BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION



In the Matter of the Petition for Arbitration  )
of an Interconnection Agreement Between ) DOCKET NO. UT-960307
       )
AT&T COMMUNICATIONS OF THE PACIFIC )
NORTHWEST, INC. and     ) COMMISSION ORDER 
GTE NORTHWEST INCORPORATED  ) PARTIALLY GRANTING 
       ) RECONSIDERATION
Pursuant to 47 U.S.C. Section 252.  )
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 
. . )


I. INTRODUCTION

  SUMMARY.  In this order, the Commission concludes that it should not delete 
contract language obligating GTE Northwest Incorporated (GTE), to provide 
combinations of network elements at TELRIC.  This Commission uses a Total 
Element Long Run Incremental Cost (TELRIC) methodology in setting prices for 
network elements. prices for network elements.

  PROCEDURAL HISTORY.  The Commission issued its final order in this proceeding 
on August 25, 1997. In part of the order, the Commission declined to remove 
contract language obligating GTE to offer combinations of elements. The 
Commission rationale was that the issue relating to element combinations (Issue 
31) addressed only the scope of AT&T Communications of the Pacific Northwest, 
Inc’s., (AT&T) ability to combine elements rather than any obligation GTE might 
have to combine elements for AT&T.

  GTE filed a request for Clarification or Reconsideration on 
September 4, 1997. GTE asserted that it, in good faith, understood the 
Arbitrator’s Report as requiring GTE to offer element combinations and, as a 
result of that understanding, GTE negotiated contract language to implement the 
Arbitrator’s decision. GTE asks the Commission to treat the language as 
“arbitrated” language rather than “fully negotiated” language. In that context, 
the Commission would be requiring GTE to offer element combinations.
 
  GTE then asserted that the requirement to offer element combinations violates 
the Eighth Circuit’s July 18, 1997, decision. That decision struck some 
portions of the FCC’S Order No. 96-325 relating to element combinations. The 
Eighth Circuit, on reconsideration of its first decision, issued a second 
decision on October 14, 1997. The second decision struck additional portions of 
the FCC’s order. After analyzing the second decision, the Commission called for 
additional briefs.

  Both parties filed opening and reply briefs. GTE also filed an objection to 
the two exhibits AT&T attached to its reply brief. (The exhibits were copies of 
decisions from the Idaho and Texas commissions.) When AT&T replied to the 
objection, it attached a decision from the Alabama commission.  AT&T later 
submitted a January 28, 1998 decision from the Michigan commission.  AT&T 
replied to GTE’s objection on January 6, 1998.

  STRUCTURE OF THIS ORDER.  In this order the Commission first rules on the 
objection. It then decides whether it should treat contract provisions relating 
to element combinations as arbitrated language or fully negotiated language. It 
decides to treat the language as arbitrated, so the next section addresses the 
impact of the Eighth Circuit decisions on the Commission’s ability to require 
GTE to offer combinations of elements. The Commission then considers the issue 
from a policy perspective and decides in favor of requiring GTE to offer 
element combinations.


II. GTE’s OBJECTION

  GTE asserts that it was unfair for AT&T to attach the decisions to its reply 
brief when it could have attached them to its opening brief and given GTE an 
opportunity to respond to them. It responds to the exhibits by asserting that 
factual differences make the decisions irrelevant as precedence for the 
Commission’s decision in this case.

  The “exhibits” are legal precedent rather than evidence, so they are not part 
of the evidentiary record and there is no basis for an evidentiary objection. 
There could be a fairness issue if any of the decisions were critical to this 
Commission’s decision, but they are not. The Commission has GTE’s comments on 
factual differences to help guide it in assessing the weight it should give to 
the other commissions’ conclusions. (The same reasoning applies to the Michigan 
commission decision.) The Commission overrules the objection.


III. THE ARBITRATED/FULLY-NEGOTIATED ISSUE

  In AT&T’s reply to GTE’s request for reconsideration, AT&T states that “[it] 
has never suggested that the Agreement’s provisions regarding element 
combinations were negotiated…”. There is no apparent dispute that GTE read the 
Arbitrator’s Report as imposing an obligation to combine elements for AT&T. It 
would be unfair to GTE to treat the language as fully-negotiated language and 
it would be unfair to AT&T to strike the language as a mere proposal. The best 
solution is to treat it as arbitrated language and resolve the issue on its 
merits.


IV. THE EIGHTH CIRCUIT ISSUE

  1. GTE’s Argument.  The Eighth Circuit’s first decision vacated 47 C.F.R. 
51.315(c). That subsection required incumbents to combine network elements for 
new entrants.

  The Court, in its second decision, unambiguously ruled that an incumbent has 
no obligation to refrain from disassembling combinations of elements:

Section 251(c)(3) requires an incumbent LEC to provide access to the elements 
of its network only on an unbundled (as opposed to combined) basis. Stated 
another way, §251(c)(3) does not permit a new entrant to purchase the incumbent 
LEC’s assembled platform(s) of combined network elements (or any lesser 
existing combination of two or more elements) in order to offer competitive 
telecommunications services. To permit such an acquisition of already combined 
elements at cost based rates for unbundled access would obliterate the careful 
distinctions Congress has drawn in subsections 252(c)(3) and (4) between access 
to unbundled network elements on the one hand and the purchase a wholesale 
rates of an incumbent’s telecommunications retail services for resale on the 
other. Accordingly, the Commission’s rule, 47 C.F.R. § 51.315(b), which 
prohibits an incumbent LEC from separating network elements it may currently 
combine, is contrary to § 251(c)(3) because the rule would permit the new 
entrant access to the incumbent LEC’s network elements on a bundled rather than 
an unbundled basis.

Iowa Utilities Board v. FCC, Order on Reconsideration, slip op. At 2 (Oct. 14, 
1997) (emphasis added).

  This Commission must follow the Eighth Circuit’s ruling because it took 
effect on October 14, 1997, and the Supreme Court has not stayed it. The Eighth 
Circuit is the single circuit to review the FCC’s Order No. 96-325. Its ruling 
applies nationwide.

  2. AT&T’s Argument. This Commission has independent state authority to:

_Prohibit GTE from separating existing element combinations unless AT&T 
requests separation, and

_Require GTE to enable AT&T to order combinations of elements in a single order 
unless AT&T requests otherwise.
  The authority arises from:

_The general state policy in RCW 80.36.300(2) to “maintain and advance the 
efficiency and availability of telecommunications services” and RCW 
80.36.300(3) to “promote diversity in the supply of telecommunications services 
and products” in the state.

_The specific authority in RCW 80.04.110 to determine “adequate” and 
“efficient” practices for telecommunications companies and also to “correct” 
practices that “tend to stifle” competition.

_The prohibition in RCW 80.36.170 against unreasonable prejudices and 
disadvantages.

  The Commission should exercise its independent state authority because a 
failure to require GTE to offer combinations of elements would forestall 
competition in a way contrary to the public interest. GTE proposes to run 
jumpers from the main distribution frame (MDF) to the collocation space, and 
from the switch line card (port) to the collocation space. That would require 
the new entrant to cross-connect the jumpers to combine the loop with the port. 
The extra connections would escalate new entrant costs and create service 
problems.

  This less efficient approach would violate the Act because:

_The Eighth Circuit ruled, in its July 18th order, that § 251(c)(3) does not 
require a new entrant to own or control any portion of a telecommunications 
network as a prerequisite to obtaining network elements.

_Section 251(c)(3) requires GTE to provide nondiscriminatory access at 
nondiscriminatory terms.

_47 C.F.R. § 51.311, which remains effective, requires incumbents to provide a 
quality of access to unbundled elements at least equal to the quality of access 
the incumbent provides to itself.

  On the other hand, Commission action favoring AT&T would not violate the Act. 
Section 601(c) states that the Act does not “modify, impair, or supersede” 
state or local laws unless the Act specifically preempts the state or local 
law. Similarly § 251(d)(3) prevents the FCC from precluding state commission 
actions which (A) establish access and interconnection obligations, (B) are 
consistent with § 251; and (C) do not “substantially prevent” the FCC from 
implementing the Act. State commission action favoring AT&T would comply with § 
261(c) because it is “necessary” to further competition and “consistent” with 
Congress’ overall objective of a rapid transition to competitive local exchange 
markets.

  Resolution.  GTE correctly noted in its reply brief that the Eighth Circuit 
did not believe that it reached inconsistent results in its resolution of the 
“sham unbundling” issue in favor of new entrants and its resolution of the 
“element combinations” issue in favor of incumbents. See Iowa Utilities Bd. v. 
FCC, 120 F. 3d at 815. The court stated, with respect to sham unbundling, that 
the new entrant could obtain all of the elements for a telecommunications 
service from the incumbent. It then stated that, when a new entrant obtains 
elements from the incumbent, the Act does not require the incumbent to combine 
the elements into a service.

  Under the Eighth Circuit’s interpretation, the Act contemplates access to 
network elements under element pricing (e.g.TELRIC) when the new entrant, 
rather than the incumbent, combines the elements into services.  Otherwise, the 
new entrant is obtaining a service for resale and the wholesale discount 
applies.  The “carefully crafted” distinction between access to elements and 
resale of services ensures that incumbents receive compensation for doing the 
intellectual and physical work necessary to create services from elements.
  
  Compensation is, of course, a pricing issue and state commissions, rather 
than the FCC, set retail rates for local services and resolve interconnection 
agreement disputes for element prices and wholesale discounts.  47 U.S.C. § 
252(d). The Eighth Circuit’s decision to vacate the FCC’s combination rule 
makes sense because the FCC cannot ensure that the incumbent will receive 
compensation for the work necessary to create the combination.  However, 
imposing that limitation on state commissions is not necessary to preserve the 
access/resale pricing distinction (compensation for the work necessary to 
combine elements) because a state commission can set element prices to ensure 
that the incumbent receives just compensation for creating any combinations the 
state may require the incumbent to offer.

  As a practical matter, incumbents do not offer “sub-services” (like the local 
loop and port components of basic local service) for a new entrant to acquire 
and resell in lieu of purchasing the individual elements.  It may be necessary 
for the state commission to require incumbents to combine some elements because 
it may not be technically or economically feasible for new entrants to perform 
that work.  In those cases, the state commission would fail to achieve the 
primary goal of the Act (competitive local exchange markets) if it did not 
require the incumbent to offer the combination.  It does not make sense to 
construe the Eighth Circuit’s decision as prohibiting state commissions from 
achieving the overall goal of the Act when they have the ability to do so 
without thwarting the secondary goal of the access/resale pricing distinction.
  
  State commissions, unlike the FCC, also have authority under the Act to 
implement state policies to the extent the policies are consistent with the 
Act. This commission has an obligation to implement Washington statutes 
governing quality of service and incumbent discrimination against new entrants. 
To the extent those statutes create a need for incumbents to offer element 
combinations, the Commission must require them to offer combinations to the 
extent the Commission is able to do so.
  
  The following factors compel the Commission to resolve the pending issue in 
this proceeding by requiring GTE to combine elements from the Network Interface 
Device (NID), to the switch:
  
  Feasibility.  GTE’s proposal to run jumpers may be “possible” to accomplish, 
but it is not desirable from a technological point of view because it requires 
extra connections (i.e. extra potential service failure points) and 
coordination between technicians from both companies (i.e. more potential 
service failure points). It also is not desirable from an economic point of 
view because it would increase costs for both companies. To the extent AT&T 
bears the extra cost, GTE’s proposal would make it more difficult for AT&T to 
enter the market. To the extent either company passes the extra cost on to its 
customers, Washington’s consumers will suffer.
  
  Consistency with the Act. Rejecting GTE’s proposal is consistent with the Act’
s access/resale distinction because the Commission can provide GTE with just 
compensation for the work it performs in combining the elements. Adopting GTE’s 
approach would not be consistent with the overall goal of a rapid transition to 
competitive markets because it would hamper entry. The solution most consistent 
with the Act is to require GTE to provide the element combinations and set 
element prices to provide just compensation for the work GTE performs in 
combining the elements.
  
  Washington’s Discrimination Statute. In Washington, incumbent telephone 
companies are prohibited from treating themselves better than they treat new 
entrants.  RCW 80.36.186 provides:
  
Notwithstanding any other provision of this chapter, no telecommunications 
company providing noncompetitive services shall, as to the pricing of or access 
to noncompetitive services, make or grant any undue or unreasonable preference 
or advantage to itself or to any other person providing telecommunications 
service, nor subject any telecommunications company to any undue or 
unreasonable prejudice or competitive disadvantage. The commission shall have 
primary jurisdiction to determine whether any rate, regulation, or practice of 
a telecommunications company violates this section.

  “Service” is used in its broadest and most inclusive sense.  
RCW 80.04.010.  Network access through the purchase of network elements is a 
“service” under RCW 80.36.186.
  
  The statute essentially splits incumbents into a hypothetical wholesale 
operation and a hypothetical retail operation. The wholesale operation may not 
discriminate against a new entrant either with respect to another new entrant 
or with respect to the incumbent’s retail operation. This includes providing 
network elements to the retail operation under more favorable terms. If the 
incumbent’s wholesale operation provides the incumbent’s retail operation with 
direct port connections, and connects a new entrant only through jumpers, the 
incumbent has violated 
RCW 80.36.186.
  
  This result is consistent with 47 C.F.R. 51.311(b), which requires incumbents 
to provide access “at least equal in quality” to the access they provide 
themselves. The access that GTE proposes to provide would not be equal in 
quality to the access it provides to itself because it would be through jumpers 
rather than direct connections. GTE’s proposal would violate 47 C.F.R. 
51.311(b).
  
  Quality of Service.  Section 252(e)(3) of the Act specifically authorizes 
state agencies to enforce state quality of service standards. This commission 
regulates the quality of service provided by telephone companies in accordance 
with RCW 80.36.300, which provides:

The legislature declares it is the policy of the state to:

 (1) Preserve affordable universal telecommunications service;

 (2) Maintain and advance the efficiency and availability of telecommunications 
service;

 (3) Ensure that customers pay only reasonable charges for telecommunications 
service;

 (4) Ensure that rates for noncompetitive telecommunications services do not 
subsidize the competitive ventures of regulated telecommunications companies;

 (5) Promote diversity in the supply of telecommunications services and 
products in telecommunications markets throughout the state; and

 (6) Permit flexible regulation of competitive telecommunications companies and 
services.

  It would be particularly difficult for the Commission to implement the 
policies set forth above under GTE’s proposal:
  
  Efficiency and Availability.  GTE’s proposal would make competitive 
telecommunications services less efficient because it requires the use of 
jumpers. It would make competitive services less available because logistical 
problems arising from the use of jumpers would put customers out of service for 
a period of time long enough to discourage customers from switching to AT&T’s 
services.  This would violate RCW 80.36.300(2).

  Prices.  By hampering competitive entry, GTE’s proposal would reduce the 
pressure that competition puts on prices.  It would tend to produce 
unnecessarily high prices for Washington consumers.  This result would be 
inconsistent with RCW 80.36.300(3).

  Diversity of Services.  By hampering competitive entry, GTE’s proposal would 
make it more difficult for the Commission to promote diversity in the supply of 
telecommunications products and services.  This result would violate the policy 
set forth in RCW 80.36.300(5).

  Regulatory Flexibility.  To the extent GTE’s proposal slowed the transition 
to competitive markets, it would slow the transition to more flexible 
regulation.  This result would be inconsistent with RCW 80.36.300(6).

  While it is impossible to determine at this point which specific state 
service quality standards GTE’s proposal would violate, it is particularly 
likely to violate WAC 480-120-500(1). That rule obligates both companies to 
design, construct, maintain, and operate their facilities to ensure continuity 
of service, uniformity in the quality of service, and safety to people and 
property. The additional potential service failure points resulting from GTE’s 
proposal would make the task of meeting the state’s quality of service goals 
more difficult. GTE’s proposal is not consistent with Washington’s 
telecommunications policy goals and is hereby rejected.


V. CONCLUSIONS OF LAW

  1.  The Commission should overrule GTE’s objection.

  2.  The Commission should grant GTE’s request for reconsideration and treat 
contract language relating to element combinations as arbitrated language.

  3.  The Eighth Circuit’s decisions do not prevent the Commission from 
requiring GTE to offer element combinations.

  4.  GTE’s proposal is not consistent with the 1996 Act and is not consistent 
with Washington’s telecommunications policy goals.

  5.  The Commission should reject GTE’s proposal and decline to strike Section 
32.5 of the contract or any other language obligating GTE to provide 
combinations of elements.


O R D E R

  THE COMMISSION ORDERS that:

  1.  Section 32.5 of the contract, and the other language obligating GTE 
Northwest Incorporated to provide combinations of elements, shall remain in the 
contract.

  2.  In the event that the parties revise, modify, or amend the agreement, the 
revised, modified, or amended agreement shall be a new negotiated agreement 
under the Act and the parties shall submit it to the Commission for approval, 
pursuant to 47 U.S.C. § 252(e)(1) and relevant state law, before the agreement 
takes effect.

  DATED at Olympia, Washington and effective this 16th day of 
March 1998.

WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION



      ANNE LEVINSON, Chair



      RICHARD HEMSTAD, Commissioner



      WILLIAM R. GILLIS, Commissioner