BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION IN THE MATTER OF ) DOCKET NO. UT-980311(r) ESTABLISHING ) UNIVERSAL SERVICE ) MECHANISMS ) JOINT COMMENTS OF ) AT&T AND MCI ) ON THE THIRD DRAFT ) USF RULES INTRODUCTION AT&T Communications of the Pacific Northwest, Inc., AT&T Wireless Services, Inc. (jointly “AT&T”), and MCI Telecommunications Corporation (“MCI”) submit these comments pursuant to the Notice of Request for Comment on the Third Draft Universal Service Rules. Calling on the statement of purpose contained in rule WAC 480-123-020, these comments question the ability of this program, as articulated, to achieve the purpose for which a competitively neutral universal service fund is intended under either federal or state statute. WAC 480-123-020 PURPOSE Proposed rule WAC 480-123-010 states in pertinent part that “[t]he purpose of this chapter is to preserve and advance access to affordable basic telecommunications service in a competitive environment and to prescribe a program of support for the provision of basic telecommunications service to high-cost locations with rates and services reasonably comparable to those in low-cost locations.” First, with regard to Section 254(b) of the Federal Telecommunications Act, and the objective of affordability, Congress indeed made affordable basic service a goal of universal service. In its policy pronouncement of Section 254(b), however, Congress meant that both intrastate and interstate services should be affordable.1 Universal Service Order, para. 817. If implemented, one consequence of the proposed Washington universal service program will be discrimination against Washington consumers of interstate long distance See Draft III Proposed Rules WAC 480-123-160 “End –User Retail Revenue”; WAC 480-123-290 “Contribution From Carrier Revenue”; WAC480-123-400 “Disbursement of Support for All Subscribed Lines”. In addition see the comment of AT&T and MCI on Draft I and Draft II of these proposed rules. service because they will pay this tax multiple times. Moreover, consumers of wireless services will carry a disproportionate share of the tax. Next, the “preservation and advancement of universal service … in a competitive environment” requires that there be competition. The crucial prerequisite for competition—deaveraged prices for unbundled network elements— is noticeably absent. This situation has remained unchanged throughout all of the proceedings related to the trilogy of reforms as well as the pro-competitive proceedings that the Commission undertook on its own initiative prior to the Telecommunications Act of 1996. The commenters have never missed the opportunity to emphasize this crucial element of reform for the development of competition. See for example, Comments of AT&T and MCI on Draft I and Draft II of this Docket, No. UT-980311(r); AT&T’s Testimony in the adjudicative phase of this Docket, No. UT-980311(a). Others have emphasized this issue as well ( see, for example, the Comments on Draft I and II of NEXTLINK, Electric Lightwave, Inc., and Shared Communications Services, Inc. and Comments on Draft I and II of TRACER. Notably, the only entities that oppose this are the incumbent monopolies. In a related matter, the Commission also neglects to affirmatively designate forward-looking economic cost is the appropriate cost standard for the determination of the cost of universal service. This standard was reaffirmed by the FCC in its Fifth Report and Order designating the cost proxy platform for the federal universal service fund. FCC 98-279, rel. Oct. 28, 1998, para. 10. Additionally, this rule seeks “to prescribe a program of support … with rates and services that are reasonably comparable… .” The Act, however, does not direct the FCC or a state Commission to “prescribe” such comparability. Rather, it states that consumers “should have access to … services that are reasonably comparable ….” 47 USC 254(b)(3). Although Section 254(b) directs that the Commission (FCC) “shall base policies … on the following principles”, among them the reasonably comparable standard, one must place this in the context of the general purpose of the Act. Thus, these and all other policy goals are to be accomplished through the promotion of competition with a concurrent reduction of regulation. The general purpose of the Act is “[t]o promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and to encourage the rapid deployment of advanced technologies.” Telecommunications Act of 1996, Pub.L.No. 104-104, 110 Stat. 56, 47 U.S.C. sec. 151, et seq. Furthermore, Section 706 of the Act clearly establishes the appropriate relationship between regulation and the role of the competitive market in assuring continued access to services, in particular advanced services, for consumers. The market is the preferred mechanism for this purpose: “[t]he Commission and each State Commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans … by utilizing, in a manner consistent with the public interest convenience and necessity, price cap regulation, regulatory forbearance, Proposed Rules that are contrary to this Section of the Act include: WAC 480-123-290 “Contributions From Carrier Revenue”; WAC 480-123-320 “Petition for Eligible Telecommunications Carrier Designation”; WAC 480-123-330 “Designation of Eligible Telecommunications Carriers”; WAC 480-123-370 Revenue Benchmark – Non-Wireline”; WAC 480-123-400 “Disbursement of Support for All Subscribed Lines”. measures that promote competition in the local telecommunications market, The universal service program emergent from these rules cannot promote competition. See Comments of AT&T and MCI on the First Draft, filed September 8, 1998. or other regulating methods that remove barriers to infrastructure investment” Barriers to infrastructure investment by CLECs are inherent in this universal service program as proposed. (emphasis added). Therefore, the directives of this section of the Act are that the Commission is to promote the development of competition and to prescribe the removal of barriers to entry such that the market, in the first instance, has the opportunity to bring these services to Washington consumers. Instead, the proposed rules seeks to prescribe a program and to increase regulation that mandates advanced services into Washington’s rural and as yet undetermined high cost communities. As set forth in paragraph 223 of the FCC’s Universal Service Order, the appropriate calculation of the cost of universal service is forward-looking economic cost reduced by a revenue benchmark. While WAC 480-123-190 sets up the revenue benchmark, neither WAC 480-123-180 nor WAC 480-123-570 appropriately sets forth forward-looking economic cost as the appropriate cost standard. CONCLUSION The Telecommunications Act of 1996 addressed the need to assure the continued availability of universal service in the transition to a competitive marketplace for all telecommunications services. Unfortunately, the universal service program proposed for Washington represents more regulation rather than reliance upon competitive markets. The joint commenters submit that competitive local service markets will ultimately solve problems that universal service supposedly addresses. The current draft rules essentially expand regulations in a manner that is discriminatory, technologically dysfunctional, and, as a result, anti-competitive. Most importantly, however, is the fact that the necessary precondition for the existence of a fund—competition—has not developed. The proposed rules, if implemented, will not serve to remove barriers to entry or to enhance the development of competition in the provision of telecommunications services in the state. Washington consumers deserve better. Respectfully submitted on November 16, 1998. AT&T COMMUNICATIONS OF THE PACIFIC NORTHWEST, INC. _________________________________ Susan D. Proctor Maria Arias-Chapleau 1875 Lawrence Street, Suite 1575 Denver, CO 80202 (303) 298-6164 Suzanne Toller AT&T Wireless Services, Inc. 795 Folsom Street, Room 670 San Francisco, CA 94107 (415) 442-5587 Rogelio Pena MCI Telecommunications Corporation 707 17th Street, Suite 3600 Denver, CO 80202 (303) 390-6106