HomeMy WebLinkAboutCUP 154C; Pacific Bell Expansion; Conditional Use Permit (CUP) (8)-.
Joanne Sarg Wal' PAC1 TELESIS
Senior Paralegal Legal Group
140 New Montgomery Street
Sari Francisco, California 94105
14151542 1715
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1 ,I RECElVEt
MAY I. ”’’ MR28.w5
Decision 95-04-073 April 26, 1995 LEGALDEPT*
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE 6F-CALIFORNIA
Rulemaking on the Commission’s 1
Own Motion to Govern Open Access 1 to Bottleneck Services and 1 Establish a Framework for Network Architecture Development of 1 Dominant Carriers Networks. )
Investigation on the Commission’s
Network Architecture Development of Dominant Carrier Networks.
Own Motion into Open Access and 1
R.93-04-003 (Filed April 7, 1993)
1.93-04-002 (Filed April 7, 1993)
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INDEX
INTERIM OPINION CONCERNING EXPANDED INTERCONNECTION AND LOCAL TRANSPORT RESTRUCTURING ..........................
I. Background ...........................................
A.
B.
C. The D.C. Circuit Decision Invalidating the
The FCC Proceedings on Expanded Interconnection
The Interconnection and Local Transport Rules and Local Transport Rate Restructure
Proposed in D.93-08-026 .........................
D. Issuance of the IRD Decision (D.94-09-065) ....... E. The Request for Supplementary Comments ...........
11. Issues Related to Expanded Interconnection ...........
............
FCC's Physical Collocation Rules ................
A.
B.
Does California Law Confer upon this Commission the Power to Order the LECs to Offer Physical Collocation to Interconnectors? ................. Should This Commission Adopt a More Stringent Standard for Testing the Adequacy of Virtual
Should Pacific Be Required to File Virtual Collocation Tariffs for Central Offices Where
1. Positions of the Parties .....................
Should California Adopt More Stringent
1. Positions of the Parties .....................
Collocation Offerings Than Did the FCC?
It Offers Physical Collocation? .................
2. Discussion ...................................
Collocation than did the FCC? ...................
2. Discussion ...................................
Interconnection Tariff Rate Structures? .........
Rather than Advice Letters? .................
Proposed by MFS and ELI? ....................
......... C.
D. Maintenance and Repair Standards for Virtual
E. Should We Depart from the FCC's Standards for
1.
2. Should the LECs be Required to Purchase
Should the LECs be Required to Submit Their Interconnection Tariffs in Applications '.
Equipment from Interconnectors on the Terms
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8 10
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F. Should We Permit the LECs to Offer Volume and Term Discounts on the Same Terms and Conditions
1. Background and Positions of the Parties ...... 2. Discussion ...................................
Structure for Local Transport? ......................
The Controversy Surrounding the FCCfs Residual Interconnection Charge (RIC) ....................
as the FCC? .....................................
111. Should California Adopt the FCCfs Interim Rate
A.
B. Current Positions of the Parties on the RIC
C.
D.
and the FCCfs Other Interim Rate Elements
FCCfs Interim Rate Structure ....................
Local Transport Rates ...........................
....... Our Transport Rate Restructuring Should Be Based on IRD Local Transport Rates Rather Than the
Customers of Record Served by Collocators Should Receive a Discount Off of IRD
IV. Should Local Transport be Reclassified as a Category I1 Service, so that Pacific and GTEC Would Have Downward Pricing Flexibility with Respect to it? ..............
A. Positions of the Parties ......................... B. Sufficient Competition Exists in the Local
C.
Transport Market to Justify Reclassifying it as
as a Category I1 Service ........................
Price Floors for Local Transport Service
V. Comments on the Revised Draft Decision ...............
Pacific and GTEC Will Be Required to File ........
Findings of Fact ............................................ Conclusions of Law .......................................... INTERIM ORI?ER ................................................
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INTERIM OPIHION WNCERNING EXPANDED INTERCONNECT ION AND IDCAL TRANSPORT RRS TRUClVR ING
In this decision, we set forth the interim rules that
will govern the provision of expanded interconnection and the
restructuring of local transport within the State of California for
the two largest local exchange carriers (LECs), Pacific Bell
(Pacific) and GTE California Incorporated (GTEC). In particular,
we require Pacific and GTEC to offer expanded interconnection to
all interested parties, permitting Competitive Access Providers
(CAPS) and other high-volume users to terminate transmission
facilities designated by them (but owned and maintained by the
LECs) at Pacific and GTEC central offices. We also authorize
Pacific and GTEC to engage in price competition with the CAPS in
accordance with the principles announced in our decision on the New
Regulatory Framework (NRF), Decision (D.) 89-10-031, 33 CPUC2d 43
(1989).
The rules we adopt today are a mixture of our own and
those of the Federal Communications Commission (FCC). With certain
exceptions, we adopt the FCC rules requiring LECs to provide
virtual collocation arrangements for interconnection in their
central offices. Rather than use the FCC's rate structure for
competitive local transport, however, we adopt a modified version
of the transport structure and rates set forth in D.94-09-065, our
decision in the Implementation Rate Design (IRD) phase of
Investigation (I.) 87-11-033. Under this modified structure, the
customer of record of the LEC, such as an interexchange carrier
(IEC) or the collocator itself, will receive a discount from IRD
local transport rates calculated by subtracting from these rates
the portion of local transport costs attributable to distance.
These distance-sensitive costs will be estimated using the direct
embedded cost (DEC) studies submitted by Pacific and GTEC in IRD.
We recognize that this method can only yield a very rough proxy for
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the costs collocators avoid when they interconnect with LECs, but
it is the best and most expedient way to proceed based on the
present record. As part of the future work in this docket, we will
strongly encourage Pacific and GTEC to submit unbundled cost
studies that show which costs collocators actually incur when they
interconnect with LEC central offices.
Our previous decisions have recognized that alternatives
to switched local transport' existed, but those alternatives were
economically viable only for some customers. In our Phase I
decision in 1.87-11-033, we authorized competition under our NRF
rules for high-speed private line service. (D.88-09-059, 29 CPUC2d
376, 388 (1988)). In our Phase I1 decision in 1.67-11-033, we '
authorized competition for high-speed special access service.
(D.89-10-031, 33 CPUC2d at 126).
decisions was to allow large customers with very high volumes of
traffic who were willing to invest in private and special access
lines to obtain transport directly from the LECs' central offices
to the IECs' POPS or other premises. Smaller customers, however,
were obliged to continue relying on the LECs for local transport
service, since the Phase I and Phase I1 decisions forbade
competition for lower-volume transport services. We relaxed this
rule somewhat in D.94-09-065 (mimeo. at 2381, where we authorized
competition for low-speed private line and special access services,
thus enabling customers with lower though still substantial volumes
of traffic to bypass the LECfs switched network. However, we
The practical effect of these
i f.
1 In this decision, when we refer to fflocal transport," we mean the transport element of switched access service; i.e., transmission between an LECfs central office switch and the Point of Presence (POP) of an IEC. "Local transport" as used herein does not include point-to-point, nonswitched transport service.
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deferred to this proceeding the question of whether to authorize
competition for switched local transport generally. (a. at 116.)
convinced that enough of a market for local transport services has
developed that competition for switched local transport should be
formally authorized under our NRF rules.
competition--which depends upon our order directing the LECs to
provide central office interconnection through virtual collocation
arrangements--as an important step in opening up the local loop to
competition.
network functions, we expect that CAPs will be authorized to
provide other switched services as well.
As discussed in Part IV of this decision, we are now
We view today's authorization of local transport
As we progress in our work on the unbundling of
I. packaro und
A. The FCC Proceedings on Expanded Interconnection and Local ans~~rt Rate Restructure
As explained in D.93-08-026, the need for expanded
interconnection and the restructuring of local transport rates has
come about as a result of the emergence of the CAPs, a new class of
telecommunications provider.
constructed fiber optic networks in many of the nation's large
metropolitan areas, including Los Angeles and San Francisco.
Although these networks are technically capable of providing
intraLATA switched transport services and other switched services,
they are authorized at the present time to provide only non-
switched services in California. The CAPS' efforts to increase
their service offerings form the background for today's decision.
The FCC's consideration of the issues raised by the CAPs
began in 1989 with a petition for rulemaking filed by Metropolitan
In recent years the CAPs have
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Fiber Systems (MFS). Eventually the FCC established two dockets to
consider the issues raised by the CAPS.
Docket No. 91-1411, the FCC considered whether the LECs should be
required to offer CAPs (and other high-volume users) the
opportunity to terminate transmission facilities owned and
maintained by these entities in LEC central offices.
issued in 1992 and 1993, the FCC concluded that the LECs should be
required to offer this form of interconnection--which is known as
"physical collocation" - - on a tariffed basis. For LECs
operating under price cap regulation (such as Pacific and GTEC),
the FCC ordered that they develop and justify consistent
methodologies for determining the direct cost of providing the
required interconnection services, whether the services were new or
a restructuring of old services. The FCC also directed that in
preparing their cost methodologies, the LECs should justify any
deviation from uniform overhead loadings and should use their own
rather than the interconnectorsl wage rates.
authorized the LECs to use "zone density pricing." This approach
allows LECs to establish three zones within their respective "study
areas" (i.e., service areas within a state) and to average rates
within these zones, rather than being restricted to charging only
one system-wide rate. The FCC concluded that by authorizing zone
density pricing, it would give the LECs sufficient pricing
flexibility to avert the risk of losing to the CAPs a large portion
of their special access and local transport business in areas where
In the first, the Expanded Interconnection docket (CC
In orders
In its expanded interconnection orders, the FCC also
2 (&Pew rt and oxd er and Notice of Prowsed Ruled ins, 7 FCC
Rcd 7369 (September 17, 1992); (ordering expanded interconnection for special access), Prows ed Rulemakinq , FCC Rcd 7374 (September 2, 1993) (ordering
expanded interconnection for switched transport) .)
econd Rewrt and Ord er and Third Notice of
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LEC transport costs were below system-wide averages. Zone density
pricing was authorized as soon as a single cross-connect had
occurred in a study area.3
the FCC also authorized the LECs to offer volume and term discounts
when at least 100 cross-connects over collocated facilities had
occurred within a study area.
The second docket created by the FCC to deal with CAP
issues was the Transport Rate Structure proceeding, CC Docket
No. 91-213. In this docket, the FCC considered what rate structure
for local transport should replace the "equal charge" rule
imposed by the Modified Final Judgment, the consent decree that
broke up AT&T in 1983.6 '
1992 and 1993, the FCC concluded that it should order the
unbundling of local transport rates so that the IECs could purchase
unbundled facilities needed for transport. The FCC ordered that
transport should be unbundled into four components: (1) a flat-
rate entrance facilities charge, covering transport from the IEC's
POP to the Serving Wire Center (SWC); (2) a flat-rate direct-
trunked transport element, covering transport from the SWC to an
As additional pricing flexibility,
4
5
In a second set of rulings issued in
3 (7 FCC Rcd at 7447-7458.)
4 (8 FCC Rcd at 7434-35 (par. 118) .)
5 Under the "equal charge" rule, new interexchange carriers (IECs) were allowed to receive traffic at the same unit charge as American Telephone and Telegraph Company (AT&T), even though the cost of connecting AT&T is lower. AT&T's costs are lower because of the proximity of its facilities to LEC central offices, and because its high traffic volumes enable AT&T to use more efficient, higher-capacity transport.
6 (United States v. American Tel. and Tel. Co., 552 F. Supp. 131 (D.D.C. 1982) , aff 'd 460 U.S. 1001 (1983) .I
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end office for traffic requiring no tandem switching; (3) a usage-
based tandem-switched transport element, for transport from the SWC
to an end office for traffic that is switched at a tandem; and
(4) a usage-based charge known as the Residual Interconnection
Charge (RIC) paid by all interstate access customers that
interconnect with the LEC switched network.’
that interim rates comprised of these elements would be in effect
for two years, and that in the meantime it would work to devise a
permanent local transport rate structure.
B. The Interconnection and Local Transport
The FCC ordered
Pules Promsed in D.93-08-026
In D.93-08-026, we proposed to adopt interconnection and
Under our proposal, the LECs were required to offer
transport rate rules for intrastate traffic in parity with those of
the FCC.
physical collocation on a tariffed basis, and the CAPs were
restricted to the collocation of transmission equipment. (Mimeo.
at pp. 11-13.)
disaggregated sub-elements for the interconnection charges, to use
a DEC methodology in developing tariffs for these charges, and to
justify any deviation from DEC pricing by filing a long run
incremental cost (LRIC) methodology. (a. at 12.)
discounts and zone density pricing, so that Pacific and GTEC would
be able to de-average transport rates and thus compete with CAPs
offering transport at rates below LEC system-wide averages. (u.
at 19.) We also proposed to give the LECs additional pricing
flexibility by reclassifying local transport as a Category 11
(partially competitive) service rather than as a Category I
We also directed the LECs to develop reasonable
In D.93-08-026, we also proposed volume and term
Order and Furt her N ot ice of Proaosed , 7 FCC Rcd 7006, 7009-10 (par. 6) (September 17, 1992); Rulemakxnq First Memorandum minion and Or der on Reconsideration, 8 FCC Rcd
5370 (July 21, 1993) .I
7 (s!pPe=rt and
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(monopoly) service, thus making local transport subject to the
pricing flexibility rules in our New Regulatory Framework. (m. at
20-21. )
interim rate structure for local transport, so that the intrastate
rate structure would be in parity with the FCC's. (&$. at 17-18.)
D.93-08-026 on November 18, 1993, and reply comments on
December 16, 1993.
C. The D.C. Circuit Decision Invalidating
Finally, we proposed to emulate the FCCIs four-part
The parties filed opening comments on the proposals in
8
the FCC's Physical Co llocation Rules
Several of the LECs who had appeared before the FCC
contended that any interconnection order requiring them to offer
physical collocation would be unconstitutional, because compelling
them to make space available in their central offices for equipment
owned by the CAPS, with the CAPs having the right of entry for
maintenance and repair, would constitute an unlawful ,'taking', of
LEC property. After the FCC issued its order requiring tariffed
physical collocation, these LECs filed a petition for review of the
FCC order in the United States Court of Appeals for the District of
Columbia Circuit.
On June 10, 1994, that Court of Appeals issued a decision
invalidating the FCC's order. (Bell Atlantic Te 1eDhOne Cornpan ies.
et a1 . v. Federal Communications Co mission. et al., 24 F.3d 1441
(D.C. Cir. 1994) .I In Bell Atlan tic v. FCC, the D.C. Circuit held
that in order to avoid the "takingrf issue raised by the LECs, it
8 Because an administrative law judge (ALJ) ruling extending the time for filing comments was received late by them, the Federal Executive Agencies (DOD/FEA) and the Interexchange Access Coalition (IAC) filed their opening comments on or about October 1, 1993. Hereafter, such opening comments will nonetheless be referred to as
"11/18/93 comments. I'
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would construe section 201(a) of the Communications Act in such a
way as to deny the FCC authority to order the LECs to provide
physical collocation.
permitted the LECs to offer "virtual collo~ation~~~ as a
substitute for physical collocation only in two narrow
circumstances," the Court would remand the case to the FCC so
that the agency could decide for itself whether virtual collocation
would be an adequate solution to the problem of bundled special
access and local transport rates that had caused the FCC to open CC
Docket Nos. 91-141 and 91-213.
In response to -11 Atlantic v. FCc , the FCC adopted its
"Memorandum Opinion and Order" in the Expanded Interconnection
docket on July 14, 1994. (9 FCC Rcd 5154, referred to hereinafter
as the "July 14 order".) In this order, the FCC reviewed the
entire record it had accumulated on collocation issues and
concluded that with certain modifications, tariffs requiring the
LECs to offer virtual collocation would encourage competition for
special access and local transport nearly as well as physical
collocation, and should therefore be adopted. The FCC also
rejected a petition by Teleport Communications Group, Inc.
(Teleport) urging that since the flexibility granted to LECs by the
zone density pricing scheme was premised on the availability of
The Court also held that because the FCC had
9 Under virtual collocation, "the LEC owns and maintains the circuit terminating equipment, but the CAP designates the type of equipment that the LEC must use and strings its own cable to a point of interconnection close to the LEC central office." (Bell Atlantic v. FCC, 24 F.3d at 1444.)
10 The FCC had ruled that the LECs could satisfy their unbundling obligations by offering virtual collocation only where (1) central office space was insufficient to permit physical collocation, or (2) the state legislature or PUC had decided that virtual collocation would suffice for intrastate traffic. (7 FCC Rcd at
7390-91.)
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physical collocation, this flexibility should be eliminated.
Instead, the FCC adopted the same pricing flexibility rules for
virtual collocation that it had for physical collocation. -- .. D. -Ce of the IRD Decision (D.94 09 065)
Not long after the FCC reconsidered collocation issues in
response to Bell Atlant ic v. FC C, we issued D.94-09-065, the IRD
decision. That decision made significant changes in both the
structure and the level of Pacific and GTEC's local transport
rates.
comprised of two elements: mileage (a distance-sensitive rate
element), and termination (a non-distance-sensitive element charged
on a per-minute basis). GTEC, on the other hand, had a single
distance-sensitive transport rate. In D.94-09-065, we eliminated
the distance-sensitive component in both Pacific and GTEC's local
transport rates, finding that with the increasing use of fiber
optic technology, "the cost of transmission . . . does not vary
much with distance". (u. at 119.) We also accepted GTEC's
proposal to create a termination element (charged on a per-minute
basis) similar to Pacific's. The non-distance-sensitive
termination elements were set at DEC for Pacific and above DEC for
GTEC and were designed in each case to recover appropriate
revenues.
D.94-09-065 also rejected the request of the Commission's
Division of Ratepayer Advocates (DRA) to recategorize local
transport as a partially-competitive Category I1 service. We found
that while Pacific had offered evidence of CAP incursion into the
local transport market, that evidence was "anecdotal". (Id. at
116.)
Category I1 service was deferred to this proceeding.
determining the price floors of Category I1 services.
reiterating our holding in D.89-10-031 that LECs must impute the
Prior to IRD, Pacific's local transport rate was
The decision on whether to recategorize local transport as a
Finally, D.94-09-065 adopted "imputation" rules for
We began by
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tariffed rate of any monopoly building block (MBB) function’’ to
their rate for any bundled service which includes that function. (u. at 206.) We also concluded, however, that this test can be
met by using the IIcontribution formular1 proposed by Pacific, GTEC
and DRA. We demonstrated that under the contribution formula, the
price floor for a bundled service is equal to the sum of the LRICs
of the bundled elements, plus the I1contribution1I from the MBB.
This contribution is defined as the difference between the tariffed
rate of the MBB and its LRIC. (u. at 213-14.) We noted that this
formula would allow us to establish the necessary price floors
despite the lack of fully unbundled cost studies from the LECs. (u. at 214-15.) We also reiterated, however, that the LECs would
be required to file fully unbundled LRIC cost studies in this
proceeding. (u. at 225.)
E. The Reuuest for Sumlementarv Comme nts
July 14 order and the IRD decision had significantly changed the
regulatory landscape in which new local transport and
interconnection rules would operate, he concluded that the parties
should be given an additional opportunity to comment on these
developments. Accordingly, he requested the assigned ALJ to issue
a ruling inviting the parties to file supplementary comments on
these developments. The ruling was issued on September 22, 1994.
Because the Assigned Commissioner felt that the FCC’s
11 Our prior decisions have generally defined a monopoly building block function as a network service or feature that can only be provided by the LEC, or one in which the LEC enjoys overwhelming dominance.
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Pursuant to it, supplementary opening comments were filed on
October 13, 1994, and supplementary reply comments were filed on
October 27, 1994. 12
11. 3ssues Relased to mded Interconnection
As the FCC has observed in its rulings, the issues of
expanded interconnection and local transport rate restructuring are
closely linked. However, since expanded interconnection is a
precondition to rate restructuring, we treat that subject first.
This requires us to consider, among other things, whether we should
order Pacific to file tariffs for virtual collocation (even though
it is voluntarily continuing to offer physical collocation), what
service and maintenance rules should govern virtual collocation,
and what pricing principles should govern the new interconnection
tariffs for virtual collocation.
addressed. The first is whether, despite the D.C. Circuit's ruling
that the FCC lacks statutory authority to require the LECs to offer
physical collocation, we should construe California law as giving
us such authority. If the answer to this question is negative, we
must then determine whether the FCC's general standard for virtual
collocation is sufficient, or we should adopt a more stringent
standard.
Before we do so, however, two preliminary issues must be
12 Hereafter, these supplementary opening comments will be cited as "Supp. Opening Comm.," and the supplementary reply comments as tfSupp. Reply Comm. ''
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A. Does California Law Confer upon this Commission the Power to Order the LECe to Offer Physical Collocation to Interconnectore? -
I
The September 22, 1994 ALJ Ruling in this docket
"While the D.C. Circuit did not definitively
requested comment on the following issue:
rule on the 'taking' issue in pel1 Atlantic V. E, its construction of the relevant federal statute so as to avoid this constitutional question suggests that the Commission should construe California law in a similar manner... It would therefore appear that the Commission should limit itself to ordering virtual collocation (while leaving LECs free to offer physical collocation on a tariffed basis in appropriate circumstances) . (Mimeo. at p. 3. )
All of the parties who commented on'this issue agreed
that whatever the limits of our authority under California law, we
should limit ourselves to ordering virtual collocation, even though
many parties believe that physical collocation is a superior form
of interconnection.
We agree. We clearly stated in D.93-08-026 that one of
our goals in this proceeding is to promote interconnection by LECs
on a tariffed basis, since such interconnection is the starting
point for competition in the local transport market. If we were to
order the LECs subject to our jurisdiction to file mandatory
physical collocation tariffs, we would simply be ensuring judicial
challenges that might go on for years. Because we agree with the
FCC's conclusion in the July 14 order that virtual collocation is
likely to confer almost all of the same benefits as physical
collocation (9 FCC Rcd at 5159-60, par. 10-121, and since we think
we have ample authority under California law to order virtual
collocation, we will do so (except for central offices where
physical collocation is offered on a tariffed basis).
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B. Should This Commission Adopt a More Stringent Standard for Testing the Adequacy of Virtual Collocation Offwas l?mn Did the peep
In its July 14 order, the FCC set forth the following
benchmark for determining the adequacy of virtual collocation
offerings by LECs:
''Under [our] rules, LECs will be required to dedicate to interconnectorst use in terminating the interconnectorst circuits any kind of central office basic transmission equipment reasonably specified by the interconnector. LECs will be required to install, maintain and repair this equipment, at a minimum, under the same time intervals and with the same failure rates that apply to comparable LEC equipment not dedicated to interconnectors. . Interconnectors will be entitled to monitor and control this equipment remotely. LECs will be exempt from the virtual collocation requirement if they provide physical collocation offerings that satisfy our requirements." (9 FCC Rcd at
5169-70, par. 44).
Teleport has argued in its supplementary comments that
this standard is too lenient, and that we should instead adopt the
standard of the New York Public Service Commission, which requires
that virtual collocation must be "technically and economically
comparable to actual collocationtt. (Teleport Supp. Opening Comm.
at 5-6; MCI Supp. Reply Comm. at 3 (supporting such "refinement" as
long as it doesn't lead to delay).) Pacific and GTEC, on the other
hand, urge us not to depart from the FCC's standard. (Pacific
Supp. Reply Comm. at 14-17; GTEC Supp. Reply Comm. at 2-3.)
We decline to depart from the FCCts standards for the
reasons stated in the July 14 order. We agree with the FCC that if
we were to adopt the New York standard, a reviewing court might
find it to be the equivalent of mandatory physical collocation, and
thus an unauthorized "taking" of property in contravention of Bell
Atlantic v. PCC . (9 FCC Rcd at 5169, par. 43). In addition, we
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concur that this standard is unnecessary to protect the legitimate
interests of interconnectors and might prove unenforceable in
practice. (u. 1
C. Should Pacific Be Required to File Virtual Collocation Tariffs for Central ice8 Where It Offers Phvsical Collocation? .. 1. POSltlo- of the Pafliea
In its July 14 order, the FCC stated that Tier I LECs
such as Pacific and GTEC would be required to file tariffs for
virtual collocation, unless the LEC was willing to offer physical
collocation on a tariffed basis as a common carrier.
par. 31.)
(a. at 5166,
Pacific and GTEC have responded to this order
differently.
it has filed a virtual collocation tariff at the FCC, does not
intend to offer physical collocation to interconnectors, and wishes
to file a tariff in parity with its FCC filing at this Commission.
Pacific, on the other hand, has requested and obtained a waiver
from the FCC because it prefers to continue offering physical
collocation on a tariffed basis at all central offices where it is
GTEC states in its supplementary reply comments that
i
feasible.
repeats in its supplementary opening comments here)
However, Pacific has also made it clear to the FCC (and
that it
believes physical collocation arrangements should be handled by
contract rather than tariff, since real estate is involved and
Pacific does not want to be required to obtain FCC authorization
under 47 U.S.C. § 214 to discontinue these "real estate" offerings.
Led by MFS and AT&T, several interconnectors point out
that Pacific has sought judicial review of the July 14 order, and
argue that if this challenge is upheld they will be placed in an
untenable position. They reason that since the FCC lacks authority
to order physical collocation directly under Bell Atlant ic v. FCC, invalidation of the FCC's virtual collocation order (which Pacific
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has challenged on very broad grounds)13 would leave them without a
clearly-defined right to any form of collocation. Thus, they
argue, Pacific must be required to file virtual collocation tariffs
with this Commission so that however the courts rule, some
authority will be in place to protect their interconnection rights
in California.
collocation tariffs here would be both burdensome and unnecessary.
The burden allegedly arises because the training and central office
planning necessary to effectuate physical collocation is different
from that needed for virtual collocation. (Pacific's 11/18/93
Comments, at 9-13.) The tariffs are unnecessary, Pacific
continues, because it is not permitted to withdraw a tariffed
service without permission from the affected regulatory agency,
whether it is the FCC or ourselves.
Pacific responds that requiring it to file virtual
2. p iscussion
We have concluded that in spite of the uncertainties
caused by Pacific's appeal of the July 14 order, the best solution
to the concerns raised by the interconnectors is to order Pacific
to file virtual collocation tariffs for all central offices for
which it has filed interconnection tariffs at the FCC, unless in a
particular case Pacific wishes to file a physical collocation
13 According to the Joint Statement of Issues it filed with the D.C. Circuit on August 31, 1994 in Docket Nos. 94-1547 et al., Pacific is challenging the virtual collocation order on the grounds that: (1) it unlawfully reimposes mandatory physical collocation in violation of Bell Atlantic v. FCC , (2) virtual collocation is an unlawful I'takingr1, (3) the FCC lacks jurisdiction to impose it,
(4) neither physical nor virtual collocation can be subjected to common carrier regulation, (5) the order's requirements are arbitrary and capricious, and (6) by adopting the July 14 order without allowing further comments, the FCC violated both due process and the Administrative Procedure Act.
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I
tariff in lieu of a virtual collocation tariff. In the event
Pacific wishes for any reason to withdraw one of these in-lieu
physical collocation tariffs, it must follow the usual procedure
for doing so set forth in Section XIV of General Order (GO) 96-A,
and must also file a virtual collocation tariff to take effect
immediately upon withdrawal of the physical collocation tariff.
For central offices where interconnection has been requested but
the space necessary for physical collocation is unavailable,
Pacific will be required to file a virtual collocation tariff
without the in-lieu option.
First, with respect to space-constrained offices, there seems to be
no other solution. We know from experience in other states that
there will be some offices (especially in fast-growing suburban
areas) where it will simply not be feasible for Pacific to offer
physical collocation. l4 As the FCCIs original order in CC Docket
No. 91-141 recognized, virtual collocation is the only
interconnection option under these circumstances. l5
conformance with FCC practice, we will therefore require Pacific to
file virtual collocation tariffs for such space-constrained offices
within 45 days after a bona fide interconnection request is
received.
depending on the outcome of Pacific's appeal of the July 14 order,
the FCC might be found without authority to order even virtual
collocation. As explained below, we believe that MFS and other
We have decided on this approach for several reasons.
In
16
The more difficult question here is the possibility that,
14 This could also be a problem in small urban offices planned before collocation became an issue.
15 (7 FCC Rcd at 7390-92 (pars. 41-43) .)
16 (9 FCC Rcd at 5168 (par. 39) .)
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interconnectors have raised valid questions in their supplementary
comments about whether Pacific's physical collocation arrangements
will remain in effect if the July 14 order is overturned.
believe, however, that this is an uncertainty with which everyone
must live, and that the best action we can take is to require that
a collocation tariff be on file, whether it is a mandatory virtual
one or a voluntary physical one.
held in Bell Atlant ic v. Fw that the FCC lacks authority to order
directly that the LECs offer physical collocation. The ffvoluntary'f
physical collocation tariffs Pacific has filed at the FCC (and that
it proposes to file here) are filings made in lieu of a virtual
collocation tariff, since Pacific has made the judgment that it is
less burdensome to provide this form of interconnection rather than
the virtual collocation arrangements otherwise required by the July
14 order. If the July 14 order is overturned, however, the FCCfs
authority (and perhaps our own) to require a physical collocation
tariff in lieu of a virtual collocation tariff would be doubtful.
It is not a satisfactory answer to say, as Pacific does,
that physical collocation would remain available because Pacific is
not free to withdraw a tariffed service without regulatory
permission. While that proposition is true as a general matter, it
presupposes that the regulatory agency has the necessary statutory
authority to require the tariffed service-- or another offered in
lieu of it. If the agency lacks such authority, however, then a
court might well hold that the agency has no choice but to allow
the in-lieu tariff to be withdrawn. Thus, the interconnectors
fear, if the July 14 order is overturned, Pacific might eventually
be free to withdraw its in-lieu physical collocation tariffs both
here and at the FCC.
to order Pacific to file with this Commission virtual collocation
tariffs for all of its affected central offices, with the option of
We
As the interconnectors point out, the D.C. Circuit has
It seems to us that the best solution to this problem is
- 18 -
filing physical collocation tariffs if Pacific so prefers.
this approach, Pacific will be spared the burden of having to
develop virtual collocation tariffs where it prefers to offer
physical collocation. l7 If for any reason Pacific eventually
wishes to withdraw these physical collocation tariffs, it must
follow the usual procedure for doing so set forth in Section XIV of
GO 96-A, and must also file virtual collocation tariffs to take
effect immediately upon withdrawal of the physical collocation
tariffs .
We recognize that this approach does not address the
interconnectors' ultimate worry: what will happen if the D.C.
Circuit holds that the FCC lacks authority to order virtual
collocation (which many have argued is less intrusive of the LECs'
property rights than physical collocation)? The interconnectors
fear that if Pacific's appeal of the July 14 order is successful,
then (depending on the courtfs logic) it could mean that neither
the FCC nor ourselves would have authority to mandate kind of
collocation.
At this point in Pacific's appeal of the July 14 order,
such concerns are obviously speculative. We will therefore defer
addressing these concerns unless and until they arise.
worst-case scenario envisioned by the interconnectors came to pass,
however, it could mean that, as in the past, collocation
arrangements would revert to being matters of contract between LECs
and interconnectors. This would be such a drastic change from our
present approach, however, and so inconsistent with the unbundling
Under
If the
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17 Of course, as explained elsewhere in this decision, Pacific's physical collocation tariff filings here will differ somewhat from its FCC filings, since we treat issues such as regulatorily-
mandated subsidies and overhead loadings differently than does the FCC.
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policies that both we and the FCC have been pursuing with respect
to network functions, that perhaps only Congress or the California
Legislature would be able to untangle the ensuing policy and legal
knots.
D.
18
Should California Adopt More Stringent Maintenance and Repair Standards for Virtual Collocation than did the Fee?
Parties 1. Positions of the ..
In its July 14 order, the FCC directed that LEC virtual
collocation tariffs must provide for the maintenance and repair of
interconnector-designated equipment on the same schedule as LEC
equipment. The FCC reasoned that this would ensure the same
reliability for LEC and interconnector equipment, while avoiding
the administrative burdens that separate maintenance and repair
schedules would entail. The FCC also ruled that if LECs allow their
own equipment to be serviced and repaired by outside vendors, they
must permit interconnectorst equipment to be serviced and repaired
18 In D.93-08-026, we requested comments on the feasibility of auctioning off extra space in LEC central offices to interconnectors. (Mimeo. at 13-14.) We have decided not to implement any auctioning mechanism, since doing so would be inconsistent with the "takingtf discussion in Bell Atlant ic v. FCC, and since the FCC has decided to adhere to its "first come, first served" policy and to reject proposals for lotteries of scarce central office space. (9 FCC Rcd at 5176, par. 72.)
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by outside vendors. Finally, while not requiring the LECs to use
technically-qualified interconnectors to service the equipment
dedicated to them, the FCC encouraged the LECs to do so. (9 FCC
Rcd at 5172-73, pars. 57-62.)
MFS and Electric Lightwave (ELI) urge us to adopt more
stringent standards on the last of these issues than did the FCC.
Specifically, they argue that we should require LECs subject to our
jurisdiction to license qualified interconnectors as outside
vendors of repair and maintenance services. (MFS Supp. Opening
Comm. at 8-9; ELI Supp. Reply Comm. at 3-4.) GTEC urges us to
reject such a requirement. (GTEC Supp. Reply Comm. at 3.)
2. piscussion
We agree with GTEC that the FCC's maintenance and repair
standards are sufficient to protect interconnector interests.
These standards are even-handed, requiring an LEC to allow outside
vendors to maintain and repair interconnector equipment if such
vendors are permitted to work on the LEC's own equipment. Further,
we agree with the FCC that requiring LECs to license technically-
qualified interconnectors as outside vendors for equipment
dedicated to them could run afoul of Bell At lantic v. PCG. Given
these factors and our general disinclination in this case to
relitigate interconnection issues decided by the FCC, we adopt the
FCC standards on repair and maintenance of interconnector
equipment. This includes the requirement that, in order to avoid
discrimination against interconnector equipment, the LECs will be
required to file quarterly reports on their repair and maintenance
of such equipment. (9 FCC Rcd at 5173 (par. 61) .)
E. Should We Depart from the FCC's Standards for Interconnection Tar iff Rate Structures ?
In its July 14 order, the FCC directed that, with minor
modifications, LECs filing virtual collocation tariffs should
follow the same rules for rate structure and pricing that had been
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required for physical collocation tariffs. Specifically, the FCC
required LECs to:
"establish reasonable, disaggregated subelements
for connection charges pursuant to rate structures that (1) reflect cost-causation principles, (2) are unbundled to ensure that interconnectors are not forced to pay for services that they do not need, and (3) establish a cross-connect element that applies uniformly to both physical and vi55ual collocation." (u. at 5186 (par. 115) .)
To implement these principles, the FCC (1) adopted a
Tariff Review Plan to permit easier comparison of interconnection
rates among LECs, (2) reiterated that interconnection rates must be
based on the direct costs of providing interconnection plus a
reasonable amount of overhead costs, (3) ruled that in determining
the direct costs of equipment used to serve an interconnector, the
LEC must use the lowest, reasonably available price for the
equipment, which would usually be the price at which the
interconnector offered to sell the equipment to the LEC, (4)
directed that absent justification, the LECs must use uniform
overhead loadings in setting interconnection rates, and (5) ordered
that contribution charges could be imposed on interconnectors only
to support 'Ispecifically identified regulatory subsidy mechanisms"
embedded in LEC rates for services subject to competition. (u. at
5185-5191 (pars. 112-1371 .)
In their supplementary comments, several parties have
urged us to make a number of changes to these rules. DRA argues
that we should handle interconnection tariffs through expedited
applications rather than advice letters, because experience at the
19 These are the same standards we proposed in D.93-08-026 (mimeo. at 12).
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FCC indicates that the virtual collocation tariffs will be very
controversial.
ensure that LECs will use the lowest equipment prices in setting
interconnection rates, and that to ensure they do, LECs should be
required to purchase transmission equipment from interconnectors.
MFS also urges us to adopt the FCC's Tariff Review Plan in order to
facilitate ease of comparison among tariffs.
issues below.
1.
MFS and ELI argue that the FCC's rules do not
We discuss these 20
Should the LECs be Required to subrnit Their Interconnection Tariffs in Applications her than Advice Letters?
Even though our usual practice is to require that tariffs
be submitted through advice letters, DRA argues that such a
procedure is unlikely to work here. Noting that the physical
collocation tariff filings at the FCC were found to lack "adequate
data and explanation", DRA urges us to conduct an "independent
review" of virtual collocation tariffs through expedited
applications. (DRA Supp. Opening Comm. at 10.) DRA would have us
review the tariffs not only for compliance with the above-noted
general principles, but also to ensure that any differences between
the inter- and intrastate tariffs are justified, and to satisfy
ourselves that any cost differences within the intrastate tariffs
are based upon an interconnector's choice of equipment or the costs
associated with a specific central office. (u.1 GTEC argues that
since neither its physical collocation tariff nor Pacific's had
20 In IRD, we eliminated the contribution element represented by the Carrier Common Line Charge from Pacific's and GTEC's access charge structure. (D.94-09-065, mimeo. at 120-21.) We do not intend to change that policy here, and so unlike the FCC, we will not authorize the imposition of any contribution charge on interconnectors subject to our jurisdiction. While our prior decisions permit surcharges to be imposed on end-users, interconnection is clearly a wholesale service.
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-4
been rejected as insufficient as of the time for filing comments,
the virtual collocation tariffs should be reviewed through the
usual advice letter process. (GTEC Supp. Reply Corn. at 4-6.)
comments give some support to DRA's concerns.
the Chief of the FCC's Common Bureau issued an order (DA 94-1421)
in CC Docket No. 94-97.
filing virtual collocation tariffs (including GTEC) had loaded an
unacceptably high percentage of overhead into the tariffs. Because
of these deficiencies, the FCC ordered an investigation of all the
tariffs, and directed most of the LECs (including GTEC) to resubmit
their tariffs using the lowest overhead loadings assigned by the
Events at the FCC since the filing of supplementary reply
On December 9, 1994,
This order found that many of the LECs
LECs to their own comparable services. 21
Despite the FCC's concerns with the virtual collocation
tariff filings, we think our regular advice letter process will be
adequate here. Under Section I11 of GO 96-A, an advice letter must
be served on all competitors and interested parties, and if the
advice letter is protested within 20 days and our staff asks the
utility for a delay in the effective date of the tariffs, the delay
is invariably agreed to. 22
tariffs, we think it will be sufficient if all of the parties who
filed opening or supplementary comments in response to D.93-08-026
are served with copies of the advice letter, in addition to others
who must be served pursuant to
In the case of virtual collocation
21 These were specified by the Chief of the Common Carrier Bureau in Appendix C to the December 9 Order.
22 If the delay is not agreed to, of course, our staff has the option of recommending that we reject the advice letter and order the issue to be handled by application.
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.
Section 1II.G of GO 96-A.
and an opportunity to protest all filings. 23
This should ensure adequate scrutiny of
To facilitate study of the tariffs, we also direct
Pacific and GTEC to submit them in the form prescribed by the FCC's
Tariff Review Plan, except to the extent that this plan conflicts
with GO 96-A. If LECs have questions about whether they should
follow the Tariff Review Plan or GO 96-A on a particular point,
they should consult the Commission Advisory and Compliance Division
(CACD) for a determination.
Finally, so there will be no room for doubt, we hold that
the interconnection arrangements ordered in this decision (whether
through virtual or physical collocation) will be considered a
Category I (monopoly) service under our NRF rules, since only an
LEC can provide this service.
Should the LECs be Required to Purchase Equipment from Interconnectors on the Terms Prowsed bv MF S and ELI?
As the July 14 order notes, the cost of transmission
equipment is likely to be the most significant factor in
calculating virtual collocation tariffs. In order to minimize
these costs, the FCC requires LECs to use the lowest available
equipment price in calculating interconnection tariffs.
MFS and ELI argue that the FCCfs rules do not go far
enough, and that the LECs should be required to purchase
transmission equipment offered by interconnectors for one dollar
($I), with the interconnectors retaining a right to repurchase the
equipment at this same price.
Supp. Reply Comm. at 5.)
sale/repurchase obligationif.
2.
(MFS Supp. Opening Comm. at 7-8; ELI
This proposal is referred to as the Ii$l
1
-
23 An additional reason why we reject DRAfs request is that the expedited application process was never implemented after the decision authorizing it (D.89-10-031), so its efficacy is untested.
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< R.93-04-003, 1.93-04-002 ALJ/MCK/sid *** h
We find it unnecessary to adopt MFS and ELI'S suggested
departure from the FCC's rules.
is unnecessary, because the July 14 order clearly states that in
evaluating whether an LEC has used the lowest available equipment
price, the FCC will "find probative the price at which an
interconnector may offer to sell the desired equipment to the LEC."
(9 FCC Rcd at 5188 (par. 1241.) In addition, we agree with the FCC
that a $1 sale/repurchase obligation might be deemed so close to
ownership of the equipment by the interconnector as to run afoul of
Bell Atlant ic v. FCC . (&$. at 5189, par. 127.)
F. Should We Permit the LBCs to Offer
The $1 sale/repurchase obligation
Volume and Term Discounts on the Same Terms and Conditions as the Kc? ..
.. 1. Back- ound and Positions of the Partie@
In its various orders in CC Docket No. 91-141, the FCC
authorized the LECs to engage in two forms of price competition
with the CAPs.
in our rules for intrastate traffic. The first was the zone
density pricing plan, under which LEC central offices would be
designated as either high, medium or low in traffic density. The
LECs would be permitted to average rates for special and switched
access within a zone, rather than being restricted to charging only
an LEC system-wide average rate (which the CAPs might easily
undercut). Zone density pricing was authorized as soon as a single
cross-connect had occurred in a study area. (7 FCC Rcd at
In D.93-08-026, we proposed to emulate both forms
7447-7458. )
The second form of authorized price competition was
volume and term discounts.
only when 100 DS-1 cross connects had occurred within a study area,
or when this number of cross-connects had been achieved in an LEC's
high-density offices (for LECs that had instituted zone density
pricing). (8 FCC Rcd at 7434-35 (par. 118)). The discounts were
required to be cost-justified, and the FCC promulgated rules for
An LEC was permitted to offer these
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determining their cost justification. (u. at 7433-36
(pars. 115-120) .)
In its July 14 order, the FCC reaffirmed the zone density
plan and its policies on volume and term discounts despite
contentions by several parties that they should be modified in
light of Bell A tlant ic v. FCy: . For example, the FCC rejected a
petition by Teleport arguing that zone density pricing should be
abandoned because it had been the quid pro quo for the LECsI
acquiesence to physical collocation. (9 FCC Rcd at 5192-5195
(pars. 139-1461.) The zone density pricing program was reaffirmed
with minor modifications. (u. at 5195-5200 (pars. 149-1671.]
respect to volume and term discounts. For special access, LECs
were required to show that any discounts offered were not below
average variable cost. Cu. at 5201 (par. 1711.1 For switched
transport, the FCC reaffirmed its 'I100 cross-connects" rule as the
threshold for offering discounts, and reiterated that such
discounts must be cost-justified. (u. at 5202-06
(pars. 177-1921.) The FCC rejected arguments from certain IECs for
a more stringent threshold, concluding that raising the
prerequisites for discounts would amount to a form of market
allocation. The FCC ruled that IEC competitors were entitled only
to a "viable competitive opportunity.Il (Id. at 5204
(pars. 182-84) .)
and December 16, 1993, several of the IECs opposed volume and term
discounts for the same reason they had at the federal level;
namely, their belief that such discounts would unduly benefit AT&T.
(See MCI's 11/18/93 Comments at 25-26; Sprint's 11/18/93 Comments
at 14; IAC's 11/18/93 Opening Comments at 13-17.) However, a few
IECs endorsed zone density pricing, which they considered more
even-handed in operation. (See, e.g., Sprint's 12/16/93 Comments
at 17-18.) The few parties who addressed volume and term discounts
The July 14 order also reaffirmed the FCC's policies with
In the original comments they filed here on November 18
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in their supplementary comments took essentially the same positions
they had in their opening comments. (See AT&Tfs Supp. Opening
Comm. at 3; IAC's Supp. Opening Comm. at 6.)
2. piacrus-
As noted above, both zone density pricing and the FCC
rules on volume and term discounts are measures designed to allow
the LECs to engage in limited price competition with the CAPS for
special access and local transport customers. The NRF Category I1
pricing flexibility rules, which we proposed for local transport in
D.93-08-026, serve a similar purpose. Under these rules, an LEC
would have the authority to enter into individual contracts with
customers for cost-justified volume discounts. (D.88-09-059, 29
CPUC2d at 390-91.) If an LEC concludes that its rates for a
service are not competitive, it also has authority under
D.89-10-031 to lower the rate for all customers down to the
applicable price floor. (33 CPUC2d at 200-204.)
Thus, we believe that our NRF pricing rules provide an
LEC with sufficient interim flexibility to meet competition from
the CAP. We also think they are considerably easier for us to
administer for now, since we would not be required to decide (among
other things) what level of traffic density a particular central
office has and how many cross-connects have occurred in a
particular office or study area.
and the fact that, as discussed in Part I11 of this decision, there
are fundamental differences in approach between the FCC's interim
rate structure and the rates we adopted in IRD -- we have concluded
that for the interim, any pricing flexibility to meet competition
at the intrastate level should come through application of our NRF
Category I1 rules rather than the FCC's. The question of whether
to grant Pacific and GTEC Category I1 treatment for local transport
is addressed in Part IV of this decision.
In view of these complexities --
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111.
As noted in Part I, we proposed in D.93-08-026 to emulate
Should California Adopt the FCC's Interim pate Structure for Local Tr-rt?
the interim rate restructuring for local transport adopted by the
FCC in CC Docket No. 91-213. Under this interim structure (which
was to be in effect for two years), LEC local transport rates would
be composed of four elements. The first is an entrance facilities
charge, a flat fee designed to recover the cost of entrance
facilities dedicated to a particular IEC. The second is a direct-
trunk transport element, a flat rate designed to recover the cost
of circuits dedicated to a particular IEC. The third is a tandem-
switched transport element, an element charged on a minutes-of-use
basis to tandem users that is designed to reflect the higher costs
of tandem switching. The fourth element is the so-called Residual
Interconnection Charge, a per-minute charge paid by all
interconnectors that is designed to collect revenue not recovered
in the other three rate elements, including 80% of tandem costs.
As many parties have pointed out in their supplementary
comments, several key aspects of the IRD decision are inconsistent
with the approach taken by the FCC in CC Docket No. 91-213. First,
as all parties acknowledge, the transport rates adopted in
D.94-09-065 track LEC costs more closely than do the FCC's interim
rates. Second, the IRD decision eliminated distance-sensitivity as
a transport rate factor, whereas the FCC's interim rate structure
permits distance-sensitivity. Third, the IRD transport rates do
not include a tandem-switching element. Based on these
differences, the majority of the parties who filed supplementary
comments argue that we can no longer simply emulate the FCC's
approach in CC Docket No. 91-213.
transport rate restructuring is whether to use the FCC's approach,
our IRD approach, or some melding of the two. In the discussion
below, we consider the implications of each of these options.
Thus, the principal issue we must decide in local
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A. The Controversy Surrounding the FCC's Residual Interconnection (Iharae (RIG)
From the beginning of this proceeding, the most
controversial aspect of the FCC's interim rate structure has been
the RIC. In the opening comments filed on November 18, 1993,
several IECs and other parties pointed out that the RIC was
inconsistent with our objective of cost-based transport rates in
IRD, and could facilitate cross-subsidization in the event
Category I1 pricing flexibility was authorized (since under the NRF
rules, prices need not be reduced uniformly on all rate elements in
a service). (a, s.u., AT6tT's 11/18/93 Comments at 9-10; Sprint's
11/18/93 Comments at 17-18; California Bankers Clearing House
Association/Los Angeles County's 11/18/93 Comments at 6-7. See
also AT&T's Supp. Opening Comm. at 6-7.)
even those who still support a transport rate restructuring in
parity with the FCC's-- concede that the RIC is an interim
measure. 24
supports the RIC) -- characterizes it as follows:
In their supplementary comments, virtually all parties--
In its supplementary comments, DRA -- (which no longer
"The RIC is a mechanism to recover 75% of the tandem office revenue requirement along with residual revenue requirement not assigned to specific rate elements. It is not necessarily viable for the long term. The RIC is intended to keep the LECs revenue neutral while intrastate local transport rates are being [relstructured. It is also to serve the
24 In its proceeding, to serve as recovery of allocated to other access categories. The- [RICI also reduces any unnecessary adverse interim effects on small [interexchange carriers] resulting from changes in transport rates." (7 FCC Rcd at 7063, par. 133).
Pe-rt 0 rder in the transport rate structure the FCC characterized the RIC as a mechanism "designed a transitional measure to avoid dislocations due to the costs in the transport category that should be
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i
secondary purpose of protecting small 1ECs.I' (DRA's Supp. Reply Comm. at 4 (footnotes omitted) .)
In their November 1993 comments, Pacific and AT&T not
only acknowledged that the RIC recovers 80% of an LEC's tandem
office revenue requirement, but also that Pacific would recover
fully 68% of its total switched transport revenues through the RIC.
(AT&T's 11/18/93 Opening Comments at 10; Pacific's 11/18/93 Opening
Comments at 28.)
B. Current Positions of the Parties on the RIC and the FCC's Other terim Rate Elements
In the comments they originally filed in this proceeding,
Pacific and GTEC both supported the RIC because they felt that the
advantages of parity with the FCC outweighed the conceptual
problems with its interim rate structure. 25 Since our adoption of
new local transport rates in D.94-09-065, however, Pacific has
argued that we should use those rates rather than the FCC's.
Pacific points out that the IRD rates are much closer to cost
because they eliminate both distance sensitivity and the subsidy-
laden Carrier Common Line Charge (CCLC), which Pacific analogizes
to the RIC. (Pacific's Supp. Opening Comm. at 3-4.) DRA and IAC
join Pacific in urging the use of IRD rates for local transport
restructuring. (DRA's Supp. Reply Comm. at 3-5; IAC's Supp. Reply
25 However, Pacific's support was grudging, and it emphasized the RIC's "stopgap" and "non-economic" nature:
"Although the FCC recognizes that competition ... exists, the FCC decisions themselves create a price umbrella for the CAPS. By assigning the bulk of tandem costs to AT&T, it has set common transport rates too low in order to protect small IECs. It has set switched dedicated transport rates too high, which favors the CAPS." (Pacific's 11/18/93 Opening Comments at 25).
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h
Comm. at 1-2.) GTEC, however, continues to support parity with the
FCC's rate structure, including the RIC. (GTEC's Supp. Reply Comm.
at 6-7.)
positions, presumably because they dislike the RIC but also
recognize the revenue problems for the LECs that the RIC's
elimination might produce. 26
The large IECs have sought to carve out intermediate
AT&T, for example, would eliminate
26 Sprint has described these revenue problems in its supplementary reply comments as follows:
,,[Tlhe parties suggest that the logic behind eliminating the CCLC can somehow simply be extended to the elimination of the RIC: that just as the Commission eliminated the CCLC charge in IRD, that the RIC should be also be eliminated in this proceeding [because] both charges are subsidies. . . [Tlhe elimination of the RIC is not quite that simple. While Sprint supports the elimination of subsidies where they occur, such elimination must be accomplished on a competitively neutral and cost- based basis, and in all likelihood, phased out over a period of about five years.
did so on the basis of [a] consensus . . . that the CCLC was nothing more than a non-cost-based subsidy, and did so also in the process of an overall revenue neutral rate rebalancing effort. It is clear that at least some part of the RIC is a subsidy designed to make the LEC whole in the face of lower local transport rates which would allow the LECs to compete with alternative access providers. However, in contrast to IRD and consideration of the CCLC, the FCC did not conduct cost studies in devising its local transport structure. . . Thus the entire FCC local transport structure. . . is not based on cost, but rather is an idea of what structure might enable the [LECs] to compete with alternative providers of local transport. . .
"When the Commission eliminated the CCLC in IRD, it
(Footnote continues on next page)
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the RIC while retaining the other three elements of the FCC's
interim rate structure; it hopes to make this revenue-neutral for
the LECs by using IRD's lower "revenue requirement" for local
(Footnote continued from previous page)
"Thus any examination of the RIC subsidy, and any consideration of its elimination, must necessarily include an examination of the costs and pricing of transport. . .
"In any event, neither Pacific nor AT&T [in their respective supplementary opening comments] offer[s] any suggestion as to where the revenues which are to be received through the RIC are to come from in its absence. Presumably Pacific does not intend to go without these revenues entirely, and it is unlikely that even AT&T believes that elimination of the RIC will be accomplished by eliminating the revenue itself, and not assignting it1 to some other rate element." (Sprint Supp. Reply Comm. at 2-4.)
..
3
i
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transport. 27 (AT&T Supp. Reply Comm. at 3-5.) MCI also argues
that the RIC should be eliminated and IRDfs transport revenue
requirement used. MCI asserts that for Pacific, this would not
result in a revenue shortfall. However, for GTEC-- whose transport
rates in IRD were set at a level above DEC-- MCI would allow it to
collect a modified RIC that would be phased out over time. (MCI
Supp. Opening Comm. at 12-13.) Pacific replies that one cannot say
from the record in this proceeding whether combining IRD's "revenue
requirement" with the FCC's rate elements minus the RIC would, in
fact, result in revenue neutrality for the LECs. It therefore
proposes to hold workshops to determine the viability of such
proposals. (Pacific's Supp. Reply Comm. at 3-7.)
C. Our Transport Rate Restructuring Should Be Based on IRD Inca1 Transport Rates Rather the FCC's Interim Rate Structure
The parties criticisms of the RIC and the complexity of
their suggestions for replacing it with something else have
convinced us to abandon our original proposal in D.93-08-026 and to
27 When AT&T speaks of an IRD "revenue requirement", it is not using that term in the classical sense of monopoly utility regulation, but is instead referring to the "start uprf revenue levels first adopted in D.89-12-048 (34 CPUC2d 155). As explained in that decision, these start up revenues were adopted in order to ensure that the "price capfr rates put into effect on January 1, 1990 pursuant to the NRF decision would not result in Pacific and GTEC earning substantially more than the 11.5% rate of return authorized for them. The start-up revenues (which were based on the two LECs' intrastate operations during the first eight months of 1989) have been modified in subsequent decisions.
In changes revenue
Appendices C and D to D.94-09-065, we made incremental to the revenue amounts for various services in the start-up requirement to reflect the revenue neutrality and rate Because local transport rates were rebalancing carried out in IRD. reduced in IRD, transport revenues make up a smaller share of the total revenue requirement than in the pre-IRD environment. That shortfall was made up by increasing rates for other services.
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reject the FCC's interim rate structure. The FCC's structure
recovers through the RIC too much revenue from large IECs, who make
limited use of tandems, while apportioning only a fraction of
tandem costs to tandem users. The IRD structure, on the other
hand, recovers all switched transport costs through a minutes-of-
use (MOU) charge regardless of the routing used. We agree with
DRA, Pacific and IAC that since the the FCC's interim rate
structure permits distance sensitivity while IRD's does not, it
would be a step backwards to adopt transport rates in parity with
the FCC's. Instead, we believe that pricing transport on an MOU
basis, without a distance sensitivity component, is beneficial to
ushering ccmpetition into the local transport market.
By using IFtD rates for local transport restructuring, we
also avoid other potential difficulties with the FCC's interim
rates. For example, the small IECs complained bitterly about the
FCC's alleged arbitrariness in presuming valid transport rates that
set the ratio between DS-3 and DS-1 lines 28 at 9.6:l or higher.
These IECs argue that since a DS-3 line has 28 times the capacity
of a DS-1 line, the correct ratio is 28:1, and that we should order
such a change before putting the FCC's interim rate structure into
effect. (See Sprint's 11/18/93 Comments at 12-14; IAC's 11/18/93
Comments at 20-24.)
conclusion that "there are [multiplexing] costs associated with
providing DS1 circuits over a DS3 fiber facility that are not
incurred when a full DS3 facility is provided to the customer,"
7 FCC Rcd at 7032-33, interim use of IRD rates-- which include DS-1
and DS-3 components--makes the issue moot for now.
Even though we are inclined to agree with the FCC's
28 A DS-1 line allows transmission of data at 1.544 megabits per A DS-3 line has 28 second and is equivalent to 24 voice channels. times the capacity of a DS-1 line, or 672 voice channels.
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Finally, we reject the IECsf suggestions that we engage
in some sort of melding of the IRD and FCC approaches.
supplementary comments suggest, this would be an attempt to combine
apples and oranges.
the FCCfs rate structure-- which bases its charges on MOU, flat-
rated dedicated access and potential distance-sensitivity, and
which also contains a large residual charge-- could lead to
inequities and unintended consequences. While we recognize that
there is something to be said for the administrative convenience
and reduced customer confusion that parity with the FCCfs rate
structure would produce, we think those advantages-- which may well
end when the FCC adopts a permanent transport rate structure-- are
more than outweighed by the benefits of ushering competition into
As the
Trying to combine IRD revenue neutrality with
the local transport market now.
D. Customers of Record Served by Collocators Should Receive a Discount Off of IRD &oca1 Transport Rat es
Our decision to use IRD's local transport rates rather
than the FCC's interim rate structure poses one additional problem
requiring discussion. The problem is that the IRD decision
preceded our decision to approve intrastate collocation, and
therefore the IRD rates do not assume collocation. Rather, the IRD
transport termination element is charged on the assumption that a
call travels from the LEC's central office to the LEC's serving
wire center and then over a special access line to the IEC's POP.
When a call travels over a collocator's facilities, however, less
of the LEC's network is used: at some point within the LEC central
office, the traffic leaves the LEC's network and begins to travel
over the collocator's facilities directly to the POP. The question
arises, therefore, whether it is fair to make the customers of
collocators pay the full IRD local transport rate when doing so
forces them, in effect, to pay for some LEC facilities they do not
use.
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r?
i
The ALJ draft decision that was made available to the
public (pursuant to PU Code 5 311.5) on February 10, 1995, provided
that collocators would be required to pay the full IRD local
transport rate. Concern was immediately raised that IECs which use
transport furnished by collocators should either be relieved of
having to pay the transport termination rate element altogether, or
should have to pay only for the LEC facilities they actually use.
To meet these concerns, the Assigned Commissioner directed that a
revised draft decision be prepared, which was distributed to the
parties on March 29, 1995, along with an Assigned Commissioner's
ruling. The parties were given until April 14, 1995 to file and
sene comments concerning the revised draft decision.
We are concerned that on the record before us, it is not
possible to determine exactly which LEC facility costs collocators
are able to avoid when they interconnect. However, we also believe
that if collocators are to compete effectively with the LECs for
local transport business, they need and should have some margin on
which to do so. The question remains how such a margin should be
determined.
Based on our own analysis and the comments submitted on
April 14, 1995, we have decided that the best solution to this
problem is to give the customers of record served by collocators an
interim discount off of the IRD local transport rates. The
discount for customers of both physical and virtual collocators
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will be based on the distance sensitive LEC costs that collocators
avoid when they interconnect with the LECs and transport traffic
over their own systems. 29 We have also decided that these costs
should be calculated based on the DEC cost studies submitted in
IRD, since these studies were used to determine the IRD local
transport rates, (D.94-09-065, mimeo. at 1171, and since they are
the most up-to-date studies available to us. In Pacific's case,
based on the information submitted in IRD, the discounted local
transport rate would be $. 004446, a reduction of 37.8% from the
IRD transport termination rate element. In GTEC's case, the
discounted rate would be $ .005078, which represents a reduction of
29.0% from the rate adopted in IRD. See the table below.
29 The distance-sensitive LEC costs are calculated by multiplying the average inter-office mileage by the DEC expressed on a per minute-of-use, per mile basis.
the DEC cost studies submitted in IRD is a statewide average of approximately 10 miles. On pages 2-3 of the comments it submitted on April 13, 1995, Pacific argued that the correct inter-office mileage figure is 4.5 miles, Ifthe average inter-office mileage for the collocated end offices at issue here. . .'I Pacific asserts that when this figure is used, the correct transport rate for customers of record served by collocators is $0.005931 rather than..
$0.004446.
In Pacific's case, the average inter-office mileage shown in
For two reasons, we decline to make the change requested by Pacific. First, the 4.5 mile figure is not in the IRD record. Second, the use of such disaggregated data for one component of our formula for computing distance-sensitive LEC costs would logically require us to use disaggregated data for the other components as well. That data is also absent from the IRD record.
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Switched Transport Rates
,
I
We recognize that this discount methodology is an interim
expedient and is not based upon the costs that IECs and other
customers of record actually avoid when they use the transport
facilities of a collocator; as noted above, the studies currently
available to us do not give an accurate measure of such costs.
are therefore choosing the discount method more for reasons of
public policy-- i.e., the need to encourage competition immediately
between collocators and the LECs for local transport business--
than for the discount method's accuracy as a proxy. 30
expect that as the work in this docket progresses, Pacific and GTEC
will file fully unbundled LRIC-based cost studies that will furnish
an accurate picture of the unbundled costs LECs incur when
collocators interconnect with them. As these studies become
We
i
However, we
30 One of our concerns in developing the interim discount methodology was to avoid a situation that would enable the LEC to price local transport at a rate which adds less contribution than would be generated if the collocator provides this service. We are therefore going to order Pacific and GTEC to make price floor filings utilizing the IRD imputation rules discussed in Part I.D. of this decision.
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available, we expect to amend the LECs' transport rates to reflect
them. 31
IV. Should Local Tramport be Reclassified as a Category 11 Service, eo that Pacific and GTBC Would Have Downward Pricing Flexibility with
m-ct to it?
Perhaps the most controversial issue in this proceeding,
even more than t
D.93-08-026 that
service and that
with respect to
D.89-10-031, thi
reatment of the RIC, has been our proposal in
local transport be reclassified as a Category I1
Pacific and GTEC be granted pricing flexibility
it. Under the rules set forth in the NRF decision,
s means that the local transport rates determined
in this proceeding would serve as a price cap, with the LECs being
free to reduce these rates in response to competition from CAPS
down to the price floors for these services. Under D.89-10-031,
31 In the comments they submitted on the revised draft decision, both Pacific and Roseville asserted that any transport revenues lost by the LECs as a result of the discount discussed in the text would violate IRD's principle of "revenue neutrality.'I (Pacific's 4/13/95 Comments at 3; Roseville's 4/14/95 Comments at 2.) By implication, they argue that they must be made whole for these losses.
We disagree. We clearly held in IRD that Pacific and GTEC should not be made whole for "competitive losses,'I since it was within the power of the LECs to respond to competition by improving their efficiency, and since the effect of compensating them for competitive losses would be to grant the LECs rate cap returns on their toll revenues. (D.94-09-065, mimeo. at 164-65.) We think the same reasoning applies here. Moreover, our decision to engage in rate rebalancing in IRD was motivated in large part by the fact that over $2 billion in revenue was at stake for Pacific alone. The possible revenue losses conjured up by Pacific and Roseville in their comments are obviously not of this magnitude.
noted that we would not make the LECs whole for any local transport revenues lost as a result of competition from collocators. (Mimeo. at 20-21.)
Finally, it should be noted that in D.93-08-026, we expressly
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the price floor for any such flexibly priced service is equal to
the tariffed rate of any monopoly building block used in the
service plus the DEC of any non-monopoly component.
128.) In IRD, we ruled that LRIC would replace DEC as the
methodology for determining the price floor for all Category I1
services, unless the service's DEC is lower than its LRIC.
(D.94-09-065, mimeo. at 33-34.)
A.
--
(33 CPUC2d at
..
Virtually all of the IECs and several other parties in
this proceeding argue that while competition should be authorized
for local transport, the NRF tests for pricing flexibility have not
been met.
transport market, they argue, but the LECs have not filed proper
LRIC cost studies, as required by IRD. (See MCI Supp. Opening
Comments at 7-8; IAC Supp. Opening Comm. at 6-8; ELI Supp. Opening
Comm. at 3-4; Teleport Supp. Opening Comm. at 2-3; MFS Supp.
Opening Comm. at 10. See also TURN'S 11/18/93 Comments at 3; Time
Warner AXS-CA's 12/16/93 Comments at 1-3.)
The LECs (Pacific, GTEC and Citizens), as well as DRA and
DOD/FEA, favor reclassification of local transport as a Category I1
service with commensurate pricing flexibility. (See Pacific's
Supp. Opening Comm. at 4; GTEC's Supp. Opening Comm. at 3-4;
Citizens' Supp. Opening Comm. at 5; DRA's Supp. Opening Comm. at
14; DOD/FEA's Supp. Opening Comm. at 4-5.) In essence, these
parties argue that in the last two years, competition has begun to
develop in the switched access market, and that since this is so,
this Commission should not create pricing umbrellas for the CAPS by
denying the LECs downward pricing flexibility.
as a Category I1 service with pricing flexibility, we must make two
important findings. The first is whether sufficient competition
now exists (or is imminent) within the transport market. The
second is whether the cost studies that the LECs have submitted are
Not only is there a lack of workable competition in the
Before deciding whether to recategorize local transport
I
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4
sufficient to establish the price floors required for a Category I1
service to have pricing flexibility. We consider each of these
questions in turn.
B. Sufficient Competition Exists in the Local Tramport Market to Justify
~
As noted above, the ground on which most commenters
oppose reclassification of local transport is an alleged lack of
competition within the transport market. The comments of MCI on
this issue are typical:
“The Commission must f i competition, unbundle implement co-location, even begin to develop service. The Commissi
.rst authorize local transport and before competition can for switched transport .on should not.arant full Category 11 pricing flexibility down-to LRIC- based price floors for switched transport or, in the future, for other switched access or local exchange services until there is some evidence that competition is beginning to develop which is sufficient to discipline the LECs‘ market power over bottleneck access facilities.” (MCI‘s Supp. Opening Comm. at 9.)
MCI’s argument presents a classic chicken-and-egg
dilemma. On the one hand, it asserts that, by definition, there is
no competition for local transport because we have not yet
authorized it. On the other, MCI argues that until such
competition has developed, we are not free under D.89-10-031 to
grant the LECs Category I1 pricing flexibility with respect to
local transport. The fact that during the period between the
authorization of competition and the granting of pricing
flexibility, the CAPS would have an uneconomic price umbrella under
which they could seek a large share of the market at the LECs’
expense, is one that MCI (and other opponents of recategorization)
blithely ignore.
reading of D.89-10-031.
We think MCI’s argument reflects entirely too rigid a
As we have stated on several occasions, we
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,--
have a pronounced distaste for pricing umbrellas, which encourage
inefficient investment and harm consumers. (0.93-08-026, mimeo. at
17; D.90-02-019, mimeo. at 14, 35 CPUC2d 275 (1990); D.90-06-025,
36 CPUC2d 464, 526 n.4 (dissent of Commissioner Duda) (1990) .)
Moreover, we stated in D.89-10-031 that while Ifwe would want to
review and evaluate market conditions to ensure that customers
and/or the competitive market are not harmed by classification
changes," we fully expected to reclassify monopoly services as
Category 11 services "as the intraLATA market becomes increasingly
competitive. . . .'f (33 CPUC2d at 127.) We do not think that when
read as a whole, these statements impose rigid tests of market
measurement upon us, or require that we remain blind to important
changes in rapidly-developing markets.
called attention to one of these recent changes: namely, a
significant increase in competition since the FCC tariffs
authorizing restructured transport rates went into effect on
December 15, 1993:
In its supplementary reply comments here, Pacific has
"[Ilntrastate switched transport traffic is already being delivered to a certain large IEC by one of our CAP competitors. All that was necessary for this to occur was for that CAP to order and turn up its interstate switched transport expanded interconnection service, which the CAP provides via its facilities collocated in our central office. Since neither we, nor other telecommunications companies, connect traffic to different trunk groups based on the jurisdiction of the traffic, this collocator handles all traffic, interstate and intrastate, coming or leaving that IEC's [Point of Presence]. Competition
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-z
for switched access transport is here, and it is affecting us immediately." Reply Comm. at 8 (emphasis supplied) .)
This development should come as no surprise, because
increased competition for local transport was widely expected to
follow from expanded interconnection and more cost-based transport
rates. As the FCC observed in its 1992 expanded interconnection
order:
"The development of access competition has begun.
(Pacifisjs Supp.
Some level of competition in the local access market already exists. For example, CAPs now offer fiber-based network services in competition with the telephone companies' access services in many metropolitan areas, even without expanded interconnection. Some of these networks have been used to create closet POPS that compete to some extent with LEC transport service. If [our] proposals for expanded interconnection for switched access are implemented, transport will be subject to even greater competition. CAPs may soon be able to compete directly in the provision of not only direct-trunked, but also tandem-switched transport. . . We anticipate that such [tandem] competition will encourage LECs and IXCs to efficiently aggregate interexchange traffic.
32 Unlike other opponents of pricing flexibility, Teleport seems willing to acknowledge that competition is now developing in the transport market. For example, in arguing that the entire switched access market should be opened to competition, Teleport states:
"This Commission has authorized competition in some very important access services-- special access and soon, switched transport. But, it is primarily the [interexchange carriers] and the largest end users . . . who are able to benefit from this type of competition. TCG would like to start extending the benefits of competition to smaller customers. In order for that to happen, the Commission must authorize switched access competition." (Teleport Supp. Opening Comm. at 2 (footnote omitted) .I
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,-- . ..
!
Any long-term transport rate structure and pricing approach must recognize this development of access competition.f' par. 105 (emphasis supplied) . )
(7 FCC Rcd at 7054,
We agree with Pacific that as a result of the FCCfs
orders directing expanded interconnection and transport rate
restructure, an adequate degree of competition in the local
transport market now exists.
does not require that competition be robust; rather, the test is
whether "the local exchange carrier retains significant (though
perhaps declining) market power." (33 CPUC2d at 125.) We think
that is an accurate description of the fast-changing local
transport market, and so feel comfortable in changing local
transport from a Category I to a Category I1 service.
time, we are unbundling local transport from local switching (which
remains a Category I service).
able to choose who will provide their local transport service.
a customer chooses an alternative to LEC service, the customer will
avoid a portion of the LECfs local transport rate element.
C. Pacific and GTEC Will Be Required to File answrt Service Price Floors for Loc a1 Tr
Designation as a Category I1 service
At the same
In this manner, customers will be
If
i
As noted above, the second finding we must make before
designating a service as a partially-competitive, Category I1
service with pricing flexibility is that we have adequate cost
studies to determine the necessary price floor. Cu. at 127-28.)
At first glance, that issue presents some challenges here, because
no cost studies have yet been submitted in this proceeding.
price floor filings for Category I1 services should be made.
establishment of a price floor is a prerequisite for an LEC to
exercise pricing flexibility. In this decision, we are
recategorizing local transport as a Category I1 service.
require Pacific and GTEC to establish price floors for local
transport by advice letters prior to exercising pricing
However, the IRD decision detailed the process by which
The
We will
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flexibility.
of CACD.
we will define the competitive service as local transport and, at a
minimum, the underlying monopoly building block as the transport
rate for customers of record served by collocators. This latter
rate element is hereby classified as a Category I (monopoly)
service under our NRF rules.
floors for Pacific and GTEC have been determined, we will have all
the necessary ingredients (rate caps and price floors) in place to
grant Pacific and GTEC pricing flexibility with respect to local
transport, and we will therefore do so. 33
and IEC access to the public switched network can be provided in
These advice letters will be subject to the approval
To aid in the development of these price floor filings,
Once these advice letters have been submitted and price
However, because CAP
the vast majority of instances only through interconnection with
the LECs, we will continue to treat local switching as a
Category I, monopoly service.
resolved in this interim decision are only one aspect of the rules
The expanded interconnection and local transport issues
33 In D.93-08-026, we asked for comments on whether the expanded interconnection and local transport restructuring rules we were proposing should apply to mid-size LECs as well as Pacific and GTEC. (Mimeo. at 3-4.) In the comments they submitted in November of 1993, DRA and other parties urged that our new rules should apply to both mid-size and small LECs. (See, e.g., DRA's 11/18/93 Comments at 4 and 17; California Cable Television Association's
11/18/93 Comments at 2.)
It is apparent from the discussion above that the rulesrwe are. adopting today for Pacific and GTEC are premised upon NRF-style regulation. Rather than try to adapt these rules to LECs still subject to traditional rate-of-return regulation, we will defer the question of expanded interconnection and transport rate restructuring for small and mid-size LECs to a later decision. Thus, even though a small or mid-size LEC may previously have concurred in Pacific's access rates, this does not mean it is subject to the rules and policies in today's decision.
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.+, ,
I
for nondiscriminatory "open access" that we are considering in this
docket. As stated recently in D.94-12-053, future decisions in
this docket will address such topics as the methodology to be used
in preparing cost studies for basic network functions, as well as
defining just what these basic network functions (or ''monopoly
building blocks") are.
As noted in Part 1II.D. of this decision, the reaction to
the ALJ draft decision made available pursuant to PU Code 5 311.5
on February 10, 1995 caused the Assigned Commissioner to direct
that a revised draft be prepared, which was mailed to the parties
on March 29, 1995 along with an Assigned Commissioner's Ruling
requesting comments. The following parties filed comments on or
before the due date of April 14, 1995: Pacific, GTEC, DRA, AT&T,
TCG, ICG Access Services, Inc., Time Warner AXS of California,
Sprint, Roseville and Citizens Utilities Company.
have addressed the points made in them throughout this decision,
especially in Part 1II.D.
pindinus of Fact
issued rules for expanded interconnection in its CC Docket
We have carefully considered all of these comments, and
1. In September of 1992 and September of 1993, the FCC
NO. 91-141.
2. In September of 1992 and July of 1993, the FCC issued
rules for local transport restructuring in its CC Docket
NO. 91-213.
3. On August 4, 1993, we issued D.93-08-026, which proposed
to emulate in large part the rules adopted by the FCC in CC Docket
Nos. 91-141 and 91-213.
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4. Pursuant to the invitation set forth in D.93-08-026,
parties filed opening comments in this proceeding on November 18,
1993, and reply comments on December 16, 1993.
the District of Columbia Circuit issued its decision in Bell
F , 24 F.3d 1441 (D.C. Cir. 19941, which held inter
alia that the FCC lacked statutory authority to order LECs to make
physical collocation available to parties wishing to interconnect
with the LECs at their central offices.
and Ord er in CC Docket No. 91-141 in response to the decision in
Bell Atlantic v. FW.
7. On September 15, 1994, this Commission issued its
decision in the IRD phase of 1.87-11-033, D.94-09-065.
8. On September 22, 1994, the assigned ALJ issued a ruling
inviting the parties in this proceeding to file supplementary
comments concerning Bell Atlantic v. FCC, the FCC's July 14 order
and D.94-09-065.
ALJ ruling, parties filed supplementary opening comments in this
proceeding on October 13, 1994, and supplementary reply comments on
on October 27, 1994.
10. Pursuant to the invitation contained in the March 29,
1995 Assigned Commissioner's ruling in this docket, 10 parties
filed comments on the revised draft ALJ decision on or before the
April 14, 1995 due date.
is likely that Pacific will not be able to offer physical
collocation at some of its central offices due to space
constraints.
12. On December 9, 1994, the Chief of the FCC's Common
Carrier Bureau issued Order DA 94-1421 in CC Docket No. 94-97,
which found unreasonable many of the interconnection tariffs filed
5. On June 10, 1994, the United States Court of Appeals for
.. 6. On July 14, 1994, the FCC adopted its Memorandum OPinion
9. Pursuant to the invitation contained in the September 22
11. Based on experience in other states and in California, it
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by LECs (including GTEC), ordered an investigation of these tariffs
and specified the overhead loadings to be used by the LECs in
resubmitting their interconnection tariffs.
the FCC in CC Docket No. 91-213 and is paid by all interconnectors
with LECs, recovers eighty per cent (80%) of the cost of tandem
switching, even though tandem switching is used by large IECs for
only 5 to 10% of their traffic in California.
14. Collocators are able to avoid some LEC facilities when
they interconnect with LECs and transport traffic over their own
systems.
15. Significant competition has developed in the local
transport market since the FCC tariffs authorizing expanded
interconnection and restructured transport rates went into effect,
inasmuch as telecommunications companies do not connect traffic to
different trunk groups based on the jurisdiction of the traffic.
Conclusions of ta W
are likely to provide interconnectors with all of the same benefits
that physical collocation arrangements would provide.
2. In order to avoid unnecessary legal challenges, this
Commission should limit itself to ordering LECs to provide virtual
collocation arrangements for prospective interconnectors (except
where physical collocation is offered on a tariffed basis).
3. The FCC's basic standard for virtual collocation
arrangements, which requires LECs to (a) dedicate to an
interconnector's use any kind of basic transmission equipment
reasonably specified by the interconnector, (b) install, maintain
and repair such equipment under at least the same time intervals
and with the same failure rates as the LEC's own comparable
equipment, and (c) allow interconnectors to monitor remotely basic
transmission equipment dedicated to them, is reasonable and should
13. The Residual Interconnection Charge, which was adopted by
1. Virtual collocation arrangements in LEC central offices 1
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be adopted by this Commission for intrastate traffic subject to our
jurisdiction.
4. GTEC should be required to file virtual collocation
tariffs for all central offices for which it has filed such tariffs
at the FCC.
collocation tariffs at the FCC, GTEC should be required to file
virtual collocation tariffs within 45 days after a bo^ fide
request for interconnection is made.
tariffs for all central offices for which it has filed collocation
tariffs at the FCC, unless in a particular case Pacific wishes to
file a physical collocation tariff in lieu of a virtual collocation
tariff .
tariffs for all space-constrained central offices for which it has
filed such tariffs at the FCC.
8. For central offices as to which it has not filed a
collocation tariff at the FCC, Pacific should be required to file a
virtual collocation tariff within 45 days after a bona fide request
for interconnection is received, or a physical collocation tariff
if Pacific prefers it and adequate space within the office is
available.
If Pacific wishes to withdraw for any reason a physical
collocation tariff filed pursuant to Conclusion of Law 6 or 8, it
must follow the usual procedure set forth in Section XIV of GO 96-A
for doing so, and should also file a virtual collocation tariff to
take effect immediately upon withdrawal of the physical collocation
tariff .
10. The FCC standard requiring LECs to allow outside vendors
to maintain and repair interconnector equipment subject to virtual
collocation arrangements if such vendors are permitted to work on
the LEC's own comparable equipment, is reasonable and should be
5. For central offices as to which it has not filed virtual
6. Pacific should be required to file virtual collocation
7. Pacific should be required to file virtual collocation
9.
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R.93-04-003, 1.93-u4-002 ALJ/MCK/sid ***
adopted by this Commission for intrastate traffic subject to our
jurisdiction.
11.
reports with CACD concerning their repair and maintenance
experience with basic transmission equipment dedicated to
interconnector use in virtual collocation arrangements.
pricing of virtual collocation tariffs, which requires LECs to
establish reasonable, disaggregated subelements for connection
charges pursuant to rate structures that (a) reflect cost-causation
principles, (b) are unbundled to ensure that interconnectors are
not forced to pay for services they do not need, and (c) establish
a cross-connect element that applies uniformly to both physical and
virtual collocation arrangements, is reasonable and should be
adopted by this Commission for intrastate traffic subject to our
jurisdiction.
tariffs in the form specified by the Tariff Review Plan adopted by
the FCC's Common Carrier Bureau on or about July 14, 1994, except
to the extent such Plan conflicts with the requirements of GO 96-A.
based on the direct costs of providing interconnection plus a
reasonable amount of overhead costs, is inapplicable here because
Pacific and GTEC are subject to NRF-style regulation. In
accordance with this Commission's prior decisions, we will order
that Pacific and GTEC interconnection rates subject to our
jurisdiction be set at DEC (or higher as appropriate), a cost
standard that captures direct costs plus service-related overhead.
15. The FCC's requirement that an LEC must use the lowest,
reasonably available price for equipment in determining the direct
costs of equipment used to serve an interconnector under virtual
collocation arrangements, is reasonable and should be adopted by
this Commission for intrastate traffic subject to our jurisdiction.
Pacific and GTEC should be required to file quarterly
12. The FCC's basic standard for the rate structure and
13. Pacific and GTEC should submit their interconnection
14. The FCC's requirement that interconnection rates must be
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.h R.93-04-003, I.93-01-O02 ALJ/MCK/sid *
16. The proposal of MFS and ELI, that LECs should be required
to purchase transmission equipment offered by interconnectors for
one dollar, with the interconnectors retaining a right to
repurchase the equipment from the LEC for the same price, is
unreasonable and should be rejected.
17. The FCC requirement that absent justification, LECs must
use uniform overhead loadings in setting interconnection rates, is
inapplicable here for the reasons stated in Conclusion of Law 14.
The FCC requirement that contribution charges should be
imposed on interconnectors only to support specifically-identified
subsidy mechanisms embedded in rates for services subject to
competition, is inapplicable here because D.94-09-065 eliminated
contribution charges from LEC access charge structures.
19. Except as required otherwise by this decision, the
collocation tariffs that Pacific and GTEC are required to file with
this Commission should conform to the rules and standards for such
tariffs specified by the FCC in CC Docket No. 91-141.
20. The virtual and physical collocation tariffs required to
be filed by this order should be handled through the regular advice
letter process specified in Section I11 of GO 96-A.
Pacific and GTEC should serve such advice letters upon all parties
who filed initial or supplementary comments in this proceeding in
response to D.93-08-026.
virtual or physical allocation, as discussed in this order, should
be classified as a Category I service, as defined in D.88-09-059,
D.89-10-031 and D.94-09-065.
by the FCC in CC Docket No. 91-213 must be paid by all
interconnectors, including large IECs that use tandem switching
only incidentally, and because eighty per cent (80%) of all tandem
switching costs are recovered through the RIC, the RIC is
18.
21. In addition to any other parties who must be served,
22. Interconnection furnished by Pacific or GTEC through
23. Because the Residual Interconnection Charge (RIC) adopted
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R.93-04-003, 1.93-04-002 ALJ/MCK/sid * ..
I
inconsistent with this Commission's objective of promoting cost-
based transport rates and could promote cross subsidization, and
should therefore be rejected.
Because the RIC is integral to the four-part interim rate
structure adopted by the FCC for local transport in CC Docket
No. 91-213, that rate structure should not be adopted by this
Commission for intrastate traffic subject to our jurisdiction.
are supported by adequate cost studies, are not distance-sensitive,
and are beneficial to promoting competition, they should (with some
modifications) be adopted by this Commission in lieu of the FCC's
four-part interim rate structure.
26.
as modified herein to reflect the special circumstances of
customers of record served by collocators, will enable the LECs and
ourselves to avoid other problems inherent in the FCC's four-part
interim rate structure.
24.
25. Because the local transport rates adopted in D.94-09-065
Use of the local transport rates adopted in D.94-09-065,
27. Because LEC customers of record served by collocators are )
able to avoid some LEC facilities when their traffic is transported
over the system of a collocator interconnected with the LEC, it is
appropriate that such customers of record should receive a discount
off of the IRD local transport rates.
It is appropriate to offer customers of record served by
collocators, on an interim basis, a discount from IRD local
transport rates based on the distance-sensitive LEC costs that are
avoided when the collocator serving the customer of record
transports traffic over its own system.
be computed based on the DEC studies submitted in the IRD phase of
28.
29. The discount referred to in Conclusion of Law 28 should
1.87-11-033.
30. The discounted rate offered to LEC customers of record
pursuant to Conclusions of Law 27 and 28 should be classified as a
Category I service.
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31. If this Commission were to authorize competition for
local transport but not grant Pacific and GTEC authority to engage
in some form of price competition with the CAPS, a price umbrella
would be created that might lead to significant loss of LEC market
share in the local transport market, distorted investment decisions
by CAPs and IECs, and harm to ultimate consumers.
interconnection and restructured local transport rates went into
effect in late 1993, meaningful competition has begun to develop in
the local transport market.
33. The zone density pricing plan and volume and term
discount policies adopted by the FCC in CC Docket No. 91-141 are
both mechanisms for letting LECs engage in limited price
competition with CAPs for local transport business.
34. This Commission's pricing flexibility policies for
Category I1 services, as set forth in D.88-09-059, D.89-10-031 and
D.94-09-065, would permit GTEC and Pacific to engage in price
competition with the CAPs comparable to that permitted by the FCC's
policies.
35. Pacific and GTEC should make price floor filings for
local transport by advice letter. These price floor filings shall
conform to the rules adopted in D.94-09-065.
Category I service to a partially competitive, Category I1 service,
and Pacific and GTEC should be authorized to engage in the degree
of price competition for local transport discussed herein and
permitted for a Category I1 service.
transport as a Category 11 service renders moot the issue of
whether this Commission should adopt either the zone density
pricing plan or the volume and term discount policies adopted by
the FCC in CC Docket No. 91-141.
32. Since the FCC tariffs authorizing expanded
36. Local transport service should be recategorized from a
37. For an interim period, the reclassification of local
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R.93-04-003, 1.93-04-002 ALJ/MCK/sid **
4
38. Because access to the public switched network can be
provided to CAPS and IECs with rare exceptions only through
interconnection with LECs, local switching should continue to be
treated by this Commission as a Category I monopoly service.
IT IS ORDKRED that:
Within 30 days after the effective date of this Order, 1.
GTE California Incorporated (GTEC) shall file as an advice letter
with the Commission Advisory and Compliance Division (CACD),
virtual collocation tariffs conforming to the rules and policies
adopted in this decision for all central offices for which GTEC has
filed virtual collocation tariffs at the Federal Communications
Commission (FCC) .
interconnection at a central office for which GTEC has not
previously filed a virtual collocation tariff, GTEC shall file such
a tariff as an advice letter with CACD.
Within 30 days after the effective date of this Order,
Pacific Bell (Pacific) shall file as an advice letter with CACD,
virtual collocation tariffs conforming to the rules and policies
adopted in this decision for all central offices for which Pacific
has filed collocation tariffs at the FCC, unless Pacific prefers in
a particular case to file a physical collocation tariff in lieu of
a virtual collocation tariff. In such an instance, the structure
of the physical collocation tariff shall mirror the corresponding
physical collocation tariff that Pacific has filed at the FCC,
except to the extent that such FCC filing is inconsistent with the
rules and policies adopted in this decision.
Within 45 days after receipt of a bona fide request for
interconnection at a central office for which Pacific has not
previously filed a collocation tariff, Pacific shall file a virtual
2. Within 45 days after receipt of a bona fide request for
i
3.
4.
I
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R.93-04-003, I.93-0~-002 ALJ/MCK/sid
collocation tariff as an advice letter with CACD, or a physical
collocation tariff if Pacific prefers it and adequate space within
the central office is available.
5.
collocation tariff filed pursuant to Ordering Paragraph 3 or 4, it
shall follow the usual procedure for doing so set forth in
Section XIV of General Order 96-A, and shall file as an advice
letter with CACD, a virtual collocation tariff to take effect
immediately upon withdrawal of the physical collocation tariff.
Within 30 days after the effective date of this order,
GTEC shall file as an advice letter with CACD, a local transport
rate applicable to customers of record served by collocators of
$ .005078.
Pacific shall file as an advice letter with CACD, a local transport
rate applicable to customers of record served by collocators of
$ .004446.
with CACD, quarterly reports setting forth their respective
experiences with repair and maintenance of basic transmission
equipment dedicated to interconnector use under the virtual
collocation tariffs ordered in this decision.
decision, competition for local transport service in Pacific's
service area is authorized upon approval by this Commission of the
advice letters that Pacific has been directed to file regarding
collocation tariffs, price floors and the local transport rate
applicable to customers of record served by collocators.
Consistent with the rules and policies adopted in this
decision, competition for local transport service in GTEC's service
area is authorized upon approval by this Commission of the advice
letters that GTEC has been directed to file regarding collocation
If Pacific wishes to withdraw for any reason a physical
6.
7. Within 30 days after the effective date of this order,
8. Beginning on October 1, 1995, Pacific and GTEC shall file
9. Consistent with the rules and policies adopted in this
10.
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R.93-04-003, 1.93-04-002 ALJ/MCK/sid ***
tariffs, price floors and the local transport rate applicable to
customers of record served by collocators.
11. Pacific and GTEC shall file within 30 days after the
effective date of this order, advice letters setting forth their
respective price floors for local transport.
advice letter filings required by Ordering Paragraphs 1, 2, 3, 4,
5, 6, 7 and 11 of this decision shall become effective no sooner
than the 40th calendar date after filing.
12. Pursuant to Section 1V.B. of General Order 96-A, the
This order is effective today.
Dated April 26, 1995, at San Francisco, California.
DANIEL 'Wm. FESSLER President P. GREGORY CONLON JESSIE J. KNIGHT, JR. Commissioners
I abstain.
/s/ HENRY M. DUQUE Commissioner
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