Having committed to employing competition in the telecommunications local exchange carrier (LEC) market to elicit the broadest range of service offerings while ensuring fair rates, state commissions are now establishing regulations to put the new policies into effect. Current investigations focus on the proper costing and rate-setting methods for interconnection and transport services among newly competing carriers. In addition, state regulators are beginning to devise solutions to the problem of number portability: allowing customers to keep the same telephone number while switching carriers for their local dial-tone service. Who will provide a unified directory listing service is another question under consideration.

The Washington Utilities and Transportation Commission (UTC) has advanced efforts to transform the state's telecommunications industry from a monopoly to a competitive business. While rejecting tariffs filed by U S WEST Communications, Inc., an incumbent LEC that advanced an integrated carrier access and interconnection plan to accommodate alternative LECs and interexchange carriers (IXCs), the UTC set out its

polices on: 1) local interconnection, 2) local transport restructure, 3) expanded interconnection requirements such as virtual collocation, and 4) cost study and individual service-cost imputation requirements for unbundled local exchange service rates. The UTC also granted complaints brought by local service competitors against GTE Northwest Inc., another established LEC operating in the state, citing anticompetitive interconnection offerings. The UTC directed GTE to interconnect with the complaining companies on the same terms and conditions as it interconnects with U S WEST and other incumbent LECs.

In setting the framework for establishing rates for the interconnection service, the UTC ruled that the approved compensation mechanism must maintain a balance between the objective of promoting diversity in the supply of services and the responsibility to ensure that the incumbent carriers are fairly compensated. It adopted a "bill-and-keep" mechanism as an interim measure, finding serious flaws in all of the price-based compensation plans introduced by parties to the proceeding, including the per-minute "toll-type" access charge proposed by U S WEST. (Under the bill-and-keep method, each company terminates the traffic originating from other companies in exchange for the right to terminate its traffic on that company's network. Individual LECs and new market entrants theoretically bear a

proportional share of the overall costs associated with reciprocal traffic exchange.) The UTC concluded that the concept of mutual traffic exchange embodied in the bill-and-keep method represented a simple and reliable way for companies to interconnect and exchange services in a way that benefits their customers. The UTC said that in the future the LECs need to develop cost-based rates for specific interconnection services. It added, however, that usage-based rates were inappropriate because the costs underlying interconnection are primarily fixed. The UTC also said that further study is required to determine whether Total Service Long-run Incremental Cost (TSLRIC) is the appropriate cost measure. It said it was not yet prepared to accept the argument that rates must be set at TSLRIC to prevent incumbent LECs from earning profits on services provided to competitors. Washington Utilities and Transportation Commission v. U S WEST Communications, Inc. et al., Docket Nos. UT-941464 et al., Oct. 31, 1995 (Wash.U.T.C.).

The California Public Utilities Commission (CPUC) has also adopted the bill-and-keep method for telecommunications companies to receive mutual compensation for up to a year, effective January 1, 1996. During that time, the CPUC will hold hearings to assess the effectiveness of the method and determine whether it would be fair to adopt an alternative pricing scheme. (See, Re Open Access and Network Architecture Development of Dominant Carrier Networks, 161 PUR4th 509 (Cal.P.U.C. 1995).) More recently, the CPUC turned back claims by the state's incumbent LECs that the bill-and-keep requirement forced them to share their facilities with competitors and as such constituted an unconstitutional taking of their property without just compensation. The CPUC found that the method leaves both incumbent carriers and new market entrants responsible for their own costs with respect to call termination. It said that the allocation of costs under the plan did not reduce the overall return to LECs to such a low level to qualify as confiscatory under the developed case law applicable to regulated public service companies. Re Open Access and Network Architecture Development of Dominant Carrier Networks, R.95-04-043, I.95-04-044, Decision 95-09-121, Sept. 27, 1995 (Cal.P.U.C.).

As part of its ongoing process to establish a "level playing field" for competition in the LEC market, the New York Public Service Commission (PSC) has also approved a framework for intercarrier connection and compensation as well as directory listings and publication. The rules follow earlier rulings establishing interim requirements that apply to all entities intending to provide local exchange service, including implementation of an interim number portability plan and an investigation into the feasibility of "true number portability." (See, Re Continuing Provision of Universal Service, Case 94-C-0095 Sept. 25, 1995 (N.Y.P.S.C.).)

The PSC recently established a set of interim rules governing compensation eligibility for interconnection services provided by competing carriers. The rules differentiate between facilities-based LECs that do and do not provide the full range of local exchange services (business, residential, and lifeline). While most parties to the proceedings agreed on the broad goals and methods for implementing competition, a few of the specific proposals adopted by the PSC were more contentious, including: 1) equal meet-point rates for the exchange of local traffic amount carriers, 2) a flat-rate pricing option as an alternative to measured rate tariffs, and 3) intraLATA presubscription for all customers, including those served by new market entrants. The interconnection framework adopted by the PSC is based on an

access-charge system designed to stimulate the development of alternative sources for the purchase of a dial tone by customers. The access charge rate design includes a different, lower charge to be paid by facilities-based LECs. Service providers offering only "niche" services (e.g., business-only service), or those offering nonfacilities-based local service (e.g., IXCs) would continue to pay existing access charges. The PSC explained that the current access-charge levels include a contribution to the costs of universal service, and that no approved funding method recognized the need for a local network in providing all types of telecommunications services. Finally, the PSC required incumbent carriers to make directories available to new entrants for their customers. Under the interim rules, incumbent carriers will publish new entrant telephone listings without compensation. Re Continuing Provision of Universal Service, Case 94-C-0095, Sept. 27, 1995 (N.Y.P.S.C.).

Fulfilling one of the requirements mandated under a new state law designed to bring competition to the local exchange market, the Florida Public Service Commission (PSC) has approved a temporary solution to the problem of number portability for customers that switch among competing providers. The parties to the case have agreed that LECs shall offer remote call forwarding on a nondiscriminatory basis at a recurring per-line, per-month charge to certificated competing carriers. New market entrants must do likewise for LECs as of the date that they begin providing service. The

parties also agreed that flexible direct inward dialing is an appropriate alternative temporary solution, but that further negotiation between LECs and new market entrants was needed to implement rates and service terms and conditions. Re Temporary Local Telephone Number Portability Solution to Implement Competition, Docket No. 950737-TP, Order No. PSC-95-1214-AS-TP, Oct. 3, 1995 (Fl.P.S.C.).

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