IX. Assignment of Proceeding

Michael R. Peevey is the assigned Commissioner and Maribeth A. Bushey is the assigned ALJ in this proceeding.

Findings of Fact

1. The intrastate access charges of the small, mid-size, and competitive local exchange carriers may include rate elements which are not based on cost.

2. In D.06-04-071, the Commission eliminated non-cost-based elements from the intrastate access charges of Verizon and AT&T.

3. In D.06-08-030, the Commission adopted the Uniform Regulatory Framework which gave AT&T, Verizon, SureWest and Frontier immediate rate flexibility for all prices, other than basic residential service, and the rate freeze for basic residential service is expected to be lifted on January 1, 2009.

4. For small local exchange carriers, the rate changes necessary to maintain revenue neutrality include up to a 47% increase.

5. Doing intrastate access charge cost-of-service studies for each competitive and mid-sized local exchange carriers is inefficient and unnecessary.

6. The Commission had not adopted revised advice letter filing requirements for wholesale tariff filings. The three tiers adopted in D.06-08-030 do not apply to intrastate access charge adjustments.

7. There are no disputed issues of material fact pending in this proceeding.

Conclusions of Law

1. No hearings are necessary.

2. To the extent practical, intrastate access charges should be cost-based and competitive carriers should charge only for functions provided to transport a call.

3. In D.06-04-071, the Commission adopted a methodology for calculating revenue reductions attributable to the elimination of non-cost-based elements in access charges, and a surcharge to recover this amount. Authorization for this surcharge is not necessary when the residential rate freeze expires, currently scheduled for January 1, 2009.

4. The small carriers should have two rate case cycles to implement this policy, unless a carrier opts in to the Uniform Regulatory Framework, then the carrier should comply with the requirements for the mid-sized and competitive carriers. All small carriers that do not have a scheduled rate case filing shall file a longer-term plan to implement this policy no later than three years after the effective date of this order.

5. The mid-sized exchange carriers should remove the Transport Interconnection Charge, or the equivalent amount, from their intrastate access charges effective January 1, 2009, or the date on which the residential rate freeze is lifted.

6. The competitive local exchange carriers should charge no more than $0.025 per minute to originate or terminate intrastate access, effective April 1, 2008.

7. The competitive local exchange carriers should charge no more than the higher of AT&T's or Verizon's intrastate access charges, plus 10%, effective January 1, 2009, and each rate element provided should also be limited to the higher of AT&T's or Verizon's comparable rate element, plus 10%. Advice letters implementing this rate cap should be filed and served no later than November 3, 2008.

8. Incumbent carriers should file an application to change intrastate access charges. Competitive carriers should file an advice letter consistent with pre-D.06-08-030 procedures to change intrastate access charges.

9. If supported by a detailed cost-of-service study, the Commission may authorize intrastate access charges higher than the caps adopted for competitive carriers.

10. Existing contracts between carriers that specify intrastate access charges are not affected by this decision. Carriers may voluntarily contract with each other to pay intrastate access charges different from those adopted in this decision.

11. This decision should be effective immediately.

12. This proceeding should be closed.

FINAL ORDER

IT IS ORDERED that:

1. Effective January 1, 2009, or the date that the residential rate freeze is lifted for the large and mid-sized incumbent local exchange carriers under the Uniform Regulatory Framework, SureWest Telephone, Citizens Telecommunications Company of California dba Frontier Telecommunications Company of California, shall exclude from their intrastate access charges the Transport Interconnection Charge or equivalent amount.

2. The intrastate access rates of SureWest Telephone and Citizens Telecommunications Company of California dba Frontier Telecommunications Company of California are capped at current levels until January 1, 2009 or the date which the residential rate freeze is lifted.

3. Effective April 1, 2008, all California-certificated competitive local exchange carriers shall impose intrastate access charges no greater than $0.025 per minute for originating or terminating call traffic. Such carriers shall file and serve advice letters to implement any required intrastate access charge reductions within 30 days of the effective date of this order. The advice letter filing shall include an electronic spreadsheet demonstrating compliance with the per minute of use cap.

4. Effective January 1, 2009, all California-certificated competitive local exchange carriers shall impose intrastate access charges no greater than the higher of Pacific Bell Telephone Company doing business as AT&T California's (AT&T) and Verizon California Inc.'s (Verizon) intrastate access charges per minute of use, plus 10%, and each access charge rate element that is provided shall be no greater than the higher of AT&T's or Verizon's comparable charge, plus 10%, for that rate element. Advice letters implementing this rate cap shall be filed and served no later than November 3, 2008.

5. Carriers may voluntarily contract with each other to pay intrastate access charges different from those adopted in today's decision.

6. The Commission may authorize higher intrastate access charges upon a demonstration, including a thorough cost-of-service study, of higher actual costs.

7. The surcharges adopted in Decision 06-07-041 for AT&T and Verizon shall terminate on the date the freeze on basic residential service is lifted, currently scheduled for January 1, 2009. AT&T and Verizon shall file applications to obtain Commission authorization for any modifications to intrastate access charges.

8. Each small local exchange carrier shall eliminate any non-cost-based rate elements from its access charges and shall include in its next general rate case filing a long-term plan to bring its access charges into compliance with our cost-based policy and a proposal to implement the first step in the plan in the immediate rate application. The plan shall extend for no more than two rate case cycles. If feasible, carriers currently processing a general rate case may supplement the current rate case filings to include a long-term plan. Small carriers that do not have a scheduled rate case filing shall file a long-term plan no later than three years after the effective date of this order.

9. Any small local exchange carrier that becomes regulated under the Uniform Regulatory Framework shall comply with the requirements for mid-size local exchange carriers.

10. No hearings are necessary for this phase of this proceeding.

11. Rulemaking 03-08-018 is closed.

This order is effective today.

Dated December 6, 2007, at San Francisco, California.

I reserve the right to file a concurrence.

/s/ RACHELLE B. CHONG

Commissioner

R.03-08-018

D.07-12-020

Concurrence of Commissioner Rachelle Chong

Order Instituting Rulemaking to Review Policies Concerning Intrastate Carrier Access Charges

Final Opinion Modifying Intrastate Access Charges - Item 37

December 6, 2007

I concur in today's decision to remove implicit subsidies from the intrastate access charge system. I concur because, while this decision is a step in the right direction, it is only a modest step towards where the rest of the nation is with respect to intercarrier compensation reform.

The record provides ample evidence that the cap could be set at a much lower rate. The CALTEL proposal would base the cap on the access rate of the respective ILEC territory, instead of the higher Verizon rate plus 10%. If we set the cap lower, following federal movement and some states, consumers would benefit with lower intrastate long distance rates. But our decision is keeping the cap higher, in order to continue implicit subsidies to the competitive local exchange carriers. I would have preferred a lower cap.

We have also missed an opportunity to make access charges more economically rational. Such reforms would promote competition while aligning access charges more closely with access costs. The removal of subsidies from access rates would reinforce a similar action that the FCC took for interstate access in 2001. The 2001 FCC action resulted in lower interstate long distance rates which, in turn, dramatically increased the use of communication networks by consumers.16

I am not persuaded by the arguments that we should not act in this proceeding. Review of the record reveals that CLEC access rates vary quite dramatically. On average, CLEC access rates are well above the rates that ILECs charge for similar service. Such high rates inappropriately shift costs that should be recovered from end users to the long distance market.

I am convinced that the best means of proceeding is to provide a bright-line for all carriers that will make easier effective enforcement. So while I would have liked to go further and set that line closer to cost, this action is one I do support.

Dated December 6, 2007, at San Francisco, California.

16 See, Federal Communications Commission, Industry Analysis and Technology Division of the Wireline Competition Bureau, Trends in Telephone Service, February 2007 at Tables 10.2, 11.3, and 13.4.

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