BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION



Rulemaking to Establish a  )  Docket No. UT-980311(r)
Universal Service Mechanism  )  
for Intrastate Service  )  Comments of TRACER
______________________________)

 The Washington Telecommunications Ratepayers Association for Cost-based and 
Equitable Rates (TRACER) submits these comments in response to the Commission's 
Notice of Request for Comment on 1st Draft Universal Service Rules.  These 
comments are presented as general comments, comments on the specific sections 
of the proposed rules, and on the topic of affordability of telecommunications 
service prices.  While many of the comments have been presented previously to 
the Commission, TRACER believes they bear repeating and provide valuable 
context to the comments on the specific provisions of the draft rule.

I. GENERAL COMMENTS
 TRACER supports the goal of reforming the intricate web of implicit subsidies 
that have been relied upon in the past to support universal service in high 
cost areas of the state. However, TRACER believes that the development and 
implementation of an alternative subsidy mechanism must proceed with two key 
objectives in mind.  First, to minimize the disruption and adverse impacts on 
consumers of all kinds.  Second, to act consistently with the purpose of the 
federal Telecommunications Act of 1996 Telecommunications Act of 1996, Pub. L. 
No. 104-104, 110 Stat. 56 (codified at 47 U.S.C. § § 151 et seq.). ("Act").
 The stated purpose of the Act is "to promote competition and reduce regulation 
in order to secure lower prices and higher quality services for American 
telecommunications consumers and encourage the rapid deployment of new 
telecommunications technologies." (Emphasis added.) Act, supra, purpose 
statement, at 56.  In section 254 of the Act, Congress also stated that 
"[t]here should be specific, predictable and sufficient Federal and State 
mechanisms to preserve and advance universal service."  As explained in the 
Joint Explanatory Statement of the Committee of the Conference, Congress 
intended that, "[t]o the extent possible, . . . any support mechanisms 
continued or created under new section 254 should be explicit, rather than 
implicit as many support mechanisms are today." Joint Explanatory Statement of 
the Committee of the Conference, S. Conf. Rep. No. 230, 104th Cong., 2d Sess. 
131 (1996).
 Thus, in reforming the universal service support mechanism, the Commission 
needs to act to identify and remove the implicit subsidies that support 
universal service in high cost areas and do so in the context of, and in strict 
coordination with, policies that will enable competition capable of putting 
downward pressure on retail prices to develop.  But, it is important to be 
mindful of the fact that this goal must be pursued slowly and carefully if 
enormously disruptive and inequitable impacts on ratepayers are to be avoided.
 Obviously, the overall level of intrastate universal service support implicit 
in existing rates is substantial.  TRACER believes that it will not be possible 
to immediately remove all implicit support without significant inequitable 
impacts on customers or on incumbent local exchange carriers.  Instead, TRACER 
believes that a process that over time eliminates the implicit support from 
access charges, from high business rates, from geographic rate averaging, and 
from other services, is the preferred course.
 It is also important to keep in mind the realities of the marketplace in 
trying to identify and remove implicit subsidies. The simple reality is that 
some degree of cost averaging is inevitable in the marketplace.  And, cost 
analyses for purposes of USF support should be conducted on geographic levels 
that comport with the real world areas in which telecommunications companies 
seek to offer service--i.e., how telecommunications networks are laid out, how 
services are actually marketed, or how CLECs are likely to build their own 
networks.  Any attempt to identify and remove implicit subsidies--i.e., 
deaverage costs--at geographic levels smaller than this will only result in an 
underestimate of economies of scale and scope and overpayments of needed USF 
support.  Overpayments in high-cost areas, in turn, will only result in 
windfalls or unfair competitive advantages to the recipients in low-cost areas. 
 The most critical task is developing a suitable state high cost support 
program that, operating in conjunction with federal high cost support 
mechanisms, will ensure the availability of basic telecommunications service to 
all residents of the state at affordable prices.  As discussed below, TRACER 
submits that this means that one line per residence and business location be 
supported through an explicit support program that is insulated from the 
effects of competition.
 Existing methods of supporting secondary lines and other services in high cost 
areas should continue, with a realistic eye to the actual development of 
competition and its effect on the sources of support for those high cost 
services.  At a minimum, it is important that the process of changing existing 
implicit subsidies should be an evolutionary one.
 The Commission should be prepared to rely more heavily on competition to 
identify and remove implicit subsidies for secondary lines and non-basic 
services.  Where competition can force telecommunications prices to competitive 
levels, implicit supports will be substantially eliminated.  This is because 
the prices charged by new entrants presumably do not contain any implicit 
universal service support.  It is important to keep in mind that, under present 
law, incumbent LECs have considerable flexibility in responding to 
competition:  they can lower prices without prior Commission approval; in U S 
West's case, it can offer banded rates for any retail service; and they can 
offer ICB contracts in instances of competitive necessity.  If competition 
actually does develop in a way that puts pressure on the existing sources of 
high cost support, the Commission can take a measured response and authorize 
appropriate levels of zone pricing necessary to counteract that pressure.
 One area of particular concern to TRACER is the apparent disjoint between (1) 
the Commission's announced intentions regarding the reform of 
telecommunications service pricing and (2) the actual implementation of local 
competition.  At this point, the costs for UNEs and the wholesale discount 
approved in the 8th Supplemental Order in Docket Nos. UT-960369, 960370, and 
960371, and the prices for UNEs that are likely to come out of that proceeding, 
in TRACER's opinion, will disable resale and UNE-based competition from being 
able to put any meaningful downward pressure on the prices charged by incumbent 
LECs.  Given that, facilities-based competition can be expected to develop much 
more slowly and be much more narrowly targeted than otherwise might be 
expected.  With facilities-based competition being confined to niche markets, 
the competitive pressure on traditional sources of universal service support 
will simply not be present, at least not any time soon.  Thus, there is no 
present cause for concern about the viability of existing sources of support 
for services in high cost areas.


II. COMMENTS ON PROPOSED RULES

GENERAL

WAC 480-123-010 Name.
 No comment.

WAC 480-123-020 Purpose and Authority.
 TRACER agrees with the statement that the purpose of the USF "is to ensure 
affordable basic telecommunications service in a competitive environment . . 
."  TRACER also agrees that the USF program should be "to benefit 
telecommunications ratepayers in the state by promoting competition in all 
local telecommunica-tions markets through minimizing implicit sources of 
support and maximizing explicit sources of support that are specific, 
sufficient, competitively neutral, and technologically neutral." However, 
TRACER does not agree that the purpose of the USF should be to prescribe a 
program of support "for all customer lines in high-cost locations."
 TRACER believes that only primary residential and business lines should be 
supported.  This is consistent with both the Congressional directive in the Act 
and with traditional notions of universal service.
 In defining the services that should be supported, Congress directed the FCC 
to consider whether a particular telecommunica-tions service is "essential to 
education, public health, or public safety," "subscribed to by a substantial 
majority of residential customers," "deployed in public telecommunications 
networks," and "consistent with the public interest, convenience, and 
necessity."
 Secondary lines, whether for residential or business customers, do not satisfy 
these criteria.  Secondary lines have never been considered a core universal 
service.  They are neither essential to education, public health, or public 
safety, or subscribed to by a substantial majority of residential customers. To 
support these lines would be a marked departure from past and present universal 
service policies, which are aimed at supporting services which are essential to 
public health and safety or otherwise consistent with the public interest.  
Services which are discretionary should not be supported by a universal service 
program.
 The objective of a high cost support program should be to provide one 
reasonably priced telephone line to each residential housing unit and business 
location in the high cost areas of Washington.  In general the residential 
housing unit is defined to be an apartment or a house and does not depend upon 
how many families live or could live in the unit. 
 As stated previously, existing methods of supporting secondary lines and other 
services in high cost areas should continue, with a realistic eye to the actual 
development of competition and its effect on the sources of support for those 
high cost services.
 It should also be recognized that subsidizing all lines will have 
anticompetitive effects, particularly in the markets for Internet access and 
work-at-home applications.  While second lines from a wireline LEC can be used 
as "teen lines" or for fax machines, they can also be expected to be used for 
Internet access and work-at-home applications.  However, a circuit-switched, 
PSTN line is not required for such functions.  Indeed, that functionality, 
including high bandwidth capabilities, can also be provided by fiber optic 
networks, terrestrial wireless networks, cable TV, and satellites.  And, there 
is no reason why any of these non-wireline technologies must also provide PSTN 
voice services in order to provide Internet access or work-at-home 
applications.
 The Commission should not attempt to pick winners among these, either with 
respect to providers or technologies.  Nor should the Commission act to 
discourage the statewide deployment of technologies that enable data and 
Internet access with facilities that are different than those traditionally 
provided by LECs.
 While TRACER shares the goal of having high bandwidth services deployed 
throughout the state, it believes the proper role for government is to adopt 
competitively neutral policies that encourage the deployment of technologies 
that will support this capability.  In other words, government should encourage 
competition within and among the wireline, terrestrial wireless, fiber optic 
network, cable TV, and satellite industries; it should not favor one by 
establishing a subsidy program that would be available only to providers also 
offering PSTN voice services.

WAC 480-123-030 Applicability.
 No comment.

WAC 480-123-040 Reports Include Declaration.
 No comment.

WAC 480-123-050 Coordination.
 No comment.

WAC 480-123-060 Affordable Rates.
 TRACER believes this subsection is duplicative of other provisions in state 
law that apply to the setting of rates for telecommunications companies subject 
to the Commission's jurisdiction; therefore, it is unnecessary.
 In addition, the provision as it is now written could lead to confusion about 
the scope of the Commission's ratemaking authority.  Adoption of a state USF 
program should not result in an expansion of the Commission's ratemaking 
jurisdiction or in any way create a conflict with RCW 80.36.370.  Nor should a 
USF program require that an otherwise unregulated telecommunications company 
subject itself to rate regulation by the Commission as a condition of being 
classified as an ETC.  Such a condition would only discourage competitive entry 
and the provision of basic telecommunications services in high-cost areas by 
efficient providers.  The result would be a larger USF than might otherwise be 
necessary.

WAC 480-123-070 Outcome Measure Report.
 TRACER supports the idea that the Commission should develop and report on 
measures designed to determine whether the USF program is successful in 
achieving its purposes.  However, the statement of the objective of the outcome 
report appears to be inadequate.  The outcome report should also address the 
costs of the USF program, the impacts on the development of competition in the 
state, and the impacts on residential and business telecommunications consumers.

DEFINITIONS

WAC 480-123-080 Definitions.
 No comment.

WAC 480-123-090 Access Line.
 This definition is inadequate and confusing, particularly because of its 
reference to "access line equivalents."  See discussion re WAC 480-123-100.  
TRACER suggests that the definition of "access line" be changed to state that 
"'access line' means 'switched access line' or 'radio access line' as those 
terms are defined in RCW 82.14B.020."
 The concept of "switched access line equivalency" for different switched 
services has been fully developed in connection with E-911, TDD, and WTAP 
service funding.  See "Enhanced 911 Excise Tax Study," Report to the 
Legislature on the Enhanced 911 Excise Taxes in Washington State, Washington 
State Department of Revenue, July 1, 1995, at 3-23 through 3-25 ("Applications 
of the Tax to Different Telecommunications Technology").  As discussed in that 
Report, for wireless services, each telephone number assigned to or used by an 
end-user for two-way, local wireless voice service is considered as one radio 
access line.  For wireline services, (1) each line for residential and business 
local exchange service; (2) each trunk for PBX local exchange service; (3) each 
Network Access Register (NAR) for restricted (blocked) centrex service; (4) 
each line for unrestricted (unblocked) centrex service; (5) each trunk for 
Digital Switched Service (DSS); and (6) each B channel for ISDN service, is 
considered as one switched access line.  This "equivalency" table puts all 
switched and radio access lines on an equal footing, since it measures the 
comparable ability of each of the above services to access the PSTN.  

WAC 480-123-100 Access-Line Equivalent.
 This definition is inappropriate for at least two reasons. First, it is not 
technically sound.  If the basis for considering a DS1 trunks to be the 
equivalent to two access lines is the fact that DS1 service provided over 
copper requires use of a 4-wire loop, the definition ignores the fact that DS1 
service can also be provided over fiber.  Further, DS3 is almost always 
provided over fiber; therefore, the fact that DS3 can provide capacity 
equivalent to 28 DS1s, in terms of voice-grade channels, is irrelevant for 
determining cost.
 Second, the equivalency presumed in this definition does not reflect the 
assumptions about access line counts used in calculating per-line costs in the 
cost studies at issue in Docket UT-980311(a).  If the Commission were to use 
the definition of "access-line equivalent" in the proposed rule, a mismatch 
between the basis for the calculation of cost and the support that could be 
received would result.  TRACER believes that the definition of "access-line 
equivalent" in the USF rules should be the same as the definition used for 
counting access lines in calculating the per-line costs of basic service. 

WAC 480-123-110 Administrator.
 No comment.

WAC 480-123-120 Commission.
 No comment.

WAC 480-123-130 Telecommunications Carrier.
 The definition should be expanded to clarify that an entity providing 
telecommunications services to itself or to affiliated entities is not to be 
considered a "telecommunications carrier" subject to the requirements of the 
USF program.  An entity not otherwise a telecommunications carrier should have 
to contribute to the USF and make reports called for under the proposed rules 
only to the extent that it sells excess capacity to unaffiliated entities.
 In addition, there should be a definition of a wireline carrier and a 
non-wireline carrier.  If the Commission is going to distinguish between them 
and treat them differently, there needs to be a definition of what is and what 
is not a wireline carrier.  For example, is cable TV a wireline carrier?  Is a 
carrier using fixed wireless technology a wireline or a wireless carrier?  What 
about a carrier that uses a mix of technologies?

WAC 480-123-140 Eligible Telecommunications Carrier (ETC).
 This definition is confusing and raises unwarranted jurisdictional concerns.  
The USF program under consideration is a Washington State USF program.  The 
only definitional reference should be to eligibility to draw from the state USF.

WAC 480-123-150 Service Area.
 This definition should be clarified to address the definition of service areas 
for universal service obligations and support calculations for non-wireline 
carriers that may want to compete in high-cost areas but, because of technology 
differences or other reasons, do not or cannot serve precisely the same areas 
as wireline companies. 

WAC 480-123-160 Gross Intrastate Revenue.
 Subsection (1) should be amended to clarify that "gross intrastate 
telecommunications revenue is the carrier's revenue from intrastate 
telecommunications services provided within Washington . . ."
 Subsection (2), then, should be amended to clarify that excluded from the 
determination of gross intrastate telecommunications revenue are: "the 
carrier's revenue from international and interstate telecommunications 
services; . . ." As it stands now, subsection (2) only excludes revenues from 
international and interstate toll.  It does not mention international and 
interstate non-toll services such as dedicated (private line) services, special 
access services, switched access services, directory assistance or operator 
services, WATS, telex, telegraph, video and teleconferencing, satellite 
services, etc.
 Contributions to a state USF, if to be based on telecommunications revenues, 
should not be based on international and interstate revenues.  Contributions to 
the federal USF program are based on those revenues.

WAC 480-123-170 Intrastate Telecommunications Services.
 Voice mail is an information service, not a telecommunications service.  
Moreover, it is not included on the FCC's list of telecommunications services 
and need not carry any contribution to the federal USF.  It should be stricken 
from the definition of intrastate telecommunications services.
 This section also should be clarified to specify that only intrastate 
directory assistance service; cellular and paging services, mobile radio 
services; PCS; operator services; WATS; toll-free service; 900 service and 
other informational services; private line service; special access service; 
special arrangements; special assemblies; telex; telegraph; video and 
teleconferencing services; satellite services; the resale of intrastate 
telecommunications services; payphone services, etc. are included in the 
definition.

WAC 480-123-180 High-Cost Location.
 As it reads now, this definition is unclear.  The reference to "cost" should 
be expanded to "average cost per-line".  This change is necessary to eliminate 
the gaming of the USF program by asking for subsidies for individual lines in 
areas which, on average, have costs per-line below the revenue benchmark.

WAC 480-123-190 Revenue Benchmark.
 TRACER agrees that the revenue benchmark should take account of all revenues 
the ETC receives as a result of providing service, including vertical service 
revenue and revenue from all access services.  However, the term "affordable 
amount of revenue per access line" is vague and ambiguous; it should be 
clarified. Further, the list of services should be clarified and amended to (i) 
eliminate voice mail, and (ii) specify that "access payments received for 
origination and termination of international, interstate, and intrastate toll 
calls" are included.
 In addition, TRACER believes that the provision stating that the Commission 
shall establish a separate benchmark for other technologies is inappropriate.  
TRACER believes that the purposes of the USF, as stated above and as embodied 
in the federal Telecommunications Act and Washington statutory law, are best 
achieved by establishing one revenue benchmark for all technologies and 
comparing that benchmark to the least cost, currently available technology 
capable of providing the services to be supported. Based upon the presentations 
made at the Commission's July 21, 1998 workshop, it is now obvious that there 
may be a significant problem with the cost estimates being developed in the 
costing phase of this proceeding and with the assumptions underlying the draft 
proposed rules.  As stated by Western Wireless and noted in the 7/14/98 issue 
of Telecommunications Reports Daily, preliminary evidence developed by HAI 
Associates, Inc. indicates that it may be significantly less expensive to 
provide basic telecommunications service in rural areas using currently 
available, fixed wireless technology than the typical wireline technologies 
used by incumbent LECs.  Unfortunately, the cost studies being presented in the 
costing phase of this docket do not include meaningful analyses of the costs of 
using the wireless technology.  Therefore, it cannot be said that the costs 
that will be calculated in that phase of the proceeding will represent the 
appropriate, least-cost manner of providing basic service.  The result will be 
that the support payments from the USF will be larger than they should be.  In 
other words, one revenue benchmark and one cost standard for all technologies.  
If that is not done, one cannot say the USF plan is competitively and 
technologically neutral.  Having a separate benchmark for non-wireline 
technologies will disadvantage the providers of those technologies and 
discourage them from seeking to provide service, even though they may be able 
to do so more cheaply than the incumbent wireline providers.
 This subsection is indicative of a severe problem that runs throughout the 
draft rules.  Even though the draft rules state that one of the purposes of the 
USF is to benefit ratepayers in the state by promoting competition in all local 
telecommunica-tions markets, the rules themselves are drafted to have the 
opposite effect.  In their current form, the draft rules will discourage 
entry.  In fact, they will have the effect of preserving the status quo.  
Instead, they should be written to help preserve affordable universal service 
in a way that will encourage and enable competition to develop.
 Moreover, the draft rules would actually discourage incumbent providers from 
marketing new services and from increasing revenues.  Maximizing their support 
from the competition-proof USF will become the primary focus.  Incumbent LECs 
would, in fact, be encouraged to manipulate the USF to their benefit and their 
competitors' detriment.

WAC 480-123-200 Services Supported By The Universal Service Fund.
 Subsection (2) is inappropriate and should be stricken for several reasons.  
First, the requirement that new and upgraded lines in high-cost locations be 
capable of transmitting voice at 3,500 Hz is inconsistent with the definition 
of basic telecommunications service to be supported under the federal USF 
program and with the definition of basic telecommunications service contained 
in ESSB 6622.
 Second, this requirement would pose substantial new obligations and 
significant costs on all ETCs.
 Third, the costs of providing this capability for all new and upgraded lines 
has not been included in the cost estimates being developed in the costing 
phase of this proceeding.  The result is that cost estimates to be provided to 
the Legislature would be incompatible with the rule and USF program being 
recommended by the Commission, and the Legislature would lack meaningful 
information on which to base a decision about whether to approve the USF 
program.
 Fourth, the requirement could drive up the size of the proposed USF to the 
point that it would substantially exceed the amount of money currently devoted 
to supporting basic service in high-cost areas, contrary to the representations 
to the Legislature and in the press made by the Commissioners.
 Fifth, TRACER understands that the requirement would demand a significant, and 
costly, redesign and manufacture of codec equipment, new channel units for the 
digital loop carrier systems used in incumbent LEC networks, and new line 
circuits for the digital switches in the state.  It is unlikely that such a 
redesign of equipment would be undertaken by equipment manufacturers just for a 
unique requirement of the state of Washington.
 Sixth, it would create a perverse incentive for LECs operating in high-cost 
areas to refrain from upgrading circuits.
 Finally, TRACER understands that inclusion of this requirement was intended to 
enhance the ability of consumers in rural areas to have access to higher 
bandwidth services for such applications as Internet access.  As noted above, 
TRACER shares the goal of expanding the availability of high bandwidth services 
throughout the state.  However, it should be remembered that high bandwidth 
capabilities can be provided by a number of technologies including wireline 
telephone networks, terrestrial wireless services, satellite, cable TV systems, 
and fiber optic networks.  And, there is no reason why high bandwidth services 
must be provided over the circuit-switched telephone network or by incumbent 
LECs.  The Commission should not pick winning technologies or providers by 
creating a subsidy mechanism for only incumbent LECs and the technologies they 
employ.

CONTRIBUTORS AND CONTRIBUTIONS

WAC 480-123-210 Contributors To the Universal Service Fund.
 No comment.

WAC 480-123-220 De Minimis Contributions Not Required.
 This provision should be amended to provide that, where the costs of 
compliance exceed the amount of the contribution, the contribution will be 
deemed to be de minimis.

WAC 480-123-230 Contributions Based on Gross Intrastate Telecommunications 
Revenue Minus Payments to Other Telecommunications Carriers.
 This section should be reworked.  If contributions are to be based on gross 
intrastate telecommunications revenue minus payments to other 
telecommunications carriers, there is no need to calculate a "market share."  
Calculation of such a figure and labelling it "market share" is unnecessarily 
controversial and sensitive.  It should suffice to simply determine the state 
total amount of net intrastate telecommunications revenue (gross revenue minus 
payments to other carriers), determine the percentage of that figure necessary 
to fund the USF, and apply the percentage to each carrier's net revenue.  It 
does not need to be called "market share."
 But, more importantly, TRACER believes that basing contributions on net 
revenue is ultimately unfair to consumers, not competitively neutral, and, 
perhaps, anticompetitive, leads to unnecessary administrative expense, and 
unnecessarily increases the cost of the USF.
 When contributions are based on revenues, end users that pay the highest rates 
end up paying the most for USF.  Why should a residential ratepayer "A" be 
required to contribute three times what ratepayer "B" contributes simply 
because he/she takes service from a LEC whose retail rates are three times 
those of the LEC providing service to ratepayer "B"?  Such a result is not fair 
to consumers.
 Further, basing contributions on gross revenues net of payments to other 
carriers would create a powerful disincentive to invest in what would otherwise 
be economically efficient, facilities-based competition, as opposed to relying 
on less efficient resale competition.  This happens because a facilities-based 
carrier would have to pay universal service contributions on its total 
revenues; whereas, a reseller need pay only on the revenues that are net of 
payments to its wholesale provider.
 The net revenue approach also creates a further inequity, or at least a 
difficult complication, for entities offering bundled services, some of which 
may not be telecommunications services. For example, a service provider that 
offers telecommunications transmission services, bundled with computer services 
or with data management or other management services, faces a real problem.  
Does it have to pay universal service contributions based on the total revenues 
received for the bundled service?  If not, how is the allocation of revenue to 
be made?  Many of these bundled service providers, including systems 
integrators, would find it extremely difficult, if not impossible, to allocate 
the revenue among the various services and products included in their service 
offerings.  At a minimum basing contributions on net revenues would force a 
significant change in business practices. In effect, it would stifle creative 
packaging of telecommunica-tions and non-telecommunications services.  While 
proposed in the name of promoting equity and competitive neutrality, it likely 
would have just the opposite effect.
 As discussed below, TRACER believes that contributions should be disclosed and 
recovered through an explicit end-user surcharge.  Even if carriers are 
required to contribute directly to the support fund, consumers will ultimately 
fund that support because carriers will pass the cost of contribution to their 
subscribers.  It is critical that carriers be required to assess the cost of 
contribution proportionately across all of their services, rather than allowing 
them to allocate the cost of the subsidy strategically among those services.
 This is an extremely important consideration if competitive neutrality -- 
particularly in the case of resale competition --is to be maintained.  For 
example, if a wholesale provider that also competes at the retail level is 
permitted to strategically recover its universal service contributions, it 
could pass through the entirety of those contributions to its resale 
customers.  The dependent resellers, on the other hand, would be forced to 
absorb their universal service contributions or pass them through to their 
retail customers.  The dependent resellers would thereby be placed at a 
competitive disadvantage relative to their wholesale provider/retail 
competitor.  Such a result would damage the development of fair competition and 
be inconsistent with the public interest.
 Further, unless carriers are required to assess the cost of contribution 
proportionately across all of their services, they likely will allocate the 
cost of the sub