CAL. PUC PUTS 4 CONDITIONS ON SUPPORT FOR SBC INTERLATA ENTRY

While meeting Telecom Act-related conditions could be straightforward proposition for Pac Bell, meeting state law requirements for intrastate certification might be more difficult. For instance, draft recommended that PUC consider full structural separation of Pac Bell’s wholesale and retail operations as one way to satisfy state law. Another approach would bring in 3rd-party administrator to manage process of switching customers from one interexchange carrier to another instead of leaving Pac Bell in charge.

PUC Comr. Geoffrey Brown, who has been presiding over agency’s review of Pac Bell’s compliance with Sec. 271/272 requirements, said late Tues. that “the overall record relative to Sec. 271 supports Pacific Bell’s entry” into long distance market and its entry would be “beneficial to California consumers.” Brown said Pac Bell “has vastly progressed in opening access to its local network” in 3 years since PUC drafted its blueprint for long distance authorization and has complied with majority of agency’s technical requirements.

Draft order recommended by PUC Administrative Law Judge Jacqueline Reed cleared Pac Bell on 12 of 14 points in Sec. 271’s checklist. Draft also said Pac Bell passed independent 3rd-party operation support system (OSS) tests, achieving “strong performance results across numerous service categories.” But draft concluded Pac Bell had failed to comply with Point 11 (number portability) and Point 14 (resale). Nonetheless, Brown said Pac Bell’s complying with 12 of 14 points “was more than enough to satisfy the requirements of [Sec.] 271.”

To be in compliance on Point 11, Pac Bell must implement mechanized enhancements to its portability administration center by Aug. 12. Enhancements would mechanically ensure customer didn’t lose dial tone during transition between competitive service providers. Enhancements would delay disconnection from old local provider until new provider had completed its installation work. To pass on Point 14, PUC draft said Pac Bell must dismantle restrictions on resale of DSL services imposed by itself and its DSL affiliate, SBC Advanced Solutions. Current terms and conditions for DSL resale have erected “unreasonable barriers” to competitive DSL market entry, PUC draft said, noting Pac Bell had 97% DSL share and most Californians had no alternative to Pac Bell for DSL service.

As for state law requirements, draft PUC order said Pac Bell satisfied only one of 4 conditions prescribed by Cal. Utilities Code Sec. 709.2 before PUC could authorize Pac Bell’s entry into intrastate interLATA market. Draft order said that while Pac Bell passed first test by providing local competitors with open access to its exchanges, it hadn’t met other 3 state law tests. PUC draft concluded Pac Bell hadn’t taken sufficient steps to: (1) Ensure against anticompetitive behavior. (2) Prevent improper cross- subsidization. (3) Ensure there would be no harm to overall competitiveness in intrastate long distance marketplace from its entry. Comr. Brown said PUC had to reconcile state law requirements with those of Telecom Act and that federal law took precedence over Cal. statute even though Cal. law predated Act. But he said conditions relating to state law shouldn’t conflict with Telecom Act. FCC doesn’t have to consider requirements of Cal. Sec. 709.2 in determining whether Pac Bell qualifies under Telecom Act to provide long distance.

To meet state law concerns, draft order would direct Pac Bell to submit report within 6 months of final PUC decision on feasibility of structurally separating into independent wholesale and retail entities. Draft also would give PUC Telecom Div. staff 5 months to evaluate and report on feasibility of naming neutral 3rd-party administrator to manage interexchange carrier changeover process. To address concerns about local-long distance joint marketing on incoming calls from local customers, draft would require Pac Bell to incorporate one of 2 options into any joint marketing plans: (1) Pac Bell representatives would be allowed to mention existence of long distance affiliate, but Pac Bell would have to establish separate number for long distance unit so customers could call on their own if they were interested in its services. (2) Require that Pac Bell representatives offer incoming callers transfer on same call to an IXC of customer’s choice, without suggesting anyone in particular.

Pac Bell spokesman said PUC decision “comes at a critical time for telecommunications consumers.” Carrier said it “looks forward to the CPUC endorsing this recommendation so we can begin offering our customers the full range of telecommunications services. With all the turmoil in the industry, consumes would benefit from having a solid, secure alternative for all their communications needs.” Pac Bell said it had complied with more than 250 conditions imposed by PUC to ensure its local markets were open to competition, and its wholesale operation had been processing more than 12,000 orders per day from more than 80 CLECs in state.

But consumer advocates warned that premature interLATA entry by Pac Bell could inflict more damage on already ailing long distance carriers and if there weren’t adequate safeguards against anticompetitive conduct, Pac Bell could gain disproportionate share of long distance without having to offer competitive prices and service quality. Cal. Office of Ratepayer Advocate said PUC vote to adopt draft decision “will be an expensive one for millions of California consumers. They [Pac Bell] already have a monopoly in California that makes it impossible for competition to exist in any meaningful way.” Mark Cooper, research dir. for Consumer Federation of America, said that if Pac Bell’s local markets were truly open, its long distance entry could provide significant consumer benefits, “but if its markets aren’t open, this will fall flat on its face.” Consumer groups said Pac Bell still had 81% share of business local market and 94% share of residential market.

Competitor AT&T said it was “stunned” that ALJ supported Pac Bell long distance entry considering many misgivings cited in draft order: “It says Pac Bell won the race even through the PUC finds they've tripped up all their competitors.”

Although 15 states have Bell long distance service today and 15 more are pending at FCC, Cal. market is nation’s largest and is about twice size of next biggest markets.