Commission to forbear from imposing price regulation on new services, and recommends that we allow the ILECs to establish prices for those services effective on a one-day advice letter filing.642 DRA, however, urges the Commission to retain the right to suspend an incumbent's new service offerings thereafter for good cause shown, such as if that incumbent was attempting to deregulate a price-regulated service by disguising that service as a "new" service.643
The CLECs - Cox, CCTA, and Time Warner - support flexibly-priced new services, if the services truly are new ones.644 According to Cox, new services must be strictly defined to preclude the repackaging of existing services or bundles just to avoid regulations that apply to "basic" services.645 Cox asserts that the delivery of a "basic" service from an ILEC using new technology (e.g., VoIP) should not qualify as a new service, because the customer is receiving basic voice service whether it is provided over copper or cable, circuit-switched or packet-switched. Cox adds that the FCC used such service-based criteria to determine the appropriate classification and application of regulation in two rulings issued on VoIP services.646 Cox further maintains that any rules adopted for ILECs should not be stricter than those currently applied to CLECs.647
TURN and DisabRA argue that new services should continue to be price-regulated on a case-by-case basis.648 TURN supports the current process, i.e., Commission notification of new services through the thirty-day advice letter process. Similar to the CLECs, TURN does not regard an existing service, provided using a new technology, to be a new service.649 It points out that the Commission has not permitted voice services to be reclassified as new services when carriers have upgraded their feeder plant to fiber-based Next Generation Digital Line Carrier systems.650
B. Discussion: Neither Policy nor Market Conditions Support Limiting the Rates of New Telecommunications Services
The prior overview of statutory goals makes it clear that the California Legislature calls upon us to support deployment of advanced telecommunication services and infrastructure through pro-competitive policies.651 Requiring burdensome and time-consuming regulatory reviews before approving the introduction of new telecommunications services is inconsistent with this competition-driven policy. Moreover, since the ILECs face more burdensome reviews than other carriers, the current policy is not technologically and competitively neutral, as required by statute. These policies unfairly place ILECs at a disadvantage in the voice communications market. We previously held that competition was sufficient to check ILECs' market power.
Although the parties to this proceeding have all advanced proposals that are considerable improvements over the status quo, we prefer the proposal to permit the provision of new services with full pricing flexibility on a one-day advice letter filing. This approach is most consistent with the statutory framework and current market conditions. In particular, the proposal creates no regulatory obstacles or regulatory uncertainties that could significantly delay introduction of new services.
Several parties propose limitations of various sorts on the introduction of new services. For example, DRA asks that the Commission retain the right to suspend an incumbent's new service offerings thereafter for good cause shown. Such a restriction would likely have two effects: (1) it would introduce additional regulatory uncertainty for only one player in the market, the ILEC; and (2) it would deter price changes (including price decreases) when services resemble other telecommunications services. We further note that the continued availability of the "old" services protects consumers from higher priced "new" services. Thus, this proposed limitation serves no public purpose, and is quite likely to have an anti-competitive effect.
The proposals of the Cox, CCTA, Time Warner, TURN and DisabRA also are restrictive. The proposed limitations would be anticompetitive and would discourage and delay the introduction of new services to consumers. Hence, we hold that these restrictions are not in the public interest. Instead, we find that it is in the public interest that all carriers, both CLECs and ILECs, should be able to offer new services on a one-day tariff filing without supplying cost-support data.
638 If a smaller ILEC mirrors the rates and/or charges of the larger ILECs, however, it is not required to file a cost study.
639 Comparison of URF Proposals; Verizon Opening Brief at 3; Pacific Bell Opening Brief at. 61; SureWest Reply Brief at. 18-19; Citizens Reply Brief at 15; DOD/FEA Reply Brief at 5-6.
640 Pacific Bell Opening Brief at 61.
641 Verizon Opening Brief at 1.
642 DRA Opening Brief at 5.
643 ORA Reply Comments at 11.
644 Comparison of URF Proposals; Cox Opening Comments at 19.
645 Cox Opening Brief at 19.
646 Cox Opening Comments at 19 (citing In the Matter of Petition for Declaratory Ruling that pulver.com`s Free World Dialup is Neither Telecommunications or a Telecommunications Service, W C Docket No. 03-45, Memorandum Opinion and Order (released Feb. 19, 2004); In the Matter of Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission, WC Docket No. 03-211, Memorandum Opinion and Order (released Nov. 12, 2004)).
647 Opening Comments of Cox on Proposed Decision at 12,
648 Comparison of URF Proposals.
649 Reply Comments of The Utility Reform Network at 13 (Sep. 2, 2005) (hereinafter "TURN Reply Comments").
650 Roycroft Reply Comments at 95.
651 See Cal. Pub. Util. Code §§ 882, 8281(a), 709.5(a).
