c) Telecommunications Act of 1996 Section 254(b)(3) and Public Utilities Code Section 739.3(c)

TURN and DRA next argue that permitting "unfettered" geographic deaveraging for all services but basic residential services receiving a CHCF-B subsidy will allow incumbent LECs to introduce massive disparities between rural and urban rates for all retail telecommunications services (with the temporary exception until January 1, 2009 of basic residential rates). (TURN/DRA Rhg. App., pp. 12-13.) TURN and DRA argue that by doing so, the Decision conflicts with section 254(b)(3) of the 1996 Telecommunications Act regarding universal service and is also inconsistent with section 739.3(c) of the Public Utilities Code.¹⁸

TURN and DRA argue that by removing the geographic averaging requirement for all services other than CHCF-B subsidized basic residential service, the Commission has given "carte blanche" to carriers to raise their rates immediately for all services but basic residential service. According to TURN and DRA, this in turn conflicts with section 254(b)(3)'s mandate that rates for consumers in all regions of the United States for all services -not just basic residential service -should be reasonably comparable to rates charged for similar services in urban areas. TURN and DRA also argue that the likely resultant rate disparities would be inconsistent with the state policy in section 739.3(c) to "reduce any disparity in rates" in high cost areas.

We find that TURN and DRA's arguments are without merit. The argument that geographic deaveraging may lead to unreasonably disparate prices is speculative. Moreover, the claim that geographic deaveraging is contrary to section 739.3(c) and 47 U.S.C. § 254(b)(3) is not consistent with the plain language of these statutes. Neither section 739.3(c) nor 47 U.S.C. § 254(b)(3) require geographic averaging of rates. Section 254(b)(3), for example, merely requires rural and urban prices to be "reasonably comparable." The Act does not define the term "reasonably comparable" nor does it specify the means to achieve this goal. The FCC has stated that:

[W]e adopt the Joint Board's interpretation of the reasonable comparability standard to refer to "a fair range of urban/rural rates both within a state's borders, and among states nationwide." This does not mean, of course, that rate levels in all states, or in every area of every state, must be the same. In particular, as the local exchange market becomes more competitive, it would be unreasonable to expect rate levels not to vary to reflect the varying costs of serving different areas.¹⁹

As Pacific Bell points out in its Response to the Applications for Rehearing, in the years since the Act was enacted, this Commission has set basic residential access line prices that were not geographically uniform throughout the state. For example, Pacific Bell points out that Verizon charges $17.25 for basic flat-rate residential service, Sure West charges $18.90, while AT&T California charges $10.69. Therefore the federal statute does not require geographic price uniformity.²⁰

Similarly, the terms of section 739.3 do not require geographic price uniformity; rather its purpose is to "reduce" -not eliminate -any disparity between urban and rural rates. The statute authorizes the Commission to establish a universal service program to support telephone corporations in California serving areas where the cost of providing service exceeds the rate charged by providers. We note that two months prior to the issuance of this Decision, we issued an OIR to review the California High Cost Fund B Program. (Order Instituting Rulemaking into the Review of the California High Cost Fund B Program, R.06-06-028 [2006 Cal. PUC LEXIS 235] June 30, 2006.) In that OIR, we recognized the developments in the federal universal service program at the FCC, and declared our intent to consider mechanisms to ensure that universal service goals are being met. Any concerns TURN and DRA may have about meeting universal service goals are better addressed in R.06-06-028.

¹⁸ Section 254(b)(3) of the 1996 Act provides that consumers in all regions of the country should have access to basic and advanced telecommunications and information services "that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas." (47 U.S.C. § 254(b)(3).) Public Utilities Code section 739.3(c) creates the California High Cost Fund B program, intended to "reduce any disparity in rates" charged by "telephone corporations serving areas where the cost of providing services exceeds rates charged by providers." (Pub. Util. Code, §739.3, subd. (c).)

¹⁹ In the Matter of Federal-State Joint Board on Universal Service; Access Charge Reform, Seventh Report & Order and Thirteenth Order On Reconsideration in CC Docket No. 96-45, Fourth Report & Order in CC Docket No. 96-262 and Further Notice of Proposed Rulemaking, 14 F.C.C. Rcd 8078, *8092 at ¶ 30 (rel. May 28, 1999). See also, Qwest Communications v. FCC (10^th Cir. 2005) 398 F.3d 1222, 1237.

²⁰ We note that the FCC is working on mechanism to ensure that services are provided at reasonably comparable rates. The 1996 Act states that there should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service. (See 47 U.S.C.S. § 254(b)(5); see also, Qwest Communs. Int'l, Inc. v. FCC (10th Cir. 2005) 398 F.3d 1222.) In response, the FCC has drafted a requirement into its support mechanism for non-rural carriers requiring states to regularly certify that rural rates within their boundaries are reasonably comparable. If they are not, the states must develop and present an action plan to the FCC indicating the state's response. If the state fails to do so, federal funds will be withheld. (Ninth Report and Order on Remand, F.C.C. 03-249, CC Docket No. 96-45 (October 27, 2003) ("Order on Remand").)