IV. Positions of the Parties

The January 25, 2005, scoping memo listed four issues that would be addressed in Phase II of this proceeding. The parties' positions on each issue are set out below:

A. Whether to reduce or eliminate the NIC and TIC portions of access charges

ORA and TURN oppose eliminating the non-cost-based components of the access charges because the Federal Communications Commission (FCC) is considering revisions to its intercarrier compensation regime which could render unnecessary or be inconsistent with the changes proposed in this docket. ORA and TURN also pointed to the then-pending SBC/AT&T and Verizon/MCI mergers as dissipating the urgency to eliminate the non-cost-based elements of access charges.

All other parties supported eliminating these portions of access charges.

B. SBC and Verizon Revenue from NIC and TIC

No party disputed SBC's and Verizon's representations of NIC and TIC revenue in 2004. The reported amounts are shown below.

C. Appropriate Ratemaking for Recovery of Lost Revenues if NIC and TIC are Eliminated

Verizon argued that actual data, rather than forecasts, should be used to determine its lost revenue, which would vastly simplify the ratemaking process by removing a significant source of controversy and uncertainty. Verizon proposed to use its Schedule A-38 surcharge as a mechanism to assess the needed revenue increase, $43.2 million, to its local billing base. Verizon noted that the Commission has previously used the Schedule A-38 surcharge as a means to implement similar, minor price changes, including the annual price cap filings and exogenous factor adjustments.

SBC also proposed to use 2004 actual revenue from its non-cost-based access charge element as the amount to be re-allocated to local customers. SBC stated that predicting such lost revenues for future years would be a function of access line market share and consumer calling patterns, which would require a contentious proceeding to resolve. Like Verizon, SBC recommended that its lost revenues be recovered through permanent increase to its Rule 33 Surcharge in the amount of $130.0 million.

Sprint, Qwest, and AT&T took no position on the ratemaking proposals.

ORA and TURN agreed, for purposes of this proceeding only, that actual data rather than forecasts should be used for ratemaking. ORA and TURN, however, opposed SBC's and Verizon's proposal to use 2004 data to permanently increase surcharge revenues.

ORA and TURN stated that SBC has conceded that revenue from the NIC and TIC charges has been declining, and is expected to continue to decline. ORA and TURN opposed locking in 2004 lost revenues in perpetuity. Instead, ORA and TURN propose that the amount decrease by 5% or 10% per year until the amount is zero.

Verizon and SBC opposed ORA and TURN's proposal and contended that revenue rebalancing should be done on a test year basis, and that its local calling base is declining so the actual amount recovered will decline over time.

D. Should the Commission Take Steps To Ensure That Long Distance Customers Receive The Benefit of Lower Access Charge?

With the exception of ORA and TURN, all parties opposed the Commission mandating that long distance companies decrease prices to reflect lower access charges. The agreeing parties contended that the competitive marketplace would provide a better and more efficient means to address these cost savings.

ORA and TURN urged the Commission to require long distance carriers to pass through any access charge reductions to their customers. ORA and TURN argued that without mandated price reductions, the long distance carriers will benefit from these cost reductions, not customers. ORA and TURN pointed out that with the now-approved mergers, the two largest local exchange carriers will absorb the two largest independent long distance carriers, and thus absorb the benefits of the cost reduction. These same local exchange carriers will also benefit from a rate increase to offset the lost NIC and TIC revenues. ORA and TURN concluded that, absent Commission action to require price reductions, this double benefit will occur.