BEFORE THE 
WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION




In the Matter of the Petition for Investigation into the Cost of Universal 
Service and to Reform Intrastate Access Charges, and Obligation to Serve 
Requirement. 	
	 Docket No. UT-970325



COMMENTS OF DR. MARK N. COOPER

ON BEHALF OF 

THE

ATTORNEY GENERAL OF WASHINGTON
PUBLIC COUNSEL SECTION





APRIL 17, 1998

FIRST SET OF STAFF QUESTIONS
(Notice of March 23, 1998)

1.  How should the obligation to serve differ, if at all, between:

 a.  The obligation of an incumbent to serve its retail customers and to 
provide unbundled network elements (UNEs) and resale services to its wholesale 
customers?  
  The history and nature of these two obligations differs considerably.  The 
obligation to serve has its origins in the public policy of universal service 
and in common carrier principles.  Charles F. Phillips, Jr., The Regulation of 
Public Utilities, 3rd Edition, 1993, pp. 118-119.  Many of the issues raised in 
this rulemaking were thoughtfully addressed by this Commission in its ruling on 
U S WEST Communications, Inc.=s, (USWC) AObligation to Serve@ tariff filing.  
WUTC v. USWC, UT 961638, Fourth Supplemental Order Rejecting Tariff Filing, 
January 16, 1998 (hereafter AUSWC Obligation to Serve Order@). 
 The obligation to serve is deeply embedded in the common carrier tradition and 
public interest standards that have applied to utility services since the 
beginnings of the industry.  It is required to furnish service to all that seek 
it within its territory.  The economic, technical or other factors that the 
provider of service can invoke to refuse to provide service are very narrowly 
defined.  
 The obligation to provide unbundled network elements and resale, by contrast  
has more recent origins in the public policy of promoting competition.  The 
obligation of a monopoly, incumbent local exchange telephone company to provide 
unbundled network elements and resale derives from the Telecommunications Act 
of 1996.  While these specific federal requirements are more recent,  there has 
long existed an obligation to provide access to bottleneck elements.  In 
addition, it should be noted that the interconnection obligations under 
Washington law are of long standing.  Washington State Constitution, Article 
XII, Section 19.  See also, RCW 80.36.200, 80.36.220.
 It is certainly possible that, as a competitive market develops and multiple 
service providers become capable of ensuring the availability of service to all 
in an area the obligation to serve that now falls on the incumbent can be 
shared or modified.  The important point is that the obligation to serve is a 
public policy principle that comes first.  It is paramount.  Market structures 
may alter the way that public policy is achieved, but only if there is 
certainty that the goal will remain accomplished can such a change be made.
1.  How should the obligation to serve differ, if at all, between:

 b.  The obligations of an entrant to its retail customers and the obligation 
of an incumbent to its retail customers?  
 
 The incumbent has had and continues to have the obligation to serve all.  It 
is the carrier of last resort (COLR).  The incumbent has ubiquitous 
facilities.  It has deployed those facilities with significant benefits from 
ratepayers, including a monopoly position and regulatory rights to an 
opportunity to recover costs.  The pervasive market presence and longstanding 
name recognition conferred on the incumbent also endow it with substantial 
assets as competition increases in the industry.  The obligation to serve is a 
burden placed on the incumbents and compensated by historical and ongoing 
benefits of immense value.
 Incumbents are directly compensated by setting rates that are, in the 
aggregate, just and reasonable.  They are provided an opportunity to recovery 
prudently incurred, used and useful costs.  Should costs increase due to an 
increase in the burden of its carrier of last resort obligation, they can make 
a showing that they are in need of a rate increase.  New entrants have no such 
opportunity.  Incumbents are also compensated for specific expenses in cases 
where such costs would be extraordinary.  See, USWC Obligation to Serve Order, 
p. 21.   Indirectly, the benefits of the monopoly, incumbent ubiquitous network 
compensate the incumbent.  Given the current market structure, with virtually 
no change in market share, no real choice for most customers, and no observable 
price competition, the obligation to serve falls fairly on the incumbent.  See, 
USWC Obligation to Serve Order, pp. 22-23.
 New entrants do not enjoy any of the vast array of benefits that have been 
bestowed by the ratepayers on the incumbent.  They lack market power and 
ubiquitous facilities.  The typically have little if any track record in 
providing local service.  They have not been the recipients of any of the 
historic benefits bestowed on the incumbents.   
 As noted in response to Question 1a, the possibility of changes in the 
obligation to serve must be recognized.  These will come about only over time 
as market structure actually changes.  The Telecommunications Act of 1996 
recognizes this.  Under the Act, a new entrant who seeks to become eligible for 
universal service support funds incurs obligations that begin the transition 
from new entrant to candidate for carrier of last resort responsibilities.  In 
essence, the new entrant would have to make services available to all customers 
in the area it services.  It could, however, meet these obligations through a 
combination of its own facilities and facilities or services it purchases from 
the incumbent.  ETC status is not equivalent to COLR status, in part because it 
is the underlying facilities that are central to meeting the obligation to 
serve.  New entrant ETCs will likely have few facilities initially.  
Furthermore, while the federal Act establishes the ETC category as a funding 
mechanism, the states are entrusted with the ultimate authority to manage the 
transition from the current obligation to serve that uniquely falls on the 
incumbent to an obligation shared between the incumbent and new entrants. 
1.  How should the obligation to serve differ, if at all, between:

 c.  The obligations of incumbents and new entrants with respect to customers 
outside  any incumbent=s current exchange boundaries.  

 Service to unserved areas should be provided in the most economical manner 
possible.  In general this will mean that only service providers with proximity 
to the unserved area which have an existing carrier of last resort obligation 
should be considered as candidates to provide service to the unserved area.  
The provider that can serve an area at least cost should be selected.  Further, 
as multiple carriers of last resort become available, it may be necessary to 
establish universal service funding to defray the extraordinary costs 
associated with extending service in unserved areas.
 Once again, the key to ascertaining when this fund is necessary is the 
observation and documentation of actual changes in market structure.  At 
present, the incumbent has the obligation to serve and is compensated directly 
and indirectly for shouldering that obligation.
 At some point in the future, when competition has balanced revenue 
opportunities and new entrants have facilities deployed that could shoulder the 
obligation to serve, alternative approaches may be necessary.  Contributions to 
a universal service fund to support the obligation to extend service or sharing 
of the obligation to extend facilities may be necessary.  
1.  How should the obligation to serve differ, if at all, between:

 d.  The obligations of incumbents and new entrants to customers who switch to 
a competitor and then wish to return to their preceding service provider?
 
 The switch does not alter the obligation to serve.  First, the switch may not 
entail a change in the use of underlying facilities, since the competitor may 
be serving the customer through resale or use of unbundled network element.  
Second, the existing tariffs are available to all customers.  It does not 
matter whether the customer is returning from a year of graduate work in New 
York, a year working in Alaska, or a year of taking service from AT&T; all 
customers have a right to receive all tariffed services.
 Change may come to this process, however, as market structure evolves.  If the 
incumbent has sought to be decertified as a carrier of last resort after the 
customer has left the state or switched to a competitor, then that customer 
would have the right to obtain service from the company which has newly been 
designated as the carrier of last resort.
1.  How should the obligation to serve differ, if at all, between:

 e.  The obligation of an incumbent to serve the additional demands of existing 
customers, for example, second lines, and its obligation to serve new customers 
within existing exchange boundaries?  
 
 The obligation to serve does not distinguish between primary and second 
lines.  A line is a line, subject to the rules of the tariffing process.
2.  What conditions must exist before the Commission can permit an ILEC to be 
relieved of its obligation to provide service on demand within its serving 
area?  Should the  conditions  include:

 a.  Generally available (tariffed) terms and conditions for unbundled network 
elements and resale of services?
 
 The availability of unbundled network elements and resale, in and of itself, 
does not affect the obligation to serve.  As noted, the obligation to serve has 
its origins in universal service policy while the offering of unbundled network 
elements and resale has its origins in competition policy.  Moreover, the 
existence of unbundled network elements only underscores the need to have the 
provider who owns the underlying facilities be the carrier of last resort.    
Since the obligation to provide network elements and resale relates Aonly@ to 
competition,  reliance on this commitment to meet the obligation to serve would 
reduce the level of assurance that the public will be served.
2.  What conditions must exist before the Commission can permit an ILEC to be 
relieved of its obligation to provide service on demand within its serving 
area?   Should the conditions include:

 b.  The presence of effective competition in the service area at issue?  If 
so, measured by what standard?  

 A finding that an area is subject to effective competition could be a trigger 
for commencing the process of transforming the obligation to serve.  The 
Commission would have to find more than just the presence of competition, 
however.  The obligation to serve entails a commitment to meeting all demand.  
Competition would have to be based on ubiquitously available facilities that 
could serve all likely demand.  Competition based on resale or unbundled 
network elements alone would not be adequate to ensure continued fulfillment of 
the obligation to serve.  
 At the same time, a finding that an area is effectively competitive, 
based-upon a mix of unbundled network elements and facilities-based 
competition, could well mark a stage in which funds are raised from all the 
providers in the area in a competitively neutral manner to support the 
obligation to serve.
 It is likely that other changes would be made as well, which would reinforce 
the idea that the obligation to serve was changing.  For example, in many 
states, because the finding that a service is subject to effective competition 
triggers different regulatory treatment under alternative regulation plans, it 
might become necessary to develop new ways to ensure that service obligations 
are met.
2.  What conditions must exist before the Commission can permit an ILEC to be 
relieved of its obligation to provide service on demand within its serving 
area?   Should the conditions include:

 c. The existence of more than one eligible telecommunications carrier (ETC) in 
the  service area at issue?

 As discussed elsewhere in these comments, there is a distinction between and 
ETC and a COLR.  The existence of ETCs for an area does not automatically 
relieve the ILEC of its obligations. 
3.  What difference, if any, is there between the obligation to serve 
requirement imposed by RCW 80.36.090, and the requirement that an ETC offer 
basic service in its designated service area?  Are obligation to serve and 
universal service concepts necessarily related to each other?

 The obligation to serve and ETC are different concepts.  As noted above, the 
obligation to serve is a broad concept relating to the relationship between 
customers and the utility supplier.  ETC is a concept defined primarily by a 
cost question - is the area high cost and is the company eligible to receive 
universal service support to defray costs that the public cannot afford to 
support through rates?  
 The Telecommunications Act of 1996, as implemented by the FCC, has imposed 
conditions on the right to receive this support, which capture some aspects, 
but not all aspects of the obligation to serve.  See, In the Matter of 
Federal-State Joint Board on Universal Service, CC Docket 96-45, FCC 97-157, 
Report and Order, May 8, 1997, && 134-180.  As stated in response to question 
2.b., this may provide a beginning for the transition in the obligation to 
serve.  However, the authority to effectuate that transformation resides solely 
at the state level.  If the Telecommunications Act has any impact on the 
transformation, it will be through its competition policy that will help to 
bring about the market structure transformation that must precede any change in 
the obligation to serve. 
4.  For purposes of fulfilling the obligation to serve requirement, are ILECs= 
designated (tariffed) service areas appropriate, or could some other geographic 
area be considered?

 Given the current market structure, the ILECS= service areas are the 
appropriate areas.  As described earlier, as market structure changes it may be 
possible to define different areas.  This will occur as purely facilities-based 
competitive carriers are able to ensure service in their designated areas.  In 
such an area, the incumbent might be decertified after the competitor has been 
certified as the COLR.
5.  Section 214 (e)(3) requires state commissions to designate an ETC for 
unserved areas of the state.  What process should the Commission use to 
designate provider(s) that will have an obligation to serve currently unserved 
areas of the state?  If a case-by-case approach is recommended, what specific 
criteria should the Commission consider?

 The process should be case-by-case.  The criteria should include the 
following:  
 (1) The carrier to be designated must be a facilities-based carrier with 
responsibility for the provision of all facilities necessary to provide service.
 (2) The selected carrier should be chosen on the basis of the lowest cost to 
provide the service.  For the immediate future, contiguous ILECs will be the 
most likely candidates.  
6.  What service(s) should be provided pursuant to the statutory obligation to 
provide service requirement?  Should the service(s) provided differ depending 
upon whether the customer is located in an existing exchange area or in an 
unserved area?

 Pursuant to state law and regulation the obligation to serve applies to all 
tariffed services.  At a minimum, the services provided should include those 
designated for universal service support.  This would include the federally 
defined services plus any services that the state adds to the list.
 There should be no difference between served and unserved areas.
7.  Do the FCC infrastructure sharing rules, implementing Sec. 259 necessitate 
consideration by the Commission of state specific infrastructure sharing rules?

  The section 259 obligations are not as strong as the obligation to serve 
obligation.  Therefore, they could not replace the obligations to serve.  
Infrastructure sharing is one of the elements that may contribute to the change 
in the obligation to serve in the long term.  In any event, infrastructure 
sharing is directly relevant only to unserved areas.
8.  Are the availability of tariffed terms and conditions for unbundled network 
elements, resale, and infrastructure sharing sufficient to ensure that non-ILEC 
carriers could provide service under an obligation to serve requirement in 
designated service areas?

 No. As noted, the UNEs and resale deal only with competition, not universal 
service and the obligation to serve.  These terms cannot ensure that the 
obligation to serve is met.  Infrastructure sharing is a discretionary program 
that lacks the ability to ensure the provision of facilities necessary to 
accomplish the obligation to serve.  
9.  Are there any legal, institutional, or market factors that the Commission 
should consider in altering the existing ILECs= obligation to serve?

 As noted, the local exchange market may be commencing a process that will 
require changes in the obligation to serve in the decades ahead.  That the 
process may take decades is a reflection of the fact that the ubiquitous 
telecommunications network that exists today was built up over the course of 
almost a century.  Claims that legal or market forces require precipitous 
changes in the obligation to serve are simply wrong.  
 There has been virtually no change in the structure of the local exchange 
market.  Incumbents still have virtual monopolies.  Moreover, the facilities 
that are most likely to be left stranded by changes in market structure are 
also the least likely to be subject to marketplace change.  Only dedicated loop 
facilities are generally incapable of being utilized when a customer is Alost@ 
to a competitor.  Most other facilities are shared between customers and can be 
used to meet other demands.  Those loop facilities are the most difficult to 
supplant and are likely to remain utilized as unbundled network elements.  See, 
USWC Obligation to Serve Order, p. 21.
 Thus, the Commission should monitor actual marketplace developments to 
ascertain whether facilities are being deployed by competitors which could 
provide the backbone on which an obligation to serve could be built.
 Neither the telecommunications Act, nor Washington law requires a precipitous 
change in the obligation to serve.  The Telecommunications Act clearly 
recognizes that incumbents are in a superior position to new entrants in a 
variety of ways.  It imposes heavier burdens on them in light of these 
advantages.  The Act also reserves to the states the authority to administer 
the obligation to serve.  Common law and state law recognizes the difference 
between the incumbent with its monopoly position and new entrants.  See 
generally, USWC Obligation to Serve Order, pp. 24-26.
 10.  Can the limits of an obligation to serve requirement be defined by 
technology?; by business plan?; by any other attribute other than a tariff?

 No.  Once a service is tariffed, it must be made available to the public 
subject to the obligation to serve.  It is generally true, however, that so 
long as a company does not deploy a technology or offer a service subject to 
tariff (as part of its business plan) it cannot be compelled to deliver a 
service that does not exist to a requesting customer.  At the same time, the 
Commission can find that a refusal to deploy a specific technology or offer a 
specific service is not in the public interest.  It would order the company to 
tariff and offer the service.  At that point, it would become subject to the 
obligation to serve any customer who requested the service.  
 11.  What other issues, not addressed here, should be addressed by a 
Commission rule concerning the obligation to serve requirement?

 None at this time. 

12.  Do wireless providers have an obligation to provide service within their 
designated serving areas?  Can the commission designate wireless providers as 
ETCs?

 Wireless provides do not have an obligation to serve comparable to that of 
ILECs under present conditions.  Commission jurisdiction over wireless carriers 
is limited.   Wireless telecommunications service at present price levels is 
not a realistic alternative to POTS.  If these issues are resolved, to the 
extent that wireless carriers begin to operate like CLECs, their obligations 
could be found to be comparable to CLEC obligations.  Wireless carriers can be  
designated as ETCs if they meet the federal criteria for ETC status.  

AUCTION QUESTIONS
(Notice of April 1, 1998)
1.  Proposals have suggested the use of auctions (bidding process) to determine 
which provider(s) would serve high-cost locations:

 a.  Could a bid process work to ensure service in presently unserved areas?

 The idea that an auction could help to make the obligation to serve process 
more Aefficient@ may sound attractive, but given the current market structure 
it would do no good and might do harm.  The incumbent has ubiquitously deployed 
facilities and enjoys substantial economies of scale and scope.  New entrants 
do not.  They will not be able to bid against the incumbent effectively under 
current circumstances.  Auction processes that fail to recognize the immense 
advantage that incumbents possess can have the perverse effect of raising the 
cost of meeting the obligation to serve.  The incumbent can easily game the 
auction process by bidding higher than its cost of services (which reflects 
economies of scale and scope) and lower than the cost competitors who lack 
economies can bid.  If the incumbent is allowed to claim that the public should 
pay the price set by the winning bid, the incumbent can earn excessive returns 
by capturing for itself the benefits of economies of scale and scope, rather 
than sharing them with the public.  
 b.  How would you envision that process working?
 After the market structure has evolved to support widespread facilities-based 
competition, auctions might be employed to lower the cost of the obligation to 
serve.  With multiple competitors available, it would be possible to run an 
auction in which companies bid down the necessary subsidy.  In order to ensure 
that this public interest would be protected, a maximum subsidy would be 
established.  
2.  Could a similar process be employed to ensure service in tariffed areas 
where the present incumbent does not wish to have an obligation to serve?

 Auctions to abandon service would be even more tricky.  In addition to having 
multiple facilities-based providers available and establishing a maximum price, 
rules would have to be written to preclude the incumbent from bidding.  How 
areas would be designated for abandonment would also be an important element of 
the process.
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