COM/CRC/cvm Mailed 8/30/2006
Decision 06-08-030 August 24, 2006
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Order Instituting Rulemaking on the Commission's Own Motion to Assess and Revise the Regulation of Telecommunications Utilities. |
Rulemaking 05-04-005 (Filed April 7, 2005) |
Table of Contents
Title Page
A. History of the New Regulatory Framework 55
B. Order Instituting Rulemaking for a Uniform Regulatory Framework 1313
C. Filings of the Parties 1313
III. Overview of Statutory Goals 3030
A. State and Federal Statutes Encourage Reliance on
Competition to Promote Broad Consumer Interests 3131
B. State and Federal Statutes Instruct Regulators to Adopt Competitively
and Technologically Neutral Policies that Promote the Development
of a Wide Variety of New Technologies and Services 3636
C. Telecommunications Regulations Must Continue to Meet the Social
Policies Embodied in Statutes 3838
IV. Two Major Policy Alternatives Developed in the Record 4141
Table of Contents
Title Page
V. Level of Competition in the Voice Communications Market 5252
A. The Relevant Market for Competitive Analysis: Substitutability
and Presence of Competitors 5353
2. Discussion: Voice Constitute a Single Communications Market,
but Market Power Analysis Must Address Geography 7474
Table of Contents
Title Page
VI. Basic Residential Rates: Impact of CHCF-B 133133
B. Discussion: Public Policy Programs Make Geographically Unfettered
Pricing Inappropriate in Certain High-Cost Areas 138138
C. Discussion: Market Conditions Indicate Geographically Unfettered
Pricing Is a Reasonable Policy in the Absence of CHCF-B Subsidies 142142
Table of Contents
Title Page
IX. Forbearance from Regulating the Pricing of New
Telecommunications Services 165165
B. Discussion: Neither Policy nor Market Conditions Support
Limiting the Rates of New Telecommunications Services 168168
X. Tariffing of Services and Contracts; Price Floors; and Price Ceilings 170170
A. Positions of Parties 170170
B. Discussion: Statutes and Market Conditions Support Streamlined
Tariffing and Contracting Procedures 182182
XI. Bundling and Promotional Constraints 187187
A. Positions of Parties on Bundling 189189
B. Discussion: Allowing Subsidized Services to Be Included in
Bundles is Reasonable 192192
C. Position of Parties on Promotions 194194
D. Discussion: Allowing Subsidized Services to Be Featured in
Promotions Is Reasonable 196196
XII. Grandfathering and Withdrawal of Services 197197
B. Discussion: Tariffs Become Effective on a One-Day Filing, but
Require Thirty-Day Advance Notice to Affected Customers 201201
XIII. Service Quality, Marketing, Disclosure, and Administrative Requirements 203203
B. Discussion: Service Quality Issues are Best Addressed in R.02-12-004; Asymmetric Marketing, Disclosure and Administrative Requirements
Are No Longer Necessary 207207
XIV. Monitoring, Auditing, and Reporting Requirements 210210
Table of Contents
Title Page
XV. Allocation of the Gain or Loss from the Sale of Utility Property 218218
B. Discussion: All Gains or Losses from Sale of Utility Property
Should Accrue to Shareholders 224224
XVI. Vestiges of Rate-of-Return Regulation, Including the Calculation of
Rates of Return and Revenue Sharing 225225
Appendix A Comparison of URF Proposals
I. Summary
This decision evaluates both statutory guidance and market conditions in determining whether we may rely more heavily on competitive forces to produce "just and reasonable" rates for California's telephone consumers. Due to our statutory and market analysis, we grant carriers broad pricing freedoms concerning almost all telecommunications services, new telecommunications products, bundles of services, promotion, and contracts. We make contracts effective when executed, and thereby end the necessity of post-signing reviews by this Commission. With few restrictions, we permit carriers to add services to "bundles" and target services to specific geographic markets.
Yet we find that continued pricing regulation is warranted in a few specific circumstances relating to public policy programs. Some restrictions are appropriate when a service receives a social program subsidy, such as California LifeLine program (LifeLine) residential service and basic residential service in areas receiving California High Cost Fund-B (CHCF-B) subsidies.1 Thus, we cap the price of basic residential service until January 1, 2009 in order to address the statutorily-mandated link between the LifeLine rate and basic residential service rates. This decision also freezes rates of basic residential services receiving a CHCF-B subsidy at a level equal to the current rate, which shall be reevaluated in the upcoming CHCF-B review in Rulemaking (R.) 06-06-028.
We reduce and eliminate many of the vestiges of rate-of-return regulation, such as "accounting adjustments" and other rules that cause regulatory accounts to diverge from financial accounts. These regulatory adjustments no longer serve a ratemaking purpose. We instead, therefore, base our requirements on Generally Accepted Accounting Principles (GAAP) accounting standards and FCC accounting rules, and consequently streamline our audit practices. We eliminate the price cap index, price cap filings, earnings "sharing," and gain-on-sale distributions, all of which are no longer appropriate in the competitive voice communications market.
Although we require all carriers to provide a thirty-day notice to customers of any price increase or more restrictive term and condition, we simplify all tariff procedures and make tariffs effective after one day. We order a separate briefing cycle to consider whether we should altogether detariff telecommunications services other than basic residential service.
We eliminate all monitoring reports tied to the now outdated New Regulatory Framework (NRF) governing the incumbent local exchange carriers affected herein. Instead, we standardize our reporting requirements so that they are consistent with comprehensive reports provided by all carriers to the Federal Communications Commission (FCC). We set Phase II as the proceeding for determining what reports are needed and permit parties to recommend reporting requirements that reflect the new rules that we adopt today.
This review of our telecommunications regulatory framework is long overdue. Our last such review, which established NRF, occurred eighteen years ago. The NRF regime was premised upon the view that Commission control of prices was critical to ensuring that rates were just and reasonable, because only one local telephone carrier provided telecommunications services. Given that customers could not take their business elsewhere, delays in the change of a price or the introduction of a service had few market consequences.
Over the last eighteen years, however, dramatic changes have occurred in the voice communications market. The market is far more competitive. It now includes multiple wireless carriers; competitive local exchange carriers (CLECs);2 cable television companies that have added Voice over Internet Protocol (VoIP) telecommunications products to yield a "triple play" of voice, video and data offerings; and pure-play VoIP providers, such as Vonage3 or Packet8,4 that will add a voice communications service to any broadband connection.
The statutory framework setting telecommunications policy in the nation and in California has evolved dramatically too. Congress made a national decision to rely on competition whenever possible "in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies."5 California statutes now endorse a reliance on open and competitive voice communications market unless the elimination of regulation would result in rates being set above "just and reasonable" levels.6 Other California statutes further instruct us to use technologically and competitively neutral measures in order to encourage the development of new technologies.
National and state agencies now follow a path of relaxed regulation. Neither the FCC nor this Commission regulates the prices of telecommunications services in the competitive long-distance wireline and wireless markets. Furthermore, many of the reforms we consider today already have been adopted in other states.7 Thus, the regulatory road that we travel in this decision is consistent with direction provided by state and federal statutes, follows the same route traveled in competitive long-distance and wireless markets, and tracks paths taken in the local telephone market by other forward-looking states.
1 We note that some carriers, such as Frontier, also receive federal high cost fund subsidies and other subsidies. These subsidies are subject to the oversight of the FCC. References to subsidies in this document pertain to state subsidies unless otherwise noted.
2 The CLECs often provide service on Unbundled Network Element-Loops (UNE-L) leased from the ILEC and their own telecommunications switching infrastructure.
3 Vonage Holdings Corporation.
4 Service provided by 8x8, Inc.
5 47 U.S.C. pmbl.
6 Cal. Pub. Util. Code § 451 ("All charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service.").
7 En Banc Tr. at 167 (testimony of Dr. Ed Rosenberg) (indicating twenty-one states already have engaged in telecommunications deregulation).
