BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION In the Matter of ) Docket No. UT-970325 ) Petition for Investigation into the Cost ) of Universal Service and to Reform ) Intrastate Carrier Access Charges ) COMMENTS OF WESTERN WIRELESS CORPORATION Western Wireless Corporation (“Western Wireless”) hereby submits its Comments on the Commission’s Notice of Opportunity to File Comments in the above-captioned proceeding. Notice of Opportunity to File Comments, Docket No. UT-970325, January 21, 1998. Western Wireless just recently became aware of this proceeding on access charge reform and submits these Comments based largely upon the Commission Staff’s Report on Access Charge Reform Options. Western Wireless strongly supports the Commission’s efforts in this proceeding to implement access charge reform. Access charge reform is a necessary precursor to full competition in the local exchange market. The current problem is well known: the incumbent local exchange carriers’ (“ILECs”) switched access rates are priced in excess of costs. The solution also is well known: access charges should be priced based upon the costs of providing the service. What remains is the implementation of access charge reform. In these Comments, Western Wireless proposes a roadmap for access charge reform that combines regulatory prescription with marketplace forces. This roadmap is based upon marketplace forces establishing rates for originating access charges and regulatory prescription establishing rates for terminating access charges. I. INTRODUCTION Western Wireless is a publicly-traded wireless telecommunications company based in Issaquah, Washington. Through its subsidiaries, Western Wireless provides cellular telephone service and/or Personal Communications Service (“PCS”) in 22 western states, including the state of Washington. Additionally, Western Wireless holds radio licenses from the Federal Communications Commission (“FCC”) to provide PCS in several other states and plans to commence service in these states in the near future. Together, Western Wireless’ cellular and PCS licenses cover approximately 66 million people and over 60 percent of the geographical area of continental United States, plus the state of Hawaii. Western Wireless also has formed a subsidiary to provide competitive local exchange (“CLEC”) services. This CLEC subsidiary is currently authorized to provide local exchange and long distance service in several states. II. ACCESS CHARGE REFORM Access charge reform has been the subject of much debate at the federal and state level. While it is largely recognized that the built-in subsidies in access charges must be removed in a competitive environment, there has not been a consensus on the transition to cost-based access charges. Clearly, marketplace forces are preferred over regulatory prescription when possible. In considering whether market forces will exert downward pressure on access charges, it is necessary to consider terminating access and originating access separately -- each category of service is subject to different market forces. Terminating access it not now subject to competitive pressures, nor will it be in the future, even after local competition has begun to evolve. This is so because, in the vast majority of cases, the carrier providing terminating access is not chosen by the party paying for the call. Currently, in most cases, the calling party chooses its interexchange service provider, and so the interexchange carrier has the incentive to offer attractive prices to the caller -- but this relationship does not provide any incentive for the carrier providing access to lower its charges to the interexchange carrier. Similarly, when competition for local services develops, the local exchange carrier -- whether an incumbent or new entrant -- will have an incentive to lower the total charges for its service to the caller, but this incentive will fail to place any downward pressure on the rates that these local exchange carriers will charge stand-alone IXCs for access. Simply put, the carrier providing terminating access typically has no direct connection to the party paying for the service it provides, and so has no incentive to reduce its charges to that party. Because terminating access is thus insulated from competitive pressures, prescriptive regulatory action is absolutely essential to drive terminating access charges to cost-based levels. For originating access, the dynamic is different, but it is still unclear whether market forces will be adequate to bring rates to cost-based levels. If competition in the local exchange market fully develops, originating callers will have a choice of competing local service providers. Their choices will include vertically-integrated carriers that provide local service through the use of unbundled ILEC network elements. When customers have that choice, local carriers will have the incentive to lower total charges for their services to their end users. Market forces may exert downward pressure on charges to the originating end user, but this may not translate into downward pressure on the access charges that carriers providing stand-alone interexchange service must pay to the local service provider. Indeed, it is likely that, as long as the local loop and switch remain a bottleneck facility, any carrier that controls those facilities -- whether an ILEC, a facilities-based local service provider, or an unbundled network element based provider of integrated interexchange and local services --will retain the incentive to keep its access charges as high as possible to maximize the revenues it collects from non-integrated carriers that must purchase access services from it. The differing market dynamics discussed above call for different regulatory approaches to reforming rates for terminating access and originating access. In each case, however, it is clear that market forces alone are inadequate to ensure reasonable rates -- even for the minority of switched access rate elements that may be subject to some competition. It is therefore necessary for the Commission to adopt a prescriptive approach to bringing access charges to cost-based levels. Western Wireless recommends that the Commission adopt a two-step approach. As the first step, the Commission would immediately prescribe total service long run incremental cost (“TSLRIC”) based rates for terminating access. As a second step, the Commission would monitor movement in originating access rates, and would take prescriptive action only if market forces do not exert sufficient downward pressure on those rates. By immediately prescribing TSLRIC rates for those access elements that are not subject to competitive market forces, while maintaining, at current levels for the present, access rate elements that may be subject to competitive pressure, the Commission would establish an innovative approach toward establishing cost-based access rates, which will minimizing the ILECs’ ability to disadvantage entrants by imposing uneconomic costs on them. In adopting access charge reform, the Commission must not establish a “slush fund” that fails to distinguish between ILEC TSLRIC, embedded costs, and recovery of historic earnings levels. Permitting ILECs to charge rates that include such vague and unquantified amounts have caused the pricing distortions and cross-subsidies that have plagued ILEC access charges since their inception. The Commission must seize this opportunity to exclude such non-cost based amounts from access charges. Failure to do so would be catastrophic. It would send the wrong economic signals to the market, would inhibit efficient network design by both ILECs and competitive carriers, and would allow ILECs to shift costs among classes of customers to anticompetitive effect. A. Terminating Access Charges. The Carrier Common Line (“CCL”), Local Switching, and any non-cost based rate elements on the terminating side of a call should be prioritized as the first switched access rate elements to be brought to TSLRIC levels or eliminated. Three considerations compel this approach. First, the terminating CCL and local switching are not subject to competitive pressures, and will not become subject to competitive pressures even after competitive carriers enter the local market using unbundled ILEC network elements. The provider of terminating access -- whether the ILEC or a competitor -- has no direct relationship with the party that pays for the call. Rather, the calling party chooses its long distance carrier, but that relationship does not provide any incentive for the terminating access provider to lower its charges to the originating long distance carriers. Given that there is no inventive for reductions in these access charges, a prescriptive approach is necessary to bring these rates to TSLRIC-based levels. Second, as a general matter, access charges must reflect the functions that are being provided by the ILEC, and services that provide identical functions must be priced identically. This outcome is necessary to prevent unreasonable discrimination among purchasers of ILEC access services. ILEC services that provide identical functions must be priced at identical TSLRIC rates, regardless of the label of the traffic (i.e., local or toll). Absent such pricing, competitive carriers would not be able to design their networks and develop their services efficiently in response to market signals. Rather, they would be compelled to mirror the ILECs’ network designs and to define their local calling areas identically to the ILECs, even if such decisions would otherwise be inefficient or inconsistent with customers’ preferences. Third, as incumbent local service providers, the ILECs will continue to be the local service provider for the vast majority of customers, thereby ensuring their domination of the market for terminating access for the foreseeable future. Eliminating non-TSLRIC distortions in terminating access charges will lessen the advantages that ILECs derive by virtue of their incumbency, and will lessen barriers to competitive entry. Western Wireless recommends the following changes to the terminating CCL, Local Switching, and any non-cost based rate elements. • Because the TSLRIC of the terminating CCL is zero, the Commission should eliminate the terminating CCL as a rate element. Western Wireless wishes to make clear that it would strongly oppose any effort by the ILECs to recover the revenues they receive today from terminating CCL charges from originating CCL rates in the future. • Regarding Local Switching, the Commission must ensure that the terminating Local Switching rates are set at the same levels that are established for the termination of local traffic. This outcome is compelled by several considerations, including the recognition that a “minute is a minute.” That is, the function performed, and the costs incurred, in switching a minute of traffic in the ILEC end office is the same whether the traffic is local or toll. The Local Switching function in the access regime is therefore identical to the switching component of the unbundled termination function for purposes of interconnection under Section 251(b)(5) of the Telecommunications Act of 1996. Because the Local Switching and termination rate elements reflect the same functions, they have the same TSLRIC and must be priced identically. The Commission should therefore require ILECs to set their rates for Local Switching at the same level establish for the termination of local traffic. • Any non-cost based rate elements should be set at zero. Under a TSLRIC regime, the ILECs will recover all TSLRIC costs through other access rate elements. B. Originating Access Charges. Western Wireless recognizes that the magnitude of non-incremental cost amounts embedded in current ILEC access rates may make it non-feasible from a practical standpoint to reduce all originating access charge rate elements to TSLRIC-based levels immediately. For that reason, the Commission may wish to retain for now the current levels for access charge rate elements and “wait and see” if these rate elements are subject to downward pressure as local service competition begins to develop. While this is by no means a guaranteed outcome -- it is possible that competitive providers of originating access will have the same incentives to maintain inflated rates as ILECs --the Commission and the industry can monitor the development of competition for these functions, and any related rate changes, and decide whether prescriptive action is warranted if competition does not bring reductions in originating access rates. III. CONCLUSION For the foregoing reasons, Western Wireless supports the reform of intrastate access charges in a manner that relies, to the extent possible, on competitive marketplace forces to bring originating access charges in line with the cost of providing the service and on regulatory prescription for establishing cost-based terminating access charges. Respectfully submitted, Western Wireless Corporation By: _________________________ Gene DeJordy, Esq. Director of Regulatory Affairs Western Wireless Corporation 2001 NW Sammamish Road Issaquah, Washington 98027 425-313-7775 (tel) 425-313-7960 (fax) Dated: February 13, 1998 E-Mail: gene.dejordy@wwireless.com