May 7, 1997 VIA HAND DELIVERY Mr. Steve McLellan Secretary, Washington Utilities and Transportation Commission 1300 So. Evergreen Park Dr. S.W. Olympia, Washington 98504 Re: In re EAS Rulemaking, Docket No. UT-970545 Dear Mr. McLellan: AT&T Communications of the Pacific Northwest, Inc. ("AT&T") provides the following comments in response to the Commission's notice of potential rulemaking in the above-referenced docket. AT&T's comments address the two fundamental policy questions raised in the Commission's notice, which AT&T agrees must be resolved through new rules or policy directives. 1. When should subscribers in a telephone exchange have the opportunity to call locations in other exchanges (i.e., to make interexchange calls) without paying otherwise applicable statewide per-minute toll rates? "Local community" is more important than local exchange boundaries. People want and expect to be able to call their local community without incurring toll charges. AT&T supports the rights of consumers to have the opportunity to call locations in other exchanges when such calls represent communal calling, i.e., to fire and police stations, hospitals and other basic medical service providers, local government agencies, and schools. Extending local calling beyond communal calling, however, does not foster local community but merely allows consumers to avoid toll charges for interexchange calls. The Commission must balance the interests of those consumers who have a justifiable need for EAS to facilitate local community calling with the consumers -- both within an EAS area and statewide -- whose rates subsidize EAS. That balancing process is made more difficult by the current level of access charges imposed by local exchange companies. Access charges represent the largest single expense item associated with the provision of long distance service and currently are set far above the LECs' costs. The necessary inclusion of these charges in toll rates artificially inflates these rates, resulting in greater incentives to avoid toll rates by expanding EAS. The primary justification for the LECs' high access charges has been that the high profit margin is necessary to ensure affordable universal service, particularly in rural and other high-cost areas. The federal Telecommunications Act of 1996, however, requires that all universal service subsidies must be explicit and competitively neutral. 47 U.S.C. § 254 (1996). Access charges set many multiples above cost do not satisfy this requirement. The Commission, therefore, cannot implement true EAS reform until the greatest incentive to create EAS areas --high access rates resulting in inflated toll rates -- has been addressed through access and universal service reform. 2. What should go into the calculation of the rates for such interexchange calls? The costs of expanding flat-rated calling areas should be borne by the customers who directly benefit from such expansion. In other words, customers in the exchanges getting the new EAS routes should pay all costs associated with any new plant and engineering services required to provide EAS. Those customers also should pay rates sufficient to compensate their local exchange provider for any access or toll revenue reduction that results from the EAS expansion. Such rate calculation reform is critical to the development of effective competition in intrastate telecommunications markets. As long as rates for EAS do not cover the actual and imputed access and toll costs to provide that service, effective local competition cannot develop. Without effective competition, in turn, consumers will not benefit from meaningful choices and the attendant marketplace discipline imposed on all service providers. Consumers must be able to select from several providers of any desired service and eventually to look to the market, rather than regulatory gerrymandering, to provide them with the flexibility to control their telephone expense. The current EAS rules thwart development of effective competition and actually worsen the problem they attempt to resolve. Intrastate toll contribution from EAS expansions in Washington have been shifted through access charges from EAS customers to all consumers who make intrastate toll calls. For example, the access carrier common line charge ("CCLC") is calculated by dividing the LEC's non-traffic sensitive ("NTS") costs by the total number of intrastate toll minutes of use. As the attached table and graph illustrate, EAS has substantially reduced the number of intrastate toll minutes of use. The result has been a 58% increase in the CCLC access rate element in the last three years alone, forcing long distance consumers throughout Washington disproportionately to further subsidize local exchange service. Reducing inflated access charges and thereby allowing long distance rates to fall will lessen the pressure to expand EAS as a means of avoiding toll charges. The Commission, therefore, should address access and universal service reform at the same time it is revising its EAS rules. Only by recognizing and remedying this artificial interrelationship can the Commission foster market alternatives to EAS -- such as optional and discount calling plans more closely priced to economic cost --that more appropriately address consumers' concerns. AT&T appreciates the opportunity to provide these comments and will participate in any future workshop or other proceedings in this docket. Sincerely yours, DAVIS WRIGHT TREMAINE LLP Gregory J. Kopta cc: Ron Gayman