BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION In the Matter of the Petition of ) ) GTE Card Services, Inc., d/b/a ) Docket No. UT-970650 GTE Long Distance ) ) TCG SEATTLE'S REPLY ) COMMENTS to Amend Classification as a ) Competitive Telecommunications ) Company ) ) TCG Seattle ("TCG") provides the following comments on the Petition of GTE Card Services to Amend Its Classification as a Competitive Telecommunications Company to extend to provision of local exchange services ("Petition") in reply to the Comments of Commission Staff. Staff's evaluation of the Petition and the statutory requirements is too narrow and does not adequately consider the ability of GTE Card Services to take anticompetitive advantage of the market power of GTE Northwest, its affiliate. Accordingly, TCG continues to urge that the Commission require reporting requirements and performance measurements for all services and facilities provided to GTE Card Services by GTE Northwest as a prerequisite to, or condition on, the requested extension of GTE Card Services' competitive classification. COMMENTS The Commission's ultimate obligation in this proceeding is to decide whether GTE Card Services "has demonstrated that the services it offers are subject to effective competition." RCW 80.36.320 (emphasis added). GTE Card Services has not made that demonstration. GTE Card Services and GTE Northwest are owned and controlled by the same corporate parent, and GTE Northwest will have a natural incentive to favor GTE Card Services over unaffiliated competing local exchange companies ("CLECs"). The local exchange services GTE Card Services offers will not be subject to effective competition from CLECs if GTE Card Services provides those services in reliance on superior treatment from GTE Northwest. GTE Card Services, therefore, should not be classified as a competitive telecommunications company for the provision of local exchange services as long as the Commission and CLECs cannot ensure that GTE Card Services does not receive preferential treatment and superior service quality from GTE Northwest. Commission Staff undertakes the statutory analysis in a manner that virtually ignores GTE Card Services' relationship with GTE Northwest. Staff initially observes pursuant to RCW 80.36.320(1)(a) that GTE Card Services has no market share and that the market is dominated by GTE Northwest and other incumbent local exchange companies ("ILECs"). The conclusion to be drawn from this fact is not that GTE Card Services' customers will have an effective alternative but that GTE Card Services is affiliated -- and ostensibly will compete --with one of the dominant providers of local exchange service. The Commission has never found, nor would it be rational to conclude, that effective competition results from provision of local exchange service by an entity whose revenues flow to the corporate parent that owns and controls the ILEC with which that entity competes. Staff also observes pursuant to RCW 80.36.320(1)(b) & (c) that many other competitors provide the same or similar services to those proposed by GTE Card Services. While that may be true now, those competitors will not be able to provide the competitive rates, terms and conditions required by the statute if GTE Card Services obtains the services and facilities from GTE Northwest that all competitors require under more advantageous terms and conditions than other competitors. Staff concludes that "GTE Card Services does not possess sufficient market power to be categorized as other than subject to effective competition" based on the definition of "market power" as "the ability to raise prices above a competitive level without losing market share." Staff Comments at 7-8. The facts do not support this conclusion. Staff's definition of "market power" ignores other factors critical to the development of effective competition, specifically service quality. GTE Card Services may price its services at the same level as its competitors, but GTE Card Services could nevertheless exercise "market power" if it is able to offer better service quality because of its affiliation with GTE Northwest -- e.g., shorter service order, provisioning, and repair intervals, fewer instances of call blocking, and better coordination of service provider changes. Under such circumstances, GTE Card Services could preclude "[t]he ability of alternative providers to make functionally equivalent or substitute services readily available at competitive rates, terms and conditions" -- a critical statutory indicator of market power. RCW 80.36.320(1)(c) (emphasis added). Staff also focuses too narrowly on the present, without regard for the future. GTE Card Services does not yet even offer local exchange services so the fact that GTE Card Services currently may not possess market power is meaningless. The proper inquiry is whether GTE Card Services will possess market power once it enters the local exchange market. As the FCC observed in a related context, "It is not enough that the [Bell Operating Company ("BOC")] prove it is in compliance at the time of filing a section 271 application; it is essential that the BOC must also demonstrate that it can be relied upon to remain in compliance." In re Application of Ameritech Michigan, CC Docket No. 97-137, FCC 97-298, Memorandum Opinion and Order ¶ 22 (Aug. 19, 1997) (emphasis added). The FCC specifically referenced "reporting requirements or performance standards, to measure compliance, or to detect noncompliance" as one means of making the requisite demonstration. Id. GTE Card Services should be required to make that same showing here, i.e., that it is not able to leverage the market power of its affiliate as demonstrated by reporting requirements or performance standards designed to measure whether GTE Card Services is receiving preferential treatment from GTE Northwest. Staff notes that the Commission will address issues of intercarrier discrimination in the carrier service quality rulemaking in Docket No. UT-970639, implying that the Commission should address TCG's concerns in that docket, rather than in this one. TCG certainly intends to participate fully in the Commission's carrier service quality docket, but the existence of that proceeding does not supplant the Commission's obligation in this docket to ensure that GTE Card Services is and will remain subject to effective competition. GTE Card Services is not willing to delay its entry into Washington local exchange markets pending the completion of the Commission's carrier service quality docket, and this Commission should not simply allow GTE Card Services to take advantage of its affiliation with GTE Northwest during such time. Initial impressions of the quality and viability of alternative sources of supply are critical in markets emerging from monopoly to competition. With all of the other obstacles TCG and other CLECs must overcome to win customers, they should not have to fight a perception that GTE Card Services offers better service when that perception is based on the preferential treatment GTE Card Services receives from GTE Northwest during the time that no reporting requirements or performance measures were in place. Requiring only that GTE Card Services remain subject to affiliated interest requirements, as Staff recommends, will not alleviate this concern. The Commission is already scheduled to have approved the interconnection agreement between GTE Northwest and GTE Card Services prior to any decision in this docket. That agreement in which GTE Card Services "opted in" to the arbitrated MCI/GTE Northwest agreement, includes no service quality measures or reporting requirements. See Docket No. UT-970365. The restrictions on agreements between affiliates in RCW 80.16, therefore, will provide no check on GTE Card Services' ability to take advantage of its affiliation with GTE Northwest in the absence of Commission and CLEC ability to determine that implementation of that (and any other) agreement between GTE Card Services and GTE Northwest -- not just the agreements on their face -- do not disadvantage competitors or customers. TCG agrees that "the primary concern in determining whether GTE Long Distance is subject to effective competition is the effect on end use customers." Staff Comments at 10. Effective local exchange competition will not develop and end users will be poorly served if GTE Card Services, in concert with GTE Northwest, undermines the ability of CLECs to provide competitive services. The only means by which the Commission can ensure the consumer benefits intended by the Legislature through RCW 80.36.320 is either to deny the Petition or to require that GTE Card Services file periodic reports on the service quality it receives from GTE Northwest, enabling customers, the Commission, and CLECs to determine for themselves whether GTE Card Services is receiving preferential treatment from GTE Northwest at the expense of the development of effective competition. RECOMMENDATION TCG, therefore, strongly urges that the Commission deny the Petition until such time as GTE Northwest begins to measure and report the service quality it provides to GTE Card Services and to CLECs. Alternatively, the Commission should require GTE Card Services to file nonconfidential and auditable monthly reports on the quality of service and facilities it receives from GTE Northwest as a prerequisite to, or condition on, any grant of GTE Card Services' Petition. Such reports at a minimum should include the following information: (1) the services and facilities GTE Card Services obtains from GTE Northwest; (2) the pre-ordering, ordering, provisioning (including cut-over from GTE Northwest), and maintenance intervals for each such service or facility, including but not limited to interconnection grade of service; and (3) all instances of disruption to, or failure of, each such service or facility such as call blocking or circuit failure, including but not limited to the date and time of the disruption or failure and its extent and duration. The Commission in addition to these reports should require that GTE Card Services have no greater access to the operational support systems ("OSS") of GTE Northwest than the access provided to CLECs. As discussed in TCG's Initial Comments, the FCC's affiliate separation rules provide, "The affiliate may be staffed by personnel of its affiliated exchange companies, housed in existing offices of its affiliated exchange companies, and use its affiliated exchange companies' marketing and other services . . . ." 47 C.F.R. § 64.1903(b). GTE Card Services would realize a distinct competitive advantage if the personnel it shares with GTE Northwest (or even its own personnel) have unfettered access to GTE Northwest OSS when the same access is denied to CLECs. The Commission, therefore, should require that all companies have the same access to GTE Northwest OSS, either by allowing CLECs the same unfettered access permitted GTE Card Services or by requiring that GTE Card Services access GTE Northwest OSS using the same means provided to CLECs. CONCLUSION For the foregoing reasons, as well as the reasons discussed in TCG's Initial Comments, the Commission should adopt TCG's recommendations. RESPECTFULLY SUBMITTED this _____ day of December, 1997. DAVIS WRIGHT TREMAINE LLP Attorneys for TCG Seattle By Gregory J. Kopta WSBA No. 20519 Michael Morris Deborah Waldbaum Karen Notsund Teleport Communications Group, Inc. 201 North Civic Drive Walnut Creek, CA 94596