BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION


In the Matter of the Petition of   )
       )
NEXTLINK WASHINGTON, INC., ELECTRIC ) DOCKET NO. UT-990307
LIGHTWAVE, INC., MCIMETRO ACCESS  )
TRANSMISSION SERVICES, LLC, TCG  )
SEATTLE, AND AT&T COMMUNICATIONS )
OF THE PACIFIC NORTHWEST, INC.  )
       )
For a Declaratory Order Interpreting  ) ORDER DENYING   
WAC 480-120-540, or Alternatively for a  ) PETITION
Waiver or Stay of Enforcement Pending  ) FOR DECLARATORY Implementation of 
Universal Service Funding ) ORDER;
Reform      ) GRANTING WAIVER OF  ) WAC 480-120-540
       )
.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  
.  . )


BACKGROUND

  On January 15, 1999, NEXTLINK Washington, Inc., Electric Lightwave, Inc., 
MCIMETRO Access Transmission Services, LLC, TCG Seattle, and AT&T 
Communications of the Pacific Northwest, Inc. (collectively, Petitioners), 
filed with the Commission, in Docket No. UT-990307, pursuant to RCW 34.05.240 
and WAC 480-09-230, a petition for declaratory order interpreting the recently 
promulgated WAC 480-120-540.  Specifically, Petitioners “seek an order 
declaring that local exchange carriers (LECs) that have been competitively 
classified may concur in the entire rate charged by an incumbent LEC for 
terminating access, including any ‘universal service’ element, without any 
showing that the competitively classified LEC (CLEC) serves alleged high-cost 
areas.  Alternatively, Petitioners request that the Commission waive or stay 
enforcement of WAC 480-120-540 with respect to competitively classified LECs 
until the legislature has authorized, and the Commission has implemented, 
universal service funding reform.”  Petition at 1.

  On January 25, 1999, the Commission, pursuant to WAC 480-09-230(4), gave 
notice of the petition for declaratory order and called for the submission of a 
statement of fact and legal argument on the petition.  The following schedule 
was established in the notice: (1) responses to the Petition due February 11, 
1999; (2) reply by Petitioners due February 26, 1999; and the matter set for 
oral argument to be heard March 11, 1999.  The Commission received responses in 
opposition to the petition from GTE Northwest Incorporated (GTE), U S WEST 
Communications, Inc. (U S WEST), Washington Independent Telephone Association 
(WITA), and Commission Staff (Staff); Sprint Communications Company, LP 
(Sprint), responded in support of the petition.  At oral argument, Petitioners 
were represented by Gregory J. Kopta, attorney, Davis Wright Tremaine LLP, 
Seattle; Commission Staff by Mary M. Tennyson, Senior Assistant Attorney 
General, Olympia; U S WEST by Lisa A. Anderl, legal counsel, Seattle; and WITA 
by Richard A. Finnigan, legal counsel, Olympia.

MEMORANDUM

  In support of their petition for declaratory order, Petitioners assert that 
they are willing to concur in the total terminating access rates charged by U S 
WEST and GTE, but that Staff believes such concurrence would not comply with 
WAC 480-120-540.  Petitioners further allege that Staff interprets WAC 
480-120-540 to enable competitively classified LECs to concur only in rate 
elements other than an interim or other “universal service” rate element unless 
these companies demonstrate that they serve customers in allegedly “high-cost” 
areas.

  Staff urges the Commission to deny the request for a declaratory order 
allowing competitive local exchange carriers to concur in total terminating 
access rates that include a universal service element.  Neither does Staff 
believe that the Commission should exempt Petitioners from complying with the 
requirements of WAC 480-120-540, as requested in the alternative, because the 
rule applies equally to every local exchange telecommunications company.

  We grant, with conditions, Petitioners’ request for a waiver of WAC 
480-120-540, as applied to CLECs.  We therefore do not need to address, in any 
detail, their request for declaratory relief.
  
I. WAC 480-120-540

  On August 8, 1997, AT&T Communications of the Pacific Northwest, Inc. (AT&T), 
filed with the Commission in Docket No. UT-970325 a Petition for Investigation 
into the Cost of Universal Service and to Reform Intrastate Carrier Access 
Charges. On October 8, 1997, at a regularly scheduled open public meeting, 
Staff recommended that the Commission investigate through the rule-making 
process the costs and rates for intrastate carrier access charges.  Access 
charges are payments that long distance companies (inter-exchange companies 
[IXCs]) make to local exchange companies for access to the local exchange 
network, and include both the originating and the terminating end of each long 
distance call.

  The Commission filed a Preproposal Statement of Inquiry (CR-101) with the 
Code Reviser on October 22, 1997.  The Commission filed with the Code Reviser a 
notice of Proposed Rule Making (CR-102) on May 19, 1998.  The Commission 
adopted WAC 480-120-540 at its regularly scheduled open public meeting on June 
25, 1998; the rule was filed with the Code Reviser on September 23, 1998, and 
became effective December 7, 1999.   General Order No. 450; Order Adopting 
Rules Permanently, Docket No. UT-970325 (September 23, 1998) [Adoption Order].  
For purposes of the instant petition, the rule in relevant part provides:

(1)  Except for any universal service rate allowed pursuant to subsection (3) 
of this section, the rates charged by a local exchange company for terminating 
access shall not exceed the lowest rate charged by the local exchange company 
for the comparable local interconnection service (in each exchange), . . ..  If 
a local exchange company does not provide local interconnection service . . ., 
the rates charged for terminating access shall not exceed the cost of the 
terminating access service being provided.

  * * *

(3)  If a local exchange company is authorized by the commission to recover any 
costs for support of universal access to basic telecommunications service 
through access charges, it shall recover such costs as an additional, explicit 
universal service rate element applied to terminating access service.

  * * *

(5)  The requirement of subsection (1) of this section that any terminating 
rate be based on cost shall not apply to any local exchange company that is a 
small business, or to any local exchange company that is competitively 
classified, if it concurs in the terminating rate of any local exchange company 
that has filed a terminating rate that complies with the requirements of 
subsection (1) of this section.

II. PETITION FOR WAIVER OR STAY OF ENFORCEMENT

  The Petitioners request the Commission to waive or stay enforcement of WAC 
480-120-540 with respect to CLECs until the Commission has implemented 
universal service funding reform.  According to Petitioners, enforcement of WAC 
480-120-540 as interpreted by Staff would require only CLECs to reduce their 
terminating access rates, thereby undermining the effectiveness and fairness of 
the rule.

 A. Petitioners’ Arguments Supporting Waiver of Application of the Rule

  Petitioners argue that the Commission may waive regulatory requirements “for 
competitive telecommunications companies when it determines that competition 
will serve the same purposes as public interest regulation.”  RCW 
80.36.320(2).  Petitioners further argue that because neither the Commission 
nor any interconnecting company has complained that Petitioners’ terminating 
access rates are excessive, waiver of WAC 480-120-540 for such companies would 
be in the public interest.  RCW 80.36.330 and prior Commission Orders waiving 
regulatory requirements for CLECs minimize regulatory oversight in favor of 
market forces.  Waiver of WAC 480-120-540 is appropriate because the Commission 
has previously determined, in the context of classifying new entrants as 
competitive telecommunications companies, that all services offered by CLECs -- 
including switched access -- are subject to effective competition.

  Petitioners further argue that with the exception of WAC 480-120-540, no 
statute or Commission regulation dictates the prices competitively classified 
carriers must charge for their services or requires that those prices be based 
on, much less capped at, the cost of providing that service.  Enforcement of 
WAC 480-120-540 as proposed by Staff, therefore, would conflict with the 
spirit, if not the letter, of RCW 80.36.330, and prior Commission Orders 
competitively classifying CLECs.

 B. Staff’s Response

  Staff responds that terminating access service is a bottleneck service. 
Therefore, the Commission’s oversight of prices for terminating access is 
required in order for competition to actually work.  This is in contrast to the 
other rates charged by the CLECs for other services, such as originating access 
charges.  These other rates are subject to effective competition and may be 
changed by the CLECs with almost automatic approval.  Petitioners allege that 
switched access is classified as a competitive service for these companies, and 
that the Commission therefore has no authority to regulate it.  However, the 
rule Petitioners are requesting to have interpreted has not been waived for 
them, as it is so recently adopted.

  Staff notes that in several recent Commission Orders granting competitive 
classification to CLECs, the Commission recognized the non-competitive nature 
of terminating access as a concern and specifically limited the ability of a 
CLEC to self-regulate its price for terminating access.  For example, in 
granting AT&T’s petition for competitive classification, the WUTC found it 
appropriate to impose a requirement that the petitioner file price lists for 
terminating access service at rates not to exceed those charged by the dominant 
local exchange company (in that case, U S WEST), citing to RCW 80.36.320.

 C. Petitioners’ Reply to Respondents

  Petitioners maintain that Staff opposes the Petition because it believes that 
terminating access provided by CLECs is a “bottleneck” service and that “WUTC 
oversight of prices of terminating access is required in order for competition 
to actually work.”  Staff’s legal position is diametrically opposed to the 
position that Staff and the Commission took when competitively classifying 
CLECs.  The Commission has consistently interpreted the statute to require 
effective competition from the point of view of end-use customers, not 
carriers, and has concluded that all of the Petitioners have made the requisite 
demonstration for all services, including switched access.  The Court of 
Appeals has affirmed the Commission’s legal interpretation:

Given the companies’ lack of market power and initial zero market share, ELI 
and TCG have every incentive not to jeopardize their relationships with U S 
WEST, which has nearly 100 percent of the market share for local service within 
its territory.  Given the dominance of U S WEST, preservation of access to U S 
WEST’s customers will be critical for ELI and TCG, whose customers would 
otherwise only be able to call each other.  The likelihood that ELI or TCG 
would charge exorbitant rates to U S WEST for access services is therefore 
non-existent.

U S WEST v. WUTC, 86 Wn. App. 719, 937 P.2d 1326 (1997).  (Emphasis supplied.)

  Petitioners assert that without a specific finding that they have priced 
their terminating access service at “supra-competitive” prices, the Commission 
should honor Petitioners’ competitive classification and allow market forces, 
not Commission mandate, to regulate their rates.  At least as long as the 
Commission continues to permit the incumbent LECs to retain their pre-rule 
terminating access rates, therefore, the Commission should similarly permit 
Petitioners to retain their pre-rule terminating access rates.

 D. Additional Comments on Request for Waiver

  1. U S WEST’s Response

  The Petitioners should not be exempted from the operation of the rule, 
temporarily or permanently, and should be compelled to file tariffs.  Once 
filed, Petitioners could work with Staff to initiate a cost proceeding to prove 
that their terminating access costs exceed those of U S WEST -- exclusive of 
the universal service support component of U S WEST’s terminating access rate 
-- justifying a higher rate than recommended by Staff.

  2. GTE’s Response

  The Commission’s USF adjudication failed to determine the costs of universal 
service and to resolve universal service funding issues as contemplated in the 
rule’s Adoption Order.  The Commission should waive or stay enforcement of the 
rule until the Legislature authorizes and the Commission implements universal 
service reform for all LECs, including ILECs.

  3. Sprint’s Response

  Sprint concurs in the assertions made in the Petition and in the alternative 
requests for relief sought.

 E. Commission Discussion and Decision

  Petitioners, individually, have each been classified by the Commission as a 
competitive telecommunications company pursuant to RCW 80.36.320.  In making 
that decision, the Commission had to conclude that all of the services offered 
by these companies, including access service, are subject to effective 
competition.  The Commission determined in each instance that “the company does 
not have a significant captive customer base.”  This issue was raised in the 
context of whether access service was a monopoly service.  The argument’s 
premise -- that all LECs have a captive customer base of inter-exchange 
carriers and interconnecting LECs and wireless carriers who have no other 
reasonably available alternatives for access service -- was uniformly rejected 
by the Commission.  The Commission held that the statutory inquiry into whether 
a company had a significant captive customer base was intended to focus on 
end-use customers of a company, not on other interconnecting companies.  This 
reading of the statute and the Commission’s decisions based on this 
interpretation have been successfully defended on appeal in the case cited 
above by Petitioners.  This is not the appropriate proceeding (nor do we have 
before us the appropriate record)  to reconsider our competitive classification 
of the Petitioners’ services, including access service.  Nor is it appropriate 
to retreat from our earlier decisions that terminating access service is not a 
“bottleneck” monopoly service for which captive customers exist. Having reached 
these determinations, we agree with Petitioners that waiver of WAC 480-120-540 
is appropriate and is consistent with our earlier decisions to classify the 
Petitioners as competitive telecommunications companies.

  Staff notes that it has recommended in recent competitive classification 
proceedings that the Commission impose constraints on pricing of access 
services.

. . . Commission Staff argues that the access service pricing by AT&T will be 
competitive and will be put to the market test and those charges will be 
disciplined by the market. Staff continues, however, that it would be premature 
to eliminate all limits on access rates at this point.  . . .  Staff therefore 
recommends that the Commission order AT&T to file price lists in accordance 
with state statutes and at rates for access service no higher than those 
charged by USWC [U S WEST Communications, Inc.], as have other competitive 
local exchange carriers.   Order Granting Petition, In the Matter of the 
Petition of AT&T Communications of the Pacific Northwest, Inc., to Amend Its 
Classification as a Competitive Telecommunications Company, Docket No. 
UT-960248 (January 24, 1997) at 18.

The Commission has imposed a requirement that CLECs file price lists for 
terminating access service at rates not to exceed those charged by U S WEST as 
a condition of competitive classification.   See, e.g., Order Granting 
Petition, In the Matter of the Petition of MFS Intelenet of Washington, Inc., 
for Classification as a Competitive Telecommunications Company, Docket No. 
UT-941561 (November 5, 1996); Order Granting Petition, In the Matter of the 
Petition of GST Lightwave of Washington, Inc., for Classification as a 
Competitive Telecommunications Company, Docket No. UT-961529 (June 12, 1997); 
Clarifying and Amending Order, In the Matter of the Petition of AT&T 
Communications of the Pacific Northwest, Inc., to Amend Its Classification as a 
Competitive Telecommunications Company, Docket No. UT-960248 (March 13, 1997). 

  The Commission has the authority to impose conditions on our waiver of WAC 
480-120-540 for the Petitioners, and we find it is reasonable and appropriate 
to do so in this instance.  We will require Petitioners to file price lists for 
terminating access service at rates not to exceed those charged by U S WEST 
Communications, Inc., and GTE Northwest Incorporated in their respective 
service territories.  The Commission notes that RCW 80.36.320(4) authorizes the 
Commission to “revoke any waivers it grants” and to “reclassify any competitive 
telecommunications company if the revocation or reclassification would protect 
the public interest.”  Our action granting waiver of WAC 480-120-540 is an 
interim step, and we may revisit waiver of the rule upon consideration of any 
new universal service funding measures or programs.

  The Commission will grant the Petitioners’ request for waiver of WAC 
480-120-540, as conditioned above.  Having granted Petitioners’ alternative 
request for relief, the Commission need not address, and therefore will deny, 
Petitioners’ request for declaratory relief.

ORDER

  THE COMMISSION ORDERS That the petition for declaratory order filed in this 
matter is denied.  The Petitioners’ request for waiver of application of WAC 
480-120-540 is granted as conditioned in the text of this Order.

  DATED at Olympia, Washington, and effective this 7th day of 
September, 1999.

WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION