STATE OF WASHINGTON WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION Re: Petition for Investigation ) into the Cost of Universal ) Docket No. UT-970325 Service and to Reform ) Intrastate Carrier Access Charges ) COMMENTS OF WORLDCOM, INC. WorldCom, Inc. (“WorldCom”), through undersigned counsel and pursuant to the Commission’s Notice of Opportunity to File Comments (dated January 21, 1998), hereby submits its comments in the above-captioned docket. INTRODUCTION Access charge reform must accomplish two goals: remove implicit universal service subsidies from access charges and lower access charges to incumbent local exchange carriers’ (“LECs”) forward-looking costs of providing access with no corresponding increase in other rates. The Commission must pursue the first goal in order to comply with Section 254 of the Communications Act of 1934 (“Act”), which requires state universal service programs to provide “specific, predictable and sufficient” universal service subsidies. 47 U.S.C. § 254(f). As it recognizes in each of the four approaches listed in the Notice (at 2), the Commission must remove universal service support from access charges and shift it to an explicit subsidy mechanism. Whatever the outcome of this proceeding, it is clear that access charges will fall at least by the amount of universal service support that they contain. WorldCom also urges the Commission to reduce access charges to the forward-looking cost of providing access without granting incumbent LECs increases in other rate elements. Access charges should compensate incumbents for costs that they incur. Access charges should not provide a windfall — as they currently do — to companies that enjoy a strangle-hold over the local exchange market. Access is a bottleneck service, like network elements such as the loop, which require cost-based pricing to avert inefficient and anticompetitive results. Pricing access at cost will encourage only efficient entry into the local exchange market and will discourage inefficient bypass. Moreover, pricing access at cost will prevent incumbent LECs from profiting from companies with which they compete in the local market. For incumbents that are providers of interexchange services, such as GTE, or incumbents that will provide interexchange services in the future, the Commission must set access charges at forward-looking cost to minimize the potential for abuse through predatory pricing schemes. The Commission proposes four approaches to access charge reform, each of which seeks to accomplish the first goal, discussed above, by removing universal service support from access charges. To achieve the second goal — reducing access charges to economic cost — approaches A, B, and C attempt to employ market forces by shifting extra costs in access charges to other rates that are more susceptible to competition than access charges. By contrast, approach D would lower access charges to economic cost through regulatory prescription. As the following paragraphs explain, WorldCom does not believe that market-based approaches will bring access charges in line with the economic cost of providing access. Instead, the Commission will have to employ a prescriptive approach. MARKET-BASED APPROACHES ARE PROBLEMATIC, AND THE COMMISSION WILL NEED TO USE REGULATORY PRESCRIPTION WorldCom appreciates the Commission’s desire to rely on market forces to reduce access charges, but seriously doubts that a competitive market for access will arise in the near future. The FCC’s plan for IXCs to purchase a platform of combined network elements from incumbent LECs, and thereby gain access, has met numerous stumbling blocks — legally, at the United States Court of Appeals for the Eighth Circuit, and practically, as incumbents have resisted efforts of competitive carriers to purchase combinations of network elements pursuant to valid interconnection agreements. The Commission cannot count on the platform to provide competition for originating access, nor can it expect carriers to deploy sufficient facilities to bypass incumbent LECs anytime soon. For purposes of terminating access charges, employing a market-based approach would be almost entirely fruitless, since IXCs cannot lease or build facilities to even a significant number of premises that potentially may be called. The Commission must accept the fact that the kind of prescriptive approach to access charge reform set forth in approach D is in order for at least the foreseeable future. Since consumers will benefit most from reform efforts when access charges are at economic cost, WorldCom proposes that the Commission investigate the costs of providing access and set both originating and terminating charges at economic cost as soon as possible. / This approach, of course, assumes that the Commission first will remove universal service support from access charges./ The Commission should determine the forward-looking costs of access by using the Total Service Long Run Incremental Cost methodology. Whenever the Commission acts in its prescriptive role to set access charges, it should employ flat-rated pricing for any non-traffic sensitive costs, such as those associated with switch ports and the common line. / Flat-rated pricing will eliminate to a certain degree the subsidy that travels from customers with above average toll usage to customers with below average toll usage and provide more economically efficient pricing signals to all users of the public switched network. In addition, customers should pay access charges directly to incumbent LECs, rather than through IXCs, so that customers will better understand the rate structure of access charges./ At no point should the Commission attempt to make incumbents whole by allowing them to recover lost access revenues through other rate elements. Even if the Commission determines to employ a market-based approach over an entirely prescriptive approach, it should employ approach D on a going-forward basis at least for terminating access charges and on a contingent basis for originating access charges in the event that incumbent LECs fail to make competition possible. Market forces cannot affect terminating access charges, as approach B recognizes by “shift[ing] any terminating access charges in excess of the actual cost of terminating access[] to originating elements.” Notice, at 2. The Commission should act to protect captive access charge customers on the terminating end. If the Commission decides to set originating access charges at levels above economic cost, it should require incumbent LECs to meet certain minimum critieria for a competitive marketplace. These minimum criteria should include: (1) the incumbent LEC has made the platform of recombined network elements available as a practical matter to competitors; (2) the incumbent LEC has made access to its operational support systems available to competitors as a practical matter; and (3) the incumbent LEC has met the “competitive checklist” of Section 271 of the Act, without regard to its status as a Regional Bell Operating Company. The Commission should establish a specific timetable under which it will evaluate the success of market-based access charge reform efforts and assess whether incumbent LECs have met the minimum criteria listed above. Above all else, the Commission should retain the authority to lower access charges prescriptively in order to protect interexchange carriers and consumers in the event that market-based efforts do not produce lower access charges to a meaningful degree within a reasonable period of time. Respectfully submitted, -------_____________________________ Douglas G. Bonner Antony Richard Petrilla Swidler & Berlin, Chartered 3000 K Street, N.W., Suite 300 Washington, D.C. 20007 (202) 424-7701 (tel) (202) 424-7645 (fax) Counsel for WorldCom, Inc. Dated: February 13, 1998