Page 1 Reply Comments of Sprint Corporation UT-980311(r) BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION UT-980311(r) In the Matter of Developing Rules ) REPLY COMMENTS OF SPRINT And Regulations for Administering ) CORPORATION ON BEHALF OF Universal Service Support in the ) UNITED TELEPHONE COMPANY State of Washington ) OF THE NORTHWEST AND ) SPRINT COMMUNICATION COMPANY, L.P. Pursuant to the Notice of Opportunity to File Rulemaking Comments issued in this docket on May 4, 1998, Sprint Corporation (Sprint), on behalf of United Telephone Company of the Northwest and Sprint Communications Company, L.P., respectfully submits reply responses to the questions contained in the Commission=s Notice. Sprint believes the recommendations submitted previously in this docket represent a balanced approach to implementing a universal service plan that would neither harm, nor provide a competitive advantage to any class of telecommunications provider. While each of the parties= proposals claim to meet the requirements of the Telecommunications Act (Act), some of their specific recommendations are, in fact, contrary to the Act. Sprint strongly disagrees with MCI=s and AT&T=s recommendations regarding establishment of a revenue benchmark to determine the funding level for universal service. MCI and AT&T would like the Commission to adopt a revenue benchmark which includes revenue from several services that are not included in developing a proposed forward-looking economic cost. The recommendation would provide inadequate universal service funding and the continuing problems associated with implicit subsidies, which the Act directs us to eliminate. Sprint also objects to including US West=s desire for Arecovery of embedded costs not yet recovered due to prior obligation to serve requirements@ in this docket. GOAL OF UNIVERSAL SERVICE Question 2: Should the USF program guarantee sufficient operation revenue to companies serving high-cost locations no matter how much market share is lost to competitors? Most parties agree that the USF program should not be used to guarantee operating revenue to companies serving high-cost locations. US West, however, argues that USF should cover stranded investment. Sprint believes that recovery of embedded costs in no shape or form should be addressed in this docket. Embedded costs have no significance in determining the forward looking economic cost to provide the defined basic services to high cost customers. US West should address this issue in a more appropriate proceeding that is specific to this issue. If the Commission should determine that US West needs to increase revenues to recover embedded costs, those revenues should be collected from customers that have received the benefit of the investment, US West customers. Washington telecommunication users who have not received any benefit from US West capital investments should not fund subsidies to recover those costs through this proceeding. SUPPORTED SERVICES Question 10: Should unsubscribed lines be supported? After reading the responses of other parties, Sprint better understands the question. Sprint agrees with US WEST that the FCC mandated that cost must estimate the cost of providing service for all businesses and households within a geographic region, but that support provided to ETCs should be based on the number of subscribers the ETCs actually serve in the geographic support area. Question 11: Universal service is intended to assure affordable access to the network to use a group of enumerated services (see ESSB 6622, Sec. 1(7)(b)(i) through (ix)). Many customers desire additional features or services, for example, call waiting, voice mail, and call blocking. Should features or services in addition to those which constitute basic service, when provided to customers in high-cost locations, be priced the same, or higher or lower than they are priced in non-high-cost locations? Sprint stands by its original response, but would like to clarify that universal service should not include the costs or revenues associated with discretionary services. Question 13: Should the universal service fund be used to pay for infrastructure necessary to provide service to potential customers who do not reside within established company service areas? (Please see material related to Obligation To Serve in Docket No. UT-970325.) Sprint generally agrees with US West=s response, but would like to clarify one point. US West correctly states that the BCPM cost model includes costs for unserved areas where there are existing households, however, this is true only within the constraints of the company=s service boundaries. Households outside the wire center, for instance, would not be included. USF BENCHMARK Question 18: What cost of providing basic telecommunications service in Washington should be deemed to be Ahigh cost@ (what is the benchmark figure)? How should it be determined? Sprint has proposed that the level of universal service support should be based on the difference between the economic, forwarding-looking cost of providing universal services, as determined by BCPM 3.1, and an affordability benchmark. The affordability benchmark should be based on the national affordability benchmark, or a state-specific benchmark based on the state urban rate including SLC and taxes. In general, AT&T and MCI state in their comments that support should be based on the difference between forward-looking economic costs and a revenue benchmark. The revenue benchmark is based on an average of all revenue streams, even though the cost of most of the services are not included in their economic cost calculation. This recommendation artificially lowers the universal support levels and perpetuates a pricing structure full of implicit subsidies. It is counterintuitive to the universal service process to include revenues from services that provide implicit subsidies aimed at keeping basic local service rates affordable to end users while, at the same time, attempting to remove the implicit subsidies contained in these rates. The goal of the universal service fund is to provide explicit support for basic local services included in the list of services to be supported by the fund. This simply does not include services that provide implicit support (i.e. toll, access and vertical feature services) to the ILEC in today=s pricing environment. A mechanism which includes these other services simply does not meet the law of the land, the Act, which directs that all implicit subsidies should be made explicit (see Section 254(e)). Sprint urges the Commission to adopt a universal service fund mechanism that matches the prices for the supported services to the cost of providing the supported services consistent with the requirements of the Act. ELIGIBLE TELECOMMUNICATIONS CARRIERS Question 26: For what service areas can the provision of support payments be reasonably administered? MCI and AT&T stated that it would be acceptable to calculate forward-looking economic costs based on a statewide average. A statewide calculation is entirely inappropriate to determine the size of the universal service fund because costs clearly vary by geography within a state as indicated by both the Hatfield and BCPM models. Averaging costs on a statewide basis is anti-competitive and leaves implicit subsidies in local basic service prices. Statewide average costs would allow competitors to aggressively market to low cost customers and receive support greater than the cost to provide that customer service. Customers in low cost areas would also continue to subsidize high cost areas through the statewide average costing proposal. Sprint=s proposal to calculate universal service funding at the CBG level is consistent with the intent of the Act. Sprint appreciates the opportunity to share our views with the Commission and looks forward to continuing our active participation in this docket. Respectfully submitted this 2nd day of July, 1998. SPRINT CORPORATION on behalf of UNITED TELEPHONE COMPANY OF THE NORTHWEST AND SPRINT COMMUNICATIONS COMPANY, LP ___________________________ Nancy L. Judy AVP External Affairs