I.87-11-033 et al. COM/vdl * I N D E X Subject Page INTERIM OPINION ........................................... 2 I. Executive Summary .................................. 2 Authorization of Competition ....................... 4 The GTEC Rate Design: Modified Cost-Based Pricing . 4 Pacific's Rate Design: Cost-Based Pricing ......... 5 Local Measured Usage ............................... 5 Local Transport and Switched Access ................ 6 Universal Service Goals and Lifeline Service ....... 6 Small and Mid-Sized Local Exchange Companies ....... 8 Contracts and Imputation ........................... 8 Conclusion ......................................... 9 II. IntraLATA Competition and Rate Design Philosophy ... 10 A. History ........................................ 10 1. Phase I .................................... 12 2. Phase II ................................... 13 3. Phase III .................................. 14 4. Summary .................................... 18 B. IntraLATA Competition .......................... 20 1. General Authorization of Competition ....... 20 2. Treatment of Specific Services ............. 23 a. Competition for Local Services Will Be Restricted ........................... 23 b. LEC-to-LEC Competition For Most Category II Services Is Not Authorized ........ 24 c. Limited Competition For Local Usage, EAS, and ZUM ......................... 25 d. Centrex, CentraNet, and PBX ............ 28 e. COPT ................................... 28 C. Restrictions on Use of LEC Tariffed Services ... 28 1. Use and User Restrictions .................. 28 2. Murray and Rice's Request .................. 31 D. Rate Design Philosophy: Cost-Based Pricing .... 32 III. Basic Exchange Services ............................ 38 A. Summary ........................................ 38 B. Background ..................................... 39 1. Basic Exchange Service ..................... 39 2. Need for Increase in Basic Exchange Rates .. 40 C. Rate Design Proposals .......................... 40 1. Pacific .................................... 40 2. GTEC ....................................... 42 3. DRA ........................................ 43 - i - I.87-11-033 et al. COM/vdl * I N D E X Subject Page D. Rates for Basic Exchange Services .............. 43 1. Allocation of Loop Costs to Basic Exchange Monopoly Services ............... 43 2. Recurring Rates for Basic Exchange Service . 45 a. Residential Flat Rate .................. 45 b. Residential Measured Rate .............. 46 c. Residential Rate Levels ................ 47 d. Business Rate .......................... 49 e. Universal Lifeline Rate ................ 49 3. Monthly Rates for Other Exchange Access Service ........................... 51 a. Party Lines ............................ 51 b. Farmerline Services .................... 52 4. Local Exchange Usage Rates ................. 53 5. ZUM and EAS Rates .......................... 55 6. Basic Exchange Service Installation Charges ..................... 55 a. Basic Services ......................... 55 b. ULTS ................................... 56 c. 90-Day Waiver .......................... 58 d. GTEC's Premises Visit Rate Element ..... 58 e. Line Extensions ........................ 59 f. Supersedure ............................ 60 7. Special Local Calling ...................... 61 a. Repair Service (611) ................... 61 (1) Explanation of Repair Charges ..... 61 (2) Visit Charge ...................... 62 b. Directories and Directory Assistance ... 63 (1) Local Directory Assistance (411) .. 63 (2) IEC Directory Assistance .......... 65 (3) Nonpublished Listing and Nonlisted Services .............. 66 (4) Additional Listing and Additional Line of Information .. 66 (5) IEC Listing ....................... 67 8. Returned Check Charge ...................... 67 9. Inside Wire Maintenance .................... 68 10. Phase-In Proposals ......................... 69 11. Suburban Mileage ........................... 69 12. Future Adjustments ......................... 70 IV. Foreign Exchange ................................... 71 A. Description of FEX ............................. 71 B. Pacific's and GTEC's FEX Rate Proposals ........ 72 1. Pacific ... ................................ 72 2. GTEC's Proposed FEX Rates .................. 73 - ii - I.87-11-033 et al. COM/vdl * I N D E X Subject Page 3. DRA ........................................ 73 4. CENTEX ..................................... 74 C. Discussion ..................................... 75 1. Three-year vs. One-year Increase ........... 75 2. FEX Access Rate ............................ 75 3. FEX Increment .............................. 76 4. FEX Mileage ................................ 77 5. FEX Usage .................................. 77 6. Nonrecurring Installation Charges .......... 78 D. Meet-Point Billing ............................. 78 E. Foreign Prefix Service ......................... 79 F. Adopted FEX Rates .............................. 80 V. Dedicated Access ................................... 81 A. Introduction and Summary ....................... 81 B. Positions of the Parties ....................... 84 1. Pacific's Position ......................... 85 2. GTEC's Position ............................ 85 3. DRA's Position ............................. 86 C. Classification Under NRF Competitive Categories ................................... 87 1. Introduction ............................... 87 2. Analog Services ............................ 88 3. Digital Services ........................... 89 D. Simplification of Private Line and Special Access Tariffs ................... 89 1. Tariff Consolidation ....................... 89 a. Pacific ................................ 89 (1) Merger of Private Line Tariff into Special Access Tariff ...... 89 (2) Removal of "Private Line-Like" Services to "A" Tariff .......... 92 (3) Merger of Intraexchange and Interexchange Mileage Rates ..... 94 (4) Costs for Implementing the Tariff Consolidation ............ 96 b. GTEC ................................... 96 2. Restructuring the Rate Element Format ...... 97 E. Adopted Rates and Charges ...................... 99 1. Obsolete Services .......................... 99 a. Pacific -- Metallic and Telegraph ...... 99 b. Pacific -- DDS Service ................. 100 c. GTEC -- DC/Metallic .................... 101 2. General Policy for Pricing for Viable Analog Private Line Services ............. 101 - iii - I.87-11-033 et al. COM/vdl * I N D E X Subject Page 3. Adopted Rates .............................. 104 a. Channel Termination (Pacific) Special Access Line (GTEC) ........... 104 b. Mileage-Fixed (Pacific) Special Transport Termination (GTEC) . 105 c. Mileage-Variable Rate Per Mile (Pacific) Special Transport Facility- Mileage (GTEC) ....................... 106 4. Pricing for Digital and High-Speed Services ................................. 107 a. Pacific ................................ 107 b. GTEC ................................... 109 c. Discussion ............................. 110 5. Elasticity ................................. 112 6. Extension of Meet-Point Billing to Include All Intercompany Dedicated Services in the New Consolidated Tariff .. 112 7. Miscellaneous Matters ...................... 113 VI. Switched Access .................................... 114 A. Introduction ................................... 114 B. Categorization of Services ..................... 115 C. Rates .......................................... 116 1. Application of Category I Pricing Principles ............................... 116 2. Switching .................................. 117 a. GTEC's Proposed Consolidation .......... 117 b. Pacific's Proposed Set-Up Charge ....... 117 3. Transport .................................. 118 4. CCLC ....................................... 120 5. Information Surcharge ...................... 122 6. Equal Access Cost Recovery ................. 122 D. Elasticity ..................................... 122 E. GTEC's SAVE Plan ............................... 123 1. GTEC's Proposal ............................ 124 2. Opposition ................................. 125 3. Discussion ................................. 125 VII. IntraLATA Toll Rates ............................... 127 A. Summary ........................................ 127 B. Background ..................................... 127 C. The Parties' Proposals ......................... 129 1. Pacific .................................... 129 2. GTEC ....................................... 129 3. DRA ........................................ 130 - iv - I.87-11-033 et al. COM/vdl * I N D E X Subject Page 4. TURN ....................................... 131 D. Initial or Ceiling DDD Rates ................... 132 1. Recognition of Switched Access Cost Reductions .......................... 132 2. Evening and Night/Weekend Discounts ........ 134 3. Discounts for TDD Subscribers .............. 135 E. Business and Residence Toll Schedules .......... 135 F. Coin, Calling Card, and OPH Calls .............. 136 G. Consolidation of Mileage Bands ................. 138 H. Toll Discount Plans ............................ 139 1. Pacific's Discount Plan Proposal ........... 139 a. Residential Plans ...................... 139 (1) Automatic 15% Discount ............ 139 (2) Optional Plans .................... 140 b. Business Plans ......................... 140 (1) Automatic Discount Plan ........... 140 (2) Optional Plans .................... 140 2. GTEC's Discount Plan Proposal .............. 140 3. DRA's Discount Plan Proposal ............... 141 a. Residential Plan ....................... 142 b. Business Plan .......................... 142 4. Approved Toll Discount Calling Plans ....... 142 I. WATS/800 Rates ................................. 144 1. Pacific's WATS/800 Rates ................... 145 2. GTEC's WATS/800 Rates ...................... 145 3. DRA's Recommendation ....................... 146 4. Discussion ................................. 147 J. Demand Elasticity .............................. 148 1. DDD Services ............................... 148 2. Coin, Calling Card, and OPH Services ....... 155 3. WATS/800 Services .......................... 156 4. Calculation of New Demand Levels ........... 158 K. Compensation for Competitive Losses ............ 159 1. Ongoing Competitive Loss ................... 161 2. First-Year Competitive Loss ................ 163 3. Conclusion ................................. 164 L. Implementation Costs ........................... 165 1. Pacific .................................... 170 2. GTEC ....................................... 173 - v - I.87-11-033 et al. COM/vdl * I N D E X Subject Page VIII. Customer-Owned Pay Telephone (COPT), Public, and Semipublic Pay Telephone Services ............ 175 A. Summary ........................................ 175 B. Background ..................................... 175 1. Description of Services .................... 175 2. Adequacy of Cost Data ...................... 176 3. The Pay Telephone Settlement ............... 178 C. Categorization of Pay Telephone Services ....... 179 D. COPT Services .................................. 180 1. 10XXX, Calling Card, and OPH Calls ......... 180 2. 0- Calls ................................... 181 3. 00- or 00, 0+ Access Calls and Calling Card Calls ....................... 182 4. 0+ Local Calls ............................. 183 5. Aggregation of COPT Lines .................. 183 6. Consolidated Billing of COPT Services ...... 184 7. Toll Discount Plans for COPT Providers and Use of WATS .......................... 184 8. Recurring Rates for COPT Service ........... 185 9. Nonrecurring Installation Charges for COPT Service ............................. 186 10. Measured Usage Rates for COPT Services ..... 186 11. Toll Rate Changes for COPT ................. 187 E. Semipublic Telephone Service ................... 188 IX. Centrex, CentraNet, and Private Branch Exchange Trunk Services .......................... 190 A. Introduction ................................... 190 B. Classification of Centrex, CentraNet, and PBX Services ................................. 191 1. Centrex/CentraNet and PBX Are Discretionary Services ................... 191 2. Local Usage Calls Placed Using Centrex/CentraNet and PBX Services ....... 192 C. Flexible Pricing Plans for Centrex/CentraNet and PBX Services ........... 193 D. PBX Services ................................... 195 1. Merger of Basic and Assured PBX Trunk Rates .......................... 195 2. PBX Trunk Rates ............................ 196 a. Recurring Rates ........................ 196 b. Installation Charges ................... 198 3. DID and Hunting Rates ...................... 199 a. Recurring Rates ........................ 199 b. DID Basic Termination Charge ........... 200 - vi - I.87-11-033 et al. COM/vdl * I N D E X Subject Page c. Recurring DID Circuit Termination Rate . 200 d. Installation Charges ................... 200 4. Ground Start Signaling ..................... 200 E. Centrex and CentraNet Services ................. 202 1. Recurring Rates ............................ 202 2. Installation Charges ....................... 202 3. GTEC's Assume Dial 9 Feature ............... 203 4. CentraNet Service Is Made Permanent ........ 203 X. Imputation and Contracts ........................... 204 A. Imputation ..................................... 204 1. Background ................................. 204 2. The First Test: The General Rule .......... 210 a. The Competitive Service Component ...... 210 b. Monopoly Building Block Component ...... 212 3. The Second Test: Imputation Should Be Based on the Services Competitors Would Use ................................ 216 a. Imputation Based on Special v. Switched Access ...................... 220 b. Imputation Based Only on Terminating Access ................... 221 4. The Third Test: No Negative Contribution .. 222 5. MCI's Compromise Proposal .................. 222 B. Contracts ...................................... 225 1. Services Subject to Contract ............... 227 2. Contract Price Floors ...................... 228 3. Modification of Contract Guidelines ........ 231 a. "Unusual and Exceptional" Circumstances ........................ 232 b. Express Contract Procedure ............. 233 c. Term of Contract ....................... 236 d. Tracking Reports ....................... 236 e. Tariffed List of Contracts ............. 236 f. Public Disclosure Requirements ......... 237 (1) Statutory Requirements ............ 237 (2) Encouragement of Competition ...... 238 (3) Preventing Unlawful Price Discrimination .................. 238 (4) Exceptions ........................ 240 (5) Workpapers and Cost Documentation . 241 g. Changes to G.O. 96-A ................... 241 4. Contract Modifications ..................... 242 a. Minor Modifications .................... 242 b. "Fresh Look" Modifications ............. 243 - vii - I.87-11-033 et al. COM/vdl * I N D E X Subject Page XI. Rate Design Adjustments Required for Small and Mid-Sized LECs ............................... 244 A. Introduction and Summary ....................... 244 B. Common Issues .................................. 246 1. Message Toll Service (MTS) ................. 246 2. Uniform Toll Discount Plans ................ 246 3. Switched Access ............................ 248 4. Revenue Requirement Recovery Mechanism ..... 249 5. Elimination of Billing Surcredits, Memorandum Account Balances, and Conversion of Pooled Surcharges to Bill and Keep ............................ 250 6. Measured Rate Services (Where Applicable) .. 251 7. Extended Area Service ...................... 253 8. Operator Services .......................... 253 9. Use of the California High Cost Fund ....... 253 a. Background of the California High Cost Fund ....................... 253 b. Positions of the Parties ............... 255 c. Discussion ............................. 255 10. Other Service Considerations ............... 260 a. Party Line Services .................... 260 b. Suburban Mileage Charges ............... 260 c. Calaveras, et al. FEX Proposal ......... 261 d. CP National/Tuolumne Comment Requests .. 261 C. Small Local Exchange Carriers .................. 261 1. Basic Exchange Rates ....................... 261 2. GTE West Coast Proposed Rate Design ........ 263 3. Nonrecurring Rates (Installation Charges) for Basic Services of Small LECs ......... 264 4. Revenue Recovery Anomalies ................. 264 D. Rate Design for Mid-Sized LECs ................. 265 1. Background ................................. 265 a. Citizens ............................... 266 b. Contel ................................. 267 c. Roseville .............................. 269 XII. California's Universal Service Levels .............. 272 XIII. Implementation Issues .............................. 280 A. Implementation Date for IRD and IntraLATA Competition ........................ 280 B. Price Cap Filings .............................. 281 1. 1995 Price Cap Filings ..................... 281 2. Future Price Cap Filings ................... 282 - viii - I.87-11-033 et al. COM/vdl ** C. Pricing Flexibility for Category II Services ... 282 1. Categorization of Services ................. 282 2. Price Floors ............................... 283 a. Establishing Price Floors .............. 284 b. Exercising Pricing Flexibility ........ 286 c. Revising Price Floors .................. 287 d. Adjusting Price Floors for Inflation ... 287 3. Phase I Settlement ......................... 287 D. Surcharges ..................................... 288 1. Surcharges for Programs Required by Statute 289 a. Deaf and Disabled Telecommunications Program Surcharge .................... 289 b. ULTS Surcharge ......................... 289 c. California High-Cost Fund Surcharge .... 290 2. Expansion of the Billing Base to Include All End-Users .................... 290 E. Customer Notification .......................... 293 F. Outstanding Motions in Phase III ............... 294 Findings of Fact .......................................... 296 Conclusions of Law ........................................ 314 ORDER ..................................................... 335 APPENDIX A List of Appearances APPENDIX B Glossary of Telecommunications and Other Terms and Acronyms APPENDIX C Present and Adopted Rates for Pacific Bell APPENDIX D Present and Adopted Rates for GTE California Inc. APPENDIX E Small and Mid-Size LEC Rate Adjustments APPENDIX F Certificated Interexchange Carriers Qualified to Provide IntraLATA Services at the Onset of IRD APPENDIX G Revised Text for General Order 96-A, Section X - ix -