Pat Wood, 111 Public Utility Commission of Tmas Chairman 1701 N. Congress Avenue P. 0. Box 13326 Robert W.Gee Austin, Texas 78711-3326 Commissioner 512 / 936-7000 (Fax) 936-7003 Judy Walsh Fpv?.I. $0 Commissioner UGlSSlULU23 /&;[![in911qnd ’ L. AUVti81’1 4 December 12, 1996 Honorable Members of the Seventy-Fifth Texas Legislature: I We are pleased to submit our 1997 Report on the Scope of Competition in Telecommunications Markets as required by Section 3.05 l(k) of the Public Utility I Regulatory Act of 1995. Since the Texas Legislature adopted significant telecommunications legislation in 1995, changes in the structure of this industry have occurred at an accelerated pace, Concurrent with the PUC’s implementation of the regulatory reforms contained in PURA95, Congress passed the Federal Telecommunications Act of 1996, which mandates additional major steps toward competition in the local and long distance telecommunications markets. At a time when the industry is experiencing rapid change, the Commission recognizes the Legislature’s need for up to date, accurate information. The enclosed report provides a thorough discussion of current developments for your use as you consider the important issues of telecommunications regulation and competition. If you need additional information about any issues addressed in the report, please call on us. Sincerely, AtWood, I11 Robert W. Gee fl Judy W. Walsh Chairman Commissioner Commissioner 8) Primonmwpaper An Equ8l Opporhtncty Employer uPOLICY DEVELOPMENT 1512) 036-7200 EXECUTIVE DIRECTOR (512) 936-7040 REQULATORY AFFAIRS (512) 036-7300 ADMINISTRATION (512) 036-7045 PUBLIC INFORMATION (512) 936-7140 COMMISSION SECRETARY (512) 036-7150 CENTRAL RECORDS (512) 036-7160 CONSUMER AFFAIRS (512) 036-7120 INFORMATION SYSTEMS (512) 936-7090 HUMAN RESOURCES (512) 036-7060 I m (512) 036-7136 I I I I I I I I I I I I 1 I I I-- I I I I ............................. I 1 I I ............................. ............................. I ............................. ............................. ............................. ............................. Report to the ......................................................... I ............................. ............................. ............................. Seventy=Fifth ............................. I ............................. Texas Legislature ............................. ............................. I ............................. on the ............................. ............................. ............................. ............................. Scope of Competition I ............................. in Telecommunications I ............................. ............................. ............................. Markets ............................. ............................. I ............................. ............................. I .............................::::::: :::::::: ::::::: ::::::: ............................. ............................. ............................. ............................. I ............................. ............................. ............................. ............................. ............................. Ir ............................. ............................. ............................. .................................................................................... ..................................................................... :::* ...................... I I .............................................................................. ................................................ .......................................... .......................................... ............... Public Utilitg Commission of Texas I ......................... Januq 1997 I I I I I 1 I I I I I I I I I I I.- !- I J I I 1997 Report on the Scope of Competition in 'felecommunications Markets i Table of Contents Page Chapter 1: Executive Summary ............................................................................... 1 Chapter 2: Introduction ...................................................................................... 7 Existing Structure of the Telecommunications Industry .................... 8 Incumbent Local Exchange Carriers ........................................ 8 Small Incumbent Local Exchange Carriers ............................ 11 Cooperative Telephone Companies ....................................... 13 Long Distance (Interexchange) Carriers ................................ 13 Other Existing Competitive Entities ...................................... 14 Chapter 3: The Nature of Competition Characterizing Competition ........................................................... 15 Evolution of Competition in Telecommunications Markets ............ 17 History .................................................................................. 17 Competitive Network Services Emerge ................................. 18 Pay Telephone Competition .................................................. 19 Wireless Competition ............................................................ 22 The New Frontier: Competition in Local ,ExchangeMarkets ......... 23 Competitive Network Models ............................................... 24 Competition in Other Jurisdictions ................................................. 25 Chapter 4: New Telecommunications Statutes Public Utility Regulatory Act of 1995 Telecommunications for the Future of Texas .................................. 43 Overview .............................................................................. 43 Implementing PURA95 ......................................................... 47 Competitive Certification.............................................. 47 Other PUC Activities Related to Telecommunications and PURA95 ............................... 49 Federal Telecommunications Act of 1996 ...................................... 57 Overview .............................................................................. 57 Implementing the Federal Act ............................................... 59 Preemption Issues Between FTA96 and PURA95 .......................... 61 Chapter 5: Competitive Safeguards ....................................................................... 65 Unbundling .................................................................................... 66 Interconnect ion .............................................................................. 67 Expanded Interconnection ............................................................. 69 Resale 69 ...................................................................................... Number Portability ........................................................................ 72 Costing and Pricing ....................................................................... 74 Imputation .................................................................................... 76 ii 1997 Report on the Scope of Competition in Telecommunications Markets Page Infiastructure Sharing .................................................................... 77 Implications for Cornpetiton........................................................... 78 Chapter 6: Consumer Issues Consumer Benefits of Competition................................................. 79 New Technology and Services............................................... 79 Packaging of Services............................................................ 80 Choice of Service Providers .................................................. 81 Competltlve.. Pncing.. ............................................................... 82 Consumer Concerns ....................................................................... 83 Informed Choice in the Information Age ................................ 83 Telecommunications Fraud and Consumer Abuse .................. 85 Slamming ..................................................................... 85 Billing Irregularities.,.................................................... 86 “I Don’t Care” and Other Schemes ............................... 87 Area Code Issues .................................................................. 88 Caller Identification............................................................... 92 Consumer Complaint Programs ...................................................... 93 FCC’s Complaint Process ...................................................... 93 The Texas PUC’s Complaint Process .................................... 94 Existing and Future Consumer Safeguards ..................................... 96 Chapter 7: Other Competitive Issues Promoting Fair Trade: Preventing Anti-Competitive Behavior and other Unfair Practices ............................................... 97 Antitrust Principles and Their Impact on the Potential for Abuse of Market Power ............................................. 97 Issues Faced in Antitrust Litigation ........................................ 98 Texas Antitrust Laws ............................................................ 99 PURA95 Provisions Protecting Consumers From Unfair Pricing .................................................... 101 PURA95 Provisions Directly Protecting Consumers From Unfair Pricing Practices and Other Forms of Anticompetitive Behavior ........................................... 101 PURA95 Provisions Protecting Competition by Prohibiting Anticompetitive Behavior ......................... 102 Protecting Consumers, Competitors, and Potential Competitors