BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION WASHINGTON UTILITIES AND ) TRANSPORTATION COMMISSION, ) ) Docket No. UT-980340 Complainant, ) ) AT&T, NEXTLINK & SCS REPLY v. ) MEMORANDUM IN SUPPORT OF ) STAFF MOTION FOR SUMMARY U S WEST COMMUNICATIONS, INC., ) DETERMINATION ) Respondent. ) ) AT&T Communications of the Pacific Northwest, Inc. ("AT&T"), NEXTLINK Washington, Inc. ("NEXTLINK"), and Shared Communications Services, Inc. ("SCS") respectfully submit the following Reply Memorandum in Support of Commission Staff's Motion for Summary Determination. The federal Telecommunications Act of 1996 ("Act") unambiguously requires that U S WEST implement intraLATA dialing parity by February 8, 1999, and contrary to the positions taken by U S WEST Communications, Inc. ("U S WEST") and Public Counsel, the Commission has no discretion to delay that implementation. This requirement, moreover, is fully consistent with Washington public policy, which seeks to facilitate competition in all intrastate telecommunications markets by removing barriers to entry, including cumbersome dialing patterns. The Commission, therefore, should grant Commission Staff's Motion and order U S WEST to implement intraLATA dialing parity no later than February 8, 1999. DISCUSSION A. The Act Requires U S WEST to Implement IntraLATA Toll Dialing Parity No Later than February 8, 1999. The arguments presented by U S WEST and Public Counsel in opposition to Commission Staff's Motion suffer from a fatal misconception. These parties interpret the Act to require U S WEST to implement intraLATA dialing parity only when U S WEST is authorized to offer interLATA services. The Act is not susceptible to such an interpretation. Section 251 establishes the duty of all local exchange companies -- including U S WEST --"to provide dialing parity to competing providers of telephone exchange service and telephone toll service." 47 U.S.C. § 251(b)(3) (emphasis added). The sole exception is contained in Section 271(e), which exempts U S WEST as a Bell Operating Company ("BOC") from the requirement to provide intraLATA dialing parity until U S WEST "has been granted authority under this section to provide interLATA services originating in that State or . . . 3 years after the date of enactment of the Telecommunications Act, whichever is earlier." Id. § 271(e)(2) (emphasis added). Three years from the date of the Act is February 8, 1999, and U S WEST neither has applied, nor could prove eligibility, for a grant of authority to offer interLATA services in Washington prior to that date. U S WEST thus is flatly wrong when it claims, "There is nothing in the Act that requires intraLATA dialing parity by a BOC on a date certain, other than the date of interLATA relief for that particular company." U S WEST Answer at 8. The Act by its express terms unambiguously requires that U S WEST provide intraLATA toll dialing parity no later than February 8, 1999. The obligation to provide such dialing parity is contained in Section 251 of the Act, not Section 271. Section 251(b)(3) establishes an unequivocal duty on U S WEST to provide intraLATA toll dialing parity, while Section 271(e)(2) provides only a limited restriction on the time frame in which Washington may order U S WEST to fulfill that duty. U S WEST was provided a maximum of three years -- not an indefinite period -- during which its duty to provide dialing parity under Section 251(b)(3) was postponed, in effect a statutory stay of the effectiveness of BOCs' intraLATA dialing parity obligations. That three year stay ends on February 8, 1999, and as of that date, Section 251(b)(3) applies without restriction to U S WEST, which will be in violation of federal law for every day that it has not implemented intraLATA dialing parity. Nothing in Section 251 or Section 271 gives a state commission the discretion not to require that U S WEST comply with that law, as U S WEST contends. The Eighth Circuit's decision in People of the State of California v. F.C.C., 124 F.3d 934 (8th Cir. 1997) is fully consistent with this interpretation and fails to support U S WEST's position. In that case, the court vacated FCC rules governing implementation of intraLATA dialing parity, concluding "that the FCC exceeded its jurisdiction in promulgating its dialing parity rules." Id. at 943. The court held, "Without a clear grant of intrastate authority to the FCC, section 2(b) stands as a fortification against the [FCC's] intrusion into telecommunications matters that are intrastate in character." Id. at 941. The Eighth Circuit, however, never held that Congress was precluded from imposing requirements on intrastate telecommunications. To the contrary, the court recognized that "subsection 251(b)(3) does require dialing parity at the intrastate level," but the statutory language does not expressly authorize the FCC to implement that requirement. Id. Jurisdiction is not an issue in this proceeding. The Act imposes the duty on U S WEST to provide local and intraLATA toll dialing parity, regardless of whether the Commission alone or in conjunction with the FCC has the initial responsibility to enforce that duty. The Commission, therefore, should exercise its responsibility and order U S WEST to implement intraLATA toll dialing parity no later than February 8, 1999, as required by the Act. Refusal to enforce the Act, as U S WEST urges, would raise the very real possibility of preemption by the FCC or a federal court. See, e.g., 47 U.S.C. § 252(e)(5). B. Washington Public Policy Supports Enforcement of the Act's Dialing Parity Requirements Without Further Factual Inquiry. The Act not only requires prompt implementation of intraLATA toll dialing parity but is consistent with the Washington Legislature's and this Commission's continuing efforts to bring the benefits of competition to consumers in intrastate telecommunications markets. Congress recognized that dialing parity -- the ability of telephone users to access their carrier of choice without using access codes or dialing extra digits -- places both customers and providers on a more equal footing. Consumers can make choices based on the quality of service, features, and price offered by competing carriers, rather than being forced to decide whether they are willing to forgo improved service and better pricing to avoid the inconvenience of "dialing around" U S WEST. Fostering effective consumer choice has long been a public policy goal in Washington, see, e.g., RCW 80.36.300(2) & (5), and these policy goals supported the Commission's recent requirements that GTE and Sprint/United provide dialing parity as a condition of authority to act as primary intraLATA toll carriers for their local exchange customers. U S WEST proffers two contrary public policy arguments, neither of which withstand scrutiny. U S WEST also raises other issues that are not germane to this proceeding. Whether U S WEST is unable to realize its authorized rate of return (U S WEST Answer at 4-6) is an issue for a rate case, not this proceeding. Whether and the extent to which U S WEST's provisioning of intraLATA toll would be eligible for competitive classification (U S WEST Answer at 5) is also an issue for determination in another proceeding -- although AT&T, NEXTLINK, and SCS note that even if such competitive classification were granted, the Commission could, and should, impose the requirement that U S WEST continue to provide primary toll service to all of its current areas, including independent LEC territory, just as the Commission has required that AT&T continue to serve all areas in Washington as a condition of its competitive classification. First, U S WEST contends that if the Commission requires U S WEST to implement toll dialing parity, U S WEST would suffer a competitive disadvantage because it alone would be precluded from offering "one stop shopping" for all telecommunications services. Such a contention is demonstrably untrue. U S WEST is not authorized to provide interLATA services because it has not complied with the Act's requirement that U S WEST open its local markets to competition. U S WEST has had almost three years to satisfy the competitive checklist in Section 271, and satisfaction of these requirements has been and remains entirely within U S WEST's control. The fact that U S WEST has not even applied for interLATA authority in Washington speaks volumes on U S WEST's failure -- in many cases, refusal -- to comply with the Act. U S WEST cannot legitimately lament its lack of authority to offer interLATA services in Washington when U S WEST alone is to blame for not having satisfied the statutory prerequisites. The result of U S WEST's lack of compliance with the Act is not just that U S WEST is precluded from offering interLATA service, but that competitors are effectively barred from full entry into U S WEST's local exchange markets. U S WEST has inhibited or prevented all carriers, including itself, from being able to offer "one stop shopping" to Washington consumers. The "skewed" markets to which U S WEST refers would not be created by implementation of intraLATA dialing parity, as U S WEST asserts, but currently exist because U S WEST continues to monopolize the local exchange market. IntraLATA dialing parity will help to relieve, not cause, market distortions by removing an artificial and anticompetitive dialing requirement imposed only on those who seek to compete with U S WEST. If U S WEST were truly interested in "a balanced or effective competitive local exchange market," U S WEST would comply with its dialing parity and other obligations under the Act, not constantly challenge its legal responsibilities. U S WEST, however, seeks only to protect its de facto monopoly by maintaining barriers to competition in its local and intraLATA markets -- even at the expense of U S WEST's exclusion from the interLATA market -- including cumbersome dialing patterns for customers of competing intraLATA toll carriers. The Commission cannot wait until U S WEST decides to fulfill its legal obligations voluntarily. To properly protect the interests of Washington consumers, the Commission must enforce the Act and continue to encourage the growth of effective local exchange competition to the extent possible in the face of U S WEST's continuing recalcitrance. The second policy issue U S WEST raises is the tired warhorse that support for universal service would be threatened if U S WEST were unable to maintain its historic intraLATA toll revenues. U S WEST's convoluted arguments are devoid of both legal support and logic. U S WEST contends that Congress equated intraLATA dialing parity and BOC interLATA entry with the recognition that "a BOC cannot effectively compete in the toll business if it only provides intraLATA toll and interLATA as well; and that toll provides a huge implicit subsidy to universal service." U S WEST Answer at 8-9. U S WEST then claims that "States are uniquely qualified to deal with the phase-out of the implicit subsidy and the replacement of that with rate rebalancing or explicit subsidies. Congress thus left it to the states under section 271 to deal with this issue appropriately." Id. at 9. Congress, however, never linked dialing parity with universal service support, nor does Section 271 provide any basis on which states are "to deal with this issue appropriately," as U S WEST maintains. Section 271(e) does not even mention universal service support, but merely allows BOCs to delay implementation of intraLATA dialing parity for three years or until the BOC is authorized to provide interLATA services, whichever occurs first, without any additional requirements or limitations. Congress also did not recognize, nor does the evidence U S WEST has provided in this proceeding demonstrate, that a BOC cannot effectively compete if it provides only intraLATA toll. U S WEST speculates that intraLATA toll dialing parity would result in a 30% revenue loss. Assuming the accuracy of this figure for purposes of Commission Staff's Motion, a loss in market share of this magnitude does not even approach a demonstration that U S WEST would be unable to compete effectively. Indeed, AT&T's share of the interLATA market has dropped over 50% since the advent of competition, according to the latest FCC figures, yet U S WEST has consistently maintained that the interLATA market is dominated by AT&T and carriers with interLATA market shares of less than 20% -- carriers who have been effectively precluded from participation in Washington intraLATA markets in which U S WEST is the primary toll carrier. Finally, neither implementation of intraLATA dialing parity nor reductions in access charges represent "windfall transfers to the long distance companies and away from support for basic universal service." U S WEST Answer at 10. AT&T lowered its toll rates in Washington in response to the latest reduction in U S WEST's access charges, as reflected in the current price list AT&T has on file with the Commission. If lower rates for Washington ratepayers are "windfall transfers," the Commission should encourage more such "windfalls." Nor is an increase in competitors' intraLATA toll market share a detriment to universal service funding. As competitors carry more intraLATA toll, they pay increasingly larger amounts of the access surcharges currently used to fund intrastate universal service support in Washington. U S WEST certainly has an interest in shielding its revenue stream from competition and the attendant consumer benefits, but the Commission should not be misled by U S WEST's mischaracterization of this interest as an altruistic concern over universal service. Public Counsel, on the other hand, is concerned that the Commission needs additional information and should use this docket to quantify the financial impact of intraLATA toll dialing parity on U S WEST and Washington ratepayers. Public Counsel's primary concern appears to be "if the end result of dialing parity is a general rate increase resulting in rate rebalancing by another name." Public Counsel Memo at 4. Congress and the Washington Legislature, however, have already made the policy decision that all telecommunications markets must be open to competition and that implicit cross-subsidies between services should be eliminated. The Commission cannot micromanage the development of competition by selectively shielding the incumbent monopoly provider from market share erosion without fundamentally undermining federal and state policy goals. Public Counsel essentially asks the Commission to consider maintaining U S WEST's monopoly in the intraLATA toll market because the implicit cross-subsidies derived from that market may be necessary to maintain lower rates in the local market. The impact of this proposal is the maintenance of barriers to competition in both markets -- competitors cannot compete effectively in the intraLATA toll market because of dialing inequities and are discouraged from entering the local market because they cannot compete against rates that are subsidized with revenues from the protected monopoly toll market. AT&T, NEXTLINK, and SCS agree that "[c]ompetition itself is not a goal. The goal is fair and affordable rates with plentiful service." Id. By definition, however, rates cannot be "fair" if they are subsidized by monopoly revenues. See, e.g., RCW 80.36.300(4). Congress, the Washington Legislature, and this Commission have determined that the development of effective competition, rather than pervasive regulatory oversight, is the best means of ensuring fair and affordable rates with plentiful service. The Commission should not consider abandoning that determination simply because regulated rates may need to be adjusted as markets become increasingly competitive and any implicit cross-subsidies among services are eliminated. CONCLUSION The Commission should enforce U S WEST's legal obligations and continue to encourage the development of effective competition in all intrastate telecommunications markets by ordering U S WEST to implement intraLATA dialing parity by February 8, 1999. RESPECTFULLY SUBMITTED this _____ day of September, 1998. DAVIS WRIGHT TREMAINE LLP Attorneys for AT&T Communications of the Pacific Northwest, Inc., NEXTLINK Washington, Inc., and Shared Communications Services, Inc. By Gregory J. Kopta WSBA No. 20519 Deborah Whiting Jaques NEXTLINK Maria Arias-Chapleau 1003 Montello Avenue Susan D. Proctor Hood River, OR 97031 AT&T Communications of the Pacific Northwest, Inc. Pamela Ballard 1875 Lawrence Street, Room 1575 Shared Communications Services, Inc. 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