BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION UT-970325 In the Matter of Access Reform ) COMMENTS OF SPRINT CORPORATION And Universal Service And ) ON BEHALF OF SPRINT COMMUNICATIONS the Small Business ) COMPANY L.P. AND UNITED TELEPHONE Impact of WAC 480-120-000 ) COMPANY OF THE NORTHWEST Pursuant to the “Notice of Issuance of Questionnaire” and “Notice of Opportunity to Comment” issued by the Washington Utilities and Transportation Commission (“Commission”) on March 30, 1998 in the referenced docket, Sprint Corporation on behalf of Sprint Communications Company L.P., and United Telephone Company of the Northwest (“Sprint”) respectfully submits these reply comments. WAC 480-120-000 Access Charges and Earlier Staff Proposal On April 7th, Sprint filed reply comments with the Commission that addressed in part Staff’s Revised Access Charge Reform Proposal as outlined in the Commission’s March 13, 1998 “Opportunity to File Reply Comments and Opportunity to Respond to Commission Staff’s Revised Proposal.” Staff’s Revised Proposal for terminating access charges in the March 13 notice closely matches the WAC 480-120-000 language in the March 30th Notice with the additional clarification on the term “access charges.” The chief difference between the two proposals concerns how revenue reductions might be offset. The March 13th proposal allows offsets via originating access increases, whereas the March 30th proposal appears to provide offsets for lost revenue only for telecom-munications providers with fewer than 50 employees. It is unclear whether universal service would include “lost access”. For the purpose of completing the questionnaire, Sprint assumes no USF recovery related to access reform. As a result, Sprint’s local operation in Washington would stand to lose over $6M annually in revenues under the latest proposal. For the purpose of completing the questionnaire, Sprint has assumed that terminating access charges would be reduced to a composite total element long-run incremental cost (TELRIC), including the cost of transport, end office switching, and tandem switching. Since Sprint has not completed either TELRIC or TSLRIC studies specific to its Washington operations, these costs represent rough estimates. Sprint questions why local interconnection service, such as end office switching or tandem switching, would be an appropriate benchmark for terminating access. In Sprint’s local operation, access includes significant transport or interexchange facility cost whereas local interconnection does not. Pricing access at local interconnection rates would mean that Sprint would be pricing access below cost. Neither the March 13th or the March 30th proposal addresses the carrier common line access element or structure changes that are required to match the current federal access structure. Sprint has assumed for the purpose of completing the questionnaire that terminating carrier common line CCL would be replaced with the composite access TSLRIC. Since the March 30th proposal does not address originating access rates, Sprint assumes that no rate changes are contemplated. If this is not the case, the lost sales figure would change. Mitigation for Small Local Exchange Telecommunications Companies Sprint’s local operation would not qualify as a small business under RCW 19.85.020, and thus would not be able to avail itself of the revenue-neutral provision proposed for qualifying businesses. Why access rate rebalancing would be denied to all but small businesses with fewer than 50 employees is a mystery, though the “benefit” conferred upon small businesses may be largely illusory given the way the rule dictates that rates must be rebalanced. The rule as it applies to small independent local exchange companies (ILECs) has the advantage of revenue retention on its face, but would likely result in revenue loss regardless. As Sprint stated in its April 7th reply comments, setting rural LECs terminating access rates at TSLRIC would likely result in originating rates of well over 10 cents a minute. The consequence is likely to be service bypass, or arbitrage, since the access carrier, or customers would likely order dedicated (special access) facilities to avoid the high originating switched access charges. In some cases, the loss of one or two large customers to bypass via special access could lead to serious revenue shortfall for the LEC with no corresponding change in costs. The end result is that the small LEC would need to file a rate case. Therefore, it is questionable whether this rate scheme will have much mitigating effect on small businesses either in terms of revenue or administrative cost. The legislative intent of the Regulatory Fairness Act (19.85.011-.040) was to relieve small businesses from burdensome regulatory requirements in order to promote competition, or innovation by reducing the disproportionate impact of state administrative rules on small businesses. Instead, this rule encourages switched to special bypass and would discourage facility-based competition. Facility-based competition is unlikely to occur as a result of this rate scheme. A new entrant will not invest the significant capital that would be required to serve customers in rural areas when originating access revenue could be easily bypassed through special access. Therefore the rule does not assist those very businesses that the legislature specially intended to protect with the passage of the Regulatory Fairness Act. Any rate rebalancing proposal should instead be founded on cost causation principles and with regard for other substitute service prices, and should not be limited to small businesses. Since access charges tend to be highest for companies serving rural high-cost areas with a sparse customer base, such businesses with more than 50 employees—and ultimately their customers--would be hardest hit from a policy that denies rate rebalancing. Clearly, this policy cannot benefit small businesses or Washington consumers. Summary The March 30th access reform proposal would cause Sprint’s local operation to lose more than an estimated $6M in revenue with no plan for how these revenues might be replaced elsewhere, and no plan for moving the state access rate structure changes toward the current federal structure. Moreover, the local interconnection end office charge suggested as the appropriate price ceiling for terminating access fails to recognize the inherently different nature of transport costs between the two services. The mitigation proposal seems designed more as a penalty for rural companies that employ more than 50 employees than as a benefit for smaller businesses. Indeed, the rate scheme suggested would recklessly force service bypass and require that small businesses file rate cases, and is therefore likely to result in little mitigation. In fact, the way rate rebalancing is specified for small businesses could in fact hinder competition in rural markets. For the preceding reasons, Sprint urges the Commission to replace the March 30th access reform proposal with a balanced approach that gradually moves switched access rates closer to cost with corresponding increases to line-based access charges and local service as described in Sprint’s previously filed comments, and as recently adopted by the Maine Public Utility Commission for Bell Atlantic. Sending the correct price signals, rather than arbitrarily slashing access rates, should result in consumer benefit in the form of lower toll rates and more providers of local service. Respectfully submitted this 20thth day of April 1998. SPRINT CORPORATION ON BEHALF OF SPRINT COMMUNICATIONS COMPANY L.P. AND UNITED TELEPHONE COMPANY OF THE NORTHWEST _____________________________________ Nancy L. Judy Assistant Vice President External Affairs