DOCKET NO. UT-970546 PAGE 1 BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION In the Matter of the Policy Statement Regarding Suspension of Action on New Requests for Extended Area Service Pursuant to WAC 480-120-400 through 435 Temporarily While the Commission Conducts a Rulemaking Proceeding to Seek Imporved Means to Redefine Local Calling Areas and to Provide for More Flexible Interexchange Call Pricing. DOCKET NO. UT-970546 POLICY STATEMENT REGARDING SUSPENSION OF ACTION ON NEW REQUESTS FOR EXTENDED AREA SERVICE Remedying Inequities in the Scope of Local Calling. The WUTC (“Commission”) in 1989 adopted rules (WAC 480-120-400 through 435) to be used in considering when and where to increase local calling capability. The purpose of these rules was twofold: First, to create greater equity across the state in terms of the average person’s ability to meet most basic local calling needs without incurring toll charges; and Second, to limit expansion of local calling areas to those instances where inclusion of one or more additional exchanges resulted in a reasonable new local calling area. The rule established a process to review the local calling capability of all the state’s exchanges every five years, and to consider all potential expansions according to a consistent standard applied statewide and within each company. The 1989 rule was not intended to make preferential prices available to groups of subscribers in exchanges where the local calling area was adequate for the majority. Extended Area Service. The rule proposed to accomplish the objective of creating more equitable local calling areas via the establishment of Extended Area Service (EAS) routes. Approval of EAS means that two exchanges are incorporated into a single local calling area; and that calls between the two exchanges are 1) redesignated from the “toll” category to the “local” category, 2) are carried over the local network, and 3) are priced as local service. Implementation of the Rule. Under the rule, local calling capability was expanded for almost two-thirds of the exchanges in the state. Most people in the state who were disadvantaged with respect to their ability to meet local calling needs now have reasonable local calling areas. In addition, we have greatly reduced the disparities in the scope and price of local service across the state. These goals were accomplished with small or no increases in local service rates. Problems with WAC 480-120-400 through 435 and Its Implementation. Despite its benefits, there have been problems with the rule and its implementation. Most of the problems relate to the fact that the rule was intended to allow expansion of local calling areas only in situations where adding an entire new exchange (or exchanges) would capture and reflect the basic calling needs of a majority of people in the original exchange. But many who wanted “EAS” were frustrated subscribers who faced high toll bills for reasons unrelated to basic services. They tended to see “EAS” as a free service that would mean lower telephone bills. However, EAS does not reduce the cost of telephone service. It merely shifts costs from high toll users to others. The impact of the shift depends on whether costs are recalculated only among directly affected exchanges, or company-wide; and on how many subscribers are included in the calculation. The impact of a new EAS route may elicit opposition from customers who are not making toll calls into the expanded exchange, if they see an increase in their basic rate. The fact that EAS shifts costs from one subscriber to another is the reason that the Commission rules attempted to restrict EAS to specific situations. As defined in the rule, EAS is appropriate in situations where an entire exchange is disadvantaged because the average subscriber pays toll rates for what others obtain for their basic local rate. However, appropriate use of EAS has been difficult to sustain in the face of subscriber frustration over the absence of any other process or calling plans that would allow people to reduce the bills they pay for frequent toll calling. The Commission as part of the 1989 rulemaking asked telephone companies to respond to other kinds of demand for lower priced interexchange calling by developing toll alternatives. Such alternatives would not require incorporation of entire exchanges into ever-larger “local” calling areas, but would provide toll plans flexible enough to meet the diverse interexchange calling patterns that exist in every exchange. The reason to avoid designating toll traffic as local was 1) to help ensure that, beyond a reasonable level of local service to be paid on a shared basis, people would pay only for what they used; 2) to prevent the shift of so many company-wide costs from toll to local that they might jeopardize universal service or cause resentment by driving up the majority’s basic local rates to reduce the toll bills of a minority; and 3) to maintain toll routes open to competition as called for in RCW 80.36.300. No significant low cost toll plans have materialized in the six years since the rule was adopted. In the meantime, the demand to call between more exchanges without incurring high toll charges continues to grow. Most of this demand is based on frustration over high telephone bills for frequent calling outside the local area for reasons deemed essential by specific subscribers. New demand is also emerging for cheaper region-wide calling options, reflecting the fact that our economy and our telephone usage are increasingly regional rather than local. At the same time, there remain some problems related to the basic local calling needs that the rule was not adequately able to address. In some cases where local calling capability was very low, call volumes and geographic distances made it difficult to apply the rule. Finally, there are unique situations where a LATA or political boundary arbitrarily skews the application of the rule. As long as artificial boundaries dictate price differentials, there will be subscribers who want the boundary moved or the pricing disparity eliminated. As long as communities of people straddle the boundaries, people will be frustrated. As long as we have a regional economy with consolidated shopping malls, office parks, suburban industrial centers, etc., people will seek ways to escape from short haul toll rates measured at $.10 to $.20/minute for calling those areas. The Commission Will Reexamine the Local Calling Area Expansion Rule. In view of these limits on, and problems with, the current rule, the Commission has determined to find ways to 1) improve the means available for redefining local calling areas to remedy problems of the split community and lack of local access to most basic services; and 2) ensure that telephone companies offer options for telephone subscribers to make interexchange calls at flat rates. The forum for this process will be a rulemaking proceeding to reconsider WAC 480-120-400 through 435. It may include recommendations for new ways to respond to the need for adequate local calling areas and to meet broader and more various demands for toll-free interexchange calling. The Commission is filing a Preproposal Statement of Inquiry with the Code Revisor to initiate this review under Docket No. 970546. The Commission will convene a working group composed of telecommunication providers, consumers, policy makers and others to consider policy directions and changes to the rule, with the goal of filing revisions by November 1, 1997. As Part of the Examination, the Commission Will Consider Emerging Opportunities to Purchase All Types of Telephone Service in the Competitive Market. Whether and how to rewrite the rule must be viewed in light of recent changes in technology, in federal and state law and regulations, and in industry and market conditions. These changes are altering the ways local calling areas may be defined and the conditions under which both local and interexchange calling will be priced. A) Access charge reform. The Commission remains hopeful that companies will offer reduced toll pricing plans. Large customers already have the ability to reduce the cost of their calling within entire regions, including calls over existing toll routes, as competing telephone companies offer them toll discounts or packages. However, such toll discounts are not offered today to small business and residential customers. The FCC is considering reforms in the structure of access charges, which should improve the prospects for different kinds of toll packages tailored to different kinds of users. B) Local interconnection. New federal interconnection requirements may lead to more variety in pricing interexchange calls within a single local calling area. Incumbent LECs (e.g. US WEST, GTE) must allow competitors to interconnect with their local network. Under an open local market, telephone companies may offer a variety of optional pricing plans that are more responsive to consumer demand -- including demand for greater scope of flat-rated calling as sought by individual subscribers. C) Universal Service and Basic Local Calling Scope. An opportunity to address the question of adequate local calling capability will arise as the FCC resolves the issue of universal service. In Docket No. UT-950724, regarding a minimum level of service to be provided by local exchange companies, this Commission has received comments that “flat-rated calling within a local area” should be part of the definition of basic telecommunication service to be used in determining whether the goals of universal service are met. Consideration of Local Calling Area Expansion During the Review. While the rulemaking process is underway, the Commission will not process requests for EAS pursuant to WAC 480-120-400 through 435. However, we recognize that today’s environment is dynamic. Therefore, we will consider for alternative action requests to remedy exchange-wide problems that cause hardships by requiring the majority of subscribers to make daily toll calls to communicate with classmates, teachers, neighbors, and other parts of the local community. We would anticipate action where 1) the exchanges involved are within the territory of a single incumbent local exchange carrier; 2) the accompanying documentation supports a finding that expansion of local calling reduces the inequities across the company’s local calling areas; 3) expanded local calling is necessary to allow the average exchange subscriber to meet basic local calling needs without paying excessive toll charges; and 4) any new charges will be flat-rated and calculated consistent with the company’s local service rates. Where subscribers come forward with requests that reflect a desire for toll-free calling not linked to the day-to-day needs of a majority of subscribers, we encourage companies to develop innovative proposals for optional interexchange calling plans. During the review period, we are prepared to consider such alternative calling plans. These should be consistent with open access and interconnection pricing requirements as they develop. We expect that evaluation of such proposals will be helpful to the review process as it moves forward. The positive results of such evaluations should be reflected in any requirements the Commission may ultimately adopt. DATED at Olympia, Washington and effective this day of 1997. WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION SHARON L. NELSON, Chairman RICHARD HEMSTAD, Commissioner WILLIAM R. GILLIS, Commissioner