XI. Bundling and Promotional Constraints
The current policies regulating the bundling of telecommunications services require that the price of the bundle of services pass a test to ensure that the prices exceed costs.707 Currently, pursuant to D.04-11-022, AT&T and Verizon can bundle or "package" Category II services "so long as the revenue from all the services over the expected location life is equal to or exceeds the total of the recurring and nonrecurring price floors for each service."708 This decision "only applies to NRF-regulated ILECs with: (a) approved wholesale rates for basic exchange service or (b) wholesale rates for basic exchange service filed with the Commission, pending approval."709 Since SureWest and Frontier do not have UNE rates on file with the Commission, they cannot bundle at present. There are no rules regulating bundles offered by the CLECs.
Concerning promotions, current policy requires all local exchange carriers (both ILECs710 and CLECs711) to obtain Commission approval for promotions.712 The specific rule for CLECs is that promotions should last no more than one year; if a CLEC promotion lasts more than a year, it shall be considered a permanent offer and subject to withdrawal on thirty-day notice. Current policy restricts promotions by ILECs to 240 days (a 120-day initial period and a 120-day extension). Also an ILEC must wait 60 days after a promotion has run for 240 consecutive days before it can offer the same promotion. There is no prohibition on promotions based on the geographic location of the customer. Under § 251(c)(4)(B) of the Telecommunications Act of 1996, however, promotions lasting longer than ninety days must be subject to resale. This provision restricts ILECs' ability to circumvent their resale obligations under the Act simply by offering services to their customers at perpetual "promotional" rates.713
A. Positions of Parties on Bundling
The majority of communications services sold are in bundles, rather than on a stand-alone basis,714 so policy decisions affecting bundles are especially significant for California consumers. The positions of parties on bundled services span the spectrum from urging flexible pricing without limitations, to flexible pricing with increasing restrictions.
The ILECs, DOD/FEA, and CSBRT/CSBA concur that bundles should be flexibly priced with no limitations.715 DOD/FEA reasons that pricing restrictions on bundles should be eliminated to allow for the same flexibility afforded competitors.716 In addition, AT&T and Verizon point out that the Commission has required that packages be made available to LifeLine customers at a discount equal to the subsidy and that a further restriction on bundling would be inconsistent with this past Commission action.717
While DRA supports flexibly-priced bundles718, it also recommends that the Commission direct that there be full disclosures to customers about their ability to purchase individual price-regulated services at regulated prices instead of bundles. DRA further supports a one-day filing for price changes for bundles and a protest period.719 DRA contends that its proposal would provide as much pricing freedom for bundles as Verizon's proposal.720
Cox, CCTA, and Time Warner recommend a number of different pricing limitations for ILEC bundles. While they support flexibly-priced bundles if the bundles do not include basic service,721 Cox and CCTA propose that the basic service price be imputed for bundles including basic service.722 Time Warner recommends limiting the price of all bundled services to an amount equal to or above the sum of the previously set wholesale price or tariffed rate of the regulated service(s) or product(s).723
Both CCTA and Time Warner also state that any elimination of existing pricing requirements for bundles should be made contingent upon prior reform of CHCF-B and elimination of the presumption of revenue neutrality.724 Cox asks for the elimination of high-cost subsidies before we grant full pricing-flexibility for basic residential service (stand-alone or bundled).725 Cox argues that the ILECs "intend to use the high-cost subsidies to fund their targeted price reductions, offering lower prices on subsidized services where they face the most inroads from competitive entrants."726
TURN recommends that price increases for bundles be based on a price cap mechanism and that price decreases be limited to price floors.727 DisabRA agrees with this proposal.728
DisabRA also suggests that the Commission require providers to have policies allowing people with disabilities to drop inaccessible or inappropriate services from bundles, while still allowing them to take advantage of the reduced rates for other services included in bundles.729 DisabRA prefers to have this principle established in Phase I with the details fine-tuned in Phase II.730
B. Discussion: Allowing Subsidized Services to Be Included in Bundles is Reasonable
Our statutory review and the positions of parties establish that there are no legal or policy barriers to increasing the pricing flexibility for bundles of most telecommunications services. Indeed, increasing pricing flexibility would be more consistent with federal and state statutes that instruct us to encourage deployment of modern telecommunication services through use of pro-competitive policies. Our review of the voice communications market also found that competitors check ILECs' market power: There is a single market for voice services, and no carrier has market power within California.
Our analysis in this section builds off of that contained in Section X. The tariffing and pricing reforms already adopted in this decision provide substantial pricing freedoms applicable to all services, except those services receiving subsidies. Since we can rely on the market to assure reasonable pricing of individual telecommunications services not receiving a subsidy, we conclude here that we also can rely on the market to assure the reasonable pricing of any bundle of services that does not include a service receiving a subsidy.
A similar analysis applies to tariffing and geographic service area issues. Consistent with our flexible tariffing of non-subsidized services in Section X, we hold that permitting flexible pricing of bundles that exclude non-subsidized basic service currently is reasonable on a one-day tariff filing. In accordance with our allowing different prices for non-subsidized services in different parts of a carrier's service territory, carriers may limit the offering of bundles to particular geographic areas.
These changes prompt elimination of other requirements too. Since we no longer rely on the imputation of costs to ensure that the prices of any tariffed service are reasonable, we need not retain such a requirement for bundled services. There is no need to retain or adopt regulations requiring special disclosures associated with bundles either.
Evaluation of bundles including basic residential rates subsidized by LifeLine or CHCF-B requires further analysis. In the near-term, we have not permitted pricing flexibility for individual services receiving these subsidies.731 The extensive subsidies provided by the LifeLine and CHCF-B programs are financed by charges on other end users and raised for codified public purposes.
With respect to LifeLine, we hold that we should maintain our current practice of requiring that packages be made available to LifeLine customers at a discount equal to the LifeLine subsidy. This policy ensures that LifeLine consumers continue to realize the scope of the benefit they receive.
Regarding CHCF-B, we continue our current treatment of bundles offered in high-cost areas. As we have found before, it serves no purpose to impose a restriction similar to that adopted for marketing of bundles to LifeLine customers. Bundles now are available without regard to CHCF-B funding status, and an individual's participation in CHCF-B is opaque. As a safeguard, we require that no carrier may withdraw a stand-alone basic residential service that it currently offers in a high-cost area.
This treatment of bundled services receiving LifeLine and CHCF-B subsidies is consistent with comments indicating that any further restrictions could prevent low-income and rural customers from qualifying for bundles. Greenlining specifically raises the question of whether restrictions on bundling could marginalize low-income consumers.732 Furthermore, Verizon, SureWest, Frontier, and AT&T each states that the practical consequence of new bundling restrictions could be to limit competition and choices for these customers.
Finally, as we have noted in previous sections, the issues raised by DisabRA are best considered in R.06-05-028. The latter rulemaking will specifically review services that affect the disabled community.
In summary, bundles may include any telecommunications service, but we will continue to require that bundles be made available to LifeLine customers at a discount equal to the LifeLine subsidy. Bundles can be tariffed under the same rules that apply to the tariffing of any telecommunications services and may be geographically targeted.
C. Position of Parties on Promotions
The ILECs, DOD/FEA, and DRA agree that there should not be any limitations on promotions.733 AT&T would provide a one-day notice following submission of a letter to the Commission's Executive Director.734 DOD/FEA also recommends the one-day notice.735 DRA proposes that there be an informational advice letter only, and have the advice letter be subject to protest in some cases.736
Cox, Time Warner, and CCTA recommend limiting promotions for the same service to ninety days in a twelve-month period and retaining the ILEC price floor requirements for promotions. These parties further urge the Commission to forbid geographic-specific promotions and promotions that involve any service or bundle containing a CHCF-B subsidized service.737 Cox argues that the "large ILECs should be prohibited from conducting promotions that are based on the geographic location of the customer, as this would obviate the restrictions on geographic deaveraging."738
TURN and DisabRA also support maintaining the ninety-day limit on promotions and the rule that promotions beyond ninety days must be offered for resale.739 DisabRA additionally asks the Commission to require providers to make customers with disabilities aware of the services and products that are provided for their benefit. This principle would be established in Phase I with the details fine-tuned in Phase II.740 According to DisabRA,"[p]roviders need to do a better job of letting Californians with disabilities know what is available. . . . This information could be disseminated to consumers' - on the providers' websites and through billings and other mailings. This is one of the most important protections for the Commission to include in the regulatory framework, and it is one of the easiest for providers to adopt and the Commission to enforce."741
D. Discussion: Allowing Subsidized Services to Be Featured in Promotions Is Reasonable
Our statutory review and the positions of parties demonstrate that increasing the pricing flexibility for promotions complies with, and supports, California's telecommunications policies. Promotions are simply a way of marketing voice services to meet the needs of customers and market imperatives. Since we can rely on the voice communications market generally to assure the reasonable pricing of individual services, we accordingly can rely generally on the market to assure the reasonable pricing of promotions.
Also we note that federal regulatory policy requires that a carrier's promotions lasting longer than ninety days be subject to resale requirements. This federal provision places an appropriate limit on use of promotions, and we are confident that California can rely on this regulatory protection. We see no need to otherwise impose restrictions on the duration of promotions.
Our treatment of promotions is not affected by the presence of subsidized services. Just as we found that it is appropriate to permit inclusion of LifeLine and CHCF-B subsidized services in bundles, we also permit the inclusion of these services in promotions.
In summary, all carriers should face similar rules concerning the initiation and withdrawal of promotions. ILEC promotions may be geographically targeted and should be tariffed under the same one-day rules that apply to the tariffing of any telecommunications service.
707 Bundles are simply a way of combining a group of voice services together to meet the needs of customers.
708 Application of Pacific Bell Telephone Company dba SBC California to Modify D.94-09-065 to Enable SBC California to Reduce Prices to Meet Competition, D. 04-11-022, 23, mimeo at 23, 2004 Cal. PUC LEXIS 530.
709 Id.at 23-24.
710 See Tariff (T) -15613.
711 See T-14518.
712 Promotions are methods of bringing a product to public attention, including advertising, publicity, and other sales tactics.
713 See Iowa Utilities Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), aff'd in part, rev'd in part sub. nom. AT&T Corp. v. Iowa Utilities Bd., 525 U.S. 366 (1999) (describing the rationale for Section 251(c)(4)(B)).
714 Pacific Bell Reply Brief at 24.
715 Comparison of URF Proposals; Pacific Bell Reply Comments at 24; Verizon Reply Brief at 11; Citizens Reply Brief at 15; SureWest Reply Brief at 18; DOD/FEA Reply Brief at 5-6; CSBRT/CSBA Opening Comments at 6-7.
716 DOD/FEA Reply Brief at 5-6.
717 Opening Comments of Pacific on the Proposed Decision at 4 (Aug. 15, 2006); Opening Comments of Verizon on the Proposed Decision at 4 (Aug. 15, 2006). Both AT&T and Verizon cite Resolution T.-16687, where the Commission took this action regarding bundling.
718 Specifically, it proposes that price caps be lifted for any bundle of services that includes at least one non-priced-regulated service. Therefore, service bundles made up solely of basic, essential services would continue to be price capped. DRA Opening Brief at 5, n.11.
719 Comparison of URF Proposals; ORA Reply Comments at 11.
720 DRA Reply Brief at 6.
721 Comparison of URF Proposals.
722 Comparison of URF Proposals; Cox Opening Comments at 14.
723 Comparison of URF Proposals; Time Warner Reply Brief at 4.
724 Comparison of URF Proposals; Time Warner Reply Brief at 4-5.
725 Cox Reply Brief at 6.
726 Cox Opening Brief at 19.
727 Comparison of URF Proposals.
728 Id.
729 Id.
730 Id.; ORA Reply Comments at 11.
731 We note that for LifeLine services, we are currently investigating policies in R.06-05-028. For basic services in areas receiving CHCF-B subsidies, we have prohibited pricing flexibility until R.06-05-028 addresses this and other issues associated with this subsidy.
732 Opening Comments of Greenlining on the Proposed Decision at 1 (Aug. 15, 2006).
733 Comparison of URF Proposals; Citizens Reply Brief at 3; SureWest Reply Brief at 3; Pacific Bell Reply Brief at 50; Verizon Reply Brief at 11; DOD/FEA Reply Brief at 5; ORA Reply Comments at 12.
734 Comparison of URF Proposals.
735 Id.
736 Those cases would be determined in Phase 2. Id.
737 Comparison of URF Proposals; Cox Opening Brief at Page 21.
738 Cox Opening Brief at 23.
739 Comparison of URF Proposals; TURN Reply Comments at 13.
740 Comparison of URF Proposals; DisabRA Opening Brief at 24.
741 DisabRA Opening Brief at 24.
