BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Rulemaking on the Commission's Own Motion to R.93-04-003 Govern Open Access to Bottleneck Services and Establish a Framework for Network Architecture Development of Dominant Carrier Networks. Investigation on the Commission's Own Motion I.93-04-002 into Open Access and Network Architecture Development of Dominant Carrier Networks. Order Instituting Rulemaking on the Commission's R.95-04-043 Own Motion Into Competition for Local Exchange Service. Order Instituting Investigation on the Commission's I.95-04-044 Own Motion Into Competition for Local Exchange Service.
SBC PACIFIC BELL TELEPHONE COMPANY'S (U 1001 C) OPENING COMMENTS ON ALJ REED’S SECTION 271 PROPOSED DECISION
JAMES B. YOUNG ED KOLTO NELSONYA CAUSBY
140 New Montgomery St., Rm. 1620 San Francisco, California 94105 Tel: (415) 542-9422 Fax: (415) 974-1999
Attorneys for SBC Pacific Bell Telephone Company
August 12, 2002
336477 TABLE OF CONTENTS
I. PRELIMINARY STATEMENT...... 1
II. ISSUES REGARDING SBC PACIFIC BELL’S COMPLIANCE WITH § 271 OF THE ACT...... 2
A. SBC Pacific Bell Has Already Met The Number Portability Requirements Of The Act And Will Provide The NPAC Enhancement ...... 2
B. The FCC Has Ruled That The ASI Resale Issues Identified In The PD Are Not 271 Issues...... 4
C. The PD Alters The Performance Incentive Plan Based On Mistaken Conclusions And Without The Industry Input That Has Marked The Plan’s Development ...... 7
D. Miscellaneous Technical Subjects...... 10 1. SBC Pacific Bell’s Plans For Updates To The Loop Qualification Database...... 10 2. SBC Pacific Bell’s Proposed Corrections To The Pricing Appendix...... 11 3. SBC Pacific Bell And The CLECs Designed An Expedited Dispute Resolution Process As Part Of The April 2001 Workshop...... 11
III. ISSUES REGARDING § 709.2 OF THE PUBLIC UTILITIES CODE...... 12
A. The PD’s Constraint On Joint Marketing Prohibits SBC Pacific Bell From Marketing The Long Distance Service Of Its Affiliate In Conflict With A Decision Of This Commission And Federal Law...... 13
B. The PD’s Examples Of “Anticompetitive Behavior” Are Not Legally Or Factually Supportable...... 18
C. The Commission Does Not Need A Study To Conclude That “Structural Separation” Is Unwarranted...... 18
IV. CONCLUSION...... 21
336477 i SUBJECT MATTER INDEX
SBC Pacific Bell Has Already Met The Number Portability Requirements Of The Act And Will Provide The NPAC Enhancement ...... 2
The FCC Has Ruled That The ASI Resale Issues Identified In The PD Are Not 271 Issues...... 4
The PD Alters The Performance Incentive Plan Based On Mistaken Conclusions And Without The Industry Input That Has Marked The Plan’s Development ...... 7
SBC Pacific Bell’s Plans For Updates To The Loop Qualification Database...... 10
SBC Pacific Bell’s Proposed Corrections To The Pricing Appendix...... 11
SBC Pacific Bell And The CLECs Designed An Expedited Dispute Resolution Process As Part Of The April 2001 Workshop...... 11
The PD’s Constraint On Joint Marketing Prohibits SBC Pacific Bell From Marketing The Long Distance Service Of Its Affiliate In Conflict With A Decision Of This Commission And Federal Law...... 13
The PD’s Examples Of “Anticompetitive Behavior” Are Not Legally Or Factually Supportable...... 18
The Commission Does Not Need A Study To Conclude That “Structural Separation” Is Unwarranted...... 18
336477 ii TABLE OF AUTHORITIES Page No(s). Federal Constitution and Statutes
Telecommunications Act of 1996, P.L.104-104, 110 Stat. 56, codified at 47 U.S.C. §151, et seq. (Feb. 8, 1996)...... passim
California Constitution and Statutes
Cal. Pub. Util. Code §709.2...... passim
Cal. Pub. Util. Code §1709...... 16
Federal Communications Commission Orders
In the Matter of Amendment of Sections 64.702 of the Commission’s Rules and Regulations (Third Computer Inquiry), CC Docket No. 85-229, Report and Order, 104 F.C.C.2d 958, FCC 86- 252 (rel. June 16, 1986), modified on recon. In the Matter of Amendment of Sections 64.702 of the Commission’s Rules and Regulations, 2 FCC Rcd. 3035 (rel. May 22, 1987) ...... 20
In the Matter of Classic Telephone, Inc., CCBPol No. 96-10, Memorandum Opinion and Order, 11 FCC Rcd. 13,082 (rel. Oct. 1, 1996) ...... 19
In the Matter of Implementation of Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, CC Docket No. 96-149, First Report and Order and Further Notice of Proposed Rulemaking, 11 FCC Rcd. 21,905, FCC 96-489 (rel. Dec. 24, 1996) (“Non-Accounting Safeguards Order”), rev’d in part, In the Matter of Implementation of Telecommunications Act of 1996, 13 FCC Rcd. 8061 (1998), and further clarified, In the Matter of Implementation of Telecommunications Act of 1996, 13 FCC Rcd. 12,390 (1998) ...... passim
In the Matter of Telephone Number Portability, CC Docket No. 95-116, Second Report and Order, 12 FCC Rcd. 12,281, FCC 97-289 (rel. Aug. 18, 1997) ...... 3
In the Matter of the Public Utility Commission of Texas, et al., CCBPol Nos. 96-13, 96-14, 96-16, 96-19, Memorandum Opinion and Order, 13 FCC Rcd. 3460 (rel. Oct. 1, 1997), aff’d City of Abilene, Tex. v. F.C.C., 164 F.3d 49 (D.C. Cir. 1999) ...... 19
In the Matter of Application of BellSouth to Provide In-Region, InterLATA Services in South Carolina, CC Docket No. 97-208, Memorandum Opinion and Order, 13 FCC Rcd. 539, FCC 97- 418 (rel. Dec. 24, 1997), aff’d BellSouth Corp. v. F.C.C., 162 F.3d 678 (D.C. Cir. 1998) (“South Carolina Order”) ...... 15
iii TABLE OF AUTHORITIES Page No(s). In the Matter of Implementation of the Telecommunications Act of 1996: Telecommunications Carriers' Use of Customer Proprietary Network Information and Other Customer Information; and Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, CC Docket No. 96-115, Second Report and Order and Further Notice of Proposed Rulemaking, 13 FCC Rcd. 8061, FCC 98-27 (rel. Feb. 26, 1998) (“CPNI Order”); modified on recon., In the Matter of Implementation of the Telecommunications Act of 1996: Telecommunications Carriers' Use of Customer Proprietary Network Information and Other Customer Information; and Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, CC Docket Nos. 96-115 and 96-149, Order on Reconsideration and Petitions for Forbearance, 14 FCC Rcd. 14,409, FCC 99-223 (rel. Sep. 3, 1999); further modified by In the Matter of Implementation of the Telecommunications Act of 1996: Telecommunications Carriers' Use of Customer Proprietary Network Information and Other Customer Information; and Implementation of the Non- Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as Amended, CC Docket Nos. 96-115, 96-149 and 00-257, Third Report and Order and Third Further Notice of Proposed Rulemaking, 2002 WL 1726815 (F.C.C.), FCC 02-214 (rel. July 25, 2002) ...... 14, 16
In the Matter of Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket 96-98, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, FCC 99-238, 15 FCC Rcd. 3696 (rel. Nov. 5, 1999) (“UNE Remand Order”), vacated in part, United States Telecom Ass'n v. FCC, 290 F.3d 415 (D.C. Cir. 2002), modified by In the Matter of Implementation of Telecommunications Act of 1996,15 FCC Rcd. 1760 (1999) and clarified by In the Matter of Implementation of Telecommunications Act of 1996, 15 FCC Rcd. 9587 (2000)...... 10
In the Matter of Application by Bell Atlantic New York for Authorization Under Section 271 of the Communications Act to Provide In-Region, InterLATA Service in the State of New York, CC Docket No. 99-295, Memorandum Opinion and Order, 15 FCC Rcd. 3953, FCC 99-404 (rel. Dec. 22, 1999), aff’d. AT&T Corp v. FCC, 220 F.3d 607 (D.C. Cir. 2000) (“New York Order”)...... 15
In the Matter of Rulemaking to Amend Parts 1, 2, 21, and 25 of the Commission’s Rules to Redesignate the 27.5-29.5 GHz Frequency Band, etc., CC Docket No. 92-297, Third Report and Order and Memorandum Opinion and Order, 15 FCC Rcd. 11,857 (rel. June 27, 2000) ...... 7
In the Matter of Joint Application by SBC Communications Inc., et al., for Provision of In-Region, InterLATA Services in Kansas and Oklahoma, CC Docket No. 00-217, Memorandum Opinion and Order, 16 FCC Rcd. 6237, FCC 01-29 (rel. Jan. 22, 2001), aff’d in relevant part and remanded, Sprint Communications Co. v. FCC, 274 F.3d 549 (D.C. Cir. 2001) ...... 10-11
In the Matter of Policy and Rules Concerning Interstate, Interexchange Marketplace: Implementation of Section 254(g) of the Communications Act of 1934, as Amended: 1998 Biennial Regulatory Review of Customer Premises Equipment And Enhanced Services Unbundling Rules In the Interexchange, Exchange Access And Local Exchange Markets, CC Docket Nos. 96-61 and 98-183, Report and Order, 16 FCC Rcd. 7418, FCC 01-98 (rel. Mar. 30, 2001) ...... 20
In the Matter of Application of Bell Atlantic Communications to Provide In-Region, InterLATA Services in Massachusetts, CC Docket No. 01-9, 16 FCC Rcd. 8988, FCC 01-130 (rel. Apr. 16, 2001) (“Massachusetts Order”)...... 10
iv TABLE OF AUTHORITIES Page No(s). In the Matter of Application by Verizon New York, et al., to Provide In-Region, InterLATA Services in the State of Connecticut, CC Docket No. 01-100, Memorandum Opinion and Order, 16 FCC Rcd. 14,147, FCC 01-208 (rel. July 20, 2001) (“Connecticut Order”) ...... 6
In the Matter of Joint Application by SBC Communications Inc., et al., to Provide In-Region, InterLATA Services in Arkansas and Missouri, CC Docket No. 01-194, Memorandum Opinion and Order, 16 FCC Rcd. 20,719, FCC 01-338, (rel. Nov. 16, 2001) (“Arkansas/Missouri Order”)...... 5-6
In the Matter of Appropriate Framework for Broadband Access to the Internet over Wireline Facilities[and] Universal Service Obligations of Broadband Providers, CC Docket No. 02-33, Notice of Proposed Rulemaking, 17 FCC Rcd. 3019, FCC 02-42 (rel. Feb. 15, 2002) (“Wireline Broadband NPRM”) ...... 6
In the Matter of Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities, GN Docket No. 00-185 and CS Docket No. 02-52, Declaratory Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd. 4798 (rel. Mar. 15, 2002) (“Cable Broadband Declaratory Ruling and NPRM”) ...... 7
In the Matter Joint Application by BellSouth Corp., et al., for Provision of In-Region, InterLATA Services in Georgia and Louisiana, CC Docket No. 02-35, Memorandum Opinion and Order, 17 FCC Rcd. 9018, FCC 02-147 (rel. May 15, 2002) (“Georgia/Louisiana Order”) ...... 6
California Public Utilities Commission Decisions
Re Pacific Bell Section 271 Draft Application, Decision No. 98-12-069 (Dec. 17, 1998) ...... 4
Re Application of Pacific Bell Communications, Decision No. 99-02-013, 1999 WL 177531 (Cal.P.U.C. Feb. 4, 1999) ...... passim
Re Open Access and Network Architecture Development, Decision No. 99-11-050 (Nov. 18, 1999) ...... 11
Re The Utility Consumers’ Action Network v. Pacific Bell, Decision No. 01-09-058, 2001 WL 1530161 (Cal.P.U.C. Sep. 20, 2001) ...... 17
Re The Utility Consumers’ Action Network v. Pacific Bell, Decision No. 02-02-027, 2002 WL 481494 (Cal.P.U.C. Feb. 7, 2002) ...... 17
Re Monitoring Performance of Operations Support Systems, Decision No. 02-03-023, 216 P.U.R.4th 347 (Mar. 6, 2002)...... 9
Re Monitoring Performance of Operations Support Systems, Decision No. 02-06-046 (June 27, 2002) ...... 9
Federal Cases
Association of Communications Enterprises v. FCC, 235 F.3d 662 (D.C. Cir. 2001) (“ASCENT v. FCC”)...... 6
v TABLE OF AUTHORITIES Page No(s). Gade v. National Solid Wastes Management Ass’n, 505 U.S. 88 (1992) ...... 19
U.S. Telecom Ass’n v. FCC, 290 F.3d 415 (D.C. Cir. 2002) ...... 7
California Cases
AT&T Communications, et al. v. Pacific Bell, et al., No. C 96-1691 CRB (N.D.Cal. Apr. 6, 1998) ...... 18
AT&T Communications of California, Inc. v. Pacific Bell Tel. Co., No. C 01-02517 CW, Order on Cross- Motions for Summary Judgment (N.D.Cal. Aug. 6, 2002) ...... 11
Caltech International Teleco v. Pacific Bell, No C 97-2105 CAL, Order of Vacatur (Jan. 22, 2001) ...... 18
Other Authorities
AT&T, “AT&T Enters Residential Local Phone Market,” (press release), Aug. 6, 2002 ...... 14
Cal. Pub. Util. Code § 709.2, Statutory Notes §1 (Deering’s)...... 12
Cal. Pub. Util. Code § 709.2, Statutory Notes §2(a)(2) (Deering’s) ...... 13
California State Senate, Rules Committee, Third Reading, A.B. 3720 (May 27, 1994)...... 12-13
In Re Petition by AT&T et al. for Structural Separation of BellSouth Telecommunications, Inc., Docket No. 010345-TP, Order Granting BellSouth’s Motion to Dismiss AT&T’s and FCCA’s Petitions for Structural Separation (Fla. P.S.C Nov. 6, 2001), available at
“Powell: FCC Not Scoping Out Issue-Oriented Merger Conditions,” Washington Telecom Newswire (Apr. 5, 2001) ...... 20
Re Bell Atlantic-Pennsylvania, Inc., Docket No. M-00001353, 2001 WL 1557652 (Pa.P.U.C. Apr. 11, 2001) ...... 20
Re Cavalier Telephone, Case No. PUC010096, Order Granting Motion to Dismiss, 2001 WL 964028 (Va.S.C.C. June 26, 2001) ...... 20
Robert W. Crandall and J. Gregory Sidak, “Is Structural Separation of Local Exchange Carriers Necessary for Competition?” 19 Yale Journal on Regulation (2002), available at
United States v. AT&T Corp. and MediaOne Corp., Civ. No. 00-CV-1176 (D.D.C. May 25, 2000), Competitive Impact Statement ...... 7
vi I. PRELIMINARY STATEMENT SBC Pacific Bell submits these comments on the Proposed Decision (“PD”) of Administrative
Law Judge (“ALJ”) Jacqueline Reed. We commend the ALJ, the Commission and its staff for the tremendous and outstanding efforts that went into the preparation of the PD. The PD is thorough and comprehensive, resolving numerous heavily litigated and technical issues that evolved over a substantial period of time. SBC Pacific Bell is pleased that the PD grants its motion for an order that the 14-point checklist has been satisfied. As the PD finds, SBC Pacific Bell “successfully passed” the independent third-party test for Operation Support Systems (“OSS”) (PD at 2), it has “strong performance results” across “numerous service categories” (id.), and all competitors generally have “fair, non-discriminatory, and mutually open access” to SBC Pacific Bell’s facilities. Id. at 233.
In every area demonstrating SBC Pacific Bell’s compliance with the requirements of section 271 of the Telecommunications Act of 1996 (“The Act”), the PD contains a well-reasoned and thorough discussion of the section 271 requirements, supported by detailed Findings Of Fact and Conclusions of
Law. SBC Pacific Bell’s comments will focus on three areas in which the PD was unable to conclude that
SBC Pacific Bell had satisfied the statutory requirements – resale, number portability, and performance remedies. For the reasons explained below, the Commission should modify its final order to find that
SBC Pacific Bell has complied with all of the section 271 requirements.
SBC Pacific Bell also has concerns about the PD’s conclusions regarding section 709.2 of the
Public Utilities Code. The PD acknowledges that its conclusions regarding section 709.2 are not designed
“to thwart Pacific’s section 271 quest” (Id. at 252) and directs that the section 709.2 issues be addressed further in a separate proceeding. Id. at Ordering ¶¶ 14-15. Nevertheless, the PD’s conclusions regarding section 709.2 do not recognize the extent to which the local market in California has been opened, nor that section 709.2 has been effectively superceded by the more detailed and comprehensive requirements of the federal Act. In particular, the Commission should reject the PD’s attempt to prohibit SBC Pacific
Bell from jointly marketing the services of its long distance affiliate, a condition that not only harms consumers and creates disparity among carriers, but conflicts with the 1996 Telecommunications Act and
336477 1 the definitive decisions of the Federal Communications Commission (“FCC”) interpreting the Act.
Equally concerning is the credence the PD gives to the radical, disruptive proposal on “structural separation.”
II. ISSUES REGARDING SBC PACIFIC BELL’S COMPLIANCE WITH § 271 OF THE ACT.
A. SBC Pacific Bell Has Already Met The Number Portability Requirements Of The Act And Will Provide The NPAC Enhancement.
To satisfy Checklist Item 11 (number portability), the PD concludes that SBC Pacific Bell must implement – no later than the filing of its opening comments – a mechanized verification with the
Number Portability Administration Center (“NPAC”). This enhancement is designed to ensure that service for migrating customers is not disconnected from the SBC Pacific Bell switch before CLECs have completed the port for the customer’s telephone number. PD at 204. However, no Bell company has been required by the FCC to demonstrate implementation of this mechanized process as a prerequisite for section 271 approval.
In concluding that SBC Pacific Bell must implement this mechanized process, the PD incorrectly assumes that CLECs “do not have certain knowledge of when SBC Pacific Bell will disconnect certain customers, and [thus] cannot maintain integrity of these end-users’ dial tone.” PD at 204. But it is the
CLECs who choose when and how SBC Pacific Bell is to complete the disconnection of the migrated end-user’s telephone number from the SBC Pacific Bell switch. CLECs may order stand-alone LNP on a
“TBCC” (To Be Called Cut) or “FDT” (Frame Due Time) basis, requesting the time for conversion in either case. If CLECs do not coordinate the conversion on a TBCC or FDT basis, the translations will be disconnected on the due date at 10:00 p.m. for Mondays through Fridays, and at 5:00 p.m. for Saturdays.1
Thus it is the CLECs’ responsibility to ensure that all work necessary for the port has been completed on the day prior to the due date they have selected.
1 See CLEC Handbook, Products & Services – Number Portability Section (July 16, 2002).
336477 2 In this respect, the PD also incorrectly concludes that SBC Pacific Bell’s LNP process has been deficient. PD at 202-204, 288, Finding of Fact No. 243. With respect to both timeliness and quality, SBC
Pacific Bell has demonstrated excellent performance in the conversions of stand-alone LNP requests. As confirmed by the performance results of PM 9 (Coordinated Customer Conversion as a Percentage on
Time) and PM 9A (Frame Due Time Conversion as a Percentage On Time), SBC Pacific Bell completes the coordinated provisioning of stand-alone LNP in a timely manner over 99% of the time.2 Similarly, customer trouble associated with LNP migrations is minimal. LNP orders experiencing trouble during the
LNP migration process (as assessed in PM 15 – Provisioning Trouble Reports (Prior to Service Order
Completion)), on average, were less than 0.24% during the past six months.3 LNP orders with trouble reported after LNP migration (tracked in PM 17 – Percentage Troubles in 10 Days for Non-Special
Orders) were 0.10% or less during this same period. 4 In each month, LNP results for both performance measures (PMs 15 and 17) were well below the required benchmark standard of 1%. It should also be noted that SBC Pacific Bell’s provisioning for LNP is in complete conformance with the North American
Numbering Council (“NANC”) Inter Service Provider Operations Flows.5
In any case, SBC Pacific Bell has already agreed to implement the mechanized NPAC verification process, and has scheduled implementation for the end of September 2002 (subject to
2 Throughout 2002 (ending with the June report month), CLEC aggregate results for the PM 9 standalone LNP submeasure were 100.0% in each month. During the same time frame, CLEC results for standalone LNP (associated with PM 9A) exceeded 99.98% on time (January: 99.99%; February: 100.00%; March: 99.99%; April: 99.99%; May: 99.99% and June: 100.00%). 3 Performance for LNP troubles, as tracked in PM 15, includes all LNP troubles regardless whether the trouble is associated with provisioning of standalone LNP or LNP with UNE loop order. In the last six months, LNP results for this measure were well below the 1% standard (January: 0.14% (Out of Service), 0.14% (Service Affecting); February: 0.12% (Out of Service), 0.15% (Service Affecting); March: 0.15% (Out of Service), 0.14% (Service Affecting); April: 0.15% (Out of Service), 0.17% (Service Affecting); May: 0.16% (Out of Service), 0.23% (Service Affecting); and June: 0.20% (Out of Service), 0.17% (Service Affecting)). 4 Performance for LNP troubles in PM 17 also is tracked on a combined basis (for standalone LNP and LNP with UNE loop orders). Monthly performance in 2002 has been excellent, as reflected in the following results: January: 0.03%; February: 0.02%; March: 0.02%; April: 0.02%, May: 0.02% and June: 0.10%. 5 12 FCC Rcd. 12,281 at ¶ 55 (reference to Technical and Operational Task Force Report); id. at Appendix B. Should CLECs encounter any problems in activating the dial tone on their end during the porting process, SBC Pacific Bell’s Local Operations Center (“LOC”) is available to assist them. Although it is the CLEC’s responsibility to make certain the necessary translations for the conversion are complete in its switch on the day prior to the due date, SBC Pacific Bell has made procedures available for CLECs to delay and/or cancel LNP conversions on the due date. When these processes are followed, the vast majority of such orders are cancelled or delayed with no impact to the end user.
336477 3 satisfactory completion of testing scheduled for August and September 2002) in a collaborative attempt to satisfy the CLECs’ requests for improved processes. With this enhancement, if SBC Pacific Bell does not receive notification from the NPAC that the winning CLEC has activated the number in its switch, SBC’s systems will automatically delay the disconnect of the number from SBC Pacific Bell’s switch for up to 7 days – giving the CLEC additional time to reschedule the conversion with its end user, complete any required field work, and activate the port.6
SBC Pacific Bell intends to fulfill its commitment to implement this enhancement as represented to this Commission and to the CLECs.7 Indeed, SBC Pacific Bell has been working diligently and planning for a September 2002 release for many months. However, the PD’s conclusion that this enhancement must be implemented as a condition for § 271 approval fails to take into account SBC
Pacific Bell’s sustained strong LNP performance over the past two years and prior FCC decisions that have not required this enhancement for section 271 compliance. For the reasons described above, the PD should be revised to conclude that SBC Pacific Bell satisfies Checklist Item 11.
B. The FCC Has Ruled That The ASI Resale Issues Identified In The PD Are Not 271 Issues.
The PD acknowledges that no party disputed SBC Pacific Bell’s showing that it has met the
“compliance conditions” set out in D.98-12-069 for Checklist Item 14 (resale). PD at 214, 219.
Nevertheless, the PD declines to verify compliance with this Checklist Item on the basis that SBC Pacific
Bell does not generally provide a DSL telecommunications service at a wholesale discount pursuant to section 251(c)(4). Id. at 224-225. As discussed below, however, the FCC has held definitively that, where neither an incumbent LEC nor any of its affiliates generally provides a telecommunications service
6 In order to implement this process, SBC must integrate new software from Telcordia (which is expected in August 2002) with SBC Pacific Bell’s provisioning systems. Telcordia will have to correct any defects found during the testing of the software. Once the software is installed in the production environment, testing among OSS applications will be required to ensure it performs correctly. Among other things, SBC must ensure that implementation does not jeopardize existing regulatory and industry requirements, such as, the need to perform E911 unlock within 24 hours, to retain a firewall between wholesale and retail when an order is pending for the customer to migrate to another service provider, and to ensure that billing ceases on the date the customer’s service is migrated. Once this integration is completed, SBC will require comprehensive internal testing to ensure that potentially affected processes and systems are not compromised. This process cannot be implemented any sooner than on the current schedule without jeopardizing service. 7 SBC Pacific Bell has committed to implement this enhancement by September 30, 2002. See November 9, 2001 Updated Summary of Issues Raised at April 4-5 2001 Hearings, p. 35.
336477 4 at retail, the 1996 Act and the FCC’s rules do not require that service to be made available for a resale discount. In other words, the absence of a DSL service at a discount cannot constitute a violation of
Checklist Item 14.
Checklist Item 14 requires a BOC to make “telecommunications services . . . available for resale in accordance with the requirements of section[] 251(c)(4).” 47 U.S.C. § 271(c)(2)(B)(xiv). By its terms, section 251(c)(4) applies only to “telecommunications services” that an incumbent LEC provides “at retail.” Id. at § 251(c)(4). As a general matter, neither SBC Pacific Bell, ASI, nor PBIS offers DSL- based telecommunications services “at retail.” See Habeeb Reply Aff. ¶ 5. In the rare instances when it does offer DSL telecommunications services at retail – e.g., ASI’s sale of its R-LAN product through customer service arrangements to businesses – SBC Pacific Bell makes them available at a wholesale discount pursuant to section 251(c)(4). See id. at ¶ 8. There can be no serious dispute, then, that SBC
Pacific Bell satisfies the statute’s resale requirements.
The PD nevertheless focuses on the DSL-based Internet access service provided “at retail” by
PBIS. While acknowledging that this service is an “information service” and therefore not itself subject to the resale obligation under the Act, the PD stresses that, in its view, “[t]he DSL Transport Services provided to PBIS by ASI, are telecommunications services.” PD at 224 (emphasis added). And, because those “telecommunications services” “enable PBIS to offer its services to end-users,” the PD concludes that they must be made available to competing carriers pursuant to section 251(c)(4). Id.
The FCC has twice rejected this line of reasoning. In SBC’s section 271 application for Arkansas and Missouri, commenters contended – as the PD concludes here – that SBC’s advanced services affiliate,
“in combination with its affiliated ISP (SBIS), makes . . . Internet access service available to end users ‘at retail’ and, thus, must also make the underlying DSL transport component available to competitive LECs for resale pursuant to section 251(c)(4).”8 Arkansas/Missouri Order, ¶ 81. The FCC expressly found, however, “that there is no violation of checklist item 14” in SBC’s failure to provide DSL transport at a wholesale discount. Id. at ¶¶ 81-82. And while the FCC has since initiated a rulemaking to address
8 Complete citations to these and other FCC proceedings cited herein are stated in the Table of Authorities.
336477 5 (among other things) the precise scope of an incumbent LEC’s DSL-related obligations under section
251(c)(4),9 it also has recently confirmed that, in the circumstances at issue here, the offering of DSL transport pursuant to section 251(c)(4) is not a requirement for section 271 relief. See Georgia/Louisiana
Order, ¶¶ 276-278.
The PD attempts to draw support from ASCENT v. FCC, 235 F.3d 662 (D.C. Cir. 2001). See PD at 224. But ASCENT was decided before the Arkansas/Missouri and Georgia/Louisiana orders, and the
FCC recognized in both cases that ASCENT is not relevant to this issue. All parties agree that, for present purposes, ASCENT means only that retail telecommunications services, as defined by the FCC pursuant to the Act, must be made available for resale at wholesale rates regardless whether they are provided by the ILEC or an ILEC affiliate. The relevant question, however, is what constitutes a retail telecommunications service. And, as explained above, the DSL transport that ASI provides to PBIS is simply not a retail telecommunications service.
The PD also attempts to draw support from the FCC’s Connecticut Order, but the facts are clearly distinguishable. PD at 221. The FCC indeed required Verizon to demonstrate that it offers a DSL-based telecommunications service pursuant to section 251(c)(4). See Connecticut Order, ¶¶ 27-33. It did so, however, because Verizon – unlike SBC Pacific Bell (or, for that matter, Southwestern Bell or BellSouth)
– offers a standalone DSL transmission offering “at retail.” Id. That distinction makes all the difference.
As the PD itself recognizes, section 251(c)(4) applies only to those “telecommunications services” provided by the ILEC “at retail.” See PD at 219. Because neither SBC Pacific Bell, ASI, nor PBIS offers a standalone DSL telecommunications service “at retail” to residential subscribers, SBC Pacific Bell need not offer such a service for resale at a wholesale discount pursuant to section 251(c)(4).
Finally, the PD appears to ground its decision in part on alleged marketplace facts – e.g., SBC
Pacific Bell’s purported “DSL market dominance in California.” PD at 224-225. But there is no such thing as a “DSL market.” As the FCC, the Department of Justice, the Federal Trade Commission and industry analysts have all recognized – and as is apparent from a review of the advertisements blanketing
9 See Wireline Broadband NPRM.
336477 6 the state – DSL-based Internet access services compete in the broadband Internet access market characterized by robust competition.10 Indeed, the FCC has expressly acknowledged that it is the dominant cable incumbents (such as AT&T), not the incumbent LECs (such as SBC Pacific Bell), that possess by far “the most widely subscribed to technology,” with close to 70% of the broadband market.11
See Cable Broadband Declaratory Ruling and NPRM, 17 FCC Rcd. at 4802-03, ¶ 9. The D.C. Circuit recently made the same point, noting “both the robust competition, and the dominance of cable, in the broadband market.” USTA v. FCC, 290 F.3d 415, 428 (D.C. Cir. 2002). Thus, SBC Pacific Bell has no market dominance in California. For the reasons described above, the PD should be revised to conclude that SBC Pacific Bell complies with Checklist Item 14 (resale).
C. The PD Alters The Performance Incentive Plan Based On Mistaken Conclusions And Without The Industry Input That Has Marked The Plan’s Development.
By proposing a new penalty scheme applicable to continuing “extended chronic failures,” the PD upsets the careful balance struck by the Commission on March 6, 2002, when the Commission voted 5-0 to approve a performance incentive plan (the “Plan”) applicable to SBC Pacific Bell. At that time, the
Commission expressly determined that its decision had established “a complete performance assessment plan” and that the plan was “sufficient and appropriate to give SBC Pacific Bell incentives to provide non-discriminatory OSS access.”12 The Plan has been in place and at work now for four months
(remedies were first applied to April performance) and will be the subject of a review following a six- month implementation period. For several reasons, the PD should continue to rely on the Plan approved unanimously just a few months ago.
As the Commission’s decision approving the Plan explains, the Plan is the result of a long collaborative process, spanning nearly four years and involving dozens of negotiations, workshops, and
10 See, e.g., 15 FCC Rcd. at 11867, ¶ 23; In re America Online, Inc. and Time Warner Inc., FTC Docket No. C- 3989, Complaint ¶ 21 (Dec. 14, 2000); United States v. AT&T Corp. and MediaOne Corp., Civ. No. 00-CV-1176 (D.D.C. May 25, 2000), Competitive Impact Statement, p. 9. 11 Although the California broadband market is more evenly split between DSL and cable providers, it nonetheless is a robust and competitive market.
336477 7 filings. D.02-03-023 at 5-19. During these workshops, actual performance data and simulated levels of performance were used to develop, evaluate, and modify various elements of the Plan. The Plan was carefully calibrated to yield certain incentive levels and to reach the maximum cap at various levels of performance. Indeed the complexity of the Plan and the need to test and calibrate variations in the parameters of the Plan were primary reasons why it took the Commission over four years – and more than ten months after final briefs were filed – to adopt and approve the final Plan.
The Commission’s final decision approving the Plan also expressly set forth a process for reviewing and modifying the Plan. The decision announced that the Plan would be evaluated over a six- month review period, at the end of which the parties would study the relevant data and propose appropriate modifications to the Commission.13
The PD now purports to change a vital element of the Plan, as part of another proceeding, without due process and without following the six-month review schedule established by the Commission.
Specifically, the PD recommends doubling the incentive payments for “extended chronics” (misses in five- or six-out-of-six months) when the particular measure is missed three additional times (before it is passed twice consecutively). PD at 225-226. A change of this magnitude should only be considered in the appropriate proceeding, after the parties are given notice of the proposed changed, and are presented with a fair opportunity to introduce evidence to explain why the change should not be made, or why it should be modified.
Aside from failing to provide adequate due process, the PD draws conclusions that are not supported by the record. For instance, it concludes that if SBC Pacific Bell fails to reach the performance standard for any given measure for more than six consecutive months, “it would be reasonably clear that the amounts were too low, and that SBC Pacific Bell may be treating the incentive amounts as a ‘cost of doing business.’” PD at 225. But this is not necessarily the case. For several months, SBC Pacific Bell
12 Re Monitoring Performance of Operations Support Systems , Decision No. 02-03-023, 216 P.U.R.4th 347 (Mar. 6, 2002), mimeo, pp. 4, 74. 13 “Following the six-month initial period, the performance of the incentives plan model shall be reviewed. Such review shall examine how the incentives plan model is functioning and shall include any adjustments and modifications to the components as well as the resolution of any issues remaining from D.01-01-037.” Id. at 99, Ordering ¶ 6.
336477 8 failed to reach the standard for Performance Measure 7 (which measures average installation interval) for basic UNE loop, including those with LNP. The reason was not that the incentive amounts were too low or that SBC Pacific Bell simply treated them as a cost of doing business. Rather, the measure’s business rule did not take into account the fact that SBC Pacific Bell could not unilaterally control the required three-day interval for LNP transactions. In its June 27, 2002 order, the Commission expressly observed that the necessary change in the Measure 7 business rule it ordered that day was driven by “industry-wide performance constraints that are beyond the control of Pacific.”14
Likewise, it is not necessarily the case that “continuing performance failures . . . also represent increasing competitive harm.” PD at 225. In fact, SBC Pacific Bell has missed certain submeasures at a chronic level when the performance provided to CLECs was excellent, but there nonetheless was a slight
(and likely transparent) difference between the wholesale and retail performance. For instance, over the past several months, SBC Pacific Bell has fallen just seconds short of the parity standard applicable to its responses to CLECs’ pre-order queries for actual loop make-up information. However, these responses were unquestionably speedy (for Verigate, April: 14.74 seconds, May: 14.68 seconds, June: 13.18 seconds; for EDI/CORBA, April: 13.29 seconds; May: 10.76 seconds; June 16.23 seconds). Given these short response times, it is unlikely that any CLEC’s opportunity to compete has been compromised by the
3 to 4 second difference in performance between wholesale and retail operations.15
Before making any modification to the Plan, the Commission should refer the issue to the industry proceeding that will consider changes to the plan after the six-month implementation period.
SBC Pacific Bell will work with the Commission and the CLECs to explore any appropriate changes based on the record and due process afforded in that proceeding. In conclusion, the PD should be revised to eliminate proposed changes to the Plan that was recently approved by the Commission.16
14 Re Monitoring Performance of Operations Support Systems , Decision No. 02-06-046 (June 27, 2002) at 1. 15 Moreover, the difference in performance in this case has nothing to do with discrimination but is attributable to the types of loop qualification queries the CLECs make. On a relative basis, CLECs make more requests to locations with multiple lines – i.e., with more than five lines – than ASI. The loop qualification system checks every loop for suitability for the service ordered for the particular location. As a result, the greater number of loops involved in the request, the longer the transaction time. 16 SBC Pacific Bell does not object in principle to the adjustments made to reflect the most recent ARMIS data. However, these changes, likewise, should be made in the appropriate docket.
336477 9 D. Miscellaneous Technical Subjects.
SBC Pacific Bell’s plans for updates to the loop qualification database.
SBC Pacific Bell is in the process of converting its paper outside plant engineering drawings and records into the Automated Records and Engineering System (“ARES”).17 ARES is essentially a digitized system of land-based maps. The process for converting records in a wire center from paper engineering drawings and records into ARES is time consuming, costly, and complex. Nonetheless, to date SBC Pacific Bell has converted 23 wire centers to ARES, and it expects to convert 25 additional wire centers to ARES by the end of 2002. Thus, by year-end SBC Pacific Bell expects to have a total of 48 offices converted to ARES. SBC Pacific Bell expects to have all of its offices to ARES by sometime in
2006.
Because ARES contains information in digitized (as opposed to paper) form, SBC Pacific Bell’s ability to develop and provide CLECs with electronic access to “loop make-up information” in wire centers loaded into ARES is greatly enhanced. In this regard, SBC Pacific Bell has already issued a partial interim release to the CLEC community that provides them with the ability to electronically access loop makeup information in ARES on a WTN-basis. A second, final release is planned, although not yet scheduled, whereby CLECs will be able to electronically access loop makeup information in ARES on an address basis. Consistent with FCC requirements, SBC Pacific Bell provides, and will provide, electronic access to loop makeup information in ARES to unaffiliated CLECs and its separate advanced services affiliate on a non-discriminatory basis.
17 SBC Pacific Bell is providing this information in response to the PD’s directive that SBC Pacific Bell file, as part of these Comments, “the projected plan and schedule for improving the ratio of the actual loop make-up information” in its Verigate, Datagate, EDI and CORBA systems before December 31, 2002. PD at 136, 310. SBC Pacific Bell would note, however, that enhancement of electronic access to actual loop make-up information is not a 271 requirement. The FCC has consistently held that ILECs are only required to provide CLECs with nondiscriminatory access to loop make-up information, in the same time and manner that the ILEC provides access to itself. Massachusetts Order, ¶ 68 (ILEC is not required to construct electronic database; it is only required to provide access to loop information in the same time and manner, whether it is accessed manually or electronically); see, also, Kansas/Oklahoma Order, ¶¶ 121-129; UNE Remand Order, ¶¶ 424-431.
336477 10 SBC Pacific Bell also enhances the amount of loop make-up information available electronically to CLECs through routine updates of actual loop makeup information into the Loop Facilities
Administration and Control System (“LFACS”). The loop makeup information in LFACS is the result of many years of manual input and transaction activity. Although there is no practical way to determine the exact number of loops in LFACS with loop make-up information, current estimates of the percentage of loop makeup information available in the LFACS ranges from 20% to 40%.
2. SBC Pacific Bell’s proposed corrections to the pricing appendix.
In the PD’s discussion of UNE prices, it acknowledges that TELRIC-based rates were set in
D.99-11-050 and that those are being revised in the relook. PD at 122, 281, Finding of Fact No. 175. The
PD should also acknowledge that the Commission has reviewed pricing for additional UNEs identified by the FCC in the UNE Remand order, and that those prices are available in SBC Pacific Bell’s interconnection agreements.18
In addition, Attachment A hereto identifies and corrects certain errors contained in Appendix II to the PD. See D.99-11-050.
3. SBC Pacific Bell and the CLECs designed an expedited dispute resolution process as part of the April 2001 workshop. The PD notes that several CLECs involved in the April 2001 workshop requested an expedited dispute resolution process. PD at 102. The PD further orders the parties to present a “joint proposal for
18 In a decision issued last week, the federal district court for the Northern District of California upheld this Commission’s calculation of SBC Pacific Bell’s common costs, as well as its methodology for allocating those costs to UNEs, against a challenge brought by AT&T and WorldCom. See Order on Cross-Motions for Judgment at 25- 33, AT&T Communications of California, Inc. v. Pacific Bell Tel. Co., No. C 01-02517 CW (N.D.Cal. Aug. 6, 2002) (“Order”). That decision further confirms that SBC Pacific Bell’s UNE rates “conform to [FCC] requirements.” PD at 122. The court also concluded, in response to a counter-claim raised by SBC Pacific Bell, that the Commission had “double-counted” SBC Pacific Bell’s nonrecurring costs in the denominator of the common- cost fraction. See Order at 36-38. That aspect of the decision has no immediate effect on the rates in SBC Pacific Bell’s interconnection agreements, for they remain in full force and effect. The court simply remanded the issue to the Commission. See Judgment, AT&T Communications of California, Inc. v. Pacific Bell Tel. Co., No. C 01- 02517 CW (N.D.Cal. Aug. 6, 2002) (ordering that “this action be remanded” to the CPUC). Moreover, because the double counting identified by the court “deflated” the common-cost factor, the decision means that SBC Pacific Bell’s UNE rates, if anything, are too low. That possibility has no bearing whatsoever on SBC Pacific Bell’s right to section 271 relief, as the FCC has expressly recognized. See Kansas/Oklahoma Order, 16 FCC Rcd. at 6270, ¶ 68 (“it would be perverse to deny a 271 application because an incumbent LEC’s rates offered to competitors are too low.”).
336477 11 review and eventual implementation of a workable expedited dispute process for operational problems arising between SBC Pacific Bell and competitive local exchange carriers.” Id. at Ordering ¶ 3.
SBC Pacific Bell notes for the record that, at the direction of Commissioner Brown and in connection with the April 2001 workshop, SBC Pacific Bell and the CLECs met with Thomas Bateman
(of California Community Dispute Services) on multiple occasions in July 2001 to establish a mutually acceptable expedited dispute resolution process. Both SBC Pacific Bell and the CLECs made various concessions in formulating the expedited dispute resolution process,19 and the final product reflected the collaborative work of SBC Pacific Bell and the CLEC community. That final product – which contained both a voluntary mediation process and an expedited arbitration process – was e-mailed to the service list on October 10, 2001. Insofar as the PD instructs the parties to jointly submit another expedited dispute resolution process, the Commission should instruct the parties to use the July 2001 process as the starting point.
III. ISSUES REGARDING § 709.2 OF THE PUBLIC UTILITIES CODE. The PD’s treatment of the issues under section 709.2 (PD at 227-228) reflects significant omissions that properly should have been considered in interpreting these provisions.
First, the PD ignores the extent to which the California local market has been opened and the purpose of section 709.2. The Costa Bill (1994 Cal. Stat. Ch. 934 (A.B. 3720)), which became section
709.2, was enacted more than a year before the Act, specifically to promote “Long Distance
Telecommunications Consumer Choice.” See Cal. Pub. Util. Code § 709.2, Deering’s Statutory Notes §
1. As the statute and its legislative history make clear, the Legislature’s intent was to speed the removal of federal restrictions on SBC Pacific Bell’s ability to provide long distance service in California.20 The
Legislature supported the “removal of federal barriers to open competitive entry into telecommunications and information markets” and “[i]n particular, support[ed] efforts to lift the federal restrictions on long-
19 One participating CLEC, AT&T, complained that the usefulness of such a process would be “virtually non- existent.” 20 SBC Pacific Bell and the Communications Workers of America strongly supported the bill. It was vigorously opposed by AT&T, MCI, Sprint, and other incumbent long distance carriers. E.g., Senate Rules Committee, Third Reading, A.B. 3720, at 4-5 (May 27, 1994).
336477 12 distance.” Cal. Pub. Util. Code § 709.2, Statutory Notes, § 2(a)(2) (Deering’s).21 It is a distortion of the
Costa Bill to interpret these provisions as imposing additional obligations or barriers to SBC Pacific
Bell’s long distance entry.
Second, the PD misconstrues section 709.2 as imposing conditions different from those contained in section 271 of the federal Act. Where, as is the case here, provisions of federal and state law address the same subject matter and are designed to achieve the same goals, they should be interpreted consistently to avoid potential conflicts, as this Commission has previously held. See, e.g., Application of
Pacific Bell Communications, D. 99-02-013, 1999 WL 177531 (Cal.P.U.C. Feb. 4, 1999) (“PB Com”), p.
*29.
A. The PD’s Constraint On Joint Marketing Prohibits SBC Pacific Bell From Marketing The Long Distance Service Of Its Affiliate In Conflict With A Decision Of This Commission And Federal Law.
The PD concludes that allowing SBC Pacific Bell to market the long distance service of its affiliate is not “fair.” PD at 237. As a result, in the last two paragraphs of the PD’s section 709.2 discussion, the PD imposes unprecedented restrictions on how SBC Pacific Bell will be able to market long distance that conflict with federal law.22 No state commission nor the FCC has imposed such restrictions as part of the section 271 process.
The PD states that this is a “more moderate solution” than a separate sales force (PD at 250) and that these restrictions are “narrow and focused.” Id. at 251. But the conditions imposed by the PD would require SBC Pacific Bell either (1) to tell a customer who calls in and wants telephone service to call the separate number of its affiliate for long distance service, or (2) hand off the customer to the long-distance carrier of the customer’s choosing. Id. at 251, Ordering ¶ 16. In other words, the PD would prohibit an
21 The Senate Rules Committee’s analysis of the legislation noted that “long-distance providers will have a competitive advantage over SBC Pacific Bell if local competition is authorized while SBC Pacific Bell cannot provide long-distance service due to federal court restrictions.” Senate Rules Committee, Third Reading, A.B. 3720, at 2. The code, in section 709.2(a), is a directive to this Commission to “authorize fully open competition for intrastate interexchange telecommunications service,” i.e., long distance.
22 The PD’s support for its “substantial possibility of harm” conclusion, is a proposed decision from the PB Com proceeding (PD, pp. 250-251), a proposed decision that was rejected by the Commission in its final decision and its decision denying rehearing in PB Com. SBC Pacific Bell § 709.2 Showing, Young Decl., Exhs. C, E.
336477 13 SBC Pacific Bell service representative from providing any long distance service to any incoming caller and would require that the customer either dial another number or be transferred to another carrier.
The PD’s restriction on joint marketing would be cumbersome at best and would result in poor customer service, as the FCC has recognized in consistently rejecting similar proposals. For example, in the Non-Accounting Safeguards Order, the FCC rejected efforts to restrict Bell company joint marketing and noted that such requirements “would reduce the BOC’s ability to serve customers without providing additional protection against anticompetitive behavior.” Id. at ¶ 185. The FCC made the point again in its original CPNI Order, in which the FCC was required to strike a balance between customer control of
CPNI and the carrier’s ability to provide service and convenience to customers. Id. at ¶¶ 53. The FCC pointed out, in interpreting section 222 of the Act, that its “provisions manifest the principle that customers want convenient service.” Id. at ¶ 54. In rejecting the notion of “internal divisions among the different components” of a company, the FCC stated that customers expect complete service and “will be confused and annoyed if that carrier does not and cannot provide complete customer service.” Id. Under the restriction proposed in the PD, customers would be even more “confused and annoyed,” by being told to call another number or being handed off to another carrier.
The PD’s joint marketing restriction would, moreover, apply only to SBC Pacific Bell, and not to any other local providers with long-distance affiliates, such as AT&T and WorldCom. 23 And, since SBC
Pacific Bell had been planning to market its long distance service through its service representatives, this prohibition obviously will have a negative effect on the projected employment opportunities for its union- represented California employees. SBC Pacific Bell has in fact identified a variety of public policy, consumer, competitive, and legal benefits and reasons why joint marketing is authorized and procompetitive. In this area, federal law governs and SBC Pacific Bell need only demonstrate that its joint marketing proposal is authorized under federal law.
23 The ability of consumers o purchase all services from a single carrier is what consumers want. In fact, in an AT&T news release, dated August 6, 2002, “AT&T Enters Residential Local Phone Market,” AT&T touts its ability to provide one-stop shopping with the headline that “Consumers to benefit from one-stop shopping for local and long distance service…”
336477 14 In any event, even if the PD’s proposal could be supported on policy grounds (and it cannot), it would still be contrary to federal law. This Commission cannot overturn or ignore the fact that the 1996
Act authorizes such joint marketing and FCC’s conclusion that permitting the incumbent to jointly market its long distance affiliate’s services to incoming callers is a harmless and nondiscriminating advantage.
Perhaps the most surprising aspect of this portion of the PD is its criticism of SBC Pacific Bell for relying on federal law. Id. at 250 (“Pacific insists that federal law permits its joint marketing. Yet, it offers no other defense of the substantial marketing advantage that it has over the interexchange carriers.”)
In the Non-Accounting Safeguards Order, the FCC determined that a “BOC may market its affiliates interLATA services to inbound callers,” subject to the condition that it “also inform[ ] such customers of their right to select the interLATA carrier of their choice.” 11 FCC Rcd. at 22046, ¶ 292.
And the FCC repeatedly has held that Bell companies – like SBC Pacific Bell here – are authorized to joint market the long distance services of their affiliates subject to the restrictions established in the Non-
Accounting Safeguards Order. See South Carolina Order, 13 FCC Rcd. at 671-72, ¶ 239; New York
Order, 15 FCC Rcd.3953, 4160-61, ¶¶ 419-420 (1999), aff’d, AT&T Corp. v. FCC, 220 F.3d 607 (D.C.
Cir. 2000).
The FCC squarely has held, moreover, that its jurisdiction under sections 271 and 272 of the Act extends to intrastate interexchange services, as SBC Pacific Bell explained in its reply and supporting affidavits. SBC Pacific Bell § 709.2 Reply, pp. 12-14, 32-34; Yohe Reply Aff. ¶¶ 4-5 (“The Scope of
FCC Authority Under Section 272”). In its Non-Accounting Safeguards Order, the FCC was explicit that the states could not impose different rules for intrastate, interexchange traffic:
As explained above, we conclude that sections 271 and 272, which apply to interLATA services, were expressly intended to modify federal and state law and jurisdictional authority . . . . For all of the reasons discussed above, we conclude that sections 271 and 272, and the Commission’s authority thereunder, apply to intrastate and interstate interLATA services provided by the BOCs or their affiliates. We hold, therefore, that the rules we establish to implement section 272 are binding on the states, and the states may not impose, with respect to BOC provision of intrastate interLATA service, requirements inconsistent with sections 271 and 272 and the Commission’s rules under those provisions. Id. at ¶¶ 46-47 (emphasis added), reiterated at ¶ 30.
336477 15 Further, ample safeguards already exist to protect customers and competitors. For instance, the
FCC’s Non-Accounting Safeguards Order requires that, when a Bell operating company markets an affiliate’s long distance service on inbound calls, it must also inform customers of their right to select the long distance carrier of their choice by providing names of other carriers “in random order” and, if requested, telephone numbers. 11 FCC Rcd. at 22047, ¶ 292. The FCC’s CPNI Order establishes the requirements for obtaining a customer’s consent to access CPNI for various marketing purposes, including the marketing of long distance service. In this Commission’s PB Com decision, the
Commission likewise was explicit that, “before asking if the customer would like to learn more about the services of SBC Pacific Bell’s long distance affiliate,” Pacific Bell’s service representatives “must first advise that the customer has numerous choices for long distance service.” PB Com, 1999 WL 177531, at
*30. The PB Com decision, moreover, conditioned its grant of authority on the long distance affiliate’s compliance with “FCC and Commission requirements in performing joint marketing on behalf of PB
Com” and made SBC Pacific Bell service representatives’ access to CPNI “subject to FCC and
Commission restrictions.” Id. at *42, Ordering ¶¶ 7-8.
In fact, the PD’s joint marketing restrictions would overrule the Commission’s PB Com decision, where the section 709.2 issues were already litigated and decided. The PB Com decision resolved the very same joint marketing issue (interpreting both section 709.2 and the Telecom Act) that the PD purports to decide differently. Specifically, the PB Com decision permitted “Pacific Bell representatives to directly market the affiliates long distance services” (Id. at *30), concluding that it was “fair both for purposes of the Telecommunications Act and California’s Costa Bill.” Id. at *29. While the PD recognizes that these issues were resolved in the PB Com proceeding (see PD at 250-51), it nevertheless adopts the very prohibition on joint marketing that was presented and rejected in PB Com. But section
1709 of the Public Utilities Code prohibits collateral attacks on final Commission decisions: “In all collateral actions or proceedings, the orders or decisions of the Commission which have become final shall be conclusive.”
336477 16 This Commission, in its Final Opinion on Pacific Bell’s Marketing Practices and Strategies,
Decision No. 01-09-058,24 as modified in its Order Granting Limited Rehearing and Modifying Decision
01-09-058, Decision No. 02-02-027,25 placed even further restrictions on SBC Pacific Bell’s marketing practices. The Commission established a sequence of requirements for SBC Pacific Bell service representatives to follow in marketing which requires, first resolving customers’ service requests, indicating that the order is complete, seeking permission to present marketing information on other services, and presenting marketing information if the customer agrees. Decision No. 01-09-058, Mimeo.
Op., at 72-73. These restrictions have now been implemented through revisions to SBC Pacific Bell’s
Tariff Rule 12, as required by Ordering ¶ 8 (Id. at 103) and are currently in effect. The PD’s proposed long distance marketing prohibition is inconsistent with the rationale of the Marketing Decision which recognized that SBC Pacific Bell, like other carriers, should be allowed “to participate in the market place” for competitive service. Id. at 71.
These restrictions, so far as we are aware, are unique to California, and already go beyond marketing safeguards imposed by the FCC and other states. The Commission has in place certain restrictions on SBC Pacific Bell when it sells competitive services such as intraLATA toll, a market in which SBC Pacific Bell has long been providing service. Surely the Commission does not need to take the drastic step of prohibiting joint marketing altogether, particularly since SBC Pacific Bell’s long distance affiliate has no market share and will be competing against well-established competitors such as
AT&T that have been advertising for years and that are, themselves, already offering bundled services.26
Because the PD’s joint marketing restrictions will harm consumers, create competitive disparity and are contrary to federal law, and for the same reasons that the Commission refused to impose similar restrictions in its PB Com decision (PB Com, 1999 WL 177531, at *29), the Commission should reject
24 Re The Utility Consumer’s Action Network v. Pacific Bell, Decision No. 01-09-058, 2001 WL 1530161 (Cal.P.U.C. Sep. 20, 2001). 25 Re The Utility Consumers’ Action Network v. Pacific Bell, Decision No. 02-02-027, 2002 WL 481494 (Cal.P.U.C. Feb. 7, 2002). 26 The PD states, relying on a Pac-West citation to an SBC investor briefing, that SBC’s long distance company serves “13 million access lines in Texas, Kansas, Oklahoma.” PD at 241. Pac-West either misread or misquoted the investor briefing. SBC’s subsidiaries serve 13 million total lines in those states; the long distance company services 2.8 million lines. SBC Communications, Inc., Investor Briefing No. 226 (July 25, 2001).
336477 17 the PD’s proposal to restrict SBC Pacific Bell’s lawful joint marketing of its local and long-distance services.
B. The PD’s Examples Of “Anticompetitive Behavior” Are Not Legally Or Factually Supportable.
In concluding that SBC Pacific Bell has engaged in anticompetitive behavior in the past, the PD relies primarily on a 1996 case brought by AT&T, MCI and Sprint against SBC Pacific Bell and on the fact that the district court granted a preliminary injunction against SBC Pacific Bell. PD at 235-236. But the PD fails to recognize that the court ultimately found in favor of SBC Pacific Bell on the primary issues in the case relating to the Telecommunications Act and the billing agreements. The plaintiffs prevailed only on their trade secrets claim, and the Court of Appeals for the Ninth Circuit ultimately reversed the district court on that issue. AT&T Communications, et al. v. Pacific Bell, et al., No. C 96-
1691 CRB (N.D. Cal. April 6, 1998). PD at 236. This case thus lends no support for the PD’s conclusion that SBC Pacific Bell has engaged in “anticompetitive” behavior.
The second case on which the PD relies is a jury verdict in the Caltech International case.27 This case was filed by a reseller of telephone service in 1997 based on events occurring six years ago. More importantly, the case was settled, and the district court vacated the jury verdict (Caltech International
Teleco vs. Pacific Bell, No. C 97-2105 CAL, Order of Vacatur on Jury Verdict. (Jan, 22, 2001)) and no judgment was entered. This case also provides no support for the conclusion that SBC Pacific Bell previously engaged in anticompetitive behavior, much less that it is engaging in such behavior today.
C. The Commission Does Not Need A Study To Conclude That “Structural Separation” Is Unwarranted.
The PD directs SBC Pacific Bell to prepare a “feasibility study” “detailing the costs of separating
Pacific into two parts and divesting the segment covering wholesale network operations.” PD at 259. As the Florida Public Service Commission has explained, however, structural separation is “so draconian that of the states that have examined the issue, all have rejected it.”28 A recent study by two noted scholars of
27 Caltech Int’l. Teleco v. Pacific Bell, Case No. C 97-2105 CAL. 28 In re Petition by AT&T et al. for Structural Separation of BellSouth Telecommunications, Inc., Docket No. 010345-TP, Order Granting BellSouth’s Motion to Dismiss AT&T’s and FCCA’s Petitions for Structural Separation
336477 18 the telecommunications industry concludes unequivocally that “[p]olicy makers should reject proposals for mandatory structural separation of the ILECs.”29 Structural separation, in short, is both unlawful and unwise.
As an in itial matter, mandatory structural separation is contrary to the 1996 Act. The entire point of enforcing such separation is to divorce an incumbent LEC’s retail operations from its wholesale operations, and to preclude the resulting wholesale entity from providing retail services. Yet that result is barred by section 253(a) of the Act, which expressly prohibits any “State or local legal requirement” that
“may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” 47 U.S.C. § 253(a). As the FCC has explained, the broad wording of section 253(a) is designed to ensure that no entity “is inhibited from entering a telecommunications market because of any state law, regulation or legal requirement.” 13 FCC Rcd. at
3462, ¶ 3. Structural separation would go much further, not just “inhibiting,” but flatly prohibiting the wholesale entity it would create from entering any retail telecommunications market. Such an “absolute prohibition on . . . entry is precisely the type of action Congress intended to proscribe under section
253(a).” 11 FCC Rcd. at 13096, ¶ 27.
Moreover, by forcing SBC Pacific Bell to divest its wholesale operations, the structural separation proposal contemplated in the PD would “interfere[] with the methods” Congress chose to reach the goal of local competition, and would therefore be preempted. Gade v. National Solid Wastes
Management Ass’n, 505 U.S. 88, 103 (1992). The 1996 Act by its terms contemplates that incumbent
LECs would operate both as wholesale providers of services and facilities and as retail providers of local service. See, e.g., 47 U.S.C. § 251(c)(3) (imposing obligation to provide access to unbundled network elements); id. at § 251(c)(4) (requiring incumbent LEC to provide at wholesale discount all telecommunications services that it provides “at retail”). By separating SBC Pacific Bell’s wholesale
(Fla.P.S.C. Nov. 6, 2001), mimeo, at 8 (emphasis added), available at
336477 19 offerings from its retail services, structural separation would necessarily conflict with Congress’s carefully calibrated scheme. As FCC Chairman Michael K. Powell has explained, Congress “specifically opted not to take th[e] route” of structural separation, choosing instead the “interconnection” model set out in Section 251. 30
Even if structural separation were permissible, it would be unwise. For one thing, it would be extremely costly, and would therefore result in higher wholesale and retail rates. Even the PD acknowledges “that structural separation would be neither swift nor inexpensive.” PD at 259. It would also give rise to a tremendous degree of uncertainty both as to the framework for local competition and as to such basic questions as SBC Pacific Bell’s carrier-of-last-resort and universal-service obligations.
These questions would require many years – not to mention substantial Commission resources – to resolve. Equally as important, structural separation would hamstring SBC Pacific Bell’s ability to serve its customers, to the detriment of consumers. Thus, the FCC has concluded that structural separation
“hinder[s] the introduction” of services that “benefit the public.”31
Structural separation was rejected for Verizon in Pennsylvania because it would be destructive of employee morale and union relations and would bring investment in the telecommunications infrastructure to a screeching halt. The same would be true here in California. Re Bell Atlantic-
Pennsylvania, Inc., Docket No. M-00001353, 2001 WL 1557652 (Pa.P.U.C. Apr. 11, 2001), at *10, *15.
The Florida Public Service Commission – the one other commission to have completed an investigation into the matter32 – likewise rejected structural separation as “a solution in search of a problem.” Florida Order, Mimeo at 7. Structural separation, the PSC noted, would “bring[] uncertainty
30 See “Powell: FCC Not Scoping Out Issue-Oriented Merger Conditions,” Washington Telecom Newswire, Apr. 5, 2001 (emphasis added). 31 104 F.C.C.2d at 1007, ¶ 89; see also id. at ¶ 98 (“the costs from the structural separation requirements in lost innovation and efficiency render these requirements far less desirable than nonstructural safeguards”); 16 FCC Rcd. 7418, ¶ 40 (“structural separation requirements” diminish “the potential for [Bell companies] to offer innovative services to a broader range of customers”). 32 The Florida commission held workshops on structural separation before dismissing the petition it had before it. The Virginia State Corporation Commission, by contrast, refused to take even that step, concluding instead that structural separation would “impair [Verizon’s] property rights under its existing certificates of public convenience and necessity,” and was therefore contrary to state law. See Re Cavalier Telephone, Case No. PUC010096, Order Granting Motion to Dismiss, 2001 WL 964028 (Va.S.C.C. June 26, 2001), at *2.
336477 20 to an industry in which stability is necessary to foster competition.” Id. at 8. It would do so at the cost of
“interfer[ing] with[] [the Commission’s] earlier efforts” to promote local competition, “many of which are ongoing.” Id. Finally, the PSC noted that, in the wake of the demands on Verizon’s operations in New
York in the aftermath of September 11 – and the speed with which it was able to restore service to affected areas – “[i]t would be a violation of simple common sense to erect a structural barrier to
BellSouth’s ability to react to national emergency in these troubled times.” Id. at 8.
Each rationale applies with full force here. The 1996 Act is working in California. SBC Pacific
Bell has taken the statutorily required steps to open the local market, and competitors are in fact entering.
As the PD acknowledges, this process has not been easy. It has come about only with the hard work and dedication of the Commission, interested CLECs, and SBC Pacific Bell. Reversing course now and embarking instead on an uncharted path is not warranted, and would undermine the work done to date.
For the reasons cited above, the PD should eliminate the structural separation study requirement.
IV. CONCLUSION Notwithstanding our limited concerns with the PD, SBC Pacific Bell applauds the ALJ, the
Commission and its staff in the tremendous and exceptional efforts that have been invested in the section
271 process and in the PD’s granting of our section 271 motion. Considering the nature and complexity of the issues, the PD represents an outstanding accomplishment.
336477 21 For the reasons stated above, we respectfully submit that the Commission should adopt SBC
Pacific Bell’s narrowly focused changes to the PD, as reflected in our proposed Findings Of Fact and conclusions of law,33 and endorse as soon as possible SBC’s section 271 application to provide long distance service in California to be filed at the FCC. California consumers and competition will be the real winners when the CPUC and the FCC approve this section 271 long distance application.
Respectfully submitted,
JAMES B. YOUNG ED KOLTO-WININGER L. NELSONYA CAUSBY Attorneys for Pacific Bell Telephone Company
140 New Montgomery Street, Room1617 San Francisco, CA 94105 Tel: (415) 545-9422 August 12, 2002 Fax: (415) 974-1999
33 See Attachment B hereto for SBC Pacific Bell’s Appendix of proposed modifications to the Findings Of Fact And Conclusions Of Law, And Ordering Paragraphs.
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