III. Responses to Parties' Objections to Inventory Rules

A. Jurisdiction to Adopt and Implement Inventory Rules

Several parties assert that the Commission lacks authority to adopt guidelines for carriers' six-month inventories, or to direct the Pooling Administrator or NANPA to determine a carrier's six-month inventory needs. The parties argue that such authority lies exclusively with the FCC, and that the FCC authorized the NANPA to withhold telephone numbers from carriers not in compliance with the rules. The parties argue that the role of the states in this regard was merely to provide a forum for carriers to challenge the NANPA and to either affirm or overturn the NANPA's decision to withhold numbering resources.

The parties argue that the FCC's delegation of numbering authority to the Commission placed specific limits on the actions that the Commission may take, and did not delegate authority for the Commission to determine a carrier's short-term inventory needs. The parties argue that although the FCC provided conditional authority to implement various area code conservation and relief planning measures, the delegation of authority was to be superseded by the FCC's upcoming decisions in the Numbering Resource Optimization (NRO) proceeding that would establish national guidelines and procedures for number optimization.⁷ The FCC released its NRO in March 2000 in which the FCC, among other measures, established the requirement that carriers may keep no more than a six-month inventory level of numbering resources.

In the NRO, the FCC determined that a carrier should be able "to retain a sufficient number of thousands-blocks to meet its six month inventory projection forecast."⁸ The parties thus argue that the FCC permitted carriers to determine a six-month inventory level based upon each carrier's own forecast of demand, rather than being limited to historic use or other restrictions, as called for under the Commission rules.

Although the parties cite the FCC's delegation of authority to California in FCC 99-248 to implement several number conservation measures,⁹ they do not cite the very specific language in paragraph 14 in FCC 99-248, which authorized the Commission to amend industry guidelines after consulting with the industry.

Where the California Commission determines that changes, modifications, or departures from the guidelines are desirable, we direct the California Commission to consult with the industry prior to implementing such changes.

It is correct, as parties note, that the FCC intended its subsequent orders establishing national numbering and pooling rules to supersede the broad grant of authority to California. At the same time, however, the FCC never expressly revoked the specific grant of authority to California to change, modify, or depart from industry guidelines. Indeed, the FCC itself has never adopted any specific rules pertaining to how carrier six-month inventories are to be calculated. We conclude, therefore, that California retains authority to modify the guidelines to include language regarding how carrier six-month inventory limits are to be determined in accordance with FCC 99-248. Certainly, any guidelines that we adopt cannot conflict with FCC numbering rules, but here the FCC has no specific prescription for the calculation of six-month inventory levels, and has never promulgated inventory calculation guidelines that would conflict with the rules we adopt today. Thus, the guidelines we adopt do not conflict with any FCC numbering order promulgated after California's grant of delegated authority.

Further, we have complied with the FCC's delegated authority by seeking comments from the industry as to what the guidelines should be. Despite the opportunities provided to parties to provide information in developing inventory rules through written comments and workshop participation, parties have provided little affirmative contribution. To a large extent, the responding parties have given short shrift to this process, and instead, have focused most of their remarks merely on assertions that the Commission does not possess authority to create six-month inventory guidelines.

Notwithstanding their objections, parties have been consulted and provided with the opportunity to offer input in order to ensure that the guidelines we adopt are reasonable and rational. Based on delegated federal authority that allows states to undertake conservation measures to best address states' needs, therefore, we shall move forward with the development of inventory rules.

Moreover, adoption of inventory rules is consistent with our delegated responsibilities to assess the need for and timing of area code relief. The FCC has recognized the essential role performed by state commissions in this regard, and that "state commissions are uniquely positioned to determine when...to implement area code relief."¹⁰ The proper determination of when to implement area code relief, in turn, requires effective tools to assess to what extent numbering resources are being utilized efficiently. The FCC has recognized that maximizing the efficient use of numbers within area codes serves to "reduce the need to introduce new area codes, which protects consumers from the expense, trouble and dislocation that area code relief entails and also can help prevent premature exhaust of the existing [area code]."¹¹

Thus, the FCC recognizes that the state commission level is best equipped to assess efficient number resource utilization as a basis for the timing of any necessary area code relief. The FCC has stated that it "must rely on state commissions to make area code relief decisions because of their unique position to ascertain and weigh the very local and granular information inherent in area code relief decision making." ¹² Consistent with the FCC's reliance on state commissions to ascertain and weigh localized number utilization data, state commissions are responsible for verifying that numbering resources are, in fact, being utilized in the most efficient manner. The verification of number utilization efficiency applies not just to the acquisition of new telephone numbers, but equally to carriers' retention of blocks of unused telephone numbers in their inventories.

The FCC's requirement limiting supplier inventories to six-months worth of unused telephone numbers was adopted as a tool to avoid carriers' stockpiling of surplus numbers and to promote efficient use of numbers. The FCC has noted that stockpiling of surplus numbers not only contributes to the risk of premature exhaust of an area code, but also can be indicative of anticompetitive behavior creating barriers to market entry. The FCC has recognized that markets for numbering resources must "be structured to avoid inequities that might occur through...attempts by well-financed carriers to stockpile numbers to keep them away from their less well-financed competitors..."¹³ Yet, in the absent objective rules prescribing a six-month inventory, we are constrained in being able to verify that carriers are not stockpiling numbers and that inventory is, in fact, limited to only a six-months supply. If carriers' inventory exceeds a six-month supply, as intended by the FCC rules, then numbers are not being allocated in the most efficient manner possible. Our adopted inventory rules provide an objective means of verifying that the six-month supply is not being exceeded.

Accordingly, our adoption of inventory rules is a necessary adjunct of our responsibility to assess the efficiency of number utilization as part of our area code planning role. Pub. Util. Code § 7943 expressly requires the Commission to implement all reasonable telephone number conservation measures before approving an area code split. In order to meet our delegated responsibilities to assess the need for and timing of any area code relief consistent with § 7943, therefore, it is necessary to implement reasonable conservation measures to assure that carriers' inventory levels do not exceed a six-month supply. Accordingly, the inventory rules adopted herein, based upon how carriers actually utilize numbers, constitute reasonable telephone number conservation measures that are essential to support the efficient use of numbering resources in an area code, in conformance with Section 7943. In consideration of all of these factors, we conclude that it is within the delegated jurisdiction of the FCC for the Commission to adopt and implement the inventory rules set forth in the instant order.

B. Effects of Rules on Customer's Choice of Service Provider

The Joint Wireless Carriers (JWC) argue that the proposed inventory rules would place the Commission in a position of controlling the market and consumer choice, and that inventories could be so restricted that multiple carriers would seek the same number resources to meet the demand of one customer. The JWC argue that the Commission's determination of which service provider would be able to hold telephone numbers in such a situation could dictate the consumer's ultimate selection of a service provider to provide service.¹⁴

We disagree with the JWC's characterizations of the effects of the inventory rules and of the claimed control of the Commission in determining consumers' choice of service provider. Even with the implementation of our inventory rules, carriers will still retain the flexibility to increase their inventory to accommodate demand growth up to 15%. Moreover, if a carrier receives a customer request for new numbers that it cannot meet with its current supplies, the current rules permit the carrier to make a "safety valve" request as prescribed under FCC rules. Carriers can also apply for telephone number blocks or codes to meet growth needs once they have met applicable utilization thresholds.

Rather than deprive carriers of necessary numbering resources, the inventory rules merely require carriers to use telephone numbers in a more efficient and optimal manner, and limit the ability for carriers to hoard numbers for extended periods of time. The result will be an increase the number of thousand-blocks available in the number pools throughout California and a decrease in the number of stranded telephone numbers within carriers' inventories.

C. Adequacy of Existing Conservation Measures

Certain parties argue that mechanisms already in effect are sufficient to address any perceived abuse in number utilization such as utilization requirements, sequential numbering, reclamation procedures, random or for-cause audits, access to NRUF Reports, and months-to-exhaust (no more than 15% over historical usage in the previous 12 months).

We acknowledge that such number conservation measures have been put in place to promote more efficient utilization of telephone numbers. We do not believe, however, that the current numbering inventory system is working as efficiently as it could. Carriers still carry excess telephone number inventories beyond their needs. The FCC's current numbering rules do not ensure that carriers donate and return thousand-blocks to the number pools. Carriers rarely donate thousand-blocks on their own accord. Even then, they do not donate as much as they could or should, consistent with meeting their service obligations, as demonstrated by our past experience.

Repeatedly, the Commission staff has had to directly instruct or request carriers to donate thousand-blocks to replenish the number pools to prevent prematurely exhausting area codes. For example, an Assigned Commissioner's Ruling was issued on August 21, 2003¹⁵ directing carriers to donate 25% or less contaminated thousand-blocks to rate centers in the 310 and 909 NPAs. Commission staff requested carriers to donate thousand-blocks in a couple of ways. Commission staff sent letters¹⁶ to carriers encouraging them to periodically review their inventory holdings against their six-month inventory needs and donate those thousand-blocks in excess of their six-month inventory needs. These two projects resulted in dramatic increases of available thousand-blocks in the 310, 909, 714, 760, and 818 NPAs's number pools. Moreover, Commission staff contacted specific carriers with excess inventories in rate centers in which the Pooling Administrator has received a request to replenish the same rate center since it had zero available thousand-blocks. Since July 11, 2003, Commission staff has managed 54 of these pool replenishment requests while approving only 8 NXX codes to be opened.¹⁷

The "Joint Wireless Carriers" are incorrect in claiming that the Months-To-Exhaust (MTE) worksheet only allows carriers to use a maximum of 15% growth rate when calculating the forecast section of the MTE worksheet. There is no maximum growth rate. Some carriers have used growth rates greater than 15% in their MTE worksheets without their applications being denied by the PA.

The MTE worksheet has flaws, which the FCC has recognized and expressed in FCC 00-104¹⁸ and FCC 00-429.¹⁹ The MTE worksheet does not prevent carriers from hoarding telephone numbers and carrying excess inventories of telephone numbers, but actually provides a vehicle for carriers not to use telephone numbers in an optimal and efficient manner. We agree with the FCC that the MTE worksheet is inadequate, highly subjective, and has no retrospective accountability. Our inventory rules are therefore warranted as a means of augmenting existing measures to assure that carriers utilize telephone numbers more efficiently.

D. Effects of the Rules on New Carriers

The carriers argue that Commission inventory rules will discriminate against and burden new and emerging market entrants. They argue that because new providers will have little or no data from which to derive actual historical use, they will be unable to substantiate six-month inventory projections and will therefore be denied telephone numbers.

The inventory rules that we adopt in this decision do not affect how carriers will be able to acquire telephone numbers. Moreover, if a service provider has never submitted a Numbering Resource Utilization Forecast (NRUF) Report, it is not subject to the inventory rules described in this decision. Therefore, the carriers' objection that new providers will be denied telephone numbers is moot; our inventory rules do not discriminate against or burden new market entrants.

New carriers will still be able to obtain thousand-blocks used for "footprint" purposes on the same basis as they already do. Moreover, the adopted 15% growth rate cap will not burden a new service provider trying to get a foothold in a market because that new service provider can acquire telephone numbers from the number pool once it has achieved a 75% utilization rate for telephone number blocks held in the rate center in which it needs numbering resources.

E. Carrier's Flexibility to Manage their
Numbering Requirements

The JWC argue that our adoption of inventory rules will constrain carriers' flexibility to meet customer demand based on their own business judgment. We do not intend nor desire to micromanage by establishing inventory rules in this decision, even assuming there were enough Commission resources for such an endeavor. To the contrary, the inventory rules should help to make donations of thousand-blocks more automatic, frequent, and independent of Commission intervention. These rules will actually make it easier for carriers to reach the 75% utilization threshold by decreasing the denominator of the utilization formula, which will allow carriers to apply for growth-related numbering resources faster.

Our adopted rules merely guard against carriers' hoarding of surplus blocks of numbers. Carriers with a legitimate need for additional telephone numbers will still retain the flexibility to utilize existing procedures for requesting and obtaining such resources. Our inventory rules do not change the way that carriers submit applications for numbering resources to the PA as they have in the past. Accordingly, our inventory rules will not constrain carriers' ability to acquire thousand-blocks from the number pools or NANPA to which they are otherwise entitled.

To the extent that carriers experience heightened demand during certain seasonal periods, they will still be able to seek those additional blocks of numbers from the PA if they can document the increased demand under current FCC rules. Moreover, our inventory rules will not constrain carriers' ability to obtain numbers through the safety valve process established by the FCC. In addition, we have modified the calculation of permissible inventory increases as initially proposed in the ACR to address parties' concerns that the calculation does not take into account the effects of seasonal demand fluctuations. In the formula adopted in this order, we permit carriers to calculate permissible inventory increases based upon a 12-months period of historic change instead of only a six-month period of historic change as originally proposed. By permitting carriers to increase their inventory based upon a full 12 months of historic growth, the effects of seasonal variations are captured in the inventory formula.

Moreover, our adopted rules do not limit carriers' inventory to historical levels, but permit carriers' discretion to forecast their inventory requirements for customer demand beyond historic growth up to 15%. The 15% growth cap provides reasonable discipline against overly inflated forecasting of inventory needs. A 15% growth rate cap was applied by the FCC in its directives for evaluating Safety Valve requests under FCC 01-362,²⁰ for determining the number of thousand-blocks that a carrier would need in the future. The provision for a 15% growth rate cap reasonably addresses carriers' need to accommodate growth in their inventory needs. Moreover, six carriers (three local exchange carriers and three wireless carriers) indicated in responses to a Commission Staff May 7, 2004 Data Request regarding how carriers calculated their six-month inventory that they used growth rates of 15% or less, which they then applied to the average of their historical assignments. Also, in New York, the telecommunications industry agreed that forecasted demand must be within 15% of the average historical monthly utilization for the past six months when carriers apply for growth numbering resources. Thus, it is consistent to apply a similar 15% cap here.

F. Need to Keep Two Sets of Records

Parties argue that imposing Commission inventory rules will require carriers to maintain two sets of records to account for the different inventory methodologies or adopt the proposed rules, which would be costly, burdensome, unnecessary, and inconsistent.

Carriers would have either one or two methods to calculate short-term inventory levels depending on whether or not the service provider decides to only use the method that this decision describes and the purpose for which the method would be used. Carriers have records of their NRUF Reports. The method for determining short-term inventory levels as described in this decision is simple and involves just a few mathematical operations. A carrier can easily input the data from the NRUF Reports into a database like Microsoft Excel, create a few formulas to perform the mathematical operations described in this decision, and then copy the formulas for the whole data set. Moreover, this decision only requires carriers to review their inventory of telephone numbers and compute their short-term inventory levels bi-annually. Based on the responses of 28 carriers to the Commission's May 7, 2004 Data Request on how carriers determine their six-month inventory level, only carriers indicated that they reviewed their inventory bi-annually while 21 carriers specified reviewing it weekly, monthly, or quarterly.

Carriers did not provide any cost estimates to substantiate claims that the short-term inventory rules in this decision would be costly for carriers to adopt.

¹⁴ The Joint Wireless Carriers claim that the Commission's staff recently found itself in just such a situation, but their claim is a mischaracterization. The situation referenced involved two carriers that requested whole NXX codes for the same customer. Neither of the carriers, however, upon investigation had actually obtained the customer, but only an interest in acquiring the customer. In short, the customer was left to decide which carrier to select before any code was assigned to a carrier.