WSR 98-12-071
PROPOSED RULES
UTILITIES AND TRANSPORTATION
COMMISSION
[Docket No. UT-970545--Filed June 1, 1998, 3:45 p.m.]
Supplemental Notice to WSR 98-03-011.
Preproposal statement of inquiry was filed as WSR 97-09-023.
Title of Rule: Defining minimum local calling areas.
Purpose: To define when service is sufficient with respect to the scope of subscribers' available local calling area.
Statutory Authority for Adoption: RCW 80.01.040, 80.04.160, and 80.36.140.
Statute Being Implemented: RCW 80.36.080.
Summary: The proposal would require that each local exchange telephone company shall provide as part of its basic flat rate service a local calling area adequate to allow customers to reach community services, including medical facilities, police and fire departments, government offices, and elementary and secondary schools.
Reasons Supporting Proposal: Telephone subscribers in most existing exchanges can reach a diversity of basic services without incurring high toll charges, either because their exchanges are extensive, or because the exchange has been combined in the past into a larger local calling area. However, in some exchanges, people still must pay toll charges for most of their calls to reach basic services or other integral parts of their local community. To ensure that service is sufficient for all subscribers across the state, it is necessary to define a minimum scope of local calling.
Name of Agency Personnel Responsible for Drafting: Jeffrey Showman, 1300 South Evergreen Park Drive S.W., Olympia, WA 98504, (360) 664-1212; Implementation and Enforcement: Carole Washburn, Secretary, 1300 South Evergreen Park Drive S.W., Olympia, WA 98504, (360) 664-1174.
Name of Proponent: Washington Utilities and Transportation Commission, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: The rule would require each local exchange telephone company to provide as part of its basic service a local calling area adequate to allow customers to reach community services, including medical facilities, police and fire departments, government offices, and elementary and secondary schools.
Telephone subscribers in most exchanges can reach a diversity of basic services without incurring high toll charges, either because their exchanges are extensive, or because the exchange has been combined in the past into a larger local calling area. However, in some exchanges, people still must pay toll charges for most of their calls to reach basic services or even other parts of their local community. The purpose of the rule is to help ensure that local telephone service is sufficient for all subscribers across the state.
The effect of the rule would be to allow subscribers in exchanges that currently have little or no local access to some basic services for their basic telephone rate to obtain such access by incorporating their exchanges into a larger local calling area with other, nearby exchanges.
Proposal Changes the Following Existing Rules: Rule would replace existing rules governing the expansion of local calling areas, WAC 480-120-400 through 480-120-435, which would be repealed.
A small business economic impact statement has been prepared under chapter 19.85 RCW.
Small Business Economic Impact Statement
minimum local calling areas
WUTC Docket UT-970545
Proposed repeal of WAC 480-120-400 through 480-120-435 "Extended Area Service"; and new section(s) to be added to chapter 480-120 WAC, under the title of "Basic service to include a minimum local calling area" (WAC 480-120-045), applicable to all local exchange telecommunications companies.
For more explanation see the 3/25/98 and 5/27/98 Open Meeting backup memorandums on this topic. A copy can be obtained by calling (360) 664-1234 and referencing UT-970545, or by accessing the commission's website for this proceeding at: http://www.wutc.wa.gov/ "Industry News," "Telephone Matters," "Minimum Local Calling Area Rule," "See Related Documents" at the bottom of the page.
Background: The Washington Utilities and Transportation Commission (WUTC) is proposing a new section applicable to all local exchange telecommunications companies (a subset of SIC 4813; see Appendix 1 for list) operating in the state of Washington.
This new rule is intended to address a clear problem in Washington state: Customers in many local telephone exchanges cannot call basic community services, such as schools, medical facilities, government offices and businesses, without paying toll charges. This really is two problems: (1) Insufficient local calling capability, due to the historic, ad hoc, and somewhat arbitrary nature of local exchange boundaries, and (2) access charges paid by toll calling. This rule making attempts to solve the first problem; the second is being addressed in the access charge reform docket (see UT-970325 and proposed WAC 480-120-540).
Essentially, the goal of the proposed rule is to make Washington's local calling areas more equitable among customers within and between companies, and to reflect today's social, civic, and economic realities.
The Washington Utilities and Transportation Commission (WUTC) is proposing to define a minimum scope of local calling as part of basic telephone service. Telephone subscribers in most exchanges can reach a diversity of basic services without incurring high toll charges, either because their exchanges are extensive, or because the exchange has been combined in the past into a larger local calling area.
However, in some exchanges, people still must pay toll charges for most of their calls to reach basic services or other integral parts of their local community. To ensure that service is adequate and sufficient for all subscribers across the state, the commission is proposing to define a minimum scope of local calling. These changes are consistent with Federal Communications Commission (FCC) rules and policies. The commission has authority to set local exchange boundaries and to regulate service quality.
Summary of Proposed Amendments: The proposed rule would: (A) Require each local exchange telephone company to provide as part of its basic flat rate service a local calling area adequate to allow customers to reach community services, including medical facilities, government offices, elementary and secondary schools and a primary commercial center, and exchanges which clearly meet this criteria; (B) allow for optional local calling plans; (C) require implementation within ten months; (D) provide for commission review of customer notification materials.
Stakeholder Involvement: This statement has been developed based upon cost estimates from previous comments in this rule-making docket, the small business economic impact statement (SBEIS) prepared for the access charge reform rule making (Docket No. 970325), cost information from previous extended area service (EAS) filings and commission records, and interviews with company representatives.
The analyses and conclusions are not the result of a consensus, but rather are based upon consideration and judgement of the issues presented by the various parties.
Since the initial proposed rule (CR-102) was filed, comments have been received and considered. Based upon input from companies and consumers the rule has been modified in ways to reduce implementation costs while at the same time increasing its effectiveness towards reaching the intended goals.
Professional Services Possibly Needed (and Other Potential Impacts): In order to comply with these new requirements, a local exchange company may require the following professional services: Engineering consultant to determine facilities requirements, tariff consultant to prepare and file the required tariff changes, legal counsel to negotiate interconnection agreements and defend any cost study and/or tariff filing, billing systems update to implement the required tariff changes, and other administrative functions as may be necessary. In addition, a company may incur capital costs to install new trunks (fiber-optic cable or wire) and switches, as well as installation and engineering costs. Companies may also forego some revenues from access charges, foreign exchange, and toll services.
Costs of Compliance: Determining the precise cost of compliance of the new rule is not an easy task because of the number of exchanges affected (possibly as many as 100 required to implement new routes under the discussion draft), the difficulty in measuring precise mileage and producing specific engineering studies for each; whether or not to include the elasticity (stimulation) effects of shifting to a "free" commodity (i.e. moving from per-minute toll usage to unmeasured, unlimited free local calling can increase demand up to 200%, requiring additional investment in network facilities in both terminating and receiving exchanges), etc. In addition, mitigation measures through the revised proposal will also have varying effects on compliance costs on different companies depending on the adequacy of each company's current local calling area(s). Given this fact, it is essential to recognize that not all companies, and especially not all small companies will necessarily be impacted by this rule; and if so, to varying degrees based on company and situation specific information. To that end this statement is a reflection of what a "worst case scenario" might be for a small business. Finally, any costs incurred as a result of the proposed rule should be compared against the alternative cost of complying with the existing EAS rule (which would be fairly similar).
With the caveats explained above, local exchange telecommunications companies may experience the following estimated impacts (see also Appendix 2 for the workpaper with comparison calculations):
| Cost element: | Small company: | Large company: |
| Engineering study1 | $1,500 | $6,000 |
| Capital costs2 | $30,000 | $2,280,000 |
| Lost Revenue3 (access, foreign exchange, and toll) | $50,000 | $2,000,000 |
| Negotiate1 interconnection agreement | $2,000 | $10,000 |
| Tariff filing | $2,000 | $3,000 |
| Notification: | $1,000 | $30,000 |
| Billing Changes | $2,000 | $15,000 |
| Administrative | $2,000 | 0 |
| Total Impact: | $90,500 | $4,344,000 |
Net impact with mitigation $21,500
1 Note: These numbers have been amortized over a five-year period.
2 Note: These numbers have been annualized by applying a 30% annual charge factor.
3 Note: Lost revenue is not necessarily "cost based," see UT-970325.
Detail: Engineering study: Companies must analyze current and potential calling between two exchanges, determine the capacity necessary to provide sufficient service (i.e. the number of trunks and switches sufficient to handle the estimated number of calls), map the system and determine infrastructure requirements.
Capital Costs: Once a route is determined, the company must install facilities. These depend on both the distance between central offices, the number of trunks and switches installed, and any other facilities that may be needed. Facilities may be necessary to augment existing facilities, if sufficient capacity is not available.
Negotiate Interconnection Agreements: If the target exchange belongs to another local exchange company, a company may have to negotiate one or more interconnection agreements. The final decision on access charge reform rule making in Docket UT-970325, will impact the necessity of individual agreements and the level of intercompany compensation for terminating traffic. The proposed rule (CR-102) in Docket UT-970325 would eliminate the need for company specific interconnection agreements on a case by case, route by route basis; in place of being able to purchase cost-based terminating access service "off the shelf" of each local exchange telecommunications company's tariff.
Lost Access Revenue: For each minute of toll calling that is converted to local calling, a company may will likely lose forego originating access charge revenues (or toll as applicable) from its own customers, and potentially terminating access revenue for those routes the company establishes pursuant to local interconnection agreements. If the rule making in Docket UT-970325 is adopted there will be less terminating access revenues to lose, and more of an opportunity to avoid the cost of entering into local interconnection agreements as a result of this rule. Therefore, the access charge reform rule making could have a profound impact and mitigation effect on the cost of implementing the minimum local calling area rule in this proceeding.
Interstate cost shift to intrastate jurisdiction. For those companies who calculate costs on an embedded basis, using the fully distributed cost allocation methodology employed by the FCC's Part 36 and 69 (CFR 47), may experience a shift in costs to the state jurisdiction depending on how the actual subsequent traffic patterns develop and impact the associated relative use allocation factors. For purposes of this analysis no amount has been quantified, but companies may justify it on a case by case basis.
Mitigation:
Cost impacts may be mitigated by several measures, including:
Expanding the list of communities in subsection (2), to reduce the potential length of trunk lines, and to recognize exchanges with current adequate local calling.
Providing a waiver process in cases where local calling is adequate, but the exchange cannot reach a community on the list.
Providing an exemption for companies that have already offered mandatory EAS plans under the previous rule.
Allowing an optional local calling plan to substitute for minimum local calling area if it meets the intent of the rule and is available at a comparable price.
Allowing phased implementation.
Allowing a local exchange company to recover costs at the time they file tariffs, e.g. by allowing them to pass through a per-line rate increase capped at a certain amount.
Implementation of access charge reform, Docket UT-970325.
Comparison of Costs: RCW 19.85.020 defines small companies as those local exchange telecommunications companies which have fifty or fewer employees. RCW 19.85.040 requires comparison with the largest companies, or those which comprise the top ten percent of the local exchange telecommunications industry.
A preliminary analysis of local calling capability indicates that only eight of the small businesses (local exchange companies) would need to take action in order to comply with the rule.
As can be seen from the "cost of compliance" chart above, the total costs and total impacts are estimated to be lower for small businesses. However, the proportionate costs can be illustrated by using the average cost per employee analysis (see below). Thus, the disproportionate effects of the proposed rule on small local exchange telecommunications companies can be evaluated.
The estimated costs per employee are provided below: (See Appendix #2 for details).
| Small | Large | |
| Employees: | 20 | 6,000 |
| Total Cost/Employee: | $ 2,025 | $ 391 |
| with mitigation | <175> | |
| Total Lost Rev/Employee: | 2,500 | 333 |
| with mitigation | 1,250 | |
| Total Impact/Employee: | $ 4,525 | $ 724 |
| with mitigation | 1,075 |
Although these costs per employee appear fairly high, one must compare to the other costs incurred and revenues realized in the telecommunications industry. In this context, an example of revenues per employee follows:
| Small | Large | |
| Employees: | 20 | 6,000 |
| Total Revenue: | $2.5 Million | $1.3 Billion |
| Total Revenue/Employee: | $125,000 | $217,000 |
The cost per one hundred dollars of sales revenue is another analysis which is useful in determining the relative (or proportionate) costs of implementing this proposed rule:
| Small | Large | |
| Total Sales/100: | $25,000 | $13 Million |
| Total Cost/Sales/100: | $ 1.62 | $0.1803 |
| with mitigation | <0.14> | |
| Total Lost Rev/Sales/100: | 2.00 | 0.1538 |
| with mitigation | 1.00 | |
| Total Impact/Sales/100: | $ 3.62 | $0.3342 |
| with mitigation | <0.86> |
As can be seen from each of these analyses, the proportionate total impact of implementing this rule will be disproportionate for small businesses in the local exchange telecommunications company industry. This outcome has been mitigated to the extent feasible as the result of the revised rule language proposed by the Washington Utilities and Transportation Commission, as explained further below.
Mitigation of Disproportionate Costs to Small Employers: Implementation costs have been addressed through mitigations included in the revised rule language - not only as reflected throughout the revised text, but as well as in specific subsection(s) geared specifically towards small businesses.
Capital costs may be necessary as a result of this rule. Foregone revenues are also a consideration in determining its overall impact. Other less material costs are more administrative in nature, yet in the aggregate contribute to the disproportionate effects on small businesses. Local exchange telecommunications companies are familiar with these costs, as they are an ongoing expense of running a business in the regulated (and capital intensive) telecommunications industry.
Because these capital and administrative costs are ongoing, small employers already experience disproportionate capital and administrative costs per employee as compared to large employers, in general.
This fact is also recognized in the economies of scope and scale inherent in the distinction between small and large employers within the telecommunications industry. Smaller employers usually have smaller operations and typically serve in the less dense and/or rural areas of the state (historically). Therefore, due to the capital intensive nature of the telecommunications industry smaller employers have become accustomed to disproportionately higher costs. There are currently in effect support mechanisms through federal and state universal service programs which help defray these distinctions between urban and rural (e.g. large and small) companies.
Other, newer companies known as competitive local exchange companies (CLECs) (who may also be relatively small employers but most likely are not rural) are not as entrenched as incumbent monopolies (both small and large). These CLECs incur initial start-up costs to provide service regardless of this rule, and any CLEC can be expected to offer service only to places in Washington state for which there is calling demand. Since the list of communities in the rule encompass the primary communities in the state, it seems reasonable to assume that any CLEC will already offer service to at least any cities listed in the rule. Thus, the rule will not add costs for new entrants.
As can be seen from the "cost of compliance" chart above, the cost impacts on small businesses are estimated to be about $90,500. Since regulated companies can recover increased costs from ratepayers (who may be small businesses, which is addressed in the next section), there is always the option of a general rate increase request. However, that may not be necessary given all of the proposed mitigations now included in the revised proposed rule language. (The total impact on small business has been reduced by over 75%, down to $21,500, as a result of the proposed mitigations).
Additionally, to the extent companies are rural and/or high-cost there are in place federal and state universal service funding mechanisms to defray the costs of providing basic universal service in these areas. Local usage and local calling areas have an impact on the affordability of basic universal service and therefore will be funded in order to meet the minimum level of service required for rural customers to have comparable and affordable telecommunications service. The goal of this rule is to ensure that all customers have access to the minimum local calling area necessary to meet that definition. Therefore, universal service funding may also be looked upon as a mitigation for small businesses, whose costs are otherwise higher than normal due to the rural/high cost nature of their serving territories.
Effect on Other Small Businesses Which Are Not Telephone Companies: The overall purpose of this rule is to establish a minimum scope of local calling. At present, inadequate scope of calling means many customers, including business customers, must pay for toll charges to reach basic community services. Defining a minimum local calling area will allow many small businesses in the state to lower their overall phone bills (an important basic cost of doing business), to expand their customer base, and to be able to reach Internet service providers. The rule should be an overall (composite) benefit to small business long-distance users.
Small businesses which use telecommunications services in their business may take advantage of expanded or enlarged local calling areas at affordable and predictable local rates.
However, because not all small business consumers have the same usage patterns, there may be instances where benefits are not realized. Additionally, for some small businesses it is hypothetically possible that this rule would adversely affect them to the extent that their current customers choose to shop in the larger cities added as a result of this rule. Although we cannot quantify any such impact, we recognize that this type of lost sales may occur and could be perceived as a problem. We are currently aware of no specific situation, but are cognizant. Nonetheless, we believe the overall benefit of community-based calling will outweigh the potential detriments.
The current toll charges which small businesses have to pay in order to reach their suppliers, employees, and other business associates often imposes significant operating expense on them. With the availability of the defined minimum local calling areas, small businesses will benefit from not only the reduced expense, but also from controllable phone bills given that fixed monthly rates will enable them to reach the community they locate in and also the nearby communities. Staff are not able to quantify other benefits as a result of this proposed rule, however, we believe that the benefits will outweigh the costs because the costs that may need to be recovered in the basic monthly rates will move downward, especially when reflecting access charge reform and universal service support initiatives.
Public comment received in this proceeding (up to this point) has also indicated a strong level of support from both small businesses and individuals alike.
A copy of the statement may be obtained by writing to .
RCW 34.05.328 does not apply to this rule adoption. The commission is not an agency to which RCW 34.05.328 applies.
Hearing Location: Commission Hearing Room, Second Floor, Chandler Plaza, 1300 South Evergreen Park Drive S.W., Olympia, WA 98504, on July 22, 1998, at 9:30 a.m.
Assistance for Persons with Disabilities: Contact Pat Valentine by July 16, 1998, TDD (360) 586-8203, or (360) 664-1133.
Submit Written Comments to: Paul Curl, Acting Secretary, P.O. Box 47250, Olympia, WA 98504-7250, FAX (360) 586-1150, by June 26, 1998.
Date of Intended Adoption: July 22, 1998.
June 1, 1998
Terrence Stapleton
for Paul Curl
Acting Secretary
OTS-1923.2
NEW SECTION
WAC 480-120-045 Basic service to include a minimum local calling area. (1) Each local exchange company shall provide as an element of basic service, a local calling area adequate to allow customers to call and receive calls from the following community services: Community medical facilities, police and fire departments, city or town government, elementary and secondary schools, and libraries. In determining whether an exchange has an adequate local calling area, the commission will consider the overall community of interest of the entire exchange.
(2)(a) For the purposes of this rule, the ability to call and receive calls from one of the following exchanges will be deemed to meet the requirements of subsection (1) of this section: Aberdeen, Anacortes, Auburn, Bellevue, Bellingham, Bremerton, Cathlamet, Centralia, Cle Elum, Colfax, Colville, Coulee Dam, Dayton, Ellensburg, Enumclaw, Ephrata, Everett, Forks, Friday Harbor, Goldendale, Kennewick, Kent, Lewiston (Idaho), Long Beach, Longview, Morton, Moses Lake, Mount Vernon, Newport, North Bend, Oak Harbor, Olympia, Omak, Port Angeles, Port Townsend, Poulsbo, Prosser, Pullman, Renton, Ritzville, Seattle, Shelton, Spokane, South Bend, Stevenson, Sunnyside, Tacoma, Vancouver, Walla Walla, Wenatchee, White Salmon, and Yakima.
(b) The commission may approve a local calling area that does not include any of the exchanges listed above if the local exchange company demonstrates that the local calling area is adequate to meet the requirements of subsection (1) of this section.
(3) Each local calling area for an exchange shall contain all intervening exchanges. Any change in calling area made as a result of this rule shall, as much as reasonably possible, conform to existing county and school district boundaries within the state and shall not reduce the existing calling area of any exchange.
(4) "Basic service" is the minimum service a local exchange company may offer.
(5) Each local exchange company shall offer a choice of local calling plans, including, at a minimum, flat-rated service to the entire local calling area, and local measured service to the entire calling area. Nothing in this rule is intended to prohibit companies from offering optional flat-rated or measured service plans to a larger or smaller geographic area.
(6)(a) Any local exchange company providing service for which the local calling area is not adequate to meet the basic service standard as required in subsection (1) of this section shall, within ninety days from the date this rule becomes effective, file tariff revisions showing projected costs and decreased revenues as a result of this rule, and an implementation schedule to make necessary changes to its calling areas. The implementation schedule shall provide for all revised calling areas to become effective no later than ten months after the date this rule becomes effective.
(b) Companies may request, and the commission may grant, an extension of this deadline if it determines that additional facilities are required and that a company cannot reasonably complete its service revisions within the required time.
(7)(a) Projected costs and decreased revenues resulting from implementation of this section shall be calculated as the net of all cost and revenue changes for access and local service and engineering and plant expense and investment.
(b) Any local exchange company may seek a concurrent increase in rates to recover in whole or part the projected costs and decreased revenues resulting from implementation of this section. The commission shall approve the increase if it is supported by the compliance filing required under subsection (6) of this section and is in the public interest.
(8) Any rate increase allowed under subsection (7) of this section shall be made by:
(a) Increasing local rates in exchanges receiving an expanded local calling area, up to the rate level, including existing charges for extended area service, paid by other similarly situated customers of the company; and, if necessary,
(b) Except as provided in (c) of this subsection, below, increasing local rates of all customers of the company by no more than $.25 per customer per month, unless the company demonstrates in a general rate filing that a larger increase is in the public interest.
(c) For any local exchange company that is a small business as defined by chapter 19.85 RCW, the limit on local rate increases for all customers in (b) of this subsection shall be $3.50 per customer per month.
(9)(a) Prior to filing a proposal to increase local calling areas, each company must notify its customers of any resulting changes in services or rates. Each company must submit to the secretary a draft notice for review before it is mailed to consumers. The company must design its customer notice to ensure that its customers receive adequate information about the change in order to understand the change, and determine whether to become involved in the commission's decision-making process. Customers must receive notice at least thirty days prior to the date it proposes to file its implementation plan and tariff.
(b) The notice shall contain an explanation of the new rates and conditions so customers can easily understand the changes and the impact it will have on them, including, at a minimum: A clear, brief explanation of the proposal, and any proposed change in rates; the requested effective date of the change; the implementation date, and a phone number for customers to reach a company representative if they have questions.
(c) Each notice must contain public involvement language as follows:
If you have questions about the filing and how it will affect you, please call . . . . . . . . (Company name & office phone number) . . . . . . . .. If you have questions about the ratemaking process, you may contact the Washington utilities and transportation commission at the following address:
Secretary
Washington Utilities & Transportation Commission
P.O. Box 47250
Olympia, WA 98504-7250
1-800-562-6150 (toll free)
Electronic mail: comments@wutc.wa.gov
The commission encourages your written comments, either in favor or opposition, regarding this proposal. Comments must be submitted in writing or presented at the commission's open meeting to be considered as part of the formal record. If you would like to be added to the commission's mailing list to be notified of the open meeting date, please call the toll-free number listed above and leave your name and mailing address.
(10) As common carriers, local exchange companies have an obligation to interconnect with each other to carry out the purposes of this rule. Interconnection agreements should be negotiated in good faith on an expedited basis. Existing interconnection agreements should be used to the greatest extent feasible. Any company which believes another company is not fulfilling its obligation to interconnect may file a complaint with the commission pursuant to RCW 80.04.110.
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REPEALER
The following sections of the Washington Administrative Code are repealed:
WAC 480-120-400 Purpose.
WAC 480-120-405 Definition of extended area service.
WAC 480-120-410 Local calling capability.
WAC 480-120-415 Determination of extended area service routes.
WAC 480-120-420 Revenue requirements and rate design.
WAC 480-120-425 Community calling fund.
WAC 480-120-430 Impact on current compensation arrangements.
WAC 480-120-435 Petition for waiver.