00650 1 BEFORE THE WASHINGTON UTILITIES AND TRANSPORTATION 2 COMMISSION 3 IN THE MATTER OF AIRTOUCH ) PAGING, INC., PETITION FOR ) 4 ARBITRATION OF AN ) DOCKET NO. UT-990300 INTERCONNECTION AGREEMENT WITH ) Volume IV 5 U S WEST COMMUNICATIONS, INC., ) Pages 650 - 711 PURSUANT TO SECTION 252 OF THE ) 6 TELECOMMUNICATIONS ACT OF 1996. ) 7 --------------------------------- 8 A hearing in the above matter was held on 9 June 22, 1999 at 10:35 a.m., at 1300 South Evergreen 10 Park Drive Southwest, Olympia, Washington, before 11 Commissioners MARILYN SHOWALTER, RICHARD HEMSTAD, and 12 WILLIAM R. GILLIS. 13 14 The parties were present as follows: 15 AIRTOUCH PAGING, INC., by STELLMAN KEEHNEL, Attorney at Law, Foster, Pepper & Shefelman, 1111 Third 16 Avenue, Seattle, Washington, 98101; and RICHARD J. BUSCH, Attorney at Law, Foster, Pepper & Shefelman, 777 17 108th Avenue Northeast, Suite 1500, Bellevue, Washington, 98004-5118. 18 U S WEST COMMUNICATIONS, INC., by JOHN M. 19 DEVANEY, Attorney at Law, Perkins Coie, 607 Fourteenth Street Northwest, Washington, D.C., 20005-2011. 20 Also Present: LISA ANDERL, MARK REYNOLDS. 21 THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION, by JEFFREY D. GOLTZ, Senior Assistant 22 Attorney General, 1400 South Evergreen Park Drive Southwest, Post Office Box 40128, Olympia, Washington, 23 98504-0128. Also Present: DAVID GRIFFITH 24 Telecommunications Engineer. 25 Kathryn T. Wilson, CCR Court Reporter 00651 1 P R O C E E D I N G S 2 CHAIRWOMAN SHOWALTER: We'll hear first from 3 David Griffith. 4 MR. GRIFFITH: Good morning, Chairwoman, 5 Commissioners. I'm David Griffith of the Commission 6 staff with the telecommunications section. I'm 7 presenting Docket UT-990300, an arbitrated 8 Interconnection Agreement between AirTouch Paging, or 9 AirTouch, and U S West Communications, Inc., or U S 10 West. 11 The parties worked long and hard on this 12 Interconnection Agreement and many issues were resolved 13 through the normal negotiation process. On January 14 4th, 1999, AirTouch filed a petition for arbitration 15 with this Commission. On April 28th, 1999, the 16 Arbitrator issued his report and decision, which 17 included decisions on 12 disputed issues. 18 The Staff memo mentions eight of these 19 decisions and addresses two of them in detail. Many of 20 the issues are intertwined, and a single decision in 21 some cases impacts more than one issue. Of the two 22 issues addressed in the memo, Staff recommends a 23 modification to one of them. On the other issue, both 24 parties could not agree on contract language, and 25 Commission staff has proposed changes to that language 00652 1 that are given in the appendix to the Staff memo. The 2 issue where Staff recommends modification has to do 3 with reciprocal compensation. The Arbitrator decided 4 that AirTouch was entitled to reciprocal compensation 5 and ruled that the rate should be set at an interim 6 rate of .169 cents per minute as submitted by U S West 7 in our generic cost study, UT-960369, subject to a 8 true-up. Staff agrees that AirTouch is entitled to 9 reciprocal compensation, and Staff also agrees with the 10 rate established by the Arbitrator. However, Staff 11 believes that a decision to make the rate subject to 12 true-up was an error. 13 The Commission has stated in other 14 arbitrations and argued in the Ninth Circuit Court of 15 Appeals that interim costs should not be subject to 16 true-up. Therefore, Staff recommends that the 17 Agreement be modified such that there will be no 18 true-up when a permanent reciprocal compensation rate 19 is established. 20 The issue on contract wording deals with the 21 Arbitrator's decision on U S West's obligation to 22 provide transport of paging calls from U S West 23 customers to AirTouch. The basis for the Arbitrator's 24 decision on transport lies in the Metzger letter, which 25 was issued by the former chief of the FCC's common 00653 1 carrier bureau. Notably absent from the Metzger letter 2 or from FCC rules is any indication on the LEC's 3 obligation to bear the costs of facilities used to 4 deliver traffic to a CMRS carrier, which would be a 5 paging carrier, that extends beyond the boundary of an 6 EAS, or local calling area of the wire line network. 7 Staff believes the Arbitrator's decision 8 strikes a good compromise on this point. In his 9 decision, the Arbitrator ruled that AirTouch may 10 establish a point of connection anywhere within the 11 LATA. In fact, AirTouch may have only one point of 12 connection in a LATA if it so chooses. In order to 13 balance each party's costs and to provide incentives 14 for making efficient economic networking decisions, the 15 Arbitrator placed restrictions on NXX codes or prefixes 16 that would be assigned to the point of connection. He 17 said that NXX codes shall not extend beyond the 18 boundaries of the geographic calling area of the wire 19 center slash end-office slash tandem serving AirTouch's 20 point of connection. For areas outside this geographic 21 calling area, AirTouch may continue to purchase direct 22 inward dialing outpulsing, indirect inward dialing 23 number block activation services from U S West in 24 blocks of 100 numbers. This allows the AirTouch paging 25 terminal to function like a private branch exchange or 00654 1 PBX switch for receiving calls to its paging customers 2 that reside outside the geographic calling area of 3 U S West's equipment that serves the AirTouch paging 4 terminal or point of connection. AirTouch is not 5 required to establish a point of connection within the 6 serving area of the U S West end-office where the 7 assigned direct inward dialing numbers reside. 8 However, U S West is required to provide intraLATA 9 transport up to 60 airline miles between the 10 interconnection point on U S West's network and the 11 intraLATA point of connection designated by AirTouch. 12 On this issue, Commission staff supports the 13 Arbitrator's decision. The parties have entered 14 dueling language into the Interconnection Agreement at 15 Sections 2.6.4.2 through 2.6.4.5. Staff recommends 16 rejection of the proposed AirTouch language and 17 recommends modifying U S West's proposed language as 18 presented in the appendix to Staff's memo. Other 19 issues and the basis for the Arbitrator's decision upon 20 each are fully discussed in the Arbitrator's report and 21 decision and in his Second Supplemental Order on 22 AirTouch requests for clarification. 23 In conclusion, Commission staff recommends 24 that the Commission approve the Interconnection 25 Agreement as submitted by the parties with the 00655 1 following changes: One, set the reciprocal 2 compensation at an interim rate of .169 cents per 3 minute without true-up when a permanent rate is 4 established; two, reject AirTouch's proposed language 5 for Sections 2.6.4.2 and 2.6.4.3 of the Agreement and 6 approve Staff's proposed modifications to U S West's 7 language for Sections 2.6.4.2 through 2.6.4.5 of the 8 Agreement. Thank you, and I'm available for questions. 9 CHAIRWOMAN SHOWALTER: Thank you. Are there 10 any questions at this time? I think we should probably 11 hear next from U S West, and there are many, many 12 issues involved in this arbitration, so it would help 13 me if when you're talking about any one of them if you 14 either would refer to the portion of the Arbitrator's 15 report that you might be contending or the Agreement or 16 your own briefs, some reference so we can write notes 17 in the right place. 18 MR. DEVANEY: Thank you, Chairwoman 19 Showalter. Is there a time restriction on the party's 20 presentation? 21 CHAIRWOMAN SHOWALTER: We have until noon, so 22 I think if you try to maybe take not more than half an 23 hour, maybe 20 minutes so we can ask questions later or 24 have a little rebuttal later. 25 MR. DEVANEY: Thank you and good morning. We 00656 1 appreciate the opportunity to come before you and 2 address the issues relating to this Interconnection 3 Agreement that the parties have proposed under the 1996 4 Telecommunications Act. We appreciate very much the 5 efforts that the Arbitrator put in in resolving the 6 issues between the parties. In many cases, these are 7 complex issues, and the answers often aren't clear, and 8 we just appreciate the effort that went into the 9 decision that is before the Commission and the 10 Agreement that is before you. 11 There are, however, of course, a few issues 12 with which we take exception in the decision, and I'll 13 be addressing those. In addition, AirTouch has raised 14 some objections of its own, and I will respond to some 15 of those objections as we go through this presentation. 16 Before I get into the specific issues, there 17 is one point I would like to emphasize that we've 18 emphasized both during the hearing and in our briefs, 19 and that is this interconnection arbitration differs 20 from other interconnection arbitrations that the 21 Commission has handled in the past between U S West and 22 competitive local exchange carriers, and the difference 23 is that AirTouch, unlike CLEC's in other arbitrations, 24 is already very competitive in the paging market. It's 25 been fairly long-standing in the paging market here in 00657 1 Washington and elsewhere; and therefore, this 2 interconnection proceeding is really not about AirTouch 3 having to become competitive and try to break into the 4 market, unlike the other interconnection arbitrations 5 that you have considered, so in that sense, it's 6 different from the arbitrations that, as I said, have 7 come before you in the past, and we think that provides 8 some context for the issues that you're going to be 9 addressing that we would ask that you bear in mind. 10 In our view, rather than facilitating 11 competition, what this interconnection arbitration is 12 often about and what AirTouch has sought to make it 13 about is trying to gain competitive advantage in the 14 marketplace. You'll see in their advocacy in the 15 arbitration and here before you today that what they 16 have attempted to do through their cost study and some 17 other positions they've taken is really shift the costs 18 of their business over to U S West and U S West 19 subscribers, and we ask you to bear that in mind as you 20 consider the issues. 21 Just two quick examples of that: AirTouch 22 presented a cost study for a reciprocal compensation 23 that you'll certainly be hearing a fair amount about in 24 the next hour, and in that cost study, they effectively 25 included all the components of their paging network and 00658 1 tried to shift the cost of their paging network over 2 onto U S West and its subscribers. Fortunately, in our 3 view, the Arbitrator rejected that cost study, as did 4 the Colorado Commission in the parallel arbitration 5 that took place 10 days after this arbitration, and 6 similarly, AirTouch requested that U S West bear the 7 costs of interconnection facilities that deliver 8 traffic to AirTouch's paging terminal. Those are two 9 examples of how we believe AirTouch's motive here is to 10 shift costs over onto U S West so that AirTouch can 11 maximize its profits. 12 That's where this interconnection arbitration 13 differs from the others. This is not about a carrier 14 trying to break into a market. This is really about, 15 to some extent, a cost shifting exercise, in our view, 16 and that does underlie a couple of issues that I'll be 17 raising with you. 18 CHAIRWOMAN SHOWALTER: Can I ask a question? 19 Every line we draw is going to assign costs to one side 20 or the other, so that lines do either shift costs or 21 retain costs in one place or another, but isn't the 22 question where should those costs go? It seems like 23 it's not so much a matter of motivation of the 24 companies, which I presume are always to maximize their 25 profits, but what is the appropriate place to draw the 00659 1 line? 2 MR. DEVANEY: I fully concur with that, and 3 our only point is that when you do that line drawing, 4 we ask that you bear in mind that underlying, we 5 believe, AirTouch's position in the case was an effort 6 to be overly aggressive, if you will, in shifting those 7 costs, and that's the fundamental point I'd like to 8 make as we provide the context for the issues I'm about 9 to address. 10 Turning to those specific issues, there are 11 really two issues I'd like to address that U S West has 12 asked that you consider modifying the Arbitrator's 13 decision. The first goes to the percentage of exempt 14 traffic; that is, traffic that is exempt from 15 reciprocal compensation obligations, traffic for which 16 U S West does not have to pay reciprocal compensation, 17 and traffic that goes over facilities for which 18 U S West only has to pay the portion of nonexempt 19 traffic, so it's an important monetary issue for the 20 parties. Getting the percentage of exempt traffic 21 correct has important financial ramifications for the 22 parties, so I'll be discussing that, and in addition, 23 I'll also be addressing AirTouch's request that -- I'm 24 sorry. I'll also be addressing the competing language 25 the parties have submitted on the points of connection, 00660 1 which Staff just alluded to, and I'll be 2 addressing U S West's position on that. 3 In addition, I'll also be addressing the 4 Arbitrator's ruling that a certain provision of the 5 Agreement will have retroactive effect; that is, it 6 will be applicable to a date before the Interconnection 7 Agreement as approved by this Commission. That 8 provision relates to the obligation the U S West 9 provide facilities to AirTouch without receiving full 10 compensation. The Arbitrator has said that that 11 provision will have retroactive effect to July 28th, 12 1998, the date on which AirTouch requested negotiations 13 with U S West, and we'll ask that you reconsider that 14 ruling. Then finally, I will respond briefly to two of 15 the claims that AirTouch has raised, and I'll address 16 those towards the end of my presentation. 17 Turning then to the issue of exempt traffic, 18 this issue goes, as I mentioned, to whether U S West 19 must pay reciprocal compensation for traffic that 20 originates on networks of other carriers, traffic that 21 is interMTA or interLATA. The parties agree, the 22 Arbitrator agrees that U S West need not pay reciprocal 23 compensation for traffic of that nature, so the 24 question becomes, what percentage of traffic falls 25 within that category? The parties pursuit of best last 00661 1 final offer on this with AirTouch submitting a 2 20-percent figure and U S West submitting a 3 33.8-percent figure, the Arbitrator adopted a range of 4 reasonableness of 20 to 30 percent and concluded that 5 AirTouch's proposed 20 percent, although at the low end 6 of the range, was within the range; and therefore, he 7 adopted that figure. 8 We take exception to that for a couple of 9 reasons. First of all, the threshold issue is who 10 bears the burden of proof on this issue of exempt 11 traffic? We believe, as we've argued in our brief, 12 that AirTouch has the burden of proof, and the reason 13 for our belief is that the FCC has made clear that 14 paging carriers have the obligation to prove their 15 costs of termination to state Commissions, and closely 16 linked to the costs and the amount of compensation the 17 paging carriers receive is the amount of exempt 18 traffic. 19 COMMISSIONER HEMSTAD: I assume your position 20 is that they do not carry the burden of proof, that 21 follow from that that it could automatically then 22 default to your position. 23 MR. DEVANEY: Yes, that is correct. That is 24 our position. 25 COMMISSIONER HEMSTAD: What if you would 00662 1 exempt traffic from 90 percent? 2 MR. DEVANEY: If the position for you were 3 unreasonable, then I would not advocate that you would 4 have to adopt our position, but I think we presented a 5 position that is fully supported by evidence. 6 To summarize our argument on the burden of 7 proof, the FCC has made clear that it's the paging 8 carriers that must prove their costs, and closely 9 linked to that is the amount of exempt traffic. The 10 Colorado Commission ruled very recently -- in fact, on 11 the same day that the Arbitrator issued his ruling in 12 this case -- that AirTouch did have the burden of proof 13 to demonstrate the amount of exempt traffic, and the 14 Colorado Commission concluded that AirTouch had not met 15 its burden. 16 Another reason, in our view, why AirTouch 17 ought to bear the burden on this is really a practical, 18 equitable reason, and that is that we wouldn't have to 19 estimate the amount of exempt traffic if AirTouch had 20 implemented on its side of its network a technology 21 called SS-7. SS-7 is a measuring and monitoring 22 technology. U S West has put that technology in place 23 on its side of the network. If AirTouch had equipped 24 its facilities with SS-7 links, we would know the 25 amount of exempt traffic. The testimony in the case is 00663 1 clear that AirTouch decided not to do that because it 2 wanted to save costs, and we think that as a matter of 3 fundamental fairness, we shouldn't bear the brunt of 4 the consequences of that decision. We did our part by 5 building SS-7, and we believe AirTouch should do its 6 part. 7 COMMISSIONER HEMSTAD: How does the 8 Arbitrator or Commission know your position is 9 reasonable? 10 MR. DEVANEY: That leads me to my next point. 11 We submitted the following evidence to demonstrate the 12 reasonableness of our figure. We submitted, first of 13 all, a study of cellular traffic patterns over a 14 four-month period in Washington where we were able to 15 measure cellular traffic using these SS-7 links because 16 cellular carriers have implemented SS-7, and that study 17 revealed that slightly more than 41 percent of traffic 18 that U S West delivered over its network to cellular 19 carriers was exempt traffic, and now we certainly 20 acknowledge that cellular traffic is not identical to 21 paging traffic, but there is enough geographic 22 similarity between the areas that are covered by that 23 traffic that we think it's a very meaningful data 24 point, and that proof, 41.5 percent of traffic is 25 exempt. 00664 1 In addition to that, a very important 2 question as you consider this issue is how many other 3 carriers are out there who could originate traffic? In 4 Washington, there happens to be quite a few other 5 carriers, carriers other than U S West, who could 6 initiate traffic that's carried over to AirTouch. The 7 precise numbers, there are approximately, I think, 23 8 independent telephone companies, more than 30 CLEC's, 9 and quite a few wireless carriers in Washington, all of 10 whom are capable of generating and originating calls, 11 so you have a lot of carriers out there, other than 12 U S West, who are originating calls that work their way 13 across U S West's network over to AirTouch. This is 14 one of the highest numbers of other originating 15 carriers of any of U S West's 14 states, so that's 16 another piece of evidence we believe supports the 17 reasonableness of our figure. 18 In addition to that, another meaningful data 19 point is the number of NXX's in Washington; 20 specifically in the areas where AirTouch does business 21 that are assigned to carriers other than U S West, and 22 the number is 53 percent, and that tells us that you're 23 going to have a fairly significant number of calls that 24 are originated by non U S West carriers that find their 25 way over to the AirTouch network, and we acknowledge 00665 1 that not all those NXX's are fully utilized, but those 2 carriers, nevertheless, that is a very high percentage 3 of NXX assignments to non U S West carriers, so 4 Commissioner Hemstad, that's a summary of why we 5 believe the number we presented is reasonable. 6 To emphasize too, the number we presented was 7 33 percent, which is less than our 41 percent cellular 8 study. It also happens to be very close to the exempt 9 traffic percentage that AirTouch agreed with with GTE 10 here in Washington. They entered into an agreement 11 with a 30 percent exempt traffic figure, and as we say 12 in our brief, if the Commission deems that 33.8 percent 13 is too high, we think the better course is rather than 14 pick the low end of the range the Arbitrator adopted, 15 the better course is to adopt what AirTouch agreed to 16 with GTE and that would be 30 percent. 17 CHAIRWOMAN SHOWALTER: Does the Commission 18 have authority to do that under this baseball style 19 arrangement? 20 MR. DEVANEY: We believe the Commission does, 21 and the reason is AirTouch has argued in its brief that 22 with last best offer baseball arbitration, you don't 23 really need to worry about the evidentiary basis for 24 the figure that's adopted, and we don't think that's 25 correct. If you look at the record, there really is, 00666 1 in our view, nothing that supports the 20-percent 2 figure that's been adopted. AirTouch came in and 3 approved the seven-percent figure and never mentioned 4 during the hearing a figure of 20 percent, so in our 5 view, if you have a percentage that's been adopted that 6 does not have evidentiary support on the record, you as 7 a Commission have authority to reject that and instead 8 adopt a percentage that is supported by the record, so 9 that's our view as to why you too have the authority, 10 because your decision must be based, of course, on the 11 record and on evidence. 12 COMMISSIONER HEMSTAD: What is the percentage 13 that AirTouch recommended in their case? 14 MR. DEVANEY: In their case, AirTouch 15 presented a study that they said resulted in a 16 seven-percent exempt traffic figure. As we point out 17 in our brief, there is a problem with that study that 18 they assume that all traffic that came through the 19 local tandem, which was the vast amount of traffic in 20 our study, originated with U S West, and that cannot be 21 because of the number of other carriers that originate 22 calls here in Washington. After advocating seven 23 percent at the time of the last best final offers, 24 their final offer was 20 percent. 25 Just a couple of other points I'll make on 00667 1 this issue, and then I'll move on to the next issue. 2 We are concerned with the Arbitrator's decision to 3 adopt this range of 20 to 30 percent. In particular, 4 there is nothing in the record that we're aware of that 5 justifies capping the range at 30 percent. The 6 Arbitrator relied on a number of agreements from other 7 states that AirTouch submitted into evidence, and there 8 was no evidence that those data from other states were 9 applicable to Washington. The circumstances, of 10 course, differ from one state to another, and we think 11 that it was improper to limit the range in the way that 12 the Arbitrator did, so we are concerned with the 30 13 percent cap. We think our 33 percent number, which is 14 based on all the evidence I've recited to you, is a 15 very reasonable number, and as I said, is very close to 16 the number that AirTouch agreed to with GTE. 17 COMMISSIONER HEMSTAD: If the agreements from 18 other states, in your view, are not directly relevant, 19 why is the GTE environment relevant? 20 MR. DEVANEY: Because GTE is a Washington 21 agreement. 22 COMMISSIONER HEMSTAD: And the configuration 23 of U S West and GTE would be substantially the same? 24 MR. DEVANEY: I can't say they would be 25 substantially the same, but I will say that what is 00668 1 similar is the number of other carriers you have in the 2 state that are originating traffic that's carried over 3 to AirTouch, so you do have much more similarity in the 4 GTE, AirTouch context than you do in the agreements 5 that are outside Washington. 6 To conclude on that issue then, this is an 7 issue we feel perhaps most strongly about of all the 8 issues we presented to you. We think that the burden 9 of proof should have been decided in a way that was 10 assigned to AirTouch, and we don't think AirTouch met 11 its burden. We think the number we presented was 12 reasonable and amply supported by the evidence. 13 CHAIRWOMAN SHOWALTER: Before you do leave 14 that point, am I correct that it's in the Arbitrator's 15 decision that whatever this Commission decides that if 16 there is later evidence developed that either side 17 could come in and seek to modify the percentage? 18 MR. DEVANEY: That is correct. One problem 19 we have with that, if I may respond, is that that's 20 dependent upon AirTouch implementing SS-7 technology. 21 To have these actual measurements, we need for them to 22 do that, so we are somewhat -- I don't want to 23 exaggerate too much -- held hostage by their 24 willingness to spend the money to implement SS-7 links. 25 The next issue I'll turn to, and I'll try to 00669 1 move quickly, is the Arbitrator's ruling concerning the 2 retroactive effect of a decision relating to U S West 3 supplying these interconnection facilities with less 4 than full compensation. The Arbitrator concluded that 5 all the provisions of the Interconnection Agreement 6 with the exception of that one would become effective 7 upon your approval of the Interconnection Agreement, 8 and he carved an expectation for that particular 9 provision, stating that it would date back to July 28, 10 1998, the date that AirTouch requested negotiations, 11 and he relied for that decision on FCC Section 51.717. 12 That's 47 CFR, Section 51(c)(17), and as we've argued 13 in our brief -- and I don't think AirTouch disputed 14 this point because they acknowledge it in their 15 responsive brief. 16 That Section 51.717, by its terms, does not 17 apply to paging carriers. It applies to two-way CMRS 18 providers, and it makes clear that the CMRS providers 19 have the benefit of proxy rates for reciprocal 20 compensation before an interconnection agreement is in 21 place. The FCC said that it was not going to apply 22 that section or that right to use proxy rates to paging 23 carriers because it didn't have enough evidence before 24 it to conclude that paging carriers fit within those 25 proxy rates, that those rates were appropriate for 00670 1 paging carriers, so the rule the Arbitrator relied on 2 for this retroactive application, as I say, simply does 3 not apply to paging carriers, and I will cite you to 4 the Colorado Commission, which concluded just that when 5 AirTouch raised the same argument for this retroactive 6 application. The Colorado Commission analyzed 51.717, 7 concluded it does not apply to paging carriers, and 8 therefore said none of the provisions of the 9 Interconnection Agreement between U S West and AirTouch 10 should apply retroactively. 11 COMMISSIONER HEMSTAD: Tell me, the 12 Arbitrator applied the retroactive date to what issue? 13 MR. DEVANEY: This is to the issue of -- 14 there was a ruling from the Arbitrator that U S West 15 must provide to AirTouch interconnection facilities 16 without receiving full compensation for them. We would 17 only be compensated for the exempt traffic percentage, 18 so if the exempt traffic percentage is 20 percent and a 19 trunk costs $100, we'd get $20 rather than $100, and 20 that's the effect of the Arbitrator's ruling. That has 21 been applied retroactively to July 28th, 1998, and 22 that's what we take issue with. As I said, it's not 23 supported by 51.717. 24 COMMISSIONER HEMSTAD: Generally, how much 25 money are we talking about? 00671 1 MR. DEVANEY: It's a lot more than $100. I 2 was using that just to have an easy mathematical 3 equation. The potential ramifications of this, I can't 4 give you precise dollar amounts, but I can tell you 5 it's many thousands and thousands of dollars is about 6 all I can say. 7 AirTouch argues that in addition to relying 8 on 51.717, the Arbitrator based his retroactivity 9 ruling on Paragraph 1042 of the FCC's First Report and 10 Order, and I won't spend a lot of time on this, but I 11 would ask you -- I'm sure you have already -- to read 12 the retroactivity ruling, and it's quite clear that in 13 deciding there would be retroactive application, the 14 Arbitrator did not cite 1042; rather, he cited 51.717; 15 and moreover, 1042 by its terms does not apply to free 16 facilities. It applies to termination compensation, so 17 it really doesn't apply to this issue at all. 18 Then finally, we cited in our brief a 19 decision from a court in New Mexico, a federal district 20 court that says, Provisions of an interconnection 21 agreement, any provision of an interconnection 22 agreement, cannot be become effective until a 23 Commission approves the agreement. The effect of the 24 ruling from the Arbitrator would be to essentially 25 violate that rule; that there would be retroactive 00672 1 effect for this provision, and we'd have an obligation 2 to give these free facilities while there was no 3 interconnection agreement in place, so it violates that 4 ruling. I also note that recently a court in Kansas, a 5 federal district court, reached the same result. 6 CHAIRWOMAN SHOWALTER: When they reached the 7 same result, was it on this very issue? 8 MR. DEVANEY: No, it was not. The 9 fundamental issue there was could U S West New Mexico 10 or another carrier in Kansas be required to comply with 11 the provision of an interconnection agreement before 12 the Commission had approved the agreement, and the New 13 Mexico court, admittedly in dicta, said you cannot be 14 required to comply with a provision and interconnection 15 agreement before Commission approval, and a court in 16 Kansas recently reached the same result. 17 As we cited in our brief, the South Dakota 18 Commission reached the same result in a matter not 19 involving U S West when we were asked to carry out some 20 interconnection obligations before an agreement was in 21 place. The South Dakota Commission said, No, that 22 cannot be required under the Act, and we believe the 23 effect of the Arbitrator's ruling would be to require 24 us to do just that. 25 COMMISSIONER HEMSTAD: I just want to pin 00673 1 that down. Is your view then as a matter of law that 2 an arbitrator cannot in any circumstances apply an 3 Arbitrator's decision retroactively? 4 MR. DEVANEY: Under the Telecommunications 5 Act in Section 252, yes, that is our view that you 6 cannot apply provisions retroactively and require an 7 effective compliance before there is an interconnection 8 agreement in place. 9 I had a fairly lengthy argument on single 10 point of connection prepared, and I'm going to truncate 11 it quite a bit, because, number one, it's extremely 12 complex, and I think maybe reading our briefs is the 13 best way to wrestle with that issue, but number two, we 14 are encouraged to see Staff's proposal. U S West is, 15 for the most part, supportive of Staff's proposal and 16 its resolution of this issue. We would note one 17 adjustment to the proposal. In modifying U S West's 18 proposed language, Staff added a provision that says, 19 The paging provider is only responsible for recurring 20 charges for noncompensable traffic between U S West 21 serving wire center of the paging provider's point of 22 connection and the location of paging providers point 23 of connection. 24 That's repeated elsewhere in its proposed 25 language modifications. That does not address 00674 1 nonrecurring costs and charges. U S West is going to 2 incur some nonrecurring costs, and we think that the 3 language ought to reflect the fact that we should be 4 permitted to recover them, but other than that -- 5 COMMISSIONER HEMSTAD: Are you prepared to 6 offer a precise amendment to the Staff's proposal? 7 MR. DEVANEY: Yes. I could do that on the 8 record right now. "The paging provider is only 9 responsible for recurring," and after "recurring," we 10 would add, "and nonrecurring." 11 The only other point I'd like to make about 12 points of connection is we believe the Arbitrator drew 13 a careful distinction, either explicitly or implicitly, 14 between Type 1 and Type 2 interconnection, and the 15 language we've proposed and Staff has endorsed 16 recognizes the differences between Type 1 and Type 2 17 interconnection. The language that AirTouch proposed 18 does not recognize that distinction. 19 CHAIRWOMAN SHOWALTER: You've taken a half an 20 hour. If we give AirTouch a half an hour, we'll still 21 have 15 minutes that you could perhaps respond in that 22 time. I think that will probably actually work better. 23 MR. DEVANEY: That's fine. I've finished our 24 issues, and all I have left to do is respond to 25 AirTouch's issues. 00675 1 CHAIRWOMAN SHOWALTER: Let's hear from 2 AirTouch. 3 MR. KEEHNEL: Thank you, Your Honor. There 4 are three principle issues we want to touch on. The 5 exempt traffic issue, which Mr. Devaney has addressed; 6 the points of connection issue, which Mr. Devaney 7 touched on very quickly as he was learning how quickly 8 a half hour can pass; and third, a few moments on the 9 termination compensation rate. 10 Just in very quick passing before I hit those 11 three issues, one of which Mr. Busch is going to 12 handle. He's going to address the POC issue. Before I 13 go to those three issues, I just want to take one 14 second on the effective date issue. Arbitrator Berg 15 has two effective date decisions. One effective date 16 decision says that as to AirTouch's relief from 17 facilities charges as required by the FCC, that 18 decision will become effective on the date that 19 AirTouch requested interconnection negotiations, July 20 28, 1998. There is a second decision. That's the 21 decision on when does AirTouch have the entitlement to 22 begin charging U S West for terminating U S West calls? 23 On that point, Arbitrator Berg decided that would be 24 effective on the date that the Commission approves the 25 Interconnection Agreement. Let's take those in order. 00676 1 As to the first argument, the selection of 2 July 28 for the date that U S West is entitled to 3 relief from facilities charges, we don't really care 4 how Arbitrator Berg got to the decision, but it's clear 5 that under 1042 of the FCC's order, he got to the right 6 decision. Respectfully, we think that if you go back 7 and look at our brief on this point, you'll agree he 8 got there not by using 51.717 but by using 1042, but in 9 any event, if you look at 1042, it explicitly says, 10 U S West, upon the effective date of this order -- 11 meaning the FCC's First Report Order, which was 12 September 30, 1996. Upon the effective date of that 13 order, you cannot charge AirTouch any longer for your 14 delivery of U S West originated traffic to AirTouch, so 15 if there is a local call from a U S West customer 16 that's going to AirTouch Paging, the FCC said as of 17 September 30, 1996, U S West quit charging AirTouch for 18 that call. Don't charge them for facilities used to 19 deliver that call. Today, U S West is still charging 20 us. It has acted contemptuously with respect to the 21 FCC since September 30, 1996 on that point. 22 CHAIRWOMAN SHOWALTER: Are you litigating 23 this point before the FCC on the '96 date? 24 MR. KEEHNEL: The point on the '96 date is 25 being litigated as far as prior to the date of request 00677 1 for interconnection agreement is being litigated in the 2 United States District Court for the District of 3 Colorado. That's a separate issue. All we're asking 4 you to deal with is the issue from the date we 5 requested interconnection negotiation, and Arbitrator 6 Berg inherently had within his authority to enforce the 7 FCC order on that point, because at that point, the 8 issues were joined, and U S West was clearly on notice 9 that it could no longer assess those illegal charges. 10 There is clearly no abuse of discretion by 11 Judge Berg in choosing that date. He's not enforcing 12 the Agreement before it's in effect, which was the 13 point of the New Mexico dicta decision. In that 14 instance, a party came in and tried to challenge an 15 agreement before the Agreement had been effective, and 16 the district court said, Wait, U S West, you're too 17 fast. Wait until the Agreement is entered and then 18 come in and try to challenge it. That's all that case 19 means. The July 28, 1998, should be upheld by the 20 Commission. 21 Further, we think the July 28 date ought also 22 to be used for the date that U S West begins to pay 23 termination compensation to AirTouch, under whatever 24 rate the Commission decides, for the same reasons. We 25 joined the issues by formally requesting 00678 1 interconnection negotiations. U S West is obligated by 2 the FCC's order to pay us for that, and what it's doing 3 is getting a free ride under the FCC's orders by 4 dragging this issue out. If this Commission will 5 accept AirTouch's proposal that the effective date for 6 U S West starting to pay for the termination 7 compensation should be the date that the 8 interconnection negotiations were requested, we think 9 that's going to go a long way to avoid future sessions 10 like this, because rather than the parties have the 11 economic benefit of dragging it out and going through 12 an arbitration, if they know the effective date is 13 going to be the date that interconnection negotiations 14 are going to occur, there is no longer that economic 15 incentive to drag things out. 16 Frankly, U S West is making money by dragging 17 this out, and that's a clear economic disincentive and 18 wreaks havoc with the process the FCC set up. The one 19 way to rectify it, make the effective date when 20 interconnection negotiations were requested. So much 21 for one minute on that issue. 22 CHAIRWOMAN SHOWALTER: Your second point on 23 by effective what date you should be able to charge 24 U S West for termination, is your authority for that 25 also 1042, or is it another provision? 00679 1 MR. KEEHNEL: The authority for that, Your 2 Honor, is just the inherent authority under the FCC's 3 entire regimen of the First Report and Order, which 4 basically says in plain language, LEC's are required to 5 pay from this point forward for the AirTouch pagings of 6 the world to complete their calls, so it's clearly 7 spelled out in there. It's not a controversial issue. 8 Did Arbitrator Berg have discretion there? Yes; and 9 does this Commission have discretion? Yes. What we're 10 saying on this point, there is plenty of support for 11 your decision to make it effective July 28 in the FCC's 12 order. We're urging you on policy grounds to exercise 13 the discretion in that way. 14 COMMISSIONER HEMSTAD: Can you give me a 15 ballpark figure on how much money? 16 MR. KEEHNEL: I'm sorry. I'm at as great a 17 loss as Mr. Devaney is. On the termination 18 compensation, depending upon what rate, it matters more 19 or less, the more significant economic issue here is 20 the termination compensation. It's the exemption from 21 the illegal charges that U S West has been assessing 22 for the last three years, and let's turn to that. 23 Let's turn to the exempt traffic issue and see what 24 help I can give the Commission on that point. 25 Let's remember that exempt traffic, unlike 00680 1 the termination compensation rate, was submitted to 2 Arbitrator Berg on an LBO basis. U S West urged him to 3 use the LBO, last best offer basis, and it's very odd 4 that they are coming in and crying foul about 5 Arbitrator Berg having selected AirTouch's number. 6 Remember how it was bracketed. AirTouch's proof was 7 for the seven-percent figure. Proof was in the record 8 for why the seven-percent figure should be accepted for 9 exempt traffic. U S West came in and purported to put 10 on proof for a 41-percent figure. Then Judge Berg, as 11 in any baseball style arbitration, said, Okay parties, 12 let's get reasonable. Put your best numbers on the 13 table, and we did. We put a 20-percent figure on the 14 table. It's a great number. It's three times our 15 proof, and U S West came down slightly from their 41 16 percent and put a 33.8-percent figure on the table. 17 If you were the Arbitrator, what would you 18 do? You've got one party here that put on proof of 19 seven percent. You've got another party who put on 20 supposed proof of 41 percent -- I'll explain why 41 21 percent doesn't hold any water -- and you've got one 22 party who triples its number and comes up to 20 percent 23 and another party who barely comes off its 41 percent. 24 What are you likely to do? You're likely to 25 take the one that looks like the best offer, and that's 00681 1 what best offer arbitration is all about. You don't 2 have to have specific proof for the 20-percent figure. 3 All you need is that there is proof in the record for 4 the seven-percent figure, and there is little proof for 5 the seven-percent figure. 6 Mr. Bidmon testified, a person with 25 years 7 of paging experience, has designed paging systems, 8 knows the Washington system, came in and testified to 9 the specific figures that supported the seven-percent 10 figure and how he got to that. There is clearly proof 11 in the record of it. Does there have to be proof for a 12 20-percent figure? No, that's not the way LBO works. 13 CHAIRWOMAN SHOWALTER: On that point though, 14 if you take as a given the arbitrator's finding that 15 the study showing the seven percent was flawed, at that 16 point, does the Arbitrator have authority to say, Take 17 30 percent because there is evidence in another case 18 that 30 percent was agreed to. Once you've lost the 19 moorings of the study, is there discretion, or is the 20 Arbitrator and are we still limited to either 20 21 percent or 33 percent? 22 MR. KEEHNEL: I believe you are still limited 23 to the 20 percent or 33 percent, but I think it's 24 strong for the Chairwoman to say that the study was 25 totally discarded. Yes, Arbitrator Berg said there 00682 1 were flaws in both studies that were submitted, and we 2 agree that exact to was not achieved, but as a rough 3 measure of what the traffic is, subject to certain 4 adjustments, might the seven-percent figure be 5 perfectly adequate? We think so, and I'll explain in a 6 little more detail in a minute why that's so, but even 7 if you totally rejected them, even if they were totally 8 made up silly figures, we think it's up to the 9 Commission now to choose between the 20-percent figure 10 and the 33-percent figure. 11 How does it do or undo what Judge Berg has 12 done? When the parties have sat together and said, We 13 agree we'll use LBO, this Commission faces the 14 interesting question, what standard do you use to 15 review that? Is it de novo? I don't think so because 16 that would undermine the entire notion of baseball 17 arbitration. What you have to do is give some support 18 for baseball arbitration or else you won't have that as 19 a tool any longer to keep parties like us outside your 20 hearing room. 21 Think about what the whole point of LBO is. 22 It's not just to get parties to put reasonable numbers 23 on the table. It's to get them to put such reasonable 24 numbers on the table that at some point one party says 25 to the other, I'll take your number. You've come down 00683 1 far enough or you've come up high enough. I'll take 2 your number. Let's stay out of the courtroom; let's 3 stays out of the Commission hearing room; let's stay 4 out of the arbitration hearing room. We've got a deal; 5 let's go home. 6 The one way you could take that magic away is 7 to undermine Judge Berg's decision on LBO. You have to 8 give ultimate discretion to Judge Berg on LBO 9 decisions, or you're just telling everybody in the 10 interconnection telecommunications, indeed, the entire 11 utility community, don't bother to use LBO because 12 we're not going to support it. 13 CHAIRWOMAN SHOWALTER: It seems like there 14 might be two levels of the question. Do we need to 15 stick to LBO, either at the Arbitrator's level or our 16 level? Each of us is bound by the 20 percent or 30 17 percent, but that we, being the Commission, might have 18 a different view as to which one to pick. A different 19 level is to pick another number, which would seem to 20 depart further from the ideal model. 21 MR. KEEHNEL: I'm saying that in strongest 22 terms, I urge you not to depart from the basic model, 23 which is you have to choose one number or the other. I 24 also urge you that given the importance here of such 25 testimony as demeanor supporting the kinds of studies 00684 1 that were put in and credibility issues, I would, in 2 your shoes, be very, very hesitant to second guess 3 Judge Berg; unless you satisfy the standard which is 4 set out by the Federal District Court of Oregon in the 5 case that's cited at Page 13 and 14 of our brief, which 6 is that the decision by the Arbitrator was quote, 7 "inconsistent with the Telecommunications Act," closed 8 quote, and that's certainly not happened here. You 9 also saw a public commentator say our brief saying that 10 really the standard for reviewing LBO has to be a 11 clearly erroneous standard. Was Judge Berg here 12 clearly erroneous? I'm certain he was not. 13 The GTE Agreement has come up. I think one 14 of the Commissioner's questions already hit on the core 15 part of my response. The GTE Agreement is a negotiated 16 Agreement. There was give and take on that Agreement. 17 AirTouch frankly was willing to accept this figure as 18 high at 30 percent to avoid the horrendous costs which 19 we've had to incur and fighting it out tooth and nail 20 with U S West. The hundreds of thousands of dollars 21 that have been spent for this whole process probably 22 swamp the difference between the 20-percent and the 23 30-percent figure, so you can't just take the 30 24 percent and say blithely, Fine, you did that with GTE; 25 now let's do it with U S West. It's apples and 00685 1 oranges, totally different trade-off's. There is no 2 evidence in the record about what the trade-off's are. 3 Indeed, Mr. Devaney might even bark about me talking 4 about the fact that there were trade-offs, but the fact 5 is, you don't know what went into that. A lot of 6 things went into that. You can't use that as your 7 touchstone. 8 U S West's point about the GTE Agreement 9 seems to be that it would be unfair that you would have 10 a 20-percent figure and GTE would have a 30-percent 11 figure. It's a funny argument because was certainly 12 not bothered by the fact that he was advocating a 13 41-percent figure when we had an agreement with GTE at 14 30 percent, and it certainly wasn't bothered with 15 making an LBO proposal of 33.8 percent when we had an 16 agreement with GTE at 30 percent. 17 Mr. Devaney touched on the burden of proof 18 issue on this. I don't think burden of proof becomes 19 as important once you go to an LBO format, but I think 20 it's interesting to note something about the burden of 21 proof. May I approach the Bench? Assume with me for a 22 moment that this Commission had entered an order. 23 Assume with me the Commission had entered an order that 24 says exactly what this order says; namely, that this 25 Commission had said that as of September 30, U S West 00686 1 must cease charging AirTouch for terminating U S West 2 originated traffic and must provide that traffic to 3 AirTouch without charge. Hypothetical order. If this 4 Commission had entered this order, would we be here 5 debating the question of who has the burden of proof on 6 establishing what the percentage of exempt traffic is? 7 I dare say not. If U S West had received this order, 8 it would have said, Darn it. I'd better figure how 9 much of my traffic is local originated traffic that's 10 going to AirTouch and how much is really transit 11 traffic for which I can charge. They would have 12 figured it out and come to the Commission and said, 13 Here is our answer. Let us charge for the whatever 14 percent it is, the 20 percent or the 10 percent. 15 The funny thing about my hypothetical order 16 from this Commission is it's really not far from 17 hypothetical. May I approach the Bench again? The 18 reason I say it's not very hypothetical is that the FCC 19 did enter such an order which is just as binding on 20 U S West as would have been an order from this 21 Commission. And you'll see I've used brackets now, and 22 if you compare the two orders -- that is, my quote, 23 "hypothetical," closed quote order -- to what the FCC 24 did in Paragraph 1042, you're left scratching your 25 head. Why has U S West been charging AirTouch all 00687 1 these years after this order? Why does it act 2 contemptuously in the face of the FCC; and indeed, why 3 does it have the arrogance to come before this 4 Commission and argue that it's AirTouch who has the 5 burden of proof when basically three years ago, the FCC 6 said to U S West, U S West, you'd better figure out 7 what portion of your traffic would involve illegal 8 charges and stop charging AirTouch for that traffic. 9 CHAIRWOMAN SHOWALTER: I get your point on 10 this, but could you fill out a little more why this 11 statement translates directly into U S West having the 12 burden of proof as opposed to you having the burden of 13 proof? 14 MR. KEEHNEL: Yes. Because, Your Honor, a 15 telecommunications carrier can not assess illegal 16 charges, and for U S West to assess illegal charges, it 17 would have to undertake the burden -- if it wanted to 18 charge AirTouch at all for the delivery of traffic, it 19 would have to undertake to see what percentage it could 20 charge for legally, and therefore, which portion it 21 could no longer charge for. Instead, what U S West 22 does was just thumb its nose at the FCC and continued 23 to charge AirTouch for 100 percent of the traffic 24 that's delivered, totally ignoring a binding federal 25 order. 00688 1 CHAIRWOMAN SHOWALTER: I'm just wondering if, 2 generally speaking, if there is an order out there and 3 someone has got a complaint about how it's been 4 implemented, the person who brings the complaint bears 5 the burden of proof of proving that complaint. I just 6 want you to tie up the logic, I guess, of that 7 statement. 8 MR. KEEHNEL: U S West can only operate by 9 permission of the FCC and by permission of this 10 Commission. U S West is only allowed to assess charges 11 that are legal. U S West acts really always with the 12 premature of the FCC and this Commission. Therefore, 13 U S West cannot blithely go out and assess charges that 14 it knows are illegal. U S West obviously knows that 15 100 percent of the traffic it delivers to AirTouch is 16 not transit traffic. It knows that most of it is 17 U S West originated traffic. Therefore, for U S West 18 to put on the mantle of authority of this Commission 19 and the FCC and to continue to assess charges, it has 20 to undertake the burden of demonstrating to this 21 Commission and the FCC that the charges that it's 22 assessing are legal charges. 23 The whole point of a regulated carrier like 24 U S West is it operates with permission, with the grace 25 of government, given its monopoly position; and 00689 1 therefore, clearly this translates to U S West having 2 the obligation to demonstrate what portion of the 3 traffic it may legitimately charge for. 4 Just a moment about the actual facts that 5 underlie the exempt traffic dispute. U S West keeps 6 coming back and saying, If AirTouch had paid for SS-7 7 service, then we wouldn't be having this fight. You 8 know what? U S West is right. If AirTouch had paid 9 for SS-7 service, we wouldn't be having this fight. 10 The question is, why should AirTouch have undertaken 11 that obligation? SS-7 is a technology which is 12 essentially a bells and whistles technology. It allows 13 for a lot of features -- call-back, call 14 identification, et cetera -- which are totally useless 15 and irrelevant if you're a paging company because your 16 subscribers don't use any of those services. Most of 17 those services can't be used on a paging system. They 18 are designed for land line two-way traffic services. 19 The only thing that we would have gotten out 20 of using SS-7 is that we could have avoided the 21 litigation costs here. But given that U S West had an 22 interest in pursuing this and really needed to find out 23 what it could charge legally, what was illegal, there 24 was no reason U S West couldn't have come to us and 25 said, Hey, we put in one SS-7 link to do a traffic 00690 1 measurement. It doesn't even have to stay on 2 permanently. We'll run our test and then we'll move 3 on, and of course we would have said yes to that, but 4 that's not what they wanted to do; nor did they have to 5 do that because they've got plenty of data in their 6 data banks that obviate the need to use SS-7 at all. 7 The ANI information that they receive, the 8 Automatic Number Identification, which comes with an 9 incoming call to U S West, which call then U S West is 10 going to transmit to us, each call has attached to it 11 that ANI information, which U S West strips from the 12 call before it delivers the call to us. If it 13 delivered that ANI information to us, we also wouldn't 14 be here having this dispute today because we could 15 analyze that data and tell you which of the calls came 16 from U S West originated spots and which were transit. 17 U S West could have done exactly the same 18 thing. It chose not to. The data apparently was not 19 in a readily manipulable form, so it didn't produce it. 20 In fact, in one of our data requests, we asked for all 21 documents which relate to the amount of transit traffic 22 that is delivered through U S West interconnection 23 facilities. We should have been given ANI data in 24 response to that and allowed to manipulate it. We were 25 given nothing. U S West could have manipulated the 00691 1 data and it didn't. The SS-7 issue is a red herring. 2 So what did it use instead? It used what is 3 called the cellular proxy. I was curious about the 4 word "proxy." We use it a lot, so I decided to look it 5 up over the weekend. I had Webster's Third handy. 6 Proxy just means substitute, and as we all know from 7 going through grade school, there are good substitutes 8 and there are very bad substitutes. Or to use another 9 example for substitute, in the generic drug world, I 10 would say that U S West's cellular study is the placebo 11 of substitutes. It has no relation whatsoever to 12 paging traffic. 13 Let me give you an example: Undisputed 14 figures demonstrated that the proportion of the toll 15 calls in the cellular market was about 35 percent. 16 Also undisputed the percentage of toll calls for 17 AirTouch Paging, seven percent. Five times as many 18 toll calls in cellular as in paging. I'm not talking 19 five percent. I'm saying a factor of five. Seven 20 percent versus 35 percent, undisputed figures. That 21 shows you how different the paging and cellular markets 22 are. Who is the quintessential paging customer? It's 23 the latchkey kid staying in touch with the parents 24 between 3:30 and 6:00. It's the plumber on dispatch 25 from a local office, and who is the quintessential 00692 1 cellular customer? It's the businessman or business 2 woman getting off the plane at the end of the business 3 trip and immediately calling the office to pick up 4 messages. It's a totally different market. It's 5 different economic groups. It's different functions. 6 The cellular study isn't a proxy because it's not a 7 substitute. It's a placebo. Judge Berg was correct to 8 reject it. 9 Was our seven-percent figure that we came in 10 with perfect? No. Let me tell you a little bit how we 11 go it. We receive traffic here in this market on both 12 a toll tandem and a local tandem, access tandem and a 13 local tandem. We measured the traffic coming across 14 that, and we discovered that 93 percent of our traffic 15 comes across the local tandem and only seven percent on 16 the toll tandem. What that indicates is that a huge, 17 huge, huge proportion of our traffic is 18 quintessentially local traffic. U S West responds and 19 says, Wait a minute. There is these ILEC's out there. 20 There is GTE out there, and you can't just use that 21 seven-percent figure because there could be local 22 traffic here generated by GTE, and GTE is a major 23 carrier in this area. We acknowledge that, and our 24 study would be extremely suspect if we had to take GTE 25 into account, and here's how we did. We have direct 00693 1 interconnection with GTE. GTE traffic doesn't come 2 across the U S West lines, so the hugest thing that 3 U S West is complaining about isn't even a part of our 4 study. It's totally off the map. The seven-percent 5 figure is really a pretty reliable figure. If we ever 6 do an SS-7 study, if one of the parties actually gets 7 up the nerve to pay for it, we'll probably discover 8 that seven percent is pretty close to the mark. We put 9 20 percent on the table, and we think it's eminently 10 reasonable and that this Commission should stay with 11 that figure. 12 Thirty minutes does go by in a hurry. Let me 13 just take a couple of minutes on termination and 14 compensation because we think it's an extremely 15 important decision, and on this one, I'm afraid to say 16 it, but Arbitrator Berg missed the mark. Remember this 17 was not an LBO decision. This started from the get-go. 18 CHAIRWOMAN SHOWALTER: What did you mean by 19 that? I'm not sure what you meant by that. 20 MR. KEEHNEL: Proof from the bottom up. It's 21 just not a matter of people throwing numbers on the 22 table and Judge Berg choosing the more reasonable 23 number. This was truly a litigated, arbitrated issue, 24 not either facilitated or helped in any way by the last 25 best offer process. 00694 1 Congress set down two ground rules in 2 252(d)(2) of the Act. Congress barred, and I quote, 3 "Any rate regulation proceeding to establish with 4 particularity the additional costs of transporting or 5 terminating calls," closed quote. Straight out of 6 congress's books. That's not what Arbitrator Berg was 7 to do. He wasn't trying to try to establish with 8 particularity. Instead, also in 252(d)(2), congress 9 said instead use, quote, "a reasonable approximation," 10 closed quote. 11 Commissioners, I respectfully submit to you 12 what AirTouch gave you, having only a little over 40 13 days to do it, was a reasonable approximation. Now, 14 some of you have been on the Commission longer than 15 others. Those of you who have been here a long time 16 know just how long rate regulation proceedings can go 17 on - years. Studies that last months and months; 18 testimony that goes on and on. That's not what 19 congress envisioned here. Congress put on very tight 20 time lines. Think about this: AirTouch filed its 21 petition on January 4. Under Judge Berg's order, by 22 February 19, 46 days later, AirTouch was required to 23 present to Judge Berg its cost study and all testimony 24 in support of that cost study. It had less than seven 25 weeks to pull together what this Commission often sees 00695 1 happen in two or three years, and if you read any of 2 the transcript, if you read Robert Bidmon's testimony, 3 the fellow who has 25 years experience designing this 4 kind of paging equipment and deploying it in network 5 systems, and if you read the Dr. Zepp testimony, many 6 of whom have probably had the pleasure of having Dr. 7 Zepp appear before you, you know that these gentlemen 8 did a remarkable job in less than seven weeks in coming 9 together with a reasonable approximation of AirTouch's 10 costs. Was it perfect? No. Were there approximations 11 involved? Absolutely yes, and is that what congress 12 contemplated? We think absolutely yes. Could U S West 13 do some jabbing here and there? Yes, we acknowledge 14 it, but what is a solution for that? 15 We presented a cost study -- and if I may be 16 permitted, I have a copy of Confidential Exhibit C-9. 17 May I approach the Bench? We presented the cost study 18 in a way that allowed Arbitrator Berg or allows this 19 Commission with the help of Staff to parse in a way 20 that if any element is deemed not appropriately 21 included in the cost study, you can just take it out. 22 For example -- and because it's a small document, let 23 me approach -- as know in our closing brief -- let's 24 just take the RF element off the table. All you do is 25 just take that column off. If Judge Berg is right that 00696 1 frame relay and CIT should come off, you just take 2 those off. We happen to believe they do belong because 3 the call to be completed has to go to the CIT, but it 4 doesn't void the study because a particular element is 5 deemed not to be properly compensable. 6 Similarly, for the major cost element, which 7 is the Glenayre switch here, there are 83 line items. 8 It's broken down into 83 line items, and each of those 9 are broken out for the constituent parts. For anything 10 that Arbitrator Berg decided either wasn't properly 11 supported or simply didn't belong in the study, all 12 that had to happen was for that element to come out. 13 We gave him an electronic version of the study so he 14 could do that. He declined to do that, and he fell 15 back on the proxy rate. 16 We are strongly urging this Commission to 17 acknowledge what Judge Berg did was not enough. We are 18 strongly urging this Commission to do one of two 19 things: Either reopen the hearing for additional 20 evidence to be submitted to Judge Berg in a Phase 2 21 proceeding just as was done in the only other 22 arbitration proceeding, other than the Colorado matter 23 which essentially is this matter, but in the Cook 24 proceeding, a Phase 2 was used. 25 CHAIRWOMAN SHOWALTER: Is Cook the Colorado? 00697 1 MR. KEEHNEL: The California case, Your 2 Honor. The Colorado case is essentially this case. 3 The Cook case was the first case this happened in. All 4 the other cases this has ever happened in -- and they 5 used the Phase 2 proceeding because what they 6 acknowledge is even if you break your back, seven weeks 7 isn't enough. You need some more time to put some 8 numbers together, so they gave the parties more time. 9 That could happen, or you could remand it to Judge Berg 10 with instructions to do the kind of parsing that I've 11 just shown you is possible - deciding which columns, 12 deciding which boxes are going to be included, and 13 using that, he doesn't have to fall back on the 14 U S West end-office rate. He can use an actual 15 AirTouch rate. All the evidence is there. All that 16 has to happen here is to utilize that evidence. 17 I want to give Mr. Busch just a second to 18 talk about the POC issue because I do think that there 19 is a problem in the Staff recommendation on that issue. 20 CHAIRWOMAN SHOWALTER: You're somewhat out of 21 time so I'll give you maybe three more minutes. I just 22 want to follow what you said on the termination 23 combination, you need to do one of two things: One is 24 reopen the hearing. What is the other? 25 MR. KEEHNEL: There are two ways you can go: 00698 1 You can remand this matter to Judge Berg simply with 2 your instructions on him taking a harder look at the 3 data without truly reopening the hearings. All the 4 information is there. He could do it on his own. Or 5 if you thought it would facilitate Judge Berg's 6 reexamination information, you could, a la Cook, you 7 could say, This is Phase 2 proceeding. We'll keep the 8 same docket number. You have X number of days to 9 complete the process, Judge Berg. Go run the process. 10 Certainly, either one of those two is 11 preferable to using an end-office rate, which there is 12 simply not evidence, has any relation to what 13 AirTouch's actual costs are, which are considerably 14 higher than that, and with that, Your Honor, I really 15 must stop and let Mr. Busch talk about POC's. 16 MR. BUSCH: Thank you. I will attempt to 17 demystify points of connection in two minutes or less. 18 Are you ready? First, when we talk about points of 19 connection, we're talking about where does AirTouch 20 need to provide someplace to connect with the U S West 21 facilities? The portion of the Arbitrator's report 22 decision we're talking about deals with Type 2 23 interconnections, not Type 1 but Type 2, and as you 24 recall, the Arbitrator decided that U S West's 25 responsibility for providing Type 2 interconnection 00699 1 stops at the extended service boundary, which means 2 AirTouch needs to pay for receiving calls from U S West 3 when it wants to receive that call across an EAS 4 boundary; for example, if it wants to receive a call in 5 Seattle that originated in Tacoma, AirTouch would need 6 to pay for the cost of transporting that call. 7 The Commission's staff on Page 3 of the 8 report lifts a quote from our brief but changed a 9 couple of words which dramatically changed the meaning. 10 Essentially, the Staff indicated that the FCC's rules 11 and the Metzger letter don't talk about U S West's 12 obligation to carry a call across EAS boundaries. With 13 all due respect, and if I may approach the Bench, yes, 14 they do. The quote we had was a flip. It doesn't talk 15 about U S West's right to charge EAS boundaries. It 16 does talk about U S West's obligation to deliver 17 traffic across EAS boundaries. 18 What I'm handing you is Section 51.701(b) and 19 51.703 from the FCC's rules. What we're talking about 20 is what's a local call? When you decide what a local 21 call is, you have decided essentially three things, and 22 that's when Mr. Griffith mentioned that when you make a 23 decision in one area, it affects several other things. 24 Points of connection is the prime example of that. 25 When you decide what a local call is, then you decide 00700 1 the cost of facilities, who has to pay for transporting 2 traffic from Tacoma to Seattle. You decide whether 3 there is reciprocal compensation for that call, and you 4 also decide whether there is switched access charges. 5 The FCC in 51.701 and 51.703 said that for CMRS 6 providers, which are paging carriers, a local call is 7 MTA wide. It covers all of western Washington. They 8 explained in the attached order I've given you a copy 9 of, Paragraphs 1035 and 1036 from the First Report and 10 Order, and they explain why they did that. 11 But the Commission did have the authority to 12 set the local footprint for land line carriers but not 13 for wireless carriers, so when the FCC decided that the 14 local calling area for the paging industry is MTA wide, 15 they have also decided the points of connection issue. 16 What I mean by that is U S West is obligated to deliver 17 traffic to AirTouch anywhere within the MTA because 18 it's a paging carrier at no charge. Now, through the 19 last best offer process, AirTouch has cut back on that 20 entitlement, and we've eliminated it in three regards: 21 One, 60 miles. If it's longer than 60 miles, we'll pay 22 for it. Number two, if it involves an interLATA 23 facility, U S West, you're prohibited by law for 24 carrying that. You won't be able to get them to pay 25 for that. We'll take care of it; and three, if it's 00701 1 interMTA, obviously that doesn't apply. That's not a 2 local call. So the FCC has decided, and the language 3 we had proposed for the demarcation point is that it 4 should not be restricted to the EAS. It should be 5 restricted to the 60-mile boundary. 6 CHAIRWOMAN SHOWALTER: Thank you. I think 7 U S West, if you take seven more minutes, you'll have 8 equal time here. 9 COMMISSIONER HEMSTAD: I have one question 10 just so I'm clear as to the difference here. Staff 11 takes the position on its proposed wording that the 12 Arbitrator's order was correct, and it attempts to 13 implement that order. Is it your position the 14 Arbitrator's decision was not correct? 15 MR. BUSCH: The Arbitrator's order was 16 ambiguous enough to be interpreted in several different 17 ways, and we're advocating that the Arbitrator's order 18 be interpreted consistent with other sections of the 19 decision as well as federal law. The Arbitrator 20 already decided in the decision that the local calling 21 area is the MTA. Once the Arbitrator made that 22 conclusion, then it also drives the point of connection 23 discussion, reciprocal compensation, as well as no 24 switched access charges. 25 As drafted, the language proposed by U S 00702 1 West, as well as the Staff has drafted, the language is 2 internally conflicting. If you take a look at 3 Subsection 1 and Subsection 2 that we talked about 4 today, it conflicts. Subsection 1 says, Paging 5 connection service shall never extend beyond the EAS. 6 Subsection 2 says, If it does extend beyond the EAS, 7 you set up a billing demarcation point, so those two 8 paragraphs need to be reconciled, and we do have some 9 suggested language to reconcile that difference, and 10 I'll give that to you. 11 CHAIRWOMAN SHOWALTER: While you're handing 12 that out, let's hear from Mr. Devaney. 13 MR. DEVANEY: Thank you. In the seven 14 minutes I have, I'm going to devote a substantial chunk 15 of the time to the issue of exempt traffic, and as you 16 can tell from our presentations, I think both sides 17 devoted perhaps the majority of their time to that 18 issue. The majority highlights the importance of that 19 issue to both parties, and I just emphasize again how 20 important we view it, probably as our number one issue 21 here today. 22 Mr. Keehnel raised a few points about exempt 23 traffic that I'd like to respond to. First, there is 24 an interesting discussion about as a Commission, what 25 is your scope of review in a baseball arbitration 00703 1 setting for exempt traffic? Mr. Keehnel -- I wrote his 2 words down -- said, "You don't need support on the 3 record for the 20-percent figure under baseball 4 arbitration." We take strong exception to that. We 5 think that as a Commission, your foremost obligation is 6 to insure that the decision you reach is based on 7 evidence in the record, and there is no evidence to 8 support the 20-percent figure. I won't go through that 9 again because I've already explained the evidence, but 10 there is no evidence to support 20 percent. It's an 11 arbitrarily selected figure that obviously to the 12 Arbitrator appeared to be reasonable, but there is no 13 evidence in the record that supports that number. By 14 contrast, we provided extensive evidence that supported 15 the number in the 30- to 33-percent range. So we think 16 that even in a baseball arbitration setting, your 17 foremost obligation is to base your decision on the 18 evidence. 19 Mr. Keehnel also spoke of your obligation to 20 give the Arbitrator deference with respect to this 21 issue because he judges the demeanor of witnesses. I 22 jotted down the question I asked their witness during 23 cross-examination on this exact issue, exempt traffic, 24 and here's what I asked him: I said -- his name is 25 Mr. Bidmon. In fact, I think we were sitting right 00704 1 here. I said, "As you sit here today, can you provide 2 a transit traffic figure that you believe is accurate 3 and that you have confidence in," and his response to 4 me was, "No, I cannot," and he continued, "I can only 5 submit the seven percent to say it's the best number we 6 have right now. I cannot say with 100 percent that 7 that's the number." 8 So if you're going to judge credibility and 9 demeanor, I submit that's a very important question and 10 answer. Their own witness acknowledged he could not 11 present a cost study for a figure with which he had any 12 confidence. By contrast, we presented a number of 13 different data points all which point to right around 14 the 30 percent. 15 COMMISSIONER HEMSTAD: I listen to how the 16 witness responded. We deal with cost study extensively 17 here, and one of the problems we have is preciseness or 18 a precision and has continued to evolve, so when you 19 said he couldn't assure it with 100 percent accuracy, I 20 assume that by that saying that, he was saying the cost 21 was not acceptable, but that he was saying that cost 22 studies are inherently proxies for reality. 23 MR. DEVANEY: I can understand why you would 24 perhaps reach that conclusion, but, in fact, Arbitrator 25 Berg concluded that the seven-percent cost study wasn't 00705 1 supportable, and the witness went on to say, for 2 example, that he hadn't analyzed the number of calls 3 that came through the local tandem that originated with 4 carriers other than U S West, and he simply assumed 5 that all those calls -- and there are hundreds of 6 thousands of them -- originated with U S West, and 7 that's just not a reasonable assumption, so I think in 8 the context of the evidence that this question and 9 answer goes beyond the inference that you drew. 10 With respect also to burden of proof, Mr. 11 Keehnel cited the fact that in his view, we've been 12 assessing illegal charges, and we have the burden of 13 bringing an end to those illegal charges, and we need 14 to prove what amount of traffic is exempt. Well, there 15 is also another side of the coin. First of all, we, of 16 course, take exception to the characterization of 17 illegal charges. The other side of the coin is 18 AirTouch is assessing us and is proposing to assess us 19 in the Interconnection Agreement reciprocal 20 compensation charges. 21 Critical to the amount of those charges is 22 the amount of exempt traffic. That will determine the 23 ultimate dollar amount of what they charge us. So as 24 the Colorado Commission concluded, since they are 25 charging us, they bear the burden of proving what an 00706 1 appropriate charge is, and the Colorado Commission 2 certainly disagreed with AirTouch's view of what the 3 FCC said. The Colorado Commission stated, "FCC 4 directives place the burden of proof for these 5 compensation issues on AirTouch," citing Paragraph 1093 6 of the First Report and Order, and it went on, "We also 7 disagree with AirTouch's contention that the 8 information necessary to prove actual exempt traffic is 9 uniquely within U S West's control." AirTouch could 10 have required SS-7 links and chose not to. Because of 11 that failure, AirTouch did not meet its burden of 12 proof. We think that precise holding should be 13 applicable here. 14 Mr. Keehnel also talked about the fact that 15 they shouldn't have to buy SS-7 links because it's not 16 useful to them. SS-7 links are included in their cost 17 study. The investment for SS-7 links are in the study 18 and presented in the arbitration proceeding, and they 19 are costs they would ask U S West rate payers to bear 20 for them, so I find it curious that they now sit here 21 today and say that SS-7 links are unnecessary. If 22 that's so, why are they in the cost study that they 23 asked us to pay? 24 With respect to ANI information, the 25 information Mr. Keehnel cited regarding ANI is not in 00707 1 the record. There is no cites in AirTouch's brief to 2 ANI. There was no questions that I can recall asked at 3 the hearing about that. We have no opportunity to 4 respond on the record to his allegations that this 5 information could be easily provided, so we would ask 6 you not to regard and pay attention to that 7 information. It simply isn't in the record. 8 Finally, with respect to reciprocal 9 compensation and their cost study, we've spent a lot of 10 time in our brief addressing why the cost study is 11 flawed. Just a couple of fundamental points, I ask you 12 to look at the brief on that issue, but the vast 13 majority of investment in that cost study is for cost 14 beyond the paging terminal, costs that a number of 15 Commissions that concluded have absolutely nothing to 16 do with the termination of traffic. Literally 17 something like 75 or 80 percent of the investment 18 included in the study relates to functions other than 19 termination, and when you have a cost study that is 20 that deeply flawed, it can not provide even what they 21 say they have to do, and that is a reasonable 22 approximation. We think the burden is a lot higher 23 than just getting it close to the mark, but even if 24 that were the burden, 75 percent or so of your 25 investment should be in the study. Your cost study 00708 1 clearly doesn't even give you a reasonable 2 approximation. 3 Finally with respect to the reopening the 4 records so they can present a new improved cost, we 5 argue in our brief, and we stand by this that that's 6 not an appropriate way to proceed. There has to be 7 finality to these proceedings. We invested, just like 8 AirTouch, a significant amount of resources in this 9 arbitration; and essentially, the only reason they are 10 asking to reopen the record is because they didn't get 11 it right the first time with their cost study, and they 12 want another bite at the apple. 13 This Commission has very clearly defined 14 standards on when you reopen records, and that is when 15 there is newly discovered evidence, evidence that was 16 not available at the time of the original hearing. 17 That may be cause for opening the record and starting 18 anew. That's not what we have here. This is a 19 situation where they simply want another bite at the 20 apple, another chance to get their cost study right; 21 and frankly, our view is we shouldn't have to be put 22 through that again. These agreements are limited in 23 duration. When the Agreement expires, they will have 24 another opportunity to come in, if they desire, and 25 prove their costs at that time. We think we shouldn't 00709 1 be required to go through yet another hearing when they 2 didn't get it right the first time. That's all I have. 3 Thank you. 4 CHAIRWOMAN SHOWALTER: Are there any other 5 questions or urgent comments? 6 MR. KEEHNEL: One urgent comment, Your Honor, 7 and I won't stand on what I think normally would have 8 been the procedure for a petitioner to have gone first 9 and last; and therefore, just like in any civil 10 proceeding, AirTouch would have started and ended but 11 flipped it here, but that's fine because we think 12 U S West has the burden of proof on more of the 13 significant issues anyway. 14 Just one last closing comment on whether 15 there has to be proof for the specific 20-percent 16 figure. Let me make sure I've made my point as clearly 17 as I should have. There is proof of the seven-percent 18 figure. Going to 20 percent is a gimmee to U S West. 19 One way to say it is there is three times the amount of 20 proof for 20 percent because our proof is already in at 21 seven percent. This notion that there has to be some 22 proof specific to 20 percent, you'll notice in all the 23 briefs that you've seen from U S West, they've never 24 cited one authority, not a commentator, not a case 25 authority, not a Commission, nothing. It is something 00710 1 that U S West has made up. It's U S West on the line, 2 and just so please bear in mind that the practical 3 realities of last best offer arbitration are to prove 4 your outside figures and then you try to come from the 5 middle. That's all I have. 6 CHAIRWOMAN SHOWALTER: I have one question. 7 Is the SS-7 technology part of your cost study? 8 MR. KEEHNEL: The answer to that is several 9 years down the road. I'm sure Mr. Devaney simply 10 misspoke when he suggested we have it in the budget for 11 immediate deployment. No, it is not in for immediate 12 deployment. What Mr. Bidmon decided is that down the 13 road, there may be some investment in SS-7. There is a 14 possibility that SS-7 would be deployed, but not 15 immediately, and his thought in presenting that 16 testimony, and this is in the record, is there might be 17 developments such that at some point, SS-7 would become 18 useful to a paging company. For example, there is 19 technology now available to make paging two-way, and he 20 said that at that point, SS-7 could be useful, and for 21 that reason, it is included down the road. 22 CHAIRWOMAN SHOWALTER: Thank you to all the 23 parties. 24 MR. DEVANEY: May I briefly respond to that? 25 CHAIRWOMAN SHOWALTER: 30 seconds. 00711 1 MR. DEVANEY: I want to be very clear about 2 SS-7. The cost study is a seven-year study, and my 3 memory is in the third year of the study, they begin 4 including SS-7 investment, is included for the 5 remainder of the study, so in the first two or three 6 years -- I can't remember exactly when it kicked in, 7 either the third or fourth year -- there is no SS-7 8 investment. For the second half of the study, there is 9 SS-7 investment. 10 MR. KEEHNEL: I think he's roughly correct. 11 CHAIRWOMAN SHOWALTER: Thank you to all 12 parties. We'll take the case under advisement, and I 13 believe we have a deadline on this case, so you should 14 be hearing from us before too long. 15 COMMISSIONER HEMSTAD: I would just make a 16 comment to commend counsel on the complex set of issues 17 here. The presentation was both well briefed and well 18 argued. 19 CHAIRWOMAN SHOWALTER: Meeting is adjourned. 20 21 (Hearing concluded at 12:10 p.m.) 22 23 24 25