Comments of U S WEST Communications, Inc. Re: Petition for Investigation into the Cost of Universal Service and to Reform Intrastate Access Charges, and Obligation to Serve Requirement Docket No. UT-970325 On October 8, 1997, the Commission initiated a rule making in the above captioned and docketed matter. A Preproposal Statement of Inquiry (CR-101) was filed with the Code Reviser on October 22, 1997. On March 18, 1998, a supplemental CR-101 was filed in this rule making proceeding to add the issue of a local exchange company’s obligation to provide service. On March 23, 1998, the Commission issued a Notice of Opportunity to File Comments on issues related to an obligation to serve requirement. Following are the comments of U S WEST Communications, Inc. (“U S WEST”). I. Introduction: U S WEST appreciates the opportunity to respond to the questions included in the Commission’s March 23, 1998 Notice. All participants should be encouraged to take note that this aspect of the universal service rule making is focused primarily on those few instances where customers request service in areas not currently included within a local exchange companies serving area or where no carrier has facilities available to serve the customer; i.e. presently unserved customers. The vast majority of Washington consumer universal service requirements will be met by the marketplace. The focus of this proceeding should be on how to apply RCW 80.36.090, in those situations where offering service would be contrary to what the marketplace would have a carrier do from a practicable perspective. The Commission should develop rules that ensure the obligation to serve requirement is broadly spread amongst all providers in a manner that is consistent with the state’s policy to “promote diversity in the supply of telecommunications services and products in the telecommunications markets throughout the state”. RCW 80.36.300 U S WEST responds to the questions raised by the Commission in its notice with the following overview of applicable laws/statutes in mind. Disparate treatment between ILECs and new entrants is neither a sound nor a sustainable policy for the long term. The Commission recognized this in Docket UT-961638, stating: “The Commission is cognizant and mindful that continuing to impose an obligation to serve upon incumbent local exchange companies is a short run proposition given technological innovation and federal and state regulatory policy.” Disparate treatment between incumbents and new entrants violates the federal Telecommunications Act, is not permitted by RCW 80.36.090, and is otherwise unlawful. RCW 80.36.090 currently states: Every telecommunications company shall, upon reasonable notice, furnish to all persons and corporation who may apply therefor and be reasonably entitled thereto suitable and proper facilities and connections for telephonic communication and furnish telephone service as demanded. RCW 80.36.090 imposes evenhanded service requirements on all telecommunications companies and does not distinguish between obligations imposed on incumbents and new entrants. Furthermore, this Commission has repeatedly stated that RCW 80.36.090 applies equally to all companies. See UT-960248, 1997 Wash. UTC LEXIS 5, at *53 (Jan. 24, 1997) and UT-900162, 1991 Wash. UTC LEXIS 43, at *9 (Apr. 11, 1991). Requiring incumbent local exchange companies to provide service on demand to all customers, regardless of whether they have such facilities, without requiring the same obligation to serve from other providers, would also violate the Telecommunications Act, since it would not be competitively neutral and is plainly inconsistent with Section 254 of the Act. Nothing in Section 253(b) or 254 of the Act, authorizes state commissions to discriminate among telecommunications providers in their obligation to contribute to universal service, based on whether the marketplace is fully competitive or whether the telecommunications carriers at issue are incumbents, own a ubiquitous network and have market power. Instead, the Act requires all telecommunications companies to share the universal service burdens. The Act requires that universal service be supported in a competitively neutral manner and that all telecommunications companies make an equitable and nondiscriminatory contribution to universal service. 47 U. S. C. Sections 253 (b) and 254 (b). The Act was not designed to offer all the profit making opportunities to new entrants while imposing all the traditional social obligations, such as the obligation to serve requirement, on incumbent LECs . Rather, Congress chose to promote consumer friendly competition through a careful and structured balance of obligations and opportunities for incumbents and new entrants. The fact that incumbent local exchange companies operated in Washington as de facto monopolies in the past, in the provision of local service in their service territories, does not give the Commission authority under the Act to require incumbent local exchange companies to underwrite the universal service obligation in Washington now or in the future. To do so would be to dismantle one part of the historical regulatory compact (monopoly protection) while keeping in place the other parts (social obligations and earnings regulation). Currently, as new entrants cream skim the market serving only lucrative accounts, ILECs alone must invest in uneconomic facilities to meet universal service obligations within their service territory. Should the cream skimming approach continue, the ILECs will be forced to operate at a significant competitive disadvantage and will fundamentally be faced with a non-viable business in a very short period of time. This is clearly not competitively neutral as required by the Act and it obviously is not sustainable economically. II. Preservation of Universal Service Availability in Washington The Commission can continue to ensure that service, including both additional service in existing served areas and new service in unserved areas is available when customers request service, given the technological, regulatory and market changes that may occur in Washington by adhering to the following principles: Establishing an adequate state high cost fund that ensures that any eligible local exchange provider will adequately receive specific, predictable and sufficient funds for the support of high cost areas and that such support will ensure recovery of economically efficient costs. Establishing universal service rules that are competitively neutral. Universal service support mechanisms and rules should not unfairly advantage or disadvantage one provider over another. Nor should such rules favor or disfavor one technology over another. Establishing rules that require all providers of telecommunications service to make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service. Establishing rules that allow for the immediate recovery of investment required for the construction of facilities, to meet universal service requirements for unserved customers in high cost areas. ETC designated carriers must be provided a specific opportunity to recover mandated investment up front directly from the customer or from the universal service fund. Once a designated ETC provider has constructed facilities to furnish service to an unserved customer and that provider has received sufficient funding support, recurring support or support for a second provider’s investment for that same customer should be prohibited. The size of the universal service fund and the degree of the reliance upon such a fund to ensure continued universal service attainment can be reduced if the Commission allows ILECs to rebalance existing rates in a manner that eliminates or significantly reduces implicit subsidies. ILECs must be allowed to reprice basic service at a reasonable and affordable rate that is more in line with the cost of the service and the average national price for basic service. Following are US WEST’s responses to the specific questions raised in the Commission’s notice: 1. How should the obligation to serve differ, if at all, between: a. The obligations of an incumbent to serve its retail customers, and to provide unbundled network elements and resale services to its wholesale customers? The obligations of an incumbent to serve its retail customers, and to provide unbundled network elements and resale services to its wholesale customers should be addressed as two separate issues. As previously stated, all telecommunications providers have an obligation to serve retail customers within the service area designated as their serving area. RCW 80.36.090 does not allow any telecommunications provider to pick and choose which customers they serve in a given serving area; it requires each provider to furnish service upon demand. The obligation of an incumbent to provide unbundled network elements and discounted resale of retail services to its wholesale customers is currently required only of incumbent local exchange companies by the Federal Telecommunications Act. However all providers must allow resale of their services on a non-discounted basis under the Federal Act. RCW 80.36.090 does not differentiate between retail and wholesale customers or services; it currently applies to all telecommunications services and providers. However, RCW 80.36.090 only addresses service not unbundled elements. The obligation of the incumbent to provide unbundled network elements and resale services should not be utilized by new entrants as the sole means by which a new entrant complies with RCW 80.36.090. Incumbent providers were not required by the Act to be facility construction firms for new entrants nor would it be sound business policy for ILECs to volunteer to be such. If a provider has facilities available it should make those facilities available to both retail and wholesale customers upon demand. When facilities are not available and must be constructed, the current law states that the provider that receives the customer request is required to provide such service, where the customer is reasonably entitled to the service. The only exception to this requirement should be when the customer is located in a high cost area served by an eligible telecommunications carrier (ETC); under that scenario, the ETC should be required to serve the customer - assuming the Commission has established adequate and sufficient funding, provided in a competitively neutral manner to permit the ETC to recover its costs. b. The obligations of an entrant to its retail customers, and the obligation of an incumbent to its retail customers? The obligation of any provider should not differ for either existing, prior or new customers. RCW 80.36.090 states the obligation is to the customer who requests service. The only exception to a provider’s obligation to serve, should be when another provider is designated as the ETC and the customer requesting service is located in a high cost area of that ETC provider. The ETC provider(s) should be the provider(s) obligated to provide service - assuming the Commission has established adequate and sufficient funding, provided in a competitively neutral manner to permit the ETC to recover its costs. c. The obligations of incumbents and new entrants with respect to customers outside any incumbent’s current exchange boundaries? RCW 80.36.090 qualifies the obligation to serve by stating that the person and/or corporation must be “reasonably entitled” to such service. A customer located outside the serving area of a provider(s) is not necessarily a customer reasonably entitled to service from each provider offering service in serving areas near the customer’s location. RCW 80.36.090 requires a provider to provide service whenever a customer requests such service from the provider. The only exception to a provider’s obligation to serve, should be when another provider is designated as the ETC and the customer requesting service is located in a high cost area of that ETC provider. The ETC provider(s) should be the provider(s) obligated to provide service. However, this requirement does not preclude a provider from recovering the costs associated with serving such a customer. Customers are generally unaware of areas where multiple providers offer service. Each provider should be required to identify where its service is available, i.e. serving area, and according to RCW 80.36.090, any customer requesting service within that area, from that provider, is entitled to such service. Therefore, the obligation of any provider to provide service on demand, should be based on the serving area it designates within its tariffs or price list and the availability of an ETC designated carrier. All providers should be required to serve all customers within their serving area on a first come, first served basis unless the customer is located in a high cost area. A provider should not be allowed to pick and choose which customers they wish to serve, unless a carrier has already been designated as an ETC for the service area. The ETC provider(s) should be the provider(s) obligated to provide service to a high cost location customer. 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 obligation in RCW 80.36.090 does specifically address this situation. Under that statute, the customer is entitled to service upon demand. However, a customer located in a high cost area, should only be allowed to demand service from a designated ETC. The Commission should establish universal service funding rules, that allow for the immediate recovery of new or additional investment made by a provider, to meet universal service requirements of unserved customers in high cost areas. ETC designated carriers must be provided a specific opportunity to recover their total investment up front directly from the customer or from the universal service fund. If a provider has no assurance that it will recover its mandated investment, than the provider should be allowed to require a commitment from the customer that they will retain the provider for a specified period of time. U S WEST has been advised by general contractors that new entrants have approached them and advised them to order facilities from U S WEST and that once such facilities are installed, the new entrant will provide them “resold” service over these same facilities at a lower rate than that charged by U S WEST. If a provider is designated as a ETC in a high cost area, the provider must be allowed to recover the investment required for constructing facilities to serve customers in high cost areas. e. The obligation of an incumbent to serve the additional demands of existing customers within existing exchange map boundaries? The obligation in RCW 80.36.090 is limited to service to which the customer is reasonably entitled; the customer is not reasonably entitled to demand any service they so desire. The customer should be entitled to basic universal service as defined in Senate Bill 6622. Basic service is defined in Senate Bill 6622 as follows: Single-party service 1Voice grade access to the public switched network 1Support for local usage 1Dual tone multifrequency signaling (touch-tone) 1Access to emergency services (911) 1Access to operator services 1Access to interexchange services 1Access to directory assistance 1Toll limitation services 2. What conditions must exist before the Commission can permit an ILEC to be relieved of its obligations 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? b. The presence of effective competition in the service areas at issue? If so, measured by what standard? c. The existence of more than one eligible telecommunications carrier (ETC) in the service area at issue? The Commission can permit an ILEC to be relieved of its obligations to provide service on demand within its serving area where there exists a designated ETC and the customer is requesting service and is unserved at present. If there is no designated ETC for such a customer, the Commission may designate the provider best able to provide service to the unserved customer. Section 214 (e)(3) That provider may or may not be the ILEC nearest the customer. Under the current law, no telecommunications provider can be relieved of its obligations to provide service on demand under any other scenario. As previously stated, each provider should be required to identify where it offers service, and all providers within that serving area are required to provide service on demand, absent an ETC designation for high cost area customers. The availability or lack thereof of unbundled network elements and resale of services does not relieve any provider of its obligation under current state law. Nor does the state of competition. The existence of an ETC provider should relieve other providers of obligations under state law to serve customers located within a high cost area, if such providers are not designated as an ETC and another provider is, within that serving area. The decisions of this Commission and the law of the state, do not distinguish between an incumbent’s obligation to serve and any other carrier’s obligation to serve. The limitation on this obligation is that service must only be provided to those persons “reasonably entitled thereto”. This does not mean that every customer within a serving area may demand and receive any service, nor does it mean that the incumbent must be the one to provide that service. Incumbent LECs should be permitted to establish their obligation to serve on par with the obligation established in the tariffs or price lists of other local exchange companies, which include a limitation on the obligation to serve if facilities are not in place, unless the carrier chooses to provision the necessary facilities. The availability of generally tariffed terms and conditions for network elements and resale should not be a precondition to equalization of obligations to serve for all carriers, incumbent and new. Interconnection of networks is all that is necessary for multiple carriers to provide service in any given area, and U S WEST has provided interconnection to their networks since 1994. On the other hand, this discussion may be largely academic, because, at least for U S WEST and GTE, generally available terms and conditions for network elements and resale are currently available or will be established in the very near future in the generic proceedings under Docket Nos. UT-960369, et al. Thus, while generally available terms and conditions for wholesale services should not be a precondition for an incumbent to be “relieved” of its obligation, those terms and conditions will in fact be in place soon in any event. 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 concepts of obligation to serve and universal service are related, but are not the same. The obligation to provide universal service in fulfillment of a carrier’s obligation as an eligible telecommunications carrier in a designated service area is a specific and limited obligation pursuant to Section 214 of the Act. This obligation is expressly conditioned upon the existence of equitable and nondiscriminatory funding mechanisms for universal service support. An ETC is only required to provide basic universal service. An ETC offering basic service in its designated service area, is a provider that is voluntarily stating its intent to provide basic universal service and be eligible to receive universal service support in accordance with Section 254. Under Section 254 (e) (3), a state commission may require a carrier to provide service to an unserved customer, however, the carrier that provides this service is eligible for universal service support. A carrier that is not designated as an ETC within a given service area, is not eligible for federal universal service support funds. Furthermore, the Telecommunications Act sets forth mandatory and specific requirements for universal service. It requires, for example, that all providers of telecommunications services should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service. 47 U.S.C. Section 254 (b) (4) It requires that there must be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service. 47 U.S.C. Section 254 (b) (5) The Act prohibits states from imposing requirements that are inconsistent with the universal service mandates of the Act. The Act’s legislative history makes clear that implicit subsidies will no longer be tolerated. Where a State has an obligation to serve requirement, it must ensure the provider is adequately compensated for providing such service. 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? As previously stated, all providers should be required to designate service areas within tariffs or price lists, so that customer know which providers offer service in a given area. ILECs should be free to designate different service areas then those currently on file, since no provider has a right to an exclusive service area. Service area designations would then clarify where providers have obligations to serve under RCW 80.36.090. 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 providers(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 Commission should develop a nondiscriminatory and equitable process that designates providers to serve unserved customers. The Commission needs to determine, as a matter of policy, if it deems it essential that every unserved customer in Washington be served, regardless of cost. For example, there may be some unserved areas, where customers desire service for secondary homes that are often unoccupied and are not primary residences. The Commission may, as a matter of policy, determine such a request as not within the scope of a universal service requirement. Should the Commission determine a customer needs to be served, Section 214(e)(3) requires state commissions to determine “which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof.” The Act goes on to state that once the Commission designates a carrier, that carrier must meet the universal service requirements of the Act and the carrier shall be designated as an eligible telecommunications carrier for that community or portion thereof. A case-by-case approach should be utilized to determine if service is necessary, and which carrier is “best able” to provide the service, taking into account the numerous providers that may enter the market on a going-forward basis. As previously stated, the Commission should require each local exchange company to designate their serving area within the LEC’s tariff or price list. Presently, new entrants tend to define their serving area as the total state. Because ILECs and new entrants do not currently offer service on a state-wide basis, service areas must be designated by each provider. Such designation could occur by filing maps outlining their service areas, or at minimum by defining the parameters of their serving areas. The Commission should commence this process immediately. Once each provider has defined its serving area, the Commission should address each unserved area on a case-by-case basis. The Commission should allow market forces to operate as contemplated by the Federal Act and need not address a potentially unserved area until a customer request is initiated. Should the Commission determine service is essential in a given unserved area, and no provider has offered to provide such service, the Commission should designate a provider as the ETC for the specified area. No provider should be designated as the ETC without a factual determination as to why such a provider is “best able” to provide the desired service. An alternative approach to the requirement for a factual determination by the Commission would be the adoption of a rule that provides for equitable and balanced ETC designations for unserved areas. For example, a lottery or bid process could be utilized. Where there are multiple providers able to serve the prospective customer, the Commission should consider making such assignments, on a rotating basis, for unserved customers. Providers should be free to negotiate the rotation order, taking into account capacity limitations, potential new capacity or technology deployments, and other similar factors. Commission ETC designation of unserved areas where there are multiple providers, including new entrants, should include a real focus on designation of new entrants. This approach would compensate for the imbalance in the designations made where only ILECs are viable candidates. Of course, any LEC may at any time, expand the scope of its serving areas on a voluntary basis. 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? Only basic telecommunications service, as defined in Senate Bill 6622, should be provided pursuant to any “statutory obligation to provide service” requirement. This should hold true regardless of whether a customer is located in an existing exchange area or in an unserved area. Basic Service is defined as follows in Senate Bill 6622: Single-party service 1Voice grade access to the public switched network 1Support for local usage 1Dual tone multifrequency signaling (touch-tone) 1Access to emergency services (911) 1Access to operator services 1Access to interexchange services 1Access to directory assistance 1Toll limitation services 7. Do the FCC infrastructure sharing rules, implementing Sec. 259 necessitate consideration by the Commission of state specific infrastructure sharing rules? U S WEST believes the industry should be given an adequate opportunity to negotiate infrastructure sharing arrangements. Moreover, it is likely that the FCC rules will enable implementation of Section 259 and that, at least initially and perhaps for the long term as well, no state specific rules will be necessary. 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. Non-ILEC carriers must also be able to and should in many cases be encouraged to construct facilities and deploy new technologies to provide service in designated service areas under the obligation to serve requirement. As previously stated, the availability from an incumbent LEC of unbundled network elements, resale, and infrastructure sharing, under tariffed terms and conditions or under a contract, should not be utilized by a non-ILEC carrier as the sole means available to it to satisfy its obligation under RCW 80.36.090. RCW 80.36.090 does not excuse a provider from its obligations, simply because such a provider is unable to obtain service from another provider. RCW 80.36.090 clearly requires the provider to provide service as demanded as qualified by the statute. Non-ILEC carriers should provide service under an obligation to serve requirement in designated service areas on the same basis under which ILEC carriers are required to provide. No carrier or class of carriers should have the sole responsibility to build and maintain the state’s telecommunication network infrastructure in high cost areas. Furthermore, requiring only incumbent LECs to provide facilities would undermine the state’s policy to “promote diversity in the supply of telecommunications services and products in the telecommunications markets throughout the state”. RCW 80.36.300 This Commission has repeatedly stated that RCW 80.36.090 applies equally to all companies. See UT-960248, 1997 Wash. UTC LEXIS 5, at *53 (Jan. 24, 1997) and UT-900162, 1991 Wash. UTC LEXIS 43, at *9 (Apr. 11, 1991). 9. Are there any legal, institutional, or market factors that the Commission should consider in altering the existing ILECs’ obligation to serve? Yes. As previously stated, the Commission should consider the current language of RCW 80.36.090, the Federal Telecommunications Act, the Fourteenth Amendment of the United States Constitution and the privileges and immunities clause in article 1, Section 12 of the Washington State Constitution. The Commission should also consider the decision in Electric Lightwave, 123 Wn.2d 530. Furthermore, market factors clearly differ from those that were in place when RCW 80.36.090 was adopted. Numerous providers have entered the market and are reaping the profit-making opportunities of cream skimming strategies, focused on low cost urban areas. . The ETC designation ensures that all customers located in high cost areas will receive basic service. The designated ETC(s) should be required to serve all customers, requesting service, located in high cost areas. The responsibility to provide service upon customer demand in high cost areas should be shared; whether it be a request from a retail customer or a wholesale customer. All providers should equally contribute to the growth and development of the telecommunications network infrastructure in the State of Washington both in low cost, high profit urban areas and in high cost areas as well. 10. Can the limits of an obligation to serve requirement be defined by technology? By business plan? By any other attribute or attributes other than a tariff? The obligation to serve requirement is currently limited to those customer’s that are reasonably entitled to such service. The Commission needs to determine under which scenarios a customer is not reasonably entitled to basic telecommunications service at a subsidized statewide average rate. Said another way, the Commission should determ