TELECOM CARRIERS, GROUPS MULL FUTURE OF ‘ALL-OR-NOTHING’ RULE

The commenters also discussed the specific incentive regulation proposals being considered by the FCC: (1) The CenturyTel proposal, which would allow a ROR carrier to elect a modified price cap plan for some of its study areas. (2) The ROR Carrier Tariff Option proposed by Alltel, Madison River and TDS, which would expand the availability of the existing Sec. 61.39 tariff filing option to all ROR carriers, not just those with 50,000 lines or fewer.

The FCC should eliminate the “all-or-nothing” rule, USTA said. It said the portion of the rule that remains in effect “continues to inappropriately regulate carriers on a one- size-fits-all basis.” It also continues to “discourage small and mid-sized rural carrier from acquiring rural access lines from large price cap companies and from making investments to improve rural access lines and to offer new and advanced services to consumers,” it said. USTA said the Commission’s earlier modification of the rule was “a step in the right direction.”

USTA said the concern of improper cost shifting between a price cap affiliate and an ROR affiliate that prompted the rule had “never materialized.” It said there were also “numerous safeguards other than [the] all-or-nothing rule” for detecting and preventing improper cost shifting. It said ILECs must comply with numerous rules in accounting, separations, regulated vs. unregulated services, maintenance of cost allocation manuals, affiliate transactions and tariffing requirements.

Sprint urged the agency to modify the “all-or-nothing” rules to allow ROR carriers to select currently available price regulation options at the study area level. It also said it supported price cap regulation for ILECs, because it “promotes efficiency” and “rewards consumers and investors for cost reductions.” It said ROR regulation provided “incentives for excessive levels of investment and expense which are ultimately funded by access and end-user customers. Unlike price cap regulation, the ROR regulatory regime fails to link consumer and investor interests.” Sprint urged the FCC to permit ROR regulation “only for the smallest of ILECs, if any.”

MCI urged the Commission to make price cap regulation mandatory for all ROR carriers that control 100,000 lines or more. It said that was necessary because of: (1) “The uncertainty surrounding the enforceability of rate-of-return regulation.” (2) “The growing risk of improper cost allocation by those companies.” (3) “Ample evidence that large holding companies can operate successfully under price cap regulation, even when those lines are spread across several study areas or the study areas qualify as ‘rural.'”

“The Commission should not mandate the imposition of any incentive plans but make the plans optional to rate of return carriers,” the National Telecom Cooperative Assn. (NTCA) said. It said both proposals contained “a feature that would permit a ROR carrier operating multiple study areas to move some, but not all, of its study areas to incentive regulation.” It said while none of its members were operating under price caps, it supported the FCC’s conclusion that ROR companies “should be permitted to elect participation in either of the 2 proposed plans on s study area basis. Abrogation of the ‘all-or-nothing’ rule with respect to these new options will allow NTCA members companies that engage in mergers and acquisitions to choose the most efficient and suitable regulatory regime and corporate structure for acquired exchanges.”

NECA said while the Commission should make optional incentive plans available for ROR carriers, it “should not, however, require holding companies seeking to take advantage of such alternatives to withdraw non-incentive plan study areas from the NECA pools.” It said “allowing carriers to leave non-incentive plan study areas in NECA’s pools increases rather than decreases assurance that companies will comply with Commission’s accounting and affiliate transaction rules.”

OPASTCO agreed, saying the agency “should allow ROR carriers to elect alternative regulation and remain in the [NECA] pools.” It said the use of rate banding techniques would “accommodate incentive regulation within the pools in a manner which would address the Commission’s concerns. Allowing carriers wishing to choose alternative regulation to remain in the pools would help keep the pools strong for all carriers” and would result in “more carriers electing alternative regulation that may not have considered it otherwise.”

NECA also urged the FCC to avoid limiting the availability of optional incentive plans to nonpooling companies. “Existing NECA pooling processes can be adapted to accommodate the proposed incentive regulation plans, allowing carriers to retain the administrative benefits associated with pooling as well as benefit from incentives to reduce costs and improve productivity.”

AT&T urged the FCC to adopt a modified version of the CenturyTel plan and make it mandatory at the holding company level for all ROR LECs with more than 50,000 lines. It said the Commission should also require LECs with less than 50,000 lines to “either elect the CenturyTel plan or operate under a modified version of the Alltel plan.” AT&T said “removing implicit subsidies from the traffic sensitive access charges of ROR carriers and recovering them in an explicit manner through the Universal Service Fund are critical modifications necessary to sustain local competition, universal service and nationwide geographic rate averaging of long distance services.” For special access, it said “a productivity or X- factor should be adopted to ensure that revenue growth tracks underlying cost growth and that consumers benefit from carriers’ increased efficiencies.”