Signaling victory over one of the more complex issues in the move to competition in the local telephone market, regulators in Connecticut and New York have adopted rate plans for unbundled interconnection services offered by incumbent local exchange carriers.
Both states also recently approved the wholesale discount rate that the LECs must apply to existing services when offering them for resale by competitive companies. See Re AT&T Communications of New York, Inc., 173 PUR4th 274 (N.Y.P.S.C. 1996); Re So. New England Tel. Co., Docket No. 95-06-17, March 25, 1997 (Conn.D.P.U.C.).
Connecticut. The Connecticut Department of Public Utility Control has approved a set of rates for network services offered by the Southern New England Telephone Co. The department noted it had already certified 18 companies to provide local services in direct competition with incumbent carriers. The commission said that a schedule of charges was critical in establishing telephone competition in the state, because new carriers will enter the market by "rebranding, repackaging and reselling" the network services offered by Southern New England Telephone Co., and other carriers.
The department approved most of the schedule of fees Southern had proposed to charge new competitors in the local telephone market for its network services. The schedule was based on the TSLRIC method. Acknowledging the FCC's preference of the TELRIC analysis, the department said Southern's method "encourages the development, introduction and submission of alternative cost analyses for its review."
In a pivotal issue in the case, the department ruled Southern should develop network rates that include a 25-percent mark-up above the costs identified in the TSLRIC study to account for joint and common costs. It said that the proposed rates included a 35-percent mark-up on average which "may yet be too high in a fully competitive environment." Re So. New England Tel. Co., Docket No. 96-09-22, April 16, 1997 (Conn.D.P.U.).
New York. In a similar order, the New York Public Service Commission has refined its policies on pricing for LEC network elements (e.g., local loops, local switching and tandem switching) and has directed New York Telephone Co. to submit tariffs for such offerings.
The commission calculated its network rates using the TELRIC model submitted by New York Telephone. In reviewing the many proposals submitted, the commission found that proper identification of the incremental costs of each network element was the only way to ensure new market entrants make "economically efficient" decisions. Also the price will permit the LECs to recover reasonable costs, including a fair return, the commission said.
It noted that the principles developed in setting network rates aimed at the development of a competitive market for local telephone service "sound, in many ways, like those underlying traditional rate cases, in which regulators sought to determine the costs properly recoverable by the regulated entity and to allocate the recovery of those costs among customer classes in the most economically efficient manner, consistent with other policy considerations." Re AT&T Communications of New York Inc., et al., Case 95-C-0657 et al., Opinion No. 97-2, April 1, 1997 (N.Y.P.S.C.).
Federal Requirements. The Telecommunications Act of 1996 requires all existing local exchange carriers to make network services available to any requesting carrier. The services must be unbundled and nondiscriminatory.
The Federal Communications Commission has determined that prices for these services should be based on the "total element long-run incremental cost," or TELRIC model, along with some reasonable, forward-looking common costs. (The FCC's pricing provisions have been stayed by court order, but form the basis of pricing presented to regulators in both states.) TELRIC is often called an adaptation of the "total service long-run incremental cost," or TSLRIC method, under which individual network elements are priced rather than specific services.
Using these methods, regulators must determine how a carrier would efficiently structure its network and how much it costs a carrier to offer a particular service or network element. Regulators must then add some amount for company overhead costs. Considerable disagreement exists over what type of technology might be chosen for the new network.
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