BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION


In the Matter of the Universal Service
Issues Proceeding	)
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		Docket No. UT-980311(a)
		
		

BRIEF OF U S WEST COMMUNICATIONS, INC.



       U S WEST COMMUNICATIONS, INC.
       Lisa A. Anderl
       Senior Attorney
       1600 Seventh Avenue, Room 3206
       Seattle, WA 98191

       LAW OFFICES OF 
       DOUGLAS N. OWENS

       Douglas N. Owens
       1325 Fourth Avenue, Suite            940
       Seattle, WA 98101

 
 I. INTRODUCTION
  U S WEST Communications, Inc. (“U S WEST”) submits its post hearing brief in 
the above docket.  This proceeding is a historic opportunity to determine the 
cost of supporting basic local exchange telecommunications in high cost areas 
as the starting point for a recommendation to the Legislature to replace 
implicit sources of support in existing rates with specific, predictable and 
sufficient explicit sources of support that will be paid by customers.  This 
replacement is required by the rapid onset of competitive inroads into the 
revenue sources of implicit support that have enabled regulated utilities to 
provide basic service in high cost areas for decades in Washington, and by 
regulatory decisions to affirmatively reduce or eliminate that implicit 
support.  The cost of supporting basic service in high cost areas will be 
determined using TSLRIC principles.  U S WEST’s evidence supports the use of 
the BCPM 3.1 model as the basis for estimating the cost of supporting lines 
that are used to provide basic local exchange service in Washington’s high cost 
areas, and therefore determining the size of the Universal Service Fund.
 II. LEGAL PRINCIPLES
 This proceeding was instituted on the Commission’s own motion pursuant to the 
direction of the Legislature in Ch. 337, L. 1998. Notice of Proceeding, Docket 
No. UT-980311, May 4, 1998, p. 1.  The Commission indicated that the proceeding 
was also required by the Federal Telecommunications Act of 1996, 47 U.S.C. §151 
et seq. Notice of Prehearing Conference, Docket No. UT-980311(a), p. 1.  
Accordingly, this brief addresses issues under both state and federal law.  An 
overriding principle that applies to this proceeding is that as long as 
regulated utilities are involved in the provision of service that is classified 
as universal service, and as long as those utilities are subject to 

traditional rate of return regulation, the obligation to provide basic service 
in high cost areas must carry with it the right to recover revenues from all 
regulated services, including USF support, that are sufficient, under prudent 
management, to allow the utility a reasonable opportunity to earn a fair return 
on the investment that is devoted to public use.  Pacific Tel. & Tel. v. Dept. 
of Pub. Serv., 19 Wn.2d 200, 217, 142 P.2d 498 (1943).
 A. STATE LAW
 1. Ch. 337, L. 1998
 In Ch. 337, L. 1998 the Legislature directed the Commission to plan and 
prepare to implement a program for the preservation and advancement of 
universal service, which was not to take effect until the Legislature approves 
the program.  The Legislature directed the Commission to take specific actions 
in connection with the program.  The Commission is to estimate the cost of 
supporting all lines in high cost locations and also the cost of supporting one 
primary line for each residential and business customer located in high cost 
locations.  (Id. §1(2)(a))  The Commission is to determine the size of 
assessments and the manner of collection from all telecommunications carriers 
to provide support as described above. (Id. §1(2)(b))  The Commission must 
designate the eligible telecommunications carriers that will receive support 
for the benefit of their customers in high cost locations, and either adopt or 
prepare to adopt all necessary rules for the administration of the program.  
(Id. §1(2)(c) and (d))  The Commission must also provide a schedule of fees for 
administration that the Commission proposes or expects to propose.  (Id. §1(2)
(e))  By November 1, 1998 the Commission must submit a report on the steps it 
has taken to establish the program and must inform the legislature of the 
estimated cost to 

support all lines in high cost areas and the cost to support a single primary 
line for each residential and business customer in high cost locations.  (Id. 
§1(3))
 The purpose of the program is to benefit ratepayers by minimizing implicit 
sources of support and maximizing explicit sources of support of basic 
telecommunications services in high cost locations, and the explicit sources of 
support must be sufficient, specific and competitively and technologically 
neutral.  (Id. §1(1))  Basic telecommunications service includes nine specific 
aspects of telecommunications service. Single party service, voice grade access 
to the public switched network, support for local usage, touch-tone capability, 
access to 911 services, access to operator services and interexchange services, 
access to directory assistance and toll limitation services.  High cost 
locations are defined as those in which the cost of providing 
telecommunications services is greater than a benchmark that the Commission 
establishes by rule.  (Id. §1(7)(c))  The Legislature specifically limited the 
Commission’s authority to engage in the establishment of a new universal 
service program or the establishment of universal service rules pursuant to 
§254(f) of the federal act, to the powers conferred in Ch. 337, §1, L. 1998.  
(Id. §2(1))  In addition, as above stated, case law requires that in aggregate, 
rates not be so low as to be confiscatory.  RCW 80.36.080 requires rates for 
service to be just and reasonable.
 2. Relationship between this docket and other dockets, including UT-960369

 According to the Notice of Proceeding and the Notice of Prehearing Conference, 
this special proceeding is required by Ch. 337, L. 1998 and the Federal 
Telecommunications Act.  Nothing in either of those statutes, or in the 
Notices, specifically mentions a relationship between this docket and any other 
docket.  Under Ch. 337, L. 1998, the Commission is to estimate the cost to 
support all lines in high cost areas and also the cost of a single primary line 
for each residential and business customer in high cost locations.  The 
definition of high cost locations presupposes a rulemaking docket that 
determines a benchmark to use in identifying such locations.  (Ch. 337, §1(7)
(c), L. 1998)  That docket is UT-980311(r).  The rulemaking docket will also 
have an impact on the cost of administration that should be determined in this 
docket.  No necessary connection to any other docket exists.
 In the Eighth Supplemental Order in Docket Nos. UT-960369, et al., at ¶ 274, 
the Commission determined not to deaverage unbundled network elements at that 
time, holding that it agreed with parties who argued that it was more 
appropriate to consider this issue in the context of universal service reform, 
deaveraged retail prices and the extent of competition in Washington.  That 
determination does not create any linkage between the current docket and Docket 
Nos. UT-960369 et al.  Phase II of the latter dockets is underway to consider 
pricing of the unbundled network elements that are there at issue.  There is 
nothing under consideration in those dockets that depends on the outcome of the 
current docket that considers universal service issues. 
a. The Commission’s authority to act to establish new rules or a new program on 
Universal Service is limited to the development and proposal to the Legislature 
of a program including the adoption of rules as provided in Ch. 337, L. 1998 
which cannot take effect until approved by the Legislature.

 In Ch. 337, §2, L. 1998, the Legislature specifically restricted the 
Commission’s authority to take action establishing a new program on Universal 
Service, as contemplated by the Federal Act, to the steps identified in Ch. 
337, §1, L. 1998.  Under the express terms of §1, the program the Commission 
must prepare may only take effect after the Legislature has approved it.  
Existing case law holds that the Commission has no statutory power to require 
one company to pay into a fund and spend the money to reduce the rates paid by 
customers of another company.  Washington Independent Tel. Assn. v. TRACER, 75 
Wash. App. 356, 880 P. 2d 50 (1994).  That is the effect of the program 
outlined in Ch. 337, §1(1), L. 1998.  
 The Commission’s authority under its existing programs for universal service 
support is limited.  The Commission can adjust a regulated company’s various 
prices for unbundled network elements, access to the local exchange, and retail 
services so as to minimize implicit sources of support and maximize explicit 
sources of support for basic service in high cost areas.  This would affect 
only those companies that are regulated and would not in itself create a 
mechanism for the support of universal service that was specific, sufficient 
and nondiscriminatory.
 Should the Commission attempt to eliminate or substantially reduce the sources 
of implicit support of basic service in high cost locations without also 
replacing those sources with additional sources that are explicit (if that were 
lawful), then the regulated companies such as U S WEST that provide basic 
service in high cost areas would suffer financial hardship, necessitating 
lengthy rate cases.  Indeed, under existing law, the Commission has no power to 
unilaterally reduce a traditionally regulated company’s existing rates for some 
services, where the overall effect would be to reduce revenues, without 
conducting a hearing and requiring the proponents of the rate reductions to 
prove with evidence that the company is earning excessively.  RCW 80.36.140, 
State ex rel. Model Water & Light Co. v. Dept. of Pub. Serv., 199 Wash. 24, 90 
P. 2d 243 (1939). 

b. There is no requirement in the law that the decisions in this docket conform 
to any determinations in Docket Nos. UT-960369, et al.

 The issue raised in this topic of the outline is unclear as to the aspects of 
the proceeding in which consistency should be analyzed.  This is a special 
statutory proceeding which is directed towards the determination through 
adjudication of the cost of supporting lines that are used to provide basic 
local service in high cost areas of the state. Prehearing Conference Order, p. 
8.  Nothing about this process involves or requires consideration of the method 
of determining the cost of, or the prices set for, unbundled network elements.  
(Ex. 62-T, p. 6)  
 Some parties have argued that this proceeding should either be held in 
abeyance pending action to change unbundled network element prices, or that the 
existing unbundled network element prices compel specific outcomes in this 
docket.  AT&T’s witness Baker argued that before any universal service program 
in Washington should be implemented, all access charges should be set at 
forward looking economic cost, and unbundled network elements should be 
deaveraged.  (Tr. 1572-1573)  However, AT&T cited no legal authority that 
requires this.  It is simply AT&T’s “position” that competition must have been 
“enabled” before the WUTC may obey the command of the Legislature and determine 
the cost of supporting lines that provide basic service in high cost areas.  
(Ex. 371T, p. 10)  Ms. Baker claimed that the requirement in Ch. 337, §1(6), L. 
1998 to coordinate administration of the program with “any federal universal 
service program,” is authority for this position.  (Tr. 1570)  
 The AT&T argument is clearly incorrect.  Nothing in Ch. 337, L. 1998, requires 
that competition have been “enabled” as a threshold condition for the duty of 
the WUTC to determine 

the cost of supporting lines that are used to provide basic service in high 
cost areas, and prepare a program to support those lines.  It is not up to the 
WUTC to add terms to the law that the Legislature has not enacted, nor is this 
a situation in which the WUTC must interpret an ambiguous statute.  AT&T’s 
position has been created of whole cloth.  Nothing in the FCC’s universal 
service orders requires that state UNE prices be deaveraged.  There is not yet 
an effective federal universal service program for nonrural LECs.  The FCC’s 
attempt to require that states deaverage UNE prices in its order establishing 
interconnection rules was rebuffed by the Eighth Circuit as beyond the agency’s 
authority.  Iowa Util. Bd. v. F.C.C., 120 F.3d 753 (1997)  
 AT&T also claims that until unbundled network element prices are deaveraged, 
the smallest unit for which cost may be determined is the entire serving area 
of each ILEC, and that this requires that the fund size be set at zero for the 
three largest ILECs.  (Ex. 371, p. 35)  This argument is contrary to the plain 
language of Ch. 337, §1(1), L. 1998 which requires that implicit sources of 
support for basic service in high cost areas be minimized, and explicit sources 
which are sufficient, specific and technologically and competitively neutral, 
be maximized.  Aggregating cost across each ILEC’s entire serving area clearly 
perpetuates the implicit sources of support that exist in the current rate 
structure.
 Nextlink also argues that loops must be deaveraged because the averaged loops 
inhibit the development of effective competition and they “skew and 
unnecessarily complicate” the calculation of costs for universal service 
support.  (Ex. 401T, p.13)  Neither argument supports the linkage of this 
proceeding with Docket Nos. UT-960369, et al.  Under cross examination, Mr. 
Knowles admitted that he did not know how big an impact there would be on 
competitive entry of deaveraging the prices of unbundled loops.  (Tr. 1829, 
1830)  There is no substantial evidence to support any linkage of universal 
service costs to unbundled network element deaveraging on this issue.  
 Nextlink argues that averaged loops will cause the size of the fund to be 
artificially inflated because Nextlink hypothesizes that most unbundled loops 
will be purchase by CLECs in the densely populated zones where the costs are 
the lowest, resulting in an over-recovery of cost when the price for the loop 
is a higher average price.  (Ex. 401T, p. 12)  This argument is inconsistent 
with Nextlink’s own testimony through Mr. Knowles, that average priced loops in 
the lowest cost zones are unattractive to CLECs because of the supposed 
cost-price difference.  (Tr. 1828)
 The remaining Nextlink argument about complexity is not a cost argument at 
all.  It is an administration argument.  The cost of supporting specific lines 
that are used to provide basic service in high cost areas, as defined by the 
Legislature, does not change when the carrier that has the retail relationship 
with the end user is not the owner of the loop.  Details of administration that 
concern how and to whom the support is provided should not be elevated to the 
rank of determinants of linkage between the need to comply with the Legislative 
command to prepare cost estimates and the unbundled network element pricing 
docket.  All of the Nextlink testimony on this issue is speculative in any 
case, replete with expressions about what positions ILECs and CLECs would 
“likely” take about the level of measurement of cost and recovery of cost.  
(Ex. 401T, p. 13)
(1) If UNE rates and the USF must be consistent, this does not imply that UNE 
rates must be deaveraged.

 Even if, contrary to the above demonstration, the Commission determines that 
UNEs and the USF must be consistent, this does not require the deaveraging of 
UNEs at this time.  The Commission has already ruled in ¶274 of the Eighth 
Supplemental Order in Docket Nos. UT-960369, et al, that in addition to 
universal service reform, the issues of deaveraged retail prices and the extent 
of competition must be considered in the context of deaveraging UNE prices.  No 
proceeding is underway to consider the deaveraging of retail prices.  (Tr. 
1819)  There is no evidence that the Commission is considering the extent of 
competition in this docket.  The purpose of the program that the Commission 
will develop under Ch. 337, §1(1), L. 1998 is to benefit ratepayers by 
minimizing implicit sources of support and maximizing explicit sources of 
support of basic service in high cost areas that are sufficient, specific and 
competitively and technologically neutral.  
 As in the previous section, the issue raised here is one of administration.  
The claims by Nextlink and AT&T that consistency between UNEs and the USF 
requires deaveraged UNEs raise no issue that could not be dealt with through 
administration.  The claim that CLECs face no “high cost area” in their entry 
decisions as long as UNE prices are averaged, does not mean that there are no 
high cost areas, for which explicit sources of support should be determined and 
provided.  There is no evidence that CLECs have been responding to this 
apparent opportunity for a windfall by purchasing loops at averaged prices in 
high cost areas.  (Tr. 1824)
(2) If there is a need to deaverage UNE prices, this need not be done before 
the Legislature acts on the USF issue.

 The Commission has already decided, as noted above, that deaveraging UNEs 
should take into account, deaveraged retail prices and the extent of 
competition, as well as universal service reform.  Under the hypothetical 
presented by this issue, none of these three conditions would have been 
satisfied.  Nothing has changed on this issue from the situation at the time 
the Commission refused to deaverage UNEs in the Eighth Supplemental Order in 
Docket Nos. UT-960369, et al.  There is no legal imperative to deaverage UNEs 
in advance of the Legislature’s action on universal service reform. See 
discussion above concerning AT&T witness’ unsupported claim that Ch. 337, §1(6) 
, L. 1998 requirement to “coordinate with the federal fund” requires that UNEs 
be deaveraged before explicit universal service funding can be implemented 
lawfully.  There is no factual basis on which to rest such a claim, either.  
(3) If the Legislature does not act on the Commission’s report, there is no 
need to deaverage UNEs at this time.

 There is no need to deaverage UNEs at this time, even if the Legislature does 
not act on the Commission’s report.  Under this scenario, there will have been 
no change in the status quo from that which existed when the Commission 
declined to deaverage UNEs in the Eighth Supplemental Order in Docket Nos. 
UT-960369, et al.  If the Legislature does not act, then the Commission will 
still be under the prohibition in Ch. 337, §2, L. 1998 from taking any action 
to establish a universal service program that has not been approved by the 
Legislature.  The fact is that deaveraging UNEs is a separate matter in a 
separate proceeding, and it should not be viewed as the central object or even 
a threshold for decision-making on the task that the Legislature has required 
of the Commission.
 In addition, the deaveraging of UNEs is not properly before the Commission in 
this docket.  No party has introduced proposed deaveraged prices for UNEs that 
the Commission could approve, and to which other parties could have responded 
with evidence.  No party has shown the impact on ILECs’ earnings of the 
imposition of deaveraged UNE prices, and shown 

that such impact would not depress earnings below the line of confiscation.  An 
adverse impact on ILECs’ earnings is an issue that should be examined with 
evidence in any proceeding to deaverage UNEs.  This has not occurred.
 B. FEDERAL LAW 

 Federal law requires only that the Washington USF regulations not be 
inconsistent with the FCC’s rules, and that such regulations be specific, 
predictable and sufficient to support state definitions or standards that do 
not rely on or burden federal universal service support mechanisms.  The 
Commission must allow Eligible Telecommunications Carriers who provide 
universal service to recover their costs of doing so.
 The federal Act sets forth its requirements for state universal service 
programs in §214(e) and §254(f).  The key requirements of §254(f) are that the 
state’s regulations not be inconsistent with the FCC’s rules, that every 
telecommunications carrier that provides intrastate service must contribute to 
the preservation and advancement of universal service on an equitable and 
nondiscriminatory basis as determined by the state, and that the state’s 
regulations, if any, provide for additional definitions and standards for this 
purpose that adopt specific, predictable and sufficient mechanisms for 
supporting such definitions or standards that do not rely on or burden federal 
universal service support mechanisms.  
 The Washington Legislature has defined “basic telecommunications service” in 
Ch. 337, §1(7)(b), L. 1998 as containing the identical elements that the FCC 
has prescribed for universal service. In the Matter of Federal-State Joint 
Board on Universal Service, CC Docket 96-45, Report and Order, FCC 97-157, May 
8, 1997, ¶¶61-85.  No one has suggested that this raises any issue of 
consistency with the FCC’s rules.  No 

one has suggested that the FCC has prescribed any model or methodology for 
states to use in determining the cost of providing universal service.  
Therefore, this Commission is free to select the BCPM 3.1 as the model for use 
in measuring the cost to provide basic telecommunications services in high cost 
areas in Washington.
 Under §214(e)(3) a state has the authority to determine which carrier or 
carriers is best able to provide services that are supported by the Federal 
universal service support mechanism in a community or portion of a community 
that is unserved, and order such carrier or carriers to provide such service.  
Such a carrier becomes obligated to offer and advertise service that is 
supported by the federal universal service support mechanism, and is eligible 
to receive universal service support in accordance with §254.  Congress 
identified among its universal service principles in §254(b), the principle 
that “There should be specific, predictable and sufficient Federal and State 
mechanisms to preserve and advance universal service.”  In order for the state 
mechanism to meet the test of sufficiency, it should permit eligible 
telecommunications carriers to have a reasonable opportunity to recover the 
cost incurred in providing services that are supported by the mechanism.  
 III. POLICY ISSUES

 A. THE PURPOSE OF THE PROCEEDING.

 Pursuant to the Prehearing Conference Order, the purpose of this proceeding is 
to determine through adjudication, the methodology for estimating, and to 
estimate, the reasonable and accurate cost of providing lines for basic 
telecommunications service in high cost areas in the state, alternatively for 
all lines in such areas and for a single primary line for each residential and 
business customer in such areas.  The findings will include a determination on 
the size of the universal service fund that would be required to support lines 
under each scenario, and the individual company support that qualifying 
companies will be eligible for.  (Id.)
 B. TIMING/IMPLEMENTATION/COMPETITION

 The timing of the Commission’s required activities is set forth in Ch. 337, L. 
1998.  The Commission must adopt or prepare to adopt rules establishing a 
program, but the program may not take effect until it has been approved by the 
Legislature.  The Commission must report to the Legislature no later than 
November 1, 1998, on the steps it has taken and the estimated cost to support 
all lines and a single primary line for each residential and business customer 
in high cost locations.  (Ch. 337, §1(3), L. 1998) 
 Once the Commission’s program has been approved by the Legislature, it may be 
implemented.  Nothing in Ch. 337, L. 1998, provides for any delay in 
implementation, once the program has been approved.  So long as the program 
does not conflict with the FCC’s rules issued pursuant to §254 of the federal 
Act, there is no legal basis to delay implementation.  AT&T argues that 
implementation of explicit support for basic service in high cost locations 
should be delayed until access charges are reformed and until UNE prices are 
deaveraged.  (Tr. 1571-1572)  This position has no legal basis.  
 Once explicit funding for the support of basic service in high cost areas has 
been implemented, then all competing carriers will have a fair opportunity to 
win each customer’s business, including residential customers.  (Ex. 62T, pp. 
6- 7)  In addition, consumers in other than high cost locations will benefit 
from the process of replacing implicit sources of support of basic service in 
high cost areas, with explicit sources of support.  The ILECs which have the 
duty to stand ready to serve all customers, both those in high cost areas and 
those in low cost areas, will be more able to reflect the actual cost of 
service in low cost areas in their prices, and thereby meet the unregulated 
competition.
 C. THE COMMISSION SHOULD SELECT A SINGLE MODEL, THE BCPM 3.1, FOR DETERMINING 
THE COST OF UNIVERSAL SERVICE IN WASHINGTON.
 
 The Legislature has commanded the Commission to “estimate the cost” of 
supporting all lines in high cost locations and the cost of supporting a single 
primary line for each residential and business customer in such locations.  
(Ch. 337, §1(2)(a), L. 1998)  This appears to be a narrower scope of action 
than the Commission’s decision in Docket Nos. UT-960369, et al., to adopt a 
range of costs that will serve as the basis of setting prices in a later phase 
of a comprehensive pricing docket. Eighth Supplemental Order, Docket Nos. 
UT-960369, et al., at ¶35.  
 The Commission has required that models be open, reliable and economically 
sound. Id. at ¶38.  The BCPM 3.1 meets these criteria.  The use of a single 
model will better enable the Commission to estimate “the cost,” rather than a 
range of costs, based on the inputs the Commission selects, than would the use 
of both models.  The Commission should not allow any extraneous issue, such as 
a claim that a fund of this or that size will either stifle competition or 
promote uneconomic entry, cloud the decision on model selection.  The size of 
the fund will depend on a number of variables, only one of which is the 
determination of the model that will be used to estimate the cost of providing 
service in high cost areas.  There should be no bias toward the determination 
of the size of the fund that would set as a goal the establishment of a fund 
that is too small to accomplish the statutory objectives.
 It is also not necessary to use the same model for the determination of the 
cost of UNEs as for the determination of the cost of providing basic service in 
high cost areas.  AT&T argues that the same model must be used for both 
purposes.  (Ex. 372T, pp. 14-15)  However, it is clear that the Commission has 
chosen no model for determining the cost of UNEs. Eighth Supplemental Order, 
Docket Nos. 960369, et al., at ¶264.  Therefore, there is nothing to which AT&T’
s argument could be applied.  
 The errors that the Commission found in the BCPM version that it considered in 
Docket Nos. UT-960369, et al., have been addressed and corrected in this case.  
U S WEST, in the instant docket, submitted inputs for the BCPM 3.1 that are 
based on its own experience in Washington, not a proprietary study of LEC 
operations, as was done in Docket Nos. UT-960369, et al.  (Ex. 1T, p. 49)  Mr. 
Schaaf verified that these inputs were reasonable by comparing them against 
data from other companies and his own experience, but the inputs were U S WEST 
actual information.  (Ex. 301T, p. 26, Tr. 1472)  Secondly, the BCPM 3.1 does 
not use per line expenses for outside plant as was done in the prior version, 
instead it uses an investment based factor to determine expenses.  (Ex. 5C, p. 
107)  Finally, the BCPM algorithmic error that the Commission identified at 
page 53, n. 24 of the Eighth Supplemental Order in Docket Nos. UT-960369, et 
al., that was associated with the calculation of taxes, has been corrected in U 
S WEST’s filings in the instant docket.  (Ex. 31T, p. 5)  Based on these facts, 
the Commission should select the BCPM 3.1 for determining the cost of 
supporting basic service in high cost locations.

 D. A COST BENCHMARK SHOULD BE SELECTED, ALL LINES IN HIGH COST LOCATIONS 
SHOULD BE SUPPORTED, AND THE PROPER GEOGRAPHIC LEVEL FOR CALCULATION OF COSTS 
IS THE SUB-UNIT OF THE WIRE CENTER THAT CAN BE IDENTIFIED AS 
URBANIZED/NON-URBANIZED.

 Basic principles of statutory construction require that the Commission select 
a cost benchmark for the purpose of identifying high cost locations.  While 
this is an issue in the rulemaking phase of the docket, U S WEST submits that 
the structure and wording of Ch. 337, L. 1998, support the interpretation that 
the Legislature intended that the Commission use a cost benchmark to define 
high cost locations for purposes of the state act.  First, Ch. 337, §1(1), L. 
1998 declares that the purpose of the universal service program is to benefit 
customers by minimizing implicit sources of support and maximizing explicit 
sources of support that are specific, sufficient, and competitively and 
technologically neutral.  
 It is largely undisputed that existing revenue streams contain the implicit 
sources of support that are the subject of the legislative intent to minimize 
in this section.  (Ex. 61T, p. 9; Ex. 62T, p. 6)  Yet the existing revenue 
streams are what a revenue benchmark would incorporate into the fund as a 
deduction from the cost of supporting basic service in high cost locations.  
The Commission should not interpret a portion of the statute in a way that 
renders accomplishment of the legislative objective to minimize implicit 
sources of support impossible, when an alternative interpretation would allow 
accomplishment of the legislative objectives. Estate of Burmeister, 124 Wn.2d 
282, 877 P.2d 195 (1994).  
 Use of a revenue benchmark would clearly tend to perpetuate the existing 
implicit sources of support, or alternatively would leave ILECs in financial 
straits that would require rate cases to resolve.  AT&T proposes explicitly to 
include in the benchmark the very revenues that represent the portion of access 
charges that exceed AT&T’s definition of economic cost. (Tr. 1574-1575)  
However, AT&T also argues that explicit funding of USF should not occur until 
this portion of access charges has been eliminated.  (Tr. 1572)  Under AT&T’s 
proposal, the USF would begin operations underfunded by the amount of access 
charges that, in AT&T’s view, exceed economic cost.  That portion would be 
included in the revenue benchmark but it would have been excluded from actual 
revenues that the ILECs receive.
 Even if the USF did not begin operations in an underfunded condition because 
of inconsistent assumptions as described above, as implicit sources of support 
are removed either through rate action by the Commission as AT&T seeks to 
reduce access charges to forward looking economic cost (Tr. 1572), or through 
the effect of the forces of competition on prices that