Testimony, Comments & Press Releases

1. INTRODUCTION

   The National Association of State Utility Consumer Advocates (NASUCA) has previously filed Comments and Reply Comments in this proceeding in response to the Federal Communications Commission’s (FCC) Notice of Proposed Rulemaking (NPRM) concerning the original proposal filed by the Coalition for Affordable Local and Long Distance Services (CALLS-I) and now files these Supplemental Comments in response to the modified proposal (CALLS-II) filed on February 25, 2000.

   NASUCA is an association of 42 consumer advocates in 39 states and the District of Columbia. NASUCA’s members are designated by the laws of their respective states to represent the interests of utility consumers before state and federal regulators and in the courts.

2. Executive Summary

NASUCA opposes the CALLS-II Proposal because, like its predecessor, it fails to resolve many of the fundamental issues that are critical in crafting a reasonable and comprehensive solution to access reform and universal service. CALLS-II incorporates only marginal modifications to the original proposal. Therefore, NASUCA incorporates its previously filed Comments and Reply Comments in response to those aspects of the CALLS-I proposal that are unchanged. While these supplemental comments may reiterate NASUCA's concerns expressed about the original proposal, the primary focus here is to respond to the modifications proposed in CALLS-II.
The marginal concessions offered in CALLS-II are woefully inadequate and will not produce meaningful benefits for consumers. CALLS-II amounts to nothing more than a second attempt by entrenched proponents (with the common goal of avoiding competitive losses) at imposing mandatory cost recovery on a captive customer base. Under CALLS II, the ILECs benefit and the IXCs benefit, while the consumers are left holding the bag. In reality CALLS-II is a price fixing agreement between competitors which provides for recovery of 100% of the cost of the loop from basic local service customer in the form of an unavoidable super surcharge. A summary of NASUCA’s objections to CALLS II is set forth below.

1. FINANCIAL IMPACT OF CALLS-II

   It is easy to understand why interexchange carriers would support CALLS-II: they get greater access charge reductions and get them sooner than under the existing price cap regime. It is also easy to understand why incumbent local exchange carriers support CALLS-II: their access revenues would go down less than under the existing price cap regime. Moreover, imposition of the super SLC along with elimination of the productivity offset (x-factor) will allow ILEC access revenues to soar in the future. How can CALLS-II accomplish these seemingly contradictory goals? By making up the difference from the consumer. The only losers in the CALLS-II scheme are end users who will be saddled with higher fixed monthly charges which can not be competed away. The explicitly stated object of the Telecommunications Act of 1996 was A...to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers..@. To adopt CALLS-II would turn the Act on it head by imposing on consumers unavoidable higher prices for basic local service. As a representative of those consumers, NASUCA strenuously objects to the CALLS-II proposal and urges the FCC to reject CALLS-II in its entirety.

2. CALLS-II Harms consumers by raising mandatory charges and jeopardizeS universal service goals

   CALLS-II, like CALLS-I, is detrimental to consumers because it will increase the mandatory monthly charges paid by basic local exchange customers. On top of this , consumers’ will suffer a greatly increased (and inescapable) Subscriber Line Charge (SLC). In addition, universal service charges assessed on consumers will also increase. These dramatic increases will only add to the customer confusion and outrage that has accompanied the imposition of other telecommunications charges on end-users.

   Section 254 of the 1996 Act requires that universal service be available at affordable and reasonably comparable rates. The CALLS-II proposal to increase the SLC to nearly twice the current amount is not a substantial improvement over CALLS-I and continues to threaten the mandate for affordability. Moreover, the CALLS-II proposal to deaverage the super-SLC will result in customers residing in rural and high-cost areas paying a substantially higher SLC than customers in urban areas. Such a result is directly contrary to the requirements of Section 254 and contradicts this Commission’s stated universal service goals and policies.

3. The AT&T and Sprint commitments are not sufficient to ensure a full and timely flow through of access reductionS TO CUSTOMERS

   Although CALLS-II reflects modifications to benefit special access customers and purports to address the concerns of low volume consumers, the commitments made by AT&T and Sprint are so fraught with loopholes and indefinite promises that they cannot be viewed as meaningful or reliable. There is no guarantee that access reductions will actually result in a full and timely flow through of those savings or that all consumers will share in the benefits of any flow through that does occur.

4. the CALLS-II "sample bills" are suspect

   The benefits to Zero or Light toll users reflected in the CALLS-II "sample bills" are suspect because of the dependence on the limited and conditional commitments of the signatory IXCs. In reality, these benefits could dissolve at any time during the 5 year life of CALLS-II; most likely these benefits will disappear after the first year. In addition, the sample bills attribute "savings" to CALLS-II that are actually the result of AT&T actions that predate CALLS-II, and have nothing to do with the costs of access.

5. CALLS-II is not the solution for Misleading Billing Practices

   While customers have been forced to pay excessive charges on their long distance bills that masquerade as a government-imposed charge, that does not provide any rationale or support to adopt CALLS-II. CALLS-II merely creates a new, unavoidable and excessive charge on local bills, while increasing the USF assessment on end users of interstate services to over 10%.

6. CALLS-II inappropriately eliminates productivity adjustments to the CCL by locking predetermined recovery into the super-SLC

   The growth of new technologies, new services and second lines is driving down the per unit cost of the loop. These reductions in network costs should produce direct reductions in common line recovery. Historically application of the productivity X-factor has served as the mechanism for flowing through productivity gains to customers, thereby providing a "fair and reasonable" check on rate increases. However, CALLS-II diverts the resulting benefits away from common line recovery and instead establishes a procedure that automatically increases common line recovery through the super-SLC.

7. The CALLS-II cost proceeding proposal establishes an inappropriate and unlawful mechanism for ensuring JUST and reasonable rates

   The CALLS-II proposal establishes predetermined increases in the SLC over an established time period. This procedure establishes SLCs that are not cost-based, not supported by an evidentiary record and which cannot be claimed to produce just and reasonable rates. There is no cost review of the SLC to determine whether the rate is "fair and reasonable" until after the initial increases occur. This after-the-fact review process is plainly arbitrary, capricious, and unreasonable and permits rate increases without any prior justification. Moreover, when costs are established pursuant to the cost proceeding, the ILECs will be permitted to recover any revenue shortfall through a make whole provision.

8. CALLS-II reflects an unreasonable and unlawful assignment of loop costs

   CALLS-II perpetuates the CALLS-I proposal to improperly assign 100% of joint and common interstate loop costs to the most inelastic service-basic local service. As was demonstrated in the initial comments, this allocation of a disproportionate share of joint and common costs to a small subset of services is unreasonable and inconsistent with economic principles, as well as the law governing the appropriate recovery of joint and common costs. Such an allocation violates Section 254(k) of the 1996 Act, rulings by the U.S. Supreme Court, and decisions by numerous regulatory authorities. If despite these rulings the FCC adopts CALLS-II, then it should acknowledge that it believes that a 100% allocation satisfies the requirements of 254(k).

9. CALLS-II advances the interest of IXCs at the expense of consumers

   IXCs have attempted to characterize paying for the use of the loop as providing a "subsidy" to the basic local subscriber. However, IXCs obviously benefit from the use of the loop and paying a fair price in exchange for a benefit is not a subsidy. The courts, the FCC, and state commissions have recognized that IXC payment for the use of the common line is a natural and desirable condition in a competitive market. CALLS-II runs directly counter to over 50 years of precedent by shifting 100% of the cost of the local loop to end users, and must be rejected. NASUCA reaffirms that IXCs should pay for their fair share of the costs of conducting business and should then price their services as appropriate in the competitive market to recover those costs.

10. CALLS-II GIVES IXCs A COMPETITIVE ADVANTAGE OVER other service providers

    In recent Commission decisions concerning line sharing, CLECs have been required to pay for the use of the loop. However, under CALLS-II the IXCs will not have to share in the costs of the loop. The LECs’ investments in the loop are driven by consideration of all the potential revenues to be had from end users, IXCs and other service providers. If an IXC chooses to use the loop to provide its services then it should pay for that use as do other telecommunications competitors.

11. CALLS-II increases the federal USF by $650 million without proof that this amount is necessary and sufficient

    CALLS-II proposes to increase Universal Service Funds by $650 million per year. The proposed amount was negotiated between the signatories and to date cannot be reproduced or verified. This method for establishing USF mechanisms is patently arbitrary, capricious, unreasonable, unlawful and unsupported by the record. In addition, the proposal fails to specify how this funding will affect consumers or how much funding will be needed to support the suggested elimination of the PICC for Lifeline customers or to support comparable access reductions for non-price cap LECs.

12. CALLS-II will not produce the promised "five years of regulatory tranquility"

    CALLS-II, like its predecessor, does not offer any new or viable suggestions for access reform. Many of the proposals it makes will provoke additional litigation. Litigation over the recovery of 100% of loop costs from basic services will likely be only one of many expected legal challenges. CALLS-II further widens the gap between rural and urban access rates by dramatically reducing price cap carrier access rates without addressing rural company rates. This ignores Sections 254(b)(3) and 254(g) of the 1996 Act. Cutting interstate access rates in half may be viewed as "reform," but it unfairly increases pressures on state regulatory authorities to reduce instate access rates, to establish instate universal service funding or to overburden existing USF mechanisms. CALLS-II eliminates application of the X-factor to CCL recovery, and therefore does not ensure fair and reasonable rate increases. CALLS-II is inconsistent in its recovery of loop costs from IXCs and CLECs.

13. There is nothing in the CALLS II plan which directly addresses access to broadband in any area, urban or rural

    The CALLS II proposal does nothing to promote advanced services in rural areas, and the Commission should not be misled by any claims to the contrary.

14. CALLS-II eliminates competitive pressure for Presubscribed Interexchange Carrier Charge (PICC) reductions

The CALLS-II proposed shift of interstate costs from the PICC to the SLC eliminates the effectiveness of competitive choice. With an FCC mandate to recover PICC charges through the super-SLC, consumer purchases will have no potential to influence the method carriers choose to recover their costs.
In summary, As was true with CALLS-I, the modified proposal in CALLS-II is presented as a "take it or leave it" offer. And as before, consumers have not had fair or adequate participation in shaping a proposed resolution. NASUCA urges the Commission to reject CALLS-II as an unacceptable solution for resolving access and universal service issues.
To continue its task of adopting pro-competitive policies that benefit all consumers, the FCC should commence a program to eliminate the SLC and refuse requests by the signatories to condone increasing mandatory charges. The recovery of the interstate common line costs should continue to be recovered from the interexchange carriers (IXCs) by means of the PICC so that those charges will be subject to productivity adjustments and other competitive forces. In addition, the FCC should empower consumers to benefit from competitive initiatives by ensuring they have adequate information to participate in the competitive market.

1.  
2. FINANCIAL IMPACT OF CALLS-II

   Under the current price cap regime, the PICC is scheduled to increase and the CCL to decrease each July 1 until all common line costs are recovered under the PICC. Switched access rates will continue to decline based on the operation of x-factor productivity offset. IXCs will continue to pay the PICC and will continue to get the benefit of lower switched access rates. Based on past reductions it is estimated that access charges will go down by a net amount of $0.9 -$1.0 billion each year for the next five years, yielding total reductions of approximately $4.5 -$5 billion over that time. Since ILECs are the recipients of access charges, this means that ILEC revenues would go down by a corresponding amount over the same period.

   Under CALLS-II, IXCs will receive greater reductions and receive them sooner than under the current price cap regime. During the first year of CALLS-II, access charges to IXCs should decline by approximately $3.75 billion. These reductions are based on $2.1 billion reduction in switched access and $2.3 billion in reduction and elimination of the PICC, offset by payments of $650 million for universal service. By the end of the five-year CALLS-II period, net annual reductions in access charges to IXCs should amount to $5.2 billion.

   ILECs on the other hand will suffer less loss of access revenue than under the existing price cap regime, since end users will make up part of the difference through super SLC payments. While annual IXC costs go down by $5.2 billion by the end five year period, ILEC access revenues will only be reduced by $2.8 billion, excluding special access. Reductions of $5.8 billion in switched access, PICC and CCL, will be partially replaced by $650 million in increased USF funding and $2.3 billion in increased SLCs. Moreover, as shown in Attachment 1, the elimination of the productivity factor offset will result in an access windfall for ILECs in the future. The chart illustrates growth in ILEC access revenue over a 15 year period under two scenarios: continuation of the current price cap regime with productivity offsets, and CALLS-II. Removing the effect of the productivity factor by assuming that it equals the rate of inflation for each year, increases the rate of growth in access revenues by approximately 5%. At the end of only 5 years this will result in a $10 billion windfall to ILECs.

3. increasing mandatory charges IS DETRIMENTAL TO CONSUMERS AND JEOPARDIZES universal service

   CALLS-II still suffers from the problems regarding affordability and comparability identified by NASUCA in its comments filed in response to CALLS-I. Simply by lowering the caps for the combined PICC and SLC proposed in the original CALLS plan does not meaningfully address or alleviate NASUCA’s fundamental concerns with the CALLS proposals. First, the CALLS-II proposal to increase the SLC to nearly twice its current amount is not a substantial improvement over CALLS-I and continues to threaten affordability. Secondly, the CALLS-II proposal to deaverage SLCs will raise rates in rural and high-cost areas and threaten comparability. Third, there is no guarantee that customers will receive any meaningful offsets as a result of access reductions even though they will be forced to pay higher charges on their local bills.

4. Calls-II modifications

In response to criticisms of the original proposal, CALLS filed a modified version of the plan on February 25, 2000. In conjunction with the filing of CALLS-II, AT&T and Sprint, the signatory IXCs, submitted ex parte letters of commitment in the event that the Commission adopts CALLS-II. The combined impact of the modifications and commitments include:

Lowering the proposed caps on the combined PICC and SLC from those proposed under the original CALLS plan, as shown below:
CALLS-I CALLS-II
Initial Increase $5.50 $4.35

Conducting a cost review to verify the caps for residential and single line business Subscriber Line Charges are reasonable;

Abandoning the original proposal to shift local switching costs to primary residence and single line business end user charges;

Committing to the conditional elimination of minimum usage charges (MUCs) for AT&T’s basic schedule, conditional offerings by AT&T and Sprint of basic toll plans with no MUCs, and flow through of access reductions;

Providing for rate reductions in special access services for the first four years of the plan;

Committing to work with the FCC Consumer Information Bureau to develop a consumer education plan.

For the reasons set forth below, NASUCA does not believe that the changes included in CALLS-II are adequate to produce a plan which is fair to both consumers and other competitors. As a result, like CALLS-I, the CALLS-II proposal must be rejected as contrary to the public interest.

1. The AT&T and Sprint commitment letters do not ensure that consumers will benefit from CALLS-II

   AT&T and Sprint submitted ex parte presentation letters to the Commission on February 25, 2000. The letters set forth commitments to eliminate PICC recovery surcharges, eliminate certain minimum usage charges, provide customer notification of changes, and flow through access charge reductions in the event that the Commission adopted the modified CALLS proposal. The following Table provides a detailed outline of our understanding of the AT&T and Sprint commitments.

 

Outline Of Commitments	AT&T	Sprint
Elimination Of PICC Recovery Surcharge	Upon Elimination of PICC	Upon Elimination of PICC
Elimination Of Minimum Usage Charge (MUC) From AT&T’s Basic Rate Schedule	Initially, AT&T will modify its current Basic Schedule Rates in conjunction with the elimination of the MUC and then will not raise those rates for 1 year. AT&T’s current Interstate Residential Basic Rate Schedule is as follows;   Weekdays $.28 Evenings $.16 Nights and Weekends $.13   AT&T does not state what the modified rates will be.   ----------------------------------   For the following two years there will be no MUC but rates could increase from the unknown modified levels. ---------------------------- For the final two years rates could further increase from the unknown modified levels but there will be no MUC unless market circumstances warrant it and AT&T exercises its right to work with the Commission to revise or eliminate it.
Basic Calling Plan Offering With No Minimum Usage Charge	Year 1, One Rate Basic Plan available at 19¢ per minute anytime, no MUC or monthly recurring fee. ----------------------------- Years 2-5, at least one basic rate calling plan available with the rates unspecified, no MUC, conditional on the success of the previous one year commitment.	Year 1, Sprint Standard Weekend Plan available at 10¢ per minute on weekends and 30¢ per minute during the week, no MUC. The commitment is nullified if other CALLS signatories charge MUCs.   --------------------------------   Years 2-5, at least one basic rate calling plan available (rates unspecified), no MUC. The commitment is nullified if other CALLS signatories charge MUCs.
Notification About Calling Options	At least One Rate Basic Plan	At least Standard Weekend Plan
Access Reduction Flow Through	To the extent realized, flow through will occur over the life of the CALLS plan to residential and business customers.	To the extent realized, flow through will occur over the life of the CALLS plan to residential and business customers.

A primary concern regarding commitments to eliminate MUCs for AT&T’s Basic Schedule Rates and both AT&T and Sprints basic calling plans is that those commitments appear to be about as stable as a house of cards on a windy day. The Commission cannot rely on such a volatile and complex system of conditions to produce meaningful and reliable benefits to consumers, especially low volume users who will likely not benefit from carrier selected methods of flowing-through access reductions. We see no meaningful benefit for low volume consumers from this plan. In the first place, any consumer can get a better deal by exercising choice. The basic plans proposed by AT&T and Sprint of up to 19 cents and 30 cents a minute are no bargain. Low volume users can avoid a MUC by picking a carrier that does not impose one or by choosing not to have prescribed carrier. Further there is no assurance these customers will receive any benefit from the flow through of access reductions. AT&T and Sprint are free to flow through to high volume customers using discriminatory pricing techniques. Finally, under the terms of the commitment letters, AT&T and Sprint could delay the flow through until the end of the 5 year period. The unfortunate customer who subscribes to AT&T’s basic schedule of up to 28 cents per minute has no guarantee that the rates won’t increase on July 1, 2000, and again after July 1, 2001. Also AT&T could reimpose the MUC if "market circumstances warrant".

1. the CALLS-II "sample bills" are inacurate and misleading

   In the Memorandum in Support of the Revised Plan of the Coalition for Affordable Local and Long Distance Service, March 8, 2000 (CALLS March 8 Memorandum), the proponents that CALLS-II reduces "the combined local and long distance telephone bills by over $4.60 per month for an AT&T customer who makes no long distance calls." (pages 2-3). "Bill comparisons" illustrating this claimed savings were included in Attachment E of the CALLS March 8, Memorandum. For a "light user" of toll services, the proponents claim that CALLS-II will produce a $2.62 savings as shown below.

    

   Line	Minutes of Calling:		10
   	CALLS Claimed Monthly Savings		$2.62
   	Plan	Basic	One Rate Basic
   	Charges	Current	Proposed
   1	Usage	$2.00	$1.90
   2	MUC	$1.00	$0.00
   3	USF	$1.38	$0.16
   4	PICC	$1.51	$0.00
   5	AT&T Total	$5.89	$2.06
   6	ILEC SLC	$3.50	$4.35
   7	ILEC USF	$0.00	$0.36
   8	Grand Total	$9.39	$6.77

   The $2.62 net savings is misleading. Line 2 of Attachment E shows that AT&T's current Minimum Usage Charge of $1.00 will be reduced to zero if the FCC adopts the CALLS plan. The FCC should recognize that not all long distance carriers impose a minimum usage charge. The zero or low use customer currently has the option of avoiding this $3.00 minimum monthly usage charge by selecting a carrier without this charge, or by choosing to have no primary long distance carrier. However, under the super-SLC created by CALLS-II customers will be denied this ability to avoid the charge since it would be billed to the customers by the LECs as a mandatory monthly charge.

   Line 3 of the comparison bill shows that the Universal Service Charge will be reduced from $1.38 to $0.16 for this low use customer as a result of CALLS-II. This is a total misrepresentation. AT&T has already changed from a per line USF surcharge to a surcharge based on a percentage of the bill, currently 8.6%. (See Attachment 2) The truth is that there are no USF savings as a result of CALLS-II. In fact, because of the proposed $650 million increase in the USF, CALLS-II will cause an increase in the current excessive USF surcharges.

   Line 4 of the comparison bill is the $1.51 Presubscribed Interexchange Carrier Charge that AT&T passes through to the end-user. Currently, the maximum PICC that a LEC can charge AT&T for a residential customer is $1.04 with a scheduled increase of $0.50 (plus inflation) on July 1, 2000. Because the FCC considers the interexchange market as competitive, it does not control recovery of the PICC by AT&T and other IXCs. Accordingly, any analysis using the charges AT&T places on customer bills is irrelevant and distorts the true picture of "customer savings." Even if AT&T promises to remove one overcharge from its bill, other than competitive pressures, there is nothing to stop it from replacing one overcharge with other overcharges. CALLS-II replaces the discretionary PICC by increasing the mandatory SLC. It is a step in the wrong direction for the FCC to sanction higher mandatory charges in return for illusory promises from AT&T to reduce certain charges that can be reinstated at will.

   Line 7 shows a $0.36 per month increase in the customer’s local bill due to the LEC’s pass through of the universal service requirement. The revised CALLS plan includes a $650 million increase in the Federal Universal Service Fund to reduce access charges and a $55 million increase in the Federal Universal Service Fund due to the additional Lifeline support that will be needed due to the increase in the SLC. The $0.36 increase includes only the first year of the Lifeline support needed. In fact, because the "super SLC" under CALLS would increase significantly over time, the amount of Lifeline support needed to eliminate that SLC for Lifeline customers would also continue to increase. The universal service support for this purpose alone would be in the vicinity of $150 million per year by the year 2003. Not only will USF charges likely be higher than shown on the sample bill, there is no explanation why the increased USF charges are recovered from LECs only rather than from all providers of interstate telecommunications services as required by Section 254 of the Act. Obviously, if the new USF charges are recovered from all carriers, AT&T’s new 8.6% USF surcharge will have to be raised to 10%.

   Under current FCC rules, MUCs, USF and PICC charges are not mandatory charges on a customer's bill. Some IXCs have made a decision to pass these costs on to consumers in the form of surcharges. Other IXCs have not and instead recover these costs in usage based rates. Zero Use and Light Use customers can avoid these charges by carefully selecting among carriers and rate plans. The FCC would not be doing the customers any favor by replacing a charge that the customers can avoid exercising competitive choice with a charge that the customers cannot avoid. CALLS-II denies consumers the chance to protect themselves from overcharges by seeking lower prices for services. The CALLS signatories are asking the Commission to stifle a customer’s ability to exercise competitive choice by mandating higher SLCs and inescapable USF recovery by ILECs.

2. CALLS-II inappropriately eliminates productivity adjustments to the CCL by locking predetermined recovery into the super-SLC

   The CALLS Proposal would destroy the customer protections that are the heart of the FCC's alternative regulation structure. The CALLS-II proposal will eliminate the reductions that result from the productivity factor in the FCC’s price cap regulatory structure for the Common Line Basket. Once certain conditions are met, if the inflation measure (GDP-PI) is between 0% and 6.5%, the productivity factor will be assumed to be equal to inflation. If the GDP-PI is greater than 6.5%, then the price cap will increase by the amount that the inflation factor exceeds 6.5%. This is a drastic and improper departure from present requirements.

   The current basket requirements decrease each year that the productivity offset is greater than the inflation adjustment. In recent years, this has been the case. According to the Bureau of Economic Analysis, the gross domestic product price index adjustment was 1.7% in 1997, 1.2% in 1998, and 1.4% in 1999.

   With a productivity offset of 6.5%, the basket price caps have been decreasing 4% to 5% per line per year. (This would also hold true using the prior 5.3%, pending the remand of the 6.5% by the Court of Appeals for review.) It is reasonable to expect similar decreases in the future. These 4% to 5% per year reductions compound over time so that the total revenues the companies would receive would be greatly increased if the current productivity factor rules are modified as proposed under CALLS.

   It is inappropriate to eliminate the productivity factor. The productivity of the facilities in the common line basket have experienced breathtaking gains in productivity. DSL services increase the carrying capacity of the existing copper cables by approximately 100 times. The copper pairs that previously carried a signal equivalent to 56,000 to 64,000 bits per second can now carry several million bits per second. The same cable pairs that carry voice service now provide cable television (CATV) service. Under the current regulatory structure, consumers share in productivity advances directly and meaningfully through productivity gains flowing to the common line basket and other baskets. Under CALLS-II, these gains would be diverted, first to benefit IXCs, and then to benefit ILECs. The consumers are left out. These changes force customers' rates to forego the benefits of these productivity gains without any justification.

   In a competitive market, the customers receive the benefit of industry-wide productivity gains. When the costs of computer chips and the cost of making computers declined, consumer prices declined. To price telephone service ignoring the industry wide gains in productivity is not market based pricing and is contrary to actual behavior in a competitive market. Such pricing is anti-competitive, anti-consumer, and benefits only the entrenched incumbents in the telecommunications industry.

   Under the current structure, all consumers have the opportunity to receive the benefits of productivity gains. CALLS-II offers no such guarantee. The X-factor productivity offset to the common line basket would end immediately. Instead, the productivity offset would be redirected toward reducing the traffic sensitive switched access charges paid by IXCs. Once these reductions have been achieved, productivity gains would flow directly to the bottom line of the ILEC.

    

3. IT IS ARBITRATRY, CAPRICIOUS, UNREASONABLE AND UNLAWFUL TO INCREASE CONSUMERS RATES ABSENT ANY PROCEEDING THAT ESTABLISHES A RECORD TO DETERMINE WHETHER THE RATES ARE JUST AND REASONABLE

   There is no record evidence to support an increase in the SLC charged to ILEC customers. Even the CALLS II proponents recognize this requirement of the law. The CALLS-II solution is to first increase the SLC from $3.50 to $5 and then hold a cost proceeding to determine if the SLC should be increased above $5. Paragraph 2.1.2.2.3. in Appendix A of the CALLS March 8 Memorandum, states that:

   After SLC caps reach $5.00, the Commission should initiate a proceeding for the purpose of verifying that the progression of the change in the primary residence/single line business SLC caps beyond $5.00 cap is appropriate…

   This is the patently unlawful. NASUCA contends that to support any increase in the SLC the FCC must perform a cost study prior to the increase and not after the fact. To do otherwise is arbitrary, capricious, unjust and unreasonable. Moreover, the proposal would allow an ILEC to earn undeserved revenues because even if the cost study fails to support an increase in the SLC, revenues keep flowing because the revenue recovery is simply shifted to other common line elements, such as the multiline PICCs

4. CALLS-II does not rectify the unreasonable and unlawful loop cost recovery scheme proposed in CALLS-I

   Like CALLS-I, CALLS-II attempts to bypass the proper assignment of the costs of the loop to all services that use the loop. Because the loop is a shared joint and common cost, it is reasonable to recover a portion of the costs from the IXCs and other carriers that provide toll and other non-supported services.

   CALLS-II discards the principles of cost causation and shared recovery by placing 100% of the cost of the local loop on end users as a direct, mandatory monthly charge. Shared recovery is not only reasonable, it is required by law. To impose full recovery of loop costs on basic local subscribers through mandatory charges on the local bill violates the principles expressed by the U.S. Supreme Court in Smith v. Illinois Bell Telephone Co., 282 U.S. 133 (1930).

   One hundred percent recovery of loop costs from basic local service subscribers also violates Section 254(k) of the Telecommunications Act of 1996. Section 254(k) requires that "no more than a reasonable share" of the joint and common costs be recovered from universal services. The Commission has an obligation concerning Section 254(k). NASUCA believes that to accept CALLS-II the Commission must first find that assigning 100% of joint and common loop cost recovery to mandatory basic local service charges constitutes "no more than a reasonable share" of joint and common costs as described in Section 254(k). Absent such a finding, the Commission would have no basis for adopting CALLS-II. Unfortunately, the Commission cannot make such a finding, since 100% recovery of local loop costs from basic service cannot be a "reasonable share" of joint and common costs. This contradiction highlights the legal and policy dilemma at the heart of CALLS-II.

   CALLS-II allows the IXCs to use the LECs' common line facilities at no charge. The entire interstate portion of these loop facility costs would be recovered from mandatory charges imposed on the local subscribers bill. The basic local service customers are already directly charged for the majority of the interstate common line facilities costs, through the mandatory fixed monthly SLC. In fact the SLC already generates more than 2.5 times the recovery of the interstate common line costs directly billed to interexchange carriers (including CCLC and PICC charges). Since the demand for basic local service is inelastic and the super SLC is a rate that customers would have to pay in order to obtain local telephone service, consumers would be unfairly footing the bill for service they might not want or use. The IXCs on the other hand won’t pay for a service that they do use.

5. CALLS II Will Not Encourage Deployment of Advanced Services in Rural Areas

   In a February 25, 2000, press release accompanying the filing of CALLS II, proponents claimed that CALLS II "would help close the digital divide by making small towns and rural communities more attractive to high-speed internet access competition, so they too will benefit from advanced broadband technologies." These claims are baseless. There is nothing in the CALLS II plan which directly addresses access to broadband in any area, urban or rural. While the deaveraging of SLCs advocated in the CALLS II plan may indirectly result in more universal service money being available to support high-cost areas, under Section 254(e) of the Telecom Act these funds can only be used to support services contained in the definition of "universal service," i.e, basic services. CALLS-II will surely benefit ILECs and IXCs, but it will not bring advanced services to rural areas.

6. conclusion

NASUCA urges the Commission to reject CALLS, to allocate loop costs reasonably to IXCs; to continue to recognize productivity by applying the X-factor; to let the competitive market develop properly; to prohibit all surcharges on customers’ bills and to enforce truth-in-billing.
 
Respectfully submitted,
 
Michael Travieso
Telecommunications Committee Chairman