b) Record Support

TURN and DRA next argue that the Decision's elimination of geographic averaging is not supported by the record. According to TURN and DRA, although the Decision finds that "neither statutory directives nor market conditions warrants continuation of our geographically averaged pricing policy for services that are not subsidized by CHCF-B" (see D.06-08-030, p. 275 [Conclusion of Law 27].), the Decision fails to cite to any evidence in the record to support upward geographic deaveraging. TURN and DRA contend that the Commission resorted to citing almost exclusively to the parties' briefs when laying out the positions of the parties, rather than evidence in the record.

Although TURN and DRA are correct that in the initial comment period no party proposed upward or unfettered geographic deaveraging, we find that the record supports our findings allowing geographic deaveraging. For example, in its Reply Comments, AT&T presented testimony from Dr. Harris rebutting Cox's proposal to leave geographic averaging unchanged:

Cox proposes to maintain geographically averaged rates as part of its proposal for a uniform regulatory framework. Dr. Harris points out that Cox's proposal is contrary to sound economics. Price averaging distorts the relationship between costs and retail prices, preventing efficient facilities-based competition. Again, Cox's position appears to be self-serving, as the basis for its proposal is to preclude competition from ILECs in the areas served by Cox.

(Pacific Bell's Reply Comments (filed Sept. 2, 2005), p. 41 [footnotes omitted].) Specifically, in support of AT&T's Reply Comments, Dr. Harris stated:

While SBC California is not proposing geographic deaveraging in Phase I of this proceeding, I am responding to Cox's argument against deaveraging because it is contrary to sound economics. Cox implores the Commission to resist price deaveraging....Price averaging prevents efficient facilities-based competition by distorting the relationship between costs and retail prices. In urban centers, the cost of providing service can be well below the average price, while in more rural areas, the cost of providing service can be well above the average price. This disparity in the cost-price relationship has fostered facilities-based entry in urban areas and inhibited facilities-based entry in rural areas. Price deaveraging would more closely align costs and prices, creating opportunities for competitors to offer service over their own facilities in more rural areas.

(Harris Reply Decl. filed on behalf of SBC (filed Sept. 2, 2005), p. 37.)

Verizon witness Dr. Aron also testified that Verizon's proposal for statewide rate uniformity "may prevent some pro-competitive price adjustments" and "impede the full realization of the benefits of competition in the state." (Aron Opening Decl. (filed May 31, 2005), at ¶¶ 15, 210.)

In addition, during TURN's cross examination of Dr. Harris, the following testimony was elicited:

Q: If all that's true, then SBC isn't going to be harmed if the Commission doesn't grant deaveraging authority because it couldn't exercise it anyway; isn't that right?

A: There's an effect of a regulated price on a market price that's unhealthy in and of itself. It tells people, This is the price you're competing against. One of the reason[s] competition works is because I don't know what price my competitors are going to charge. It is the uncertainty of that price that if I reduce my price, they might reduce their price. That generates the best form, the healthiest kind of competition. That's why I'd like to see the Commission only regulate where the rewards exceed the cost.

Q: That was not the question, Dr. Harris. I'm talking about deaveraging, not -

A: This -and that's my answer to your question about deaveraging. That kind of rule that says, well, you have to charge the same price everywhere. That casts a pall upon competition on a competitive dynamic. And I strongly urge the Commission not to do that, not because I expect there to see -become a high degree or substantial degree of geographic deaveraging, although there may be some. I'm not saying there won't be any. [***]

Q: I'm just talking about deaveraging, not about -

A: If they can't deaverage, if they have to charge the same price everywhere, then that just removes the degree of competitive uncertainty.

Q: Oh.

A: Competitive uncertainty is good for competition.

(RT, p. 437:17- p. 439:1 (Evidentiary Hearing, Jan. 31, 2006, Vol. 3); see also RT Vol. 2, p. 290:18-26 (Evidentiary Hearing, Jan. 30, 2006) (cross examination of Dr. Harris by DRA, in which Dr. Harris testifies that SBC's existing basic exchange service prices may decrease in some urban areas if there was geographic deaveraging).)

We concluded that neither statutory directives nor market conditions warrants continuation of the geographically averaged pricing policy for services not subsidized by the CHCF-B fund. (D.06-08-030, pp. 138-43; p. 275 [Conclusion of Law 27]; see also, p. 267 [Finding of Fact 66].) We further found that geographically averaged prices were inconsistent with a competitive telecommunications marketplace and that the continuation of such prices could harm competition in the market. (D.06-08--030, pp. 138-140.) As discussed above, there is adequate record support for our findings and conclusions on this issue.