BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION In the Matter of the Pricing Proceeding ) for Interconnection, Unbundled Elements ) DOCKET NO. UT-960369 Transport and Termination, and Resale ) ) ) In the Matter of the Pricing Proceeding ) for Interconnection, Unbundled Elements ) DOCKET NO. UT-960370 Transport and Termination, and Resale ) for U S WEST COMMUNICATIONS, INC. ) ) ) In the Matter of the Pricing Proceeding ) DOCKET NO. UT-960371 for Interconnection, Unbundled Elements ) Transport and Termination, and Resale ) for GTE NORTHWEST INCORPORATED ) ) RESPONSE TESTIMONY OF TIMOTHY H. PETERS ELECTRIC LIGHTWAVE, INC. August 20, 1998 Response Testimony of Timothy H. Peters Page 1 Q. PLEASE STATE YOUR NAME, EMPLOYER, AND BUSINESS ADDRESS. A. My name is Timothy H. Peters. I am employed by Electric Lightwave, Inc. ("ELI") as Director - Regulatory & Industry Affairs. My business address is 4400 N.E. 77th Avenue, Vancouver, WA 98662. Q. WHAT ARE YOUR RESPONSIBILITIES WITH ELI? A. I am responsible for managing regulatory matters in Washington and Utah. In addition, I am responsible for matters involving interconnection with other carriers and managing those relationships, including negotiating interconnection agreements, ensuring compliance with the terms of the agreements, and resolving intercompany issues and disputes. Q. WHAT IS YOUR EDUCATION AND EMPLOYMENT EXPERIENCE? A. I have a Bachelor of Science degree in Business Administration from Lewis and Clark College. I have over 14 years of experience in the local telecommunications industry. Thirteen of those years I spent with the local division of Sprint Communications (United Telephone) with various positions in accounting, finance, marketing, and regulatory, before joining ELI in June 1997. My specific responsibilities with United Telephone included policy and planning issues, managing service costing and pricing, tariff filings, and docket/regulatory affairs management. Q. HAVE YOU PREVIOUSLY TESTIFIED IN OTHER REGULATORY PROCEEDINGS? A. I have testified in Oregon and Utah regulatory proceedings. I have also participated in a number of interconnection, costing and service quality workshops in Oregon, Washington and Utah. Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? A. The purpose of my testimony is to address the issue of reciprocal compensation for the transport and termination of local traffic. As part of that issue, I also respond to the testimony of Mark Reynolds on behalf of U S WEST Communications, Inc. ("U S WEST") that advocates the exclusion of ISP traffic from minute of use reciprocal compensation. Q. DO YOU AGREE WITH U S WEST THAT MINUTE OF USE COMPENSATION IS THE ONLY ECONOMIC, COST-BASED FORM OF COMPENSATION FOR THE EXCHANGE OF LOCAL TRAFFIC? A. I agree that minute of use compensation is an economic form of compensation for the termination of local traffic, but I do not believe that minutes of use is the only economic, cost-based form of such compensation. For example, if the traffic between two interconnected carriers is in balance, bill and keep makes economic sense. Section 252(d)(2) of the Telecommunications Act of 1996 ("Act") specifically states that bill and keep may be a valid form of compensation in such circumstances. Similarly, a capacity-based form of compensation also might be acceptable under some circumstances. The key, however, is that the Act does not specify one particular form of reciprocal compensation but contemplates that interconnecting carriers will negotiate -- and if necessary arbitrate -- the form and level of compensation that is appropriate for them. Q. HAS ELI NEGOTIATED OR ARBITRATED INTERCONNECTION AGREEMENTS THAT INCLUDE RECIPROCAL COMPENSATION? A. Yes. In Washington, ELI opted into the arbitrated interconnection agreement between U S WEST and MFS Intelenet, Inc. (now WorldCom), which among other provisions establishes a minute of use compensation for the termination of local traffic. ELI has a similar agreement in place with U S WEST in Arizona, as well as agreements in Oregon, Utah, and Idaho that require minute of use compensation if traffic is out of balance. Q. SHOULD THE COMMISSION ESTABLISH THE FORM OF RECIPROCAL COMPENSATION FOR ALL INTERCONNECTING CARRIERS IN WASHINGTON? A. No. In the two and a half years since the passage of the Act, requesting carriers and incumbents have negotiated or arbitrated a variety of reciprocal compensation arrangements for the exchange of local traffic. Some companies have opted for bill and keep arrangements while others have determined that a minute of use compensation mechanism best suits their needs. In fact, some agreements call for a combination of the two -- bill and keep initially, with a conversion to minutes of use compensation if traffic is determined to be out of balance (or vice versa). I see no compelling reason for the Commission to establish a single form of compensation for all carriers in all circumstances. Carriers should be allowed to negotiate any reciprocal compensation arrangement that is consistent with the requirements of the Act. Q. DO YOU AGREE WITH U S WEST'S PROPOSAL TO EXCLUDE INFORMATION SERVICE PROVIDER TRAFFIC FROM RECIPROCAL COMPENSATION? A. Absolutely not. A call from an end user to an Information or Internet Service Provider ("ISP") located within the end user’s local calling area is a local call. Such calling has been treated as local for the purpose of end user tariffs and accounting separations purposes as long as there have been ISPs. A CLEC incurs the same costs to terminate a call from a U S WEST customer regardless of whether that call is made to a CLEC ISP customer or any other customer within the local calling area. There is no rational justification for excluding local calls from reciprocal compensation simply because they terminate on the premises of an ISP, and the Act specifies that all local calls are subject to reciprocal compensation for transport and termination. Q. DOES THE ACCESS CHARGE EXEMPTION THE FCC HAS GRANTED TO ISPs MEAN THAT CALLS TO ISPs ARE NOT LOCAL? A. Quite the contrary. By exempting ISPs from access charges, the FCC concluded that ISPs are to be treated as end users, not carriers. As end users, ISPs buy local exchange services from the local exchange company ("LEC") at local exchange rates so that the ISP's customers -- who also subscribe to local services -- may make a local call to the ISP. When a consumer subscribes to local service from U S WEST and Internet access from an ISP that subscribes to local service from a CLEC, that consumer's call to the ISP's local telephone number is routed just as any other local call between a U S WEST end user and a CLEC end user -- from the consumer's telephone set to the U S WEST central office, where it is switched and sent through the interconnection point to the CLEC switch, where it is switched and terminated to the ISP telephone equipment. U S WEST, however, proposes to distinguish calls to an ISP because once at the ISP premises, an information query may be launched to a local computer server, website, or over the Internet backbone to another destination that might be located in a different state. U S WEST thus ignores the fact that there are two distinct transactions involved in securing access to the internet via dial up access. The first, as I just described, is the local call to the ISP. The second transaction involves the access to the Internet or other information service, which is performed by the ISP, not the LEC terminating the call. The second transaction thus may involve interstate communication, or it may be merely intrastate long distance or local communication. That transaction falls under the enhanced service provider classification and is separate from the local call between the end user and the ISP. The fact that this second transaction is added to the local call to the ISP does not convert the entire call into an interstate call. As an illustration, similar circumstances are presented when a CLEC customer uses call forwarding to route calls to her cellular phone when she is out of the office. The U S WEST customer calling her at her office telephone number in the same local calling area is making a local call, even if that call is forwarded to a cellular phone across state lines. Unlike the ISP, the cellular provider is not exempt from paying access charges on that call (nor is the CLEC customer exempt from rates the cellular provider imposes to recover those access charges), but even U S WEST would not dispute that the CLEC is entitled to compensation for terminating the local portion of the call that the U S WEST customer originated. U S WEST's proposal to exempt ISP traffic from reciprocal compensation, in contrast, would require that the CLEC terminate calls originated by U S WEST customers without charge. In the worst case scenario, U S WEST's proposal would require the CLEC to pay net compensation to U S WEST even though the CLEC is terminating more traffic (and hence incurring greater costs) because the CLEC terminates more ISP traffic than U S WEST and U S WEST terminates more of the remaining local traffic than the CLEC. Such a proposal is patently unreasonable and inconsistent with the pricing requirements of the Act. Q. HAS THERE BEEN ANY LEGAL CONSIDERATION OF WHETHER ISP TRAFFIC SHOULD BE CONSIDERED LOCAL FOR RECIPROCAL COMPENSATION PURPOSES? A. The FCC currently is considering this issue and may decide whether ISP traffic is local or interstate, or the FCC may simply leave the decision to the individual states. In the meantime, every state commission of which I am aware to have addressed this issue --including this Commission -- has concluded that ISP traffic is local traffic for purposes of reciprocal compensation, and those commission decisions have been upheld by the federal courts, including the federal district court in Washington. Until the FCC decides otherwise, therefore, the Commission should continue to conclude that ISP traffic is local traffic for purposes of calculating reciprocal compensation, whatever form that compensation takes. Q. DOES THAT CONCLUDE YOUR TESTIMONY? A. Yes, it does.