Agenda Date: April 12, 2000 Item Number: Docket: UT-991737, Service Extension Rulemaking Staff: Bob Shirley, Telecommunications; Gargi Charya, Telecommunications; Rick Mattoon, Policy Section; Mary Taylor, Consumer Affairs; Bob Wallis, Administrative Law; Jacob Wexler, Telecommunications Recommendation: Direct the Secretary to file a Notice of Proposed Rulemaking (CR-102) in Docket UT-991737, in order to Revise Chapter 480-120-071WAC relating to Service Extensions (currently titled Line Extensions). Background The Commission began this rulemaking with consideration of a CR-101 at the November 11, 1999 Open Meeting and by filing the CR-101 on November 17, 1999. Subsequent activities undertaken by staff included two notices of an opportunity to comment and three public meetings, two in Olympia and one in Okanogan. The most recent notice and opportunity to comment was served February 18 and included a draft rule. A workshop was held March 7 to discuss the draft with the public and companies, and written comments were received on March 14. Based on the discussions held on March 7, several changes were made in the draft rule to accommodate concerns of companies. These changes were discussed with industry representatives between March 7 and March 20 and a draft with changes was distributed electronically to the several interested companies on March 20. More discussions followed and another draft was distributed March 23. The version before you today was distributed electronically on April 6 to provide companies an opportunity to prepare their comments. At the same time there were discussions with companies, staff contacted several members of the public and mailed copies of the draft proposed rule to them. Information necessary to complete an SBEIS was requested on February 25, with a requested response date of March 15. Several responses were received. Subsequent to that date the Washington Independent Telephone Association requested an opportunity to provide SBEIS information on April 3, and on April 3 said it would be forthcoming as soon as possible. Other responses are summarized in the SBEIS. Proposed Rule The proposed rule furthers the Commissions efforts to maintain and advance the efficiency and availability of telecommunications service; ensure that customers pay only reasonable charges for telecommunications service; and promote diversity in the supply of telecommunications services and products in telecommunications markets throughout the state. See RCW 80.36.300. In addition, the rule is necessary to provide services that are comparable in quality and price between urban and rural areas and that are priced at rates that are just, reasonable and affordable. See 47 U.S.C. ' 254(b) and (i). The rule accomplishes this by establishing requirements for service extensions that require a uniform contribution basis for customers and providing an incentive to companies in areas where market forces are insufficient to attract network investment. Underlying the entire rule is the economic principle that the value of a network is increased and benefits flow to all participants in a network when more participants are added. Effect on Customers Many people live in Washington without telephones. Some of those are located outside approved urban growth management areas and beyond the limits of present telephone networks, but within the boundaries of established telephone exchanges. In comparison to those who have access to the telecommunications network, these people are few in number, and as a result have little or no market power. Under present tariffs, they face line extension charge quotes that sometimes go as high as $70,000. Others, of course, face more modest quotations. In other circumstances, groups of customers large and small have found it difficult to obtain quotations from some companies. In Okanaogan County, a group of 152 customers has been unsuccessful in obtaining a quote from the company that serves the exchange. ( A few members of that community have received individual quotes in the $25,000 to $30,000 range, but none that represent an amount based on serving the entire community.) The current tariffs encourage "strategic" behavior. If one customer pays $10,000 for a telephone, others in between the end of the network and that customer will receive new service with no extension charge. The current tariffs can divide communities rather than unite them. The proposed rule sets a uniform basis on which to determine the customer contribution toward the cost of the service extension. Customers will pay 40 times the local service rate. All customers on a service extension will pay the same, eliminating any incentive for "strategic" behavior. Customers will also pay the entire cost of construction on their property. In rural areas where the distance from a right-of-way to a premise may is often measured in hundreds of feet, this represents a considerable expense. Customers generally bear this cost today (and it often reflects as much as 50% of line extension quotes). Customers that commence new construction after the effective date of this rule may have to provide a copy of local government permits to build in order to receive new service. Effect on Companies Companies today have a variety of line extension tariffs. None of them results in customers paying the full cost of construction of new distribution plant. The recovery from customers under the present tariffs rarely exceeds 30%, even when the price to the customer is in the tens of thousands of dollars. Some companies have tariffs on file that require them to survey residents of an area that would benefit from an extension. This has proven to be a difficult task. This rule requires companies to adopt tariffs that require all customers to contribute to the cost of an extension of service. Wireline companies may create alliances with wireless carriers to provide extensions through wireless means, providing the service and rates are reasonably comparable to the services and rates provided through wirelines in that area of the exchange. Companies may recover up to 50% of the estimated cost of the extension by filing a tariff after permits have been issued for construction. The extension must be completed within 12 months. Companies may recover the remainder of the cost after completion, and must offset any over collection. In the event the extension is not completed within 12 months, the company must file a tariff to offset all that has been collected or seek a waiver based on good cause for not completing the extension within 12 months. Companies must report on collections, expenditures and construction plans and progress. Companies may cooperate to provide cross-boundary extensions without creating foreign exchange service and without altering exchange boundaries. The rule does not apply to developments and companies may maintain present tariffs that are not inconsistent with this rule. Based on the preliminary information we have about financial impacts, we think that the rule will have a positive economic effect on local exchange companies in that it will enable them to recover a greater proportion of their line extension costs than they are able to do under present rules, and it will result in a larger number of subscribers. We are sensitive to AT&T's concerns, as well, and will attempt to quantify the effect on interexchange carriers to the extent information is available. Based on the information now available to us, we believe that the net effect on AT&T and other interexchange carriers will be minimal. Conclusion This proposed rule is recommended to you as a measure that will increase participation in the telephone network at just, reasonable, and affordable prices, and provide an incentive to companies to invest in areas where the market alone does not provide sufficient incentive. Staff asks you to make a preliminary decision today, based on the information now available, to file this draft as a proposal for comment under the APA. We will complete the work begun on a small business economic impact statement. We also ask you to review the proposal prior to filing for potential needed change when more complete information is available in a completed SBEIS.