BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION


MCI TELECOMMUNICATIONS CORPORATION AND AT&T COMMUNICATIONS OF THE PACIFIC 
NORTHWEST, INC.,

                                                    Complainants,

               vs.

U S WEST COMMUNICATIONS, INC.,

                                                    Respondent.	)
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		DOCKET NO.  UT-970658
		
		U S WEST'S POST-HEARING REPLY BRIEF
		

 U S WEST Communications, Inc. (“U S WEST”) respectfully submits this 
Post-Hearing Reply Brief and requests the Commission to award it the relief 
requested herein:
I.  INTRODUCTION Defined terms have the same meaning as given in U S WEST’s 
Post-Hearing Brief.
 As U S WEST noted in its Post-Hearing Brief, the FCC imposed one requirement 
upon U S WEST before U S WEST was eligible to receive per-call compensation.  U 
S WEST simply is required to certify to the IXCs that it has complied with the 
FCC’s checklist. U S WEST did make the required certification, including 
certifying that it had removed all intrastate subsidies.  In support of its 
certification, U S WEST submitted three pieces of irrefutable evidence to show 
that there is no subsidy:
an embedded cost analysis;

a TSLRIC analysis; and

several previous WUTC decisions showing that U S WEST’s payphone services pass 
a stringent imputation analysis.

This evidence, both individually and in the aggregate, clearly refutes any 
allegation of a subsidy.
 Despite U S WEST’s certification, AT&T and MCI continue to refuse to pay U S 
WEST per-call payphone compensation.  At first, AT&T and MCI asserted that 
“state certification” was a prerequisite for the payment of compensation.  (See 
Complaint at 8).  MCI and AT&T have abandoned that position.  They now claim 
that they are entitled to exercise “self help” by withholding monies due U S 
WEST until they are satisfied that all subsidies have been removed.  
(Complainants’ Brief at 7).  Notably, the Payphone Orders do not grant MCI and 
AT&T the authority to unilaterally withhold this money.  Accordingly, U S WEST 
requests the Commission to enter an order requiring MCI and AT&T to pay 
per-call compensation forthwith, retroactive to April 15, 1997.
 Thus, the only issue that is left in this proceeding is the existence of a 
subsidy. (Complainants Brief at 9; Staff Brief at 8).  As MCI and AT&T have 
readily acknowledged, they bear the burden of proving that there is a subsidy.  
In light of U S WEST’s evidence and the FCC’s Payphone Orders which require 
only certification from U S WEST, MCI and AT&T carry a heavy burden in proving 
their allegations. They have not come close to carrying this burden.  In fact, 
the only evidence they have offered – the testimony of Peter Gose – has been 
thoroughly discredited.  By virtue of this failure of proof, U S WEST is 
entitled to a decision in its favor.
 U S WEST further notes that Commission Staff has also rejected Mr. Gose’s 
analysis.  Staff, however, does contend that there is a subsidy.  As we noted 
in our Post-Hearing Brief, U S WEST does not accept Staff’s methodology.  U S 
WEST, however, will acquiesce in Staff’s methodology (for purposes of this 
hearing only) provided one modification is made; i.e., that toll revenues and 
expenses are properly matched.  When Staff’s analysis is properly adjusted to 
exclude both toll revenues and expenses (or, in the alternative, to include 
toll revenues and expenses), Staff’s own analysis shows the absence of a 
subsidy.
 What follows is a brief reply to the statements and arguments set forth in the 
briefs of Complainants and Staff.  In particular, we wish to highlight the fact 
that the burden of proof remains upon the complaining parties.  Thereafter, we 
highlight the deficiencies in AT&T’s and MCI’s case and demonstrate that their 
criticisms of U S WEST’s analyses are unfounded.  Finally, we respond briefly 
to the arguments of Commission Staff and touch on two issues which the 
Complainants and Staff refused to address.  
II.  THE BURDEN OF PROOF REMAINS UPON COMPLAINANTS.

 Throughout their brief, MCI and AT&T have attempted to shift the burden of 
proof in this case to U S WEST.  For example, they assert that  .  .  .  “[U S 
WEST and GTE] have yet to show that any existing subsidies have been removed 
from their regulated operations.”  (Complainants Brief at 11).  In other 
places, MCI and AT&T complain that U S WEST’s analyses are unsupported by the 
underlying accounting data.  Id. at 15.  Through these statements, MCI and AT&T 
attempt to shift the burden of proof.  MCI and AT&T improperly contend that U S 
WEST must show the absence of a subsidy, rather than that AT&T and MCI must 
prove the existence of a subsidy.
 MCI and AT&T’s contention is completely without merit.  As U S WEST noted in 
its Opening Brief, MCI and AT&T both acknowledged that they carried the burden 
of proving the existence of a subsidy.  See U S WEST Brief at 3, n.2.  Staff 
agrees with U S WEST that MCI and AT&T carry the burden of proof.  See 
Memorandum of Commission Staff Opposing GTE’s Motion to Dismiss, dated May 27, 
1997 at 1-2.
 Accordingly, MCI and AT&T cannot claim that U S WEST’s showing is 
insufficient, or that their analysis is “unsubstantiated.”  It remains their 
burden to demonstrate the existence of a subsidy and, further, it is incumbent 
upon them to request through discovery the information which they need to make 
their case.  As noted, U S WEST has already carried its burden by certifying to 
the IXCs that it has complied with the FCC’s checklist.  If MCI and AT&T wish 
to contest this certification, they must prove the existence of a subsidy.
III.  MCI AND AT&T HAVE NOT CARRIED THEIR BURDEN OF PROOF.

 Despite the fact that MCI and AT&T have the burden of proof, neither used 
their Post-Hearing Brief to rehabilitate their only witness, Peter Gose.  This 
is surprising, since the U S WEST’s and GTE’s testimony in this case, as well 
as Mr. Gose’s own admissions upon cross examination, revealed several serious 
flaws in his analysis, among them:
double counting of the costs of the public access lines;

failure to deduct toll commission expenses;

failure to deduct toll coin collection expenses; and

failure to adequately justify a 10% operator services revenue deduction.

(See U S WEST’s Opening Brief at 8-12 and citations to the record therein).  
Staff apparently agreed with U S WEST and GTE in regarding Mr. Gose’s analysis 
as irreparably flawed, because it did not use Mr. Gose’s PSDM in its own 
analysis.  MCI and AT&T’s statement that Staff “substantiated” their claims is 
ludicrous.  (Compainants Brief at 14).  No party to this proceeding, other than 
Mr. Gose, supported the PSDM.  In fact, Staff advocated the use of a 
fully-distributed cost analysis – not the PSDM.  See Zawislak, Exh. 13-T at 8: 
6-9:12.  In sum, the PSDM is an orphan – disowned by its creator and rejected 
by U S WEST, GTE and Commission Staff.
 U S WEST submits that Mr. Gose should be commended for his candor in admitting 
that he was unable to substantiate the existence of a subsidy.  (Tr. at 227: 
17-21).  This, of course, is consistent with what MCI had earlier argued before 
the FCC:  “. . . the total cost of installing and operating a payphone equipped 
to deliver access code calls is recovered from the revenues attributed to local 
coin sent paid calls.”  (Exh. 10).  In light of these admissions, MCI and AT&T 
have plainly failed to carry their burden of proof.
IV.  MCI’S AND AT&T’S CRITICISMS OF U S WEST’S STUDIES
  ARE WITHOUT MERIT.
 On the other hand, U S WEST took a belt-and-suspenders approach towards 
assuring MCI and AT&T that payphone services were not being subsidized.  U S 
WEST provided AT&T and MCI with: (a) a booked cost analysis; (b) a TSLRIC 
analysis; and (c) earlier WUTC decisions, all of which showed that U S WEST’s 
payphone services passed a stringent subsidy analysis.
 We note that AT&T and MCI totally ignored the WUTC’s earlier decisions in 
presenting their evidence.  Neither party made any attempt to distinguish these 
earlier decisions from the present case, nor did they attempt to reconcile 
their allegations of a subsidy with the WUTC’s earlier findings.  U S WEST 
believes that these earlier Commission decisions are directly relevant to the 
issues presented in this case, and that the parties are not free to disregard 
them.  Instead, the Complainants attempt to focus upon U S WEST’s two subsidy 
analyses in order to discredit them.  Every one of these criticisms lacks merit.

A. U S WEST’s Booked Cost Analysis Passes Muster.

 MCI and AT&T’s first set of criticisms focuses upon U S WEST’s Booked Cost 
Analysis.  (Exh. 41-C).  They complain that the analysis is not “supported by 
the underlying accounting data.”  (Compainants Brief at 15).  This claim is 
false: U S WEST submitted all requested information during discovery.  Further, 
MCI and AT&T bear the burden of proof: it is up to them to request information 
they deem relevant during discovery and cross-examination.  Dr. Wilcox, who 
sponsored the study, was available on the stand to answer any and all questions 
regarding the study.  MCI and AT&T refused to take advantage of this 
opportunity.  MCI and AT&T cannot hide behind the fact that their 
cross-examination was brief and cursory and thereafter claim the evidence 
presented was “not supported”.
 Similarly flawed is MCI’s and AT&T’s complaint that Exhibit 41-C did not 
include access line costs.  They ignore the fact that U S WEST re-ran this 
study to include the access line cost (Exh. 52) and the study still 
demonstrated that no subsidy existed.
B. U S WEST’s TSLRIC Analysis Suffices To Demonstrate That There Is No Subsidy.
 MCI and AT&T also question U S WEST’s TSLRIC analysis.  (Compainants Brief at 
16-17).  MCI and AT&T allege that the TSLRIC analysis suffers from three flaws: 
(a) the TSLRIC analysis fails to include PAL costs; (b) the FCC did not specify 
the use of a TSLRIC study; and (c) the WUTC has not approved the use of a 
TSLRIC study.  Id.  None of these objections withstand scrutiny.
 First, MCI and AT&T again ignore the fact that U S WEST re-ran its TSLRIC 
analysis to include the cost of a PAL.  (Exh. 42-C).  The TSLRIC study shows 
that there is no subsidy even when PAL costs are included.  Thus, this 
complaint is meritless.
 Second, MCI and AT&T have not identified any section in the Payphone Orders 
wherein the FCC required the use of an embedded cost analysis.  Nor has 
Commission Staff, for that matter.  U S WEST does not believe that the FCC has 
unequivocally identified any method to determine the existence of a subsidy.  
In fact, the FCC went so far as to allow the states to develop their own 
information.  (Report and Order, ¶ 186).  This dispute, however, is irrelevant 
because U S WEST has, in fact, submitted an embedded cost study.  (Exh. 41).  
That study, like the TSLRIC analysis, demonstrates the absence of a subsidy.
 Finally, AT&T and MCI are incorrect in implying the WUTC has not endorsed 
TSLRIC studies in examining the existence of subsidies.  As the Commission 
Staff noted, “.  .  .  in Washington State the term subsidy has been defined as 
an instance where the price of a service is below its total service long run 
incremental cost or TSLRIC.”  (Zawislak Testimony at T-13, 8:9-12, citing 
Docket No. UT-950200).  Accordingly, the WUTC has endorsed the use of TSLRIC 
studies in subsidy analyses.  U S WEST has presented this particular TSLRIC 
study to the WUTC for the first time in this proceeding because this was the 
earliest opportunity for it to do so.
C. U S WEST Does Not Advocate That A Subsidy Analysis Be Performed In 
Conjunction With A Rate Case.

 One final misrepresentation in AT&T and MCI’s submission deserves a reply.  In 
their brief, the complainants contend that U S WEST’s position is, “whether a 
subsidy exists should wait until some future U S WEST rate case.”  (Compainants 
Brief at 16). We note that Commission Staff made a similar argument in its 
brief.  (Staff Brief at 12).  This is not U S WEST’s position.  Rather, U S 
WEST acknowledges that payphone deregulation will necessarily have an impact 
upon the remaining regulated side of U S WEST’s business.  (Taylor Testimony at 
Exh. 51-T at 5:6-13).  Some adjustments will have to be made to the 
rate-of-return business.  Id.  These charges are small and can wait until the 
next rate case.  Id.  The subsidy issue, however, can be examined and resolved 
now.  And, as U S WEST has shown, there was no subsidy at the time of 
deregulation.  Further, the FCC’s accounting rules will not permit a subsidy to 
“re-emerge” after de-regulation.  It is simply untrue to assert that U S WEST 
wishes to put off the subsidy analysis until the next general rate case.  U S 
WEST merely noted, correctly, that there will be some impact upon the regulated 
side of U S WEST’s business due to regulation, but this impact does not require 
immediate action.
 After examining each of MCI’s and AT&T’s criticisms, it is plain that they 
either misrepresent facts or ignore parts of the record or both.  As such, each 
of the criticisms of U S WEST’s evidence can be summarily rejected.
IV.  COMMISSION STAFF’S ANALYSIS FAILS TO ADEQUATELY MATCH TOLL REVENUE AND 
TOLL EXPENSES.

 In our Opening Brief, we consented to the use of Staff’s analysis (although we 
did not agree with it) provided that one modification were made: expenses 
incurred in connection with toll revenue were excluded from the analysis.  (U S 
WEST Post-Hearing Brief at 12-14).  There were three reasons for this.  First, 
the WUTC’s earlier cases dealing with the imputation of payphone bottleneck 
facilities required such an adjustment.  (Id. at 14, citing Docket No. 
UT-920174).  Second, Staff’s own principal of “matching” of revenues and 
expenses in a subsidy analysis required the removal of toll commission expenses 
and toll coin collection expenses.  Third, a separation of toll revenues and 
expenses is necessary because, as Mr. Zawislak testified, toll services remain 
regulated while payphone services are not.  Thus, separation is required to 
prevent subsidization.  (Zawislak, Exh. 29-T, 11:4-6).  When toll expenses are 
properly excluded from Staff’s analysis, the analysis demonstrates a surplus of 
over $1 million.
 U S WEST is gratified to see that Staff still considers it necessary to 
separate toll revenues and expenses from payphone services.  As Staff’s brief 
noted, separation is needed to prevent the toll operation from subsidizing the 
payphone operation.  (Staff Brief at 14).  Thus, it is proper to exclude toll 
revenues and toll expenses from the payphone subsidy analysis, as U S WEST 
advocated in its Post-Hearing Brief.  These amounts were calculated to be 
$1.662 million (for toll commission expense) and $.264 million (for toll coin 
collection expense).  (See Exh. 49).  This results in the payphone services 
surplus mentioned above.
 In its brief, Staff resists making these deductions, claiming that they are 
“unsupported” and “lacking convincing evidence.”  (Staff Brief at 15).  This is 
absolutely untrue.  These calculations were set forth in the testimony of 
Patricia Taylor, who used the WUTC’s own methodologies and calculations set 
forth in Docket No. UT-920174.  (Taylor Test., Exh. T-48 at 10:3-12:17).  
Further, both Dr. Wilcox and Patricia Taylor made it perfectly clear that U S 
WEST’s booked value analysis did not include toll revenue, but only basic local 
revenue.  (Exhs. 41, 52; Tr. at 434:16-17).  Accordingly, U S WEST presented 
sufficient, persuasive evidence establishing: (1) that toll revenue was 
excluded from its analysis; (2) that prior WUTC orders and Staff’s own matching 
principle required removal of toll expenses; and (3) the proper calculation and 
amount of toll expenses to be removed.  Staff’s complaint that this evidence is 
“unsupported” does not hold water.
 Further, like AT&T and MCI, Staff is functioning in the role of a complaining 
party; as such, it has the burden of proof. In this vein, U S WEST heartily 
concurs in GTE’s analysis that Staff’s advocacy has created a procedural 
anomaly and, in effect, requests the Commission to engage in single issue 
ratemaking.  Accordingly, to the extent applicable, U S WEST joins in GTE’s 
arguments set forth on pages 11 through 15 of its Opening Brief.  In any event, 
U S WEST submits that Staff’s submission does not change its burden of proof.  
If Staff wishes to claim a subsidy exists, Staff must prove it.  Staff has not 
done so; in fact, U S WEST is willing to accept Staff’s analysis (arguendo) 
provided that Staff makes one proper adjustment.  When that adjustment is made, 
Staff’s analysis shows a surplus.

V.  COMPLAINANTS AND STAFF HAVE IGNORED TWO IMPORTANT ISSUES.

 In this reply, U S WEST has focused upon the issues raised in the Opening 
Briefs of Complainants and Commission Staff.  There are, however, two issues 
which neither party addressed.  We mention them here in order that the 
Commission may fully consider them in deciding this case.
 The first issue pertains to the Commission’s previous orders in examining U S 
WEST’s payphone operations.  (See U S WEST’s Post-Hearing Brief at 6-8).  U S 
WEST submits that the parties advocating the existence of a subsidy must 
reconcile the Commission’s findings in those other dockets with their claim of 
a subsidy.  U S WEST does not believe this is possible; the WUTC’s earlier 
orders conclusively demonstrate that no subsidy exists.
 The second issue is that Complainants and Staff simply assume that a subsidy 
comes from U S WEST’s access charges.  (Comppainants Brief at 17-19; Staff 
Brief at 14).  Both of these claims, however, ignore the evidence U S WEST 
produced which showed that U S WEST’s CCL charge was eliminated without a 
subsequent corresponding increase in access charges equal to the eliminated CCL 
charge.  (Wilcox Test., Exh. 38-T at 13:8-15:17).  Accordingly, there is no 
justification for Staff’s allegation that the CCL charge was “rolled into” U S 
WEST’s access charges.  (Zawislak Test., Exh. 13-T at 12:5-9).  Some of it was, 
most of it was not.  To the extent any subsidy existed, it was eliminated long 
before the deregulation of payphones on April 15, 1997.  No adjustment to 
access charges was, or is, necessary, since access charges did not subsidize 
payphone services at the time of deregulation.


VI.  CONCLUSION
 For the foregoing reasons, as well as the reasons set forth in U S WEST’s 
Post-Hearing Brief, U S WEST respectfully requests the Commission to:
(1) issue a ruling in its favor on the Complaint brought by MCI and AT&T;
(2) specifically find that U S WEST’s payphone services are not subsidized; 
(3) order AT&T and MCI to pay U S WEST per-call payphone compensation 
forthwith, retroactive to April 15, 1997; and 
(4) grant U S WEST such other and further relief as is appropriate.

 DATED this 8th day of May, 1998.
      U S WEST Communications, Inc.


      By_______________________________
           Peter J. Butler, Attorney