II. Background
On October 4, 2001, AT&T Communications of California (AT&T) filed a petition pursuant to § 1708.52 seeking a reduction in intrastate access charges, explaining that existing access charges are priced substantially above cost and stifle competition in long distance markets.
Pacific Bell Telephone dba SBC California (SBC), Verizon California Inc. (Verizon), a group of small local exchange carriers, and Roseville Telephone Company, which has since changed its name to Surewest Telephone, opposed AT&T's petition primarily on the grounds that access charges are set at levels to subsidize local service.
The Commission granted AT&T's petition and found that since setting access charges in 1994, the local exchange carriers had started offering long distance services in direct competition with the long distance carriers, such as AT&T. When providing long distance service, however, the affiliated long distance carriers did not incur access charges but only made paper transfers of such fees to their affiliated local exchange carriers. In contrast, independent long distance carriers incurred charges for access. To the extent access charges exceeded the local exchange carriers' costs, these charges prevented fair competition in the long distance markets because the charge to independent carriers exceeded the "cost" incurred by the local carriers and their affiliates. Consequently, independent long-distance carriers suffered a "price squeeze" because they had to pay actual funds to an unrelated third party.
In R.03-08-018, the Commission also noted that certain components of the access charges are not cost-based or associated with the costs of any specific transport function, but made no finding whether intrastate access charges were too high to permit long distance carriers to compete with SBC and Verizon in long distance markets. The scope of this proceeding, however, was limited to review of the NIC and TIC components of access charges.
In the decision resolving the first phase of the proceeding, Decision
(D.) 04-12-022, the Commission decided that should it authorize local exchange carriers to decrease access charges, these carriers would also be authorized to offset any decrease in access charge revenue with comparable increases in revenue for local services. The Commission also decided to examine mid-size and small local exchange carriers' access charges in a subsequent phase of this proceeding.
SBC, Verizon, and MCI WorldCom Network Services, Inc. (MCI) and Qwest Communications Corporation (Qwest) submitted initial testimony on the Phase II issue of whether the non-cost-based elements of the access charges should be modified. AT&T, Sprint Communications Company (Sprint), Qwest, MCI, and Verizon provided responsive testimony. The Utility Reform Network (TURN) and the Office of Ratepayer Advocates (ORA) jointly filed and served comments responding to the initial testimony.
On November 18, 2005, the Commission approved the application of SBC and AT&T for authority to transfer control of AT&T Communications of California and its related California affiliates from AT&T to SBC, with the resulting entity doing business as AT&T. The merger created the largest telecommunications firm in the United States. Also on November 18, 2005, the Commission approved a similar merger between Verizon and MCI in
D.05-11-029. For clarity and consistency of record, we will refer to the merged entities as SBC/AT&T and Verizon/MCI.
The assigned ALJ issued a draft decision resolving all issues in this proceeding on December 19, 2005. Based on comments from the parties, discussed in more detail below, the ALJ's decision was substantially revised and mailed for additional comment on March 13, 2006. Also on that day, President Peevey, the assigned Commissioner, mailed his Alternate Decision.
2 All section citations are to the Public Utilities Code, unless otherwise indicated.
