2. Background
This investigation was instituted to produce deaveraged loop UNE rates within at least three geographic regions in the state. We noted on initiating this matter that much of the groundwork had been laid in earlier proceedings. We specifically asked parties to fully evaluate and address the joint proposal for geographic deaveraging made in the June 4, 1999 opening comments of AT&T Communications of California, Inc. (AT&T) and MCI WorldCom (WorldCom) on the UNE pricing proposed decision.1 We also invited parties to present other proposals. We stated, however, that we would not give further consideration to two geographic deaveraging proposals already considered and rejected.2 Further, we indicated our expectation that an evidentiary hearing would be necessary.
2.1. Prehearing Conference, Scoping Memo, and Need for
Hearing
Prehearing conferences were held on May 9 and 26, 2000. The Scoping Memo and Ruling of the Assigned Commissioner was filed and served on May 31, 2000. The Scoping Memo adopted several agreements of parties, including that no evidentiary hearing would be required,3 and identified four disputed issues:
1. The number and description of geographic regions into which UNE loop rates will be deaveraged.
2. The deaveraged UNE loop rates within each region.
3. How withdrawals from the Universal Service fund (California High Cost Fund-B, or CHCF-B) will be managed when competitive local exchange carriers (CLCs or CLECs) purchase deaveraged UNE loops in high cost regions within Pacific's service area.
4. Whether or not the proposals made herein satisfy federal requirements for geographic deaveraging.
On September 7, 2000, we issued D.00-09-010. We there reconsidered our prior determination that an evidentiary hearing would be necessary, and found that no hearing was needed.
2.2. June 7, 2000 Proposals
Consistent with the adopted schedule, proposals were filed and served on June 7, 2000 by Pacific, and jointly by AT&T and WorldCom. Pacific proposed deaveraged loop UNE prices in three zones for six services. Pacific further proposed that Rule 6.G.1.b of the Commission's Universal Service Rules govern distribution of CHCF-B Universal Service funds to CLCs offering service by unbundled loops. (D.96-10-066, Appendix B; 68 CPUC2d 524, 677.)
AT&T/WorldCom proposed four zones for the same six services. AT&T/WorldCom agreed with Pacific on prices for Zones 2 and 3, but recommended that Zone 1 be divided into Zones 1A and 1B, with Zone 1A prices slightly below, and Zone 1B prices slightly above, the Zone 1 prices recommended by Pacific.
2.3. Interconnection Agreement between Pacific and AT&T
On August 3, 2000, the Commission approved an arbitrated interconnection agreement (ICA) between Pacific and AT&T. (D.00-08-011, Application (A.) 00-01-022.) The ICA provided deaveraged UNE rates within three geographic regions. Pacific's deaveraged UNE rates also became available to any other telecommunications carrier upon the same terms and conditions, pursuant to Section 252(i) of the Telecommunications Act of 1996 (47 U.S.C. 252(i)).
2.4. Settlement Agreement
The adopted schedule provided for the filing and service of opening comments on proposals by July 14, 2000, with reply comments filed and served by July 28, 2000. The comment cycle, however, was twice delayed at the request of Pacific, AT&T and WorldCom, thereby allowing parties to discuss settlement.
On August 3, 2000, parties convened a settlement conference pursuant to Rule 51.1 of the Commission's Rules of Practice and Procedure. On August 10, 2000, Pacific, AT&T and WorldCom filed and served a joint motion for Commission adoption of an Agreement executed by Pacific, AT&T, and WorldCom. The Agreement is contained in Appendix A.
In summary, settling parties agree to three zones with prices at the same levels initially proposed by Pacific. The prices are nearly the same as those adopted in D.00-08-011. Further, the Agreement includes a procedure for withdrawals from the CHCF-B fund when CLCs serve end-users via loop UNEs, along with a process for making CHCF-B claims. The settlement provides that it is for an interim period commencing with Commission adoption of the Agreement, and continuing until superceded by Commission action in a proceeding to review unbundling issues and UNEs, as provided in D.99-11-050. Settling parties assert that the Agreement meets all Commission tests for adoption of a settlement.4
2.5. ORA Comments on Agreement
On September 11, 2000, ORA filed comments on the Agreement. ORA states that the Agreement is reasonable, consistent with law, and is arguably in the public interest. ORA expresses concerns, however, and recommends several remedies.
First, ORA is concerned that the Agreement perpetuates a flawed subsidy program in need of immediate review. ORA asserts that adoption of the proposed CHCF-B withdrawal mechanism without safeguards for ratepayers would not be in the public interest. ORA recommends that CHCF-B subsidies paid to CLCs using loop UNEs be tracked in memorandum accounts subject to refund, while the matter is studied and reforms implemented.
Second, ORA asserts that the average Zone 1 loop cost is significantly lower than the rate in the Agreement. As a result, ORA concludes that adoption of the Agreement could promote uneconomic entry and investment by CLCs. ORA states that three zones are acceptable in the interim as long as the Commission moves expeditiously to establish permanent rates, with those rates perhaps based on four or more zones.
Finally, ORA is concerned with the proposed process for making CHCF-B claims. For example, according to ORA, there may be a potential problem with CLCs and Pacific not always being able to ensure that only one primary line per household qualifies for CHCF-B support. ORA concludes that it would be prudent for the Commission to require Pacific and CLCs to analyze this issue, and report their findings within one year.
2.6. Replies to ORA Comments on Settlement Agreement
On September 26, 2000, Pacific filed a timely reply in opposition to ORA's comments. Pacific asserts that ORA's concerns relate to the Commission's Universal Service fund, not geographic deaveraging. Further, Pacific believes that ORA's concerns do not reveal flaws in CHCF-B operation.
AT&T/WorldCom also filed a timely reply in opposition to ORA's comments. AT&T/WorldCom assert that ORA's proposal to track payments from the CHCF-B to CLCs, with payments subject to refund, would defeat any immediate prospect for broad-based competition for residential local exchange service using loop UNEs. AT&T/WorldCom claim that ORA's conjecture regarding possible imperfections in the calculation of the existing CHCF-B amounts should be addressed, if at all, in the triennial review of the Universal Service fund, not here. Further, AT&T/WorldCom oppose ORA's recommendation that the Commission set an early schedule to determine permanent geographically deaveraged unbundled loop prices. Rather, this should be done during the review of all UNE prices, now set to begin three years after D.99-11-050, or about November 2002, according to AT&T/WorldCom. AT&T/WorldCom also oppose ORA's proposal to review administration and operation of the CHCF-B. If the process needs review, AT&T/WorldCom say it should be undertaken during the triennial review of the Universal Service fund. Finally, AT&T/WorldCom oppose a special study on primary line status per household.
2.7. Comments and Reply Comments on June 7, 2000
Proposals
The suspension of comments and reply comments on the June 7, 2000 proposals was lifted by Ruling dated November 7, 2000. This was done so that the Commission would have a full record upon which to reach its decision, given ORA's concerns with the Agreement.
Timely comments were filed on December 5, 2000 by Pacific, and AT&T/WorldCom. The comments provide additional specific information, with parties recommending adoption of the Agreement without modification.
Timely reply comments were filed by Pacific on December 20, 2000 in further support of the Agreement. Timely reply comments were also filed by ORA. ORA concludes that it does not oppose an interim three-zone approach for deaveraging, but that the Commission should resolve universal service funding issues to permit further deaveraging and greater competitive options.
1 The proposed decision was in the open access and network architecture development (OANAD) proceeding (Rulemaking (R.) 93-04-003, and Investigation (I.) 93-04-002), and resulted in Decision (D.) 99-11-050. 2 Those approaches are: (1) the revenue zone approach, and (2) zones based on any version of the Hatfield Model. 3 This agreement was stated in parties' May 18, 2000 Joint Case Management Statement. Parties to the Joint Case Management Statement are Pacific, AT&T, WorldCom, GTE California Incorporated (now Verizon California Incorporated), The Citizens Communications Companies, Office of Ratepayer Advocates (ORA), The Utility Reform Network, NEXTLINK California, Inc., and RCN Telecom Services of California, Inc. 4 Rule 51.1(e) of the Commission's Rules of Practice and Procedure provides that settlements must be reasonable in light of the whole record, consistent with law, and in the public interest.
