Responses of the Parties

In response to the ACR, Pacific asserts that no further proceedings are required because no outstanding Section 709.2(c) issues exist. It declares that there is no anticompetitive conduct, cross subsidization or substantial possibility of competitive harm. Pacific argues that sufficient state and federal safeguards exist to protect the intrastate long distance market. It disagrees that any benefits will come from the Section 709.2(c) directives established in D.02-09-050; and that such "continuing safeguards" should have a definitive sunset date. Alternatively, Pacific asks the Commission to clarify that the Section 709.2 safeguards shall remain in effect until they are discontinued on further order of the Commission, based on a motion by it demonstrating that the safeguards are no longer necessary or appropriate, or that the burden of compliance is outweighed by the potential benefits. (Pacific Comments at 19-20.)

Pac-West Telecomm, Inc., Working Assets Long Distance and XO California, Inc. (Joint Commenters) strongly oppose the ACR's proposal. They maintain that with the issuance of D.02-09-050, the Commission's Section 709.2 appraisal was complete: Pacific failed to meet three out of the four statutory requirements. The Joint Commenters claim that the ACR is an improper reconsideration or rehearing of Section 709.2, and neglects to give interested parties a true opportunity to be heard on the issues by soliciting written comments in a condensed period of time. They further contend that the resolution of any outstanding Section 709.2 issues requires the reopening of the proceeding and the full development of a new record.

Joint Commenters insist that "disputed issues of fact" continue to exist, and envision that there will be a need for discovery, the submission of additional evidence, and "public" hearings. Regarding safeguards, they urge the Commission to accelerate consideration of the feasibility of implementing a neutral PIC administrator, and ask that Pacific's marketing scripts be submitted to all interested parties. In conjunction with other competitors, they support performance measures and incentives for Pacific's provisioning of special access services. The Joint Commenters also argue that the Commission should direct Pacific to resubmit its application for a Certificate of Public Convenience and Necessity, and determine the application before Pacific may begin offering long distance service in California. Finally, the Joint Commenters state that the effectiveness of the safeguards cannot be ably evaluated until after they are implemented.

The Greenlining Institute and Latino Issues Forum comment that they have repeatedly stated three ways in which Pacific can ensure that its entry into the long distance market is in the public interest. They ask Pacific to: (1) address the importance of protecting ratepayers from consumer fraud in the long distance transition; (2) develop a strategic plan to increase telephone penetration for low-income communities; and (3) create a viable residential market competitor to ensure local competition. (Greenlining Institute and Latino Issues Forum Comments at 3.) They assert that the Commission should use its authority to compel Pacific to comply with public interest provisions that protect the poor.

WorldCom, Inc. (WorldCom) also considers the ACR to be an improper attempt to rehear or reconsider D.02-09-050, citing the limited set of issues posed and the limited opportunity that parties have to be heard on the overall issue of Section 709.2. It contends that the Commission lacks record support or any other reasonable basis for concluding that protections to be implemented in the future will be sufficient to overcome the anti-competitive problems already found in the record. (WorldCom Comments at 3.) Thus, WorldCom urges the Commission to strengthen the safeguards adopted in D. 02-09-050, and to establish and implement additional protective measures. It insists that the Commission promptly approve switched access charge reform; establish performance measures and incentives for special access services; and finalize the collocation terms, conditions and rates. WorldCom asserts that the regulatory safeguards should remain in place as long as Pacific retains market power.

AT&T asserts that the ACR does not present either a legal or factual basis to justify reassessing the existing Section 709.2 record. AT&T offers several incidents as examples of new evidence of Pacific's anti-competitive conduct that the Commission should receive into the record and consider. It contends that an ongoing Section 709.2 inquiry is needed to establish and enforce the safeguards that the Commission plans to impose pursuant to D.02-09-050. AT&T wonders whether the ACR's desire to expeditiously resolve the Section 709.2 portion of the proceeding implies that the Commission has abdicated its responsibilities to regulate Pacific and competition in California. (AT&T Comments at 4.) It urges the Commission to include the findings of the 2002 "PacBell Audit Report" in this proceeding.

AT&T also questions the efficacy of performance measurements and incentives when Pacific evades regulatory performance monitoring by moving functionality away from organizations or processes that the existing performance measures cover. Additionally, the company continues to criticize the accuracy of the data on which Pacific's performance is measured. With regard to the safeguards, AT&T proposes specific alternative language for Pacific's joint marketing scripts which could lessen the "significant undue advantage" that the incumbent has over competing long distance providers before a customer has requested or authorized Pacific to market its affiliate's services. Finally, AT&T insists that, at a minimum, the existing safeguards and additional stronger safeguards should remain in place so long as Pacific is a dominant local service provider.

The Office of Ratepayer Advocates (ORA) and The Utility Reform Network (TURN) contend that Section 709.2(c) requires further proceedings. They state that parties' fundamental rights at issue here are inadequately protected where only limited comments are entertained under a tight timeline. ORA and TURN argue that in further proceedings, parties "must be allowed to address the question of whether the reaffirmed safeguards can establish that Pacific has met the requirements of Section 709.2(c)."

They caution the Commission against changing D.02-09-050 "well in advance of the thirty days allowed for parties to apply for rehearing on any matter determined therein." (ORA and TURN Comments at 4.) They also list several "bad acts" that they maintain further illustrate Pacific's anticompetitive conduct, and prevent this Commission from either ultimately making the outstanding determinations or finding Pacific to be acting in the public interest under Section 271 of the Federal Telecommunications Act of 1996.

ORA and TURN urge the Commission to indeed implement a "workable, expedited dispute process" for operational problems between Pacific and the competitors. They note that the process is critical to ensure that the requirement that SBC/Pacific's entry into the California long distance market does not harm competition, "and that it does not harm customers of competitors." (ORA and TURN Comments at 7-8.) ORA and TURN call for the creation of a schedule that accommodates "appropriate discovery," filing of testimony, and evidentiary hearings addressing the Section 709.2 issues.

Telscape Communications, Inc. (Telscape) asserts that the current safeguards are not effective to ensure a competitive telecommunications market in California, or to mitigate potential harms. It advises the Commission to quickly restrict Pacific's existing win-back activities, and adopt rules preventing the recurrence of win-back practices that are anticompetitive. Additionally, Telscape asks for the establishment of new procedures that will expeditiously resolve business-to-business issues and other disputes between competitive local exchange carriers (CLECs) and Pacific in a manner that also promotes the interests of competitive telecommunications markets. It insists that further Section 709.2 proceedings are necessary.

Several parties⁸ comment that additional hearings need not be held, and this inquiry should be concluded swiftly. Specifically, the Communications Workers of America (CWA) argues that the Commission should reconsider the Section 709.2 portion of D.02-09-050 because the necessary findings could be made immediately if analyzed under "the correct standard." CWA further asserts that the joint marketing safeguard established in the decision inappropriately addresses future actions, does not apply to competitors, and should be removed as quickly as possible.

Discussion

Those parties most adamant in declaring that we should hold further proceedings in this matter propose that such actions be hearings that either focus on myriad major telecommunications policy issues or scrutinize numerous allegations of state and federal statutory and regulatory violations against Pacific. Many object to the expressed desire to quickly resolve the outstanding Section 709.2 issues because a quick resolution conflicts with their requests for extensive discovery, filing of testimony, evidentiary hearings and briefing cycles. The Joint Commenters and other parties argue that there are no continuing Section 709.2 issues since D.02-09-050 denied Pacific's motion for an order stating that it had satisfied the requirements of Section 709.2(c), and no party appealed the decision. We disagree that the only recourse regarding Section 709.2(c) is the path the Joint Commenters have set forth in their October and November comments. We have not required Pacific to re-file its motion because we do not believe that restarting the Section 709.2(c) inquiry from the beginning will ultimately be productive.

Further Proceedings

On September 19, 2002, while presenting the Section 271 draft decision to the full Commission for a vote, the Assigned Commissioner remarked that appropriate safeguards could best mitigate existing anticompetitive conduct and cross subsidization as well as significant future harms to competitors. In support of that view, his October 4 ruling stated that it was imperative to assess the record developed in this proceeding and determine whether or not there was a need to further augment it in order to conclude the Section 709.2 inquiry. He advised the parties that his preliminary evaluation after reviewing the record was that "the beneficial effect" of further proceedings or additional rounds of extensive briefing would be significantly outweighed by the time and resources that would be consumed in the process. Moreover, he reasserted that safeguards would be key to making the remaining determinations under Section 709.2(c).

The questions posed in the ACR solicited parties' views on how to go forward. Most parties vehemently disagree that focusing on adequate safeguards is the approach that we should take. They argue that we cannot determine, pursuant to Section 709.2(c)(2), that there is no anti-competitive behavior until we examine every action SBC has taken since the Assigned ALJ submitted the case last December. Therefore, they ask for the opportunity to try each of their operational and business rule grievances against SBC and Pacific in full-blown evidentiary hearings.

When confronted with the prospect of responding to the numerous allegations presented by the competitors last year, Pacific opted to demonstrate that it met the requirement of Section 709.2(c)(2) by citing to Commission holdings in D.99-02-013 and its overall showing pursuant to Section 271(c)(i)-(xiv). It chose not to refute the allegations through evidentiary hearings. As a result, with specific competitor allegations, substantiating offers of proof, and Pacific's failure to directly respond to the bulk of allegations, we found that the record did not support an affirmative Section 709.2(c)(2) finding. Pacific neither appealed that finding nor sought leave to address the unanswered accusations. Consequently, we are not persuaded that compelling evidentiary hearings on these ongoing and increasing allegations would benefit the public interest more than finding a method of resolving Pacific-competitor disputes quickly and more efficiently.

Although urging additional full-scale preparatory proceedings and hearings, ORA, TURN and Telscape also point out the crucial need for an effective EDR process. The parties have jointly presented here a plan in response to the charge the Assigned Commissioner and ALJ gave them at the November 4, 2002 PHC. We believe that the public interest is better served by resolving the competitors' disputes with Pacific than by simply cataloguing them.

Parties also insist that Section 709.2(c)(3) can only be properly considered if we fold the Pacific Audit Report and the record of Rulemaking (R.) 01-09-001⁹ into this proceeding. They declare, with respect to Section 709.2(c)(4), that nothing but the prophylactic measures they again propose will stave off the impending competitive harm. However, we stated in D.02-09-050 and reaffirm here that just as we could not base the determination of Pacific's Section 271(c) on the resolution of every major telecommunications policy case before the Commission, we can not adjudge Section 709.2(c) on the basis of the policy demands of the competitors.

We do not lightly decline to pursue a number of the "further proceedings" that the parties vigorously propose. But we note that a number of the proposed proceedings are already before us. Others that the competitors have identified as imperative, such as switched access charge reform and special access performance incentives must be considered with full appreciation of the effects on the overall industry and the impacts on Commission resources. Certain parties highlight how these issues affect their economic well-being, but this Commission must consider and weigh how the issues affect all parties as well as California ratepayers.

Safeguards

Pacific contends that there is no need for the safeguards set forth in D.02-09-050; the other parties claim that the adopted protections are diluted and will be ineffective. The Joint Commenters declare that the Commission should immediately implement the structural separation of Pacific and the appointment of a neutral PIC administrator. They maintain that under the timeline directed by D.02-09-050 both safeguards will take too long to set up to be effective. We disagree. While the individual theories behind both structural separation and a neutral PIC administrator were articulated in the parties' proposals last year, no implementing details were presented. Some time must be devoted to fully fleshing out the costs and ramifications of what would be the first such approaches adopted in the country. Our order requires that. To proceed hastily on either would ill serve the people of California.

Review of Joint Marketing Scripts

The parties continue to urge us to go back to the joint marketing proposals discussed in the draft of D.02-09-050. We remain unpersuaded that those proposals, if adopted, could withstand legal scrutiny. Instead, we believe that including the requirements of Tariff Rule 12 to the joint marketing of Pacific's long distance affiliate's services will properly balance the competitive concerns of the intrastate interexchange carriers with the convenience and informational needs of the ratepayer.

Pursuant to OP 19, the Telecommunications Division's staff (Staff) reviewed samples of Pacific's joint marketing scripts. Following a number of meetings that included Pacific as well as the Commission's Communications and Public Information Division, Staff advised the Assigned Commissioner and ALJ¹⁰ that it had recommended several changes to the sample joint marketing scripts, which Pacific had accepted. Staff also outlined some specific regulatory concerns.

During review of the scripts, Staff and Pacific discussed the problem both anticipated could occur if Pacific included the language set forth in OP 17¹¹ in its scripts for new service connections. Pacific expressed concern that the language might migrate some new customers to SBC Long Distance for local toll when Pacific's service might best meet their needs. Staff indicated that the language might unnecessarily link a customer's decision to purchase long distance and local toll service. In actuality, a customer may select different carriers for these services, and Pacific must obtain separate third party verifications for each carrier decision. Given the problem the specific language of OP 17 unintentionally creates, we find that separating the one question into two provides the best solution. We shall modify OP 17 accordingly.

Staff noted that there could be significant revenue impacts in the future as a result of Pacific's open and clear intent to encourage its existing customers to switch their local toll business from Pacific to SBC Long Distance, whenever such customers call Pacific for any business reason. Staff states that the customer migration could cause a systematic erosion of Pacific's revenue base that could eventually push up local rates.

Staff also cautioned that the marketing of SBC Long Distance's bundled interLATA and intraLATA toll packages could have some customers purchasing toll services that might not be cost-effective for them. In response to these advisory comments, Pacific asserted that neither of the two was an appropriate issue for script review. We do not regard Staff as having overstepped its bounds by highlighting these additional comments. In fact, we expect to address these issues either in a later phase of the NRF case, R.01-09-001, or in another yet-to-be-identified future proceeding.

Pac-West and Working Assets ask that competitors be allowed to monitor and review Pacific's joint marketing scripts. Marketing documents tend to be submitted to the Commission in tandem with requests for proprietary treatment. We are not aware of any reason why competitors cannot inform Staff of script concerns so that Staff can review them from a comprehensive perspective. We think that Staff `s review of the marketing scripts was beneficial for the Commission and competitors as well as Pacific. Going forward, we find that Staff's review of any substantial changes (i.e. new approach, major language changes or provision of new products) in the joint marketing scripts could help Pacific avoid potential confusion and conflicts with competitors and ratepayers. Therefore, Staff shall review any substantial changes made in the future to the sample scripts submitted pursuant to OP 19, until the Commission orders otherwise. Staff's continuing review of Pacific's joint marketing scripts should assist Pacific and us in discovering and eliminating the possibility of anticompetitive behavior that might be reflected in the scripts.

Expedited Dispute Resolution Process

Pursuant to OP 3 of D.02-09-050, the Assigned ALJ directed the parties to work together to develop an EDR Process that could be used to resolve operational disputes more quickly than under currently available procedures. On November 20, 2002¹², nine parties¹³ filed a proposed set of rules detailing procedures for a Commission-based arbitration process. (See Appendix A.) The process includes a procedure that sets out a schedule that is more compressed than the Commission's current schedule for Adjudicatory matters. It also proposes expedited as well as interim ruling schedules. We appreciate the time and effort that the parties have put into working together and agreeing upon this process. An approach addressing operational and interconnection disputes in a timely manner is crucial for these parties.

While the parties have made tremendous progress by agreeing upon and submitting this proposal, some brief period of time must be spent conforming the process and its rules to the Commission's Rules of Practice and Procedure. For example, certain terms appear in the proposed rules that do not appear in the Commission's rules. Accordingly, it is important that there not be ambiguities in the EDR process because of these differences in terminology. In addition, we must confirm that the Commission resources necessary to implement and support this process exist. We ask parties to include in their comments on this draft decision why they believe the existing expedited dispute process established in the Local Competition docket¹⁴is inferior to the proposed process. Parties shall also advise if they would be willing to operate under a modification¹⁵ of the process that they submitted, for a twelve-month trial period. Using the EDR process proposal submitted as the focal point, we direct the Assigned ALJ, in conjunction with the parties, to conform and modify it so that the process can be implemented as quickly as possible.

Special Access Performance Measures

Several CLECs¹⁶ commented that special access¹⁷ Operations Support System (OSS) services should be subject to the same performance incentive mechanisms as other OSS services in the Commission's performance incentives plan. The CLECs submitted a proposal to adopt special access OSS performance measures created by a national CLEC coalition.¹⁸ The coalition's document is attached as Appendix B. In addition to the performance measures, the CLECs propose that monetary performance-improvement incentives be generated by poor special access OSS performance. (WorldCom Comments, November 14, 2002 at 16; AT&T Comments, November 14, 2002 at 7 - 10; PacWest, et al., Comments, October 15, 2002 at 16.)

Pacific opposes any Commission special access oversight. (TR 1721.) It asserts that special access should not be regulated because it is adequately competitive. (SBC Pacific Bell Telephone Company's (U 1001 C) Comments Regarding Issues Raised at November 6, 2002 Prehearing Conference, at 23 - 24.) Pacific also asserts that any special access oversight should be addressed at the federal level. (Id. at 24 - 25.)

In late 2001, the FCC initiated a rulemaking to consider both measurement and enforcement issues for interstate special access services.¹⁹ In the initiating NPRM, the FCC stated, "To be sure, state commissions have jurisdiction over intrastate special access services" (emphasis added).²⁰ The states of Texas, New York, Pennsylvania, Minnesota, and Illinois, filed comments to the NPRM asserting the importance of state special access regulation.²¹ At this writing, the FCC has neither drafted a proposed rule nor resolved the issues presented in the NPRM.

The topic of special access services performance measurement has generated widely diverse opinions among the parties. At this point we have neither sufficient time nor information to definitively resolve these disputes. However, we will adopt a minimal, but most important safeguard. We will require that a special access services OSS performance database be created for the Commission and the parties to monitor. This information will become the critical building block for future decisions, such as whether such measurement is at all necessary, or on the other hand, whether special access services OSS performance should be integrated into the Commission's performance incentives plan as an incentive-generating service type.

To begin building this safeguard today, we initiate the adoption of any existing Pacific special access measures and any additional measures in the CLEC proposal for special access OSS performance measurement. Except for those measures currently operational, these measures will not go into effect until the parties have collaboratively reviewed them for any duplication and modified them to the conditions in California if necessary, or have made other mutually agreeable modifications. We will direct the parties to begin work on these measures immediately after their work is complete on the current Joint Partial Settlement Agreement (JPSA) review.

We expect that the parties should be able to accomplish this task in six months and will direct them to present a settlement or at least a partial settlement at that time. If no agreements have been reached, or if some issues remain unresolved, we direct the parties to submit written proposals for each unresolved issue, including supporting arguments and evidence. In the interim, we direct Pacific to report current special access OSS performance measurement results in the same time and manner as current "diagnostic" results are reported.²²

We will not adopt an incentive mechanism for special access OSS performance today. At this point we will only require performance monitoring. We ask that the parties monitor Pacific's special access OSS performance through these measures and report to us any performance problems no later than six months after the new measures are adopted, and sooner if problems arise needing immediate Commission attention.