States Say Separations Process Too Burdensome on Local Ratepayers
An outdated “separations” process for splitting telcos’ costs of providing services between local and interstate jurisdictions inadvertently overburdens local ratepayers, the Pa. PUC told the FCC in comments filed Tues. The PUC also took a jab at the FCC for extending the current separations freeze without seeking comments on its effect (CD May 18 p13). “The PaPUC understands that the press of other regulatory matters… complicated, and possibly prevented, opportunities for comment on this extension,” the regulators said: “Nevertheless, the PaPUC is concerned about… the substantial intrastate rate implications.”
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In comments echoed by other state bodies, Pa. regulators said the separations process hasn’t kept up with technological change. It still allocates 75% of local loop costs to intrastate regulation, though the local loop increasingly is used to provide “federalized and unregulated information services” such as DSL, VoIP, BPL and ISP services, the PUC said. These increasingly local costs “may constitute an unacceptable cost shift to intrastate regulators,” the PUC said: “This could occur if local loop costs and other equipment charges are allocated primarily, if not exclusively, to intrastate regulators although the revenues attributable to use of these intrastate facilities and equipment are classified as ‘interstate’ revenues.”
The FCC extended the 5-year-old separations freeze by 3 years, so it should take “remedial” action when it acts on new separations rules, the PUC said. When the FCC extended the freeze in May it also began revising the separations system and asked for comments. The reason for separations was to make sure local and interstate costs weren’t recovered twice, from both local ratepayers and charges to long distance companies, a concept commenters called outdated.
Jurisdictional separations has become “outmoded as a result of seismic changes in the industry,” said the National Assn. of State Utility Consumer Advocates (NASUCA). Unless the cost separation process is changed, “consumers will suffer from rates that are substantially out-of-line with underlying costs,” NASUCA said in comments. A “fundamental principle of the competitive market is that prices will not subsidize other areas of the competitive firm’s endeavors [but] that is not the case” due to the outdated separations rules, NASUC said.
Customers in Wis. haven’t been harmed by the freeze, the Wis. PSC said. Large incumbent phone companies are regulated under alternative price cap rules, “shielding their customers from possible negative impacts of misallocation of costs that may be attributed to a freeze of separations factors,” the PSC said. Smaller ILECs haven’t been affected because they aren’t yet “heavily into the offering of services that do create some potential separations issues,” the PSC said. But problems easily could arise as new services evolve, so the FCC must act on the issue, the PSC said: “To permanently extend the freeze and to not explore and consider more substantial changes to separations policy and mechanics would fail to recognize the real, and continuing, evolution of the telecommunications marketplace.”
As competition grows, the FCC “should move toward ending separations” USTelecom said: “Not only are jurisdictional separations of no benefit to consumers during the last days of rate regulation, but the process is increasingly arbitrary and disconnected from any meaningful measure of telecommunications market costs… Indeed, the Commission itself recognized that current separations procedures are becoming even more capricious as the industry moves to broadband and packet-based voice services.”
But until competition can replace separations, the FCC should continue the freeze “indefinitely where it is still useful” but “forbear from separations in jurisdictions under incentive regulation,” USTelecom said. And the agency should “prevent states from imposing any new or different cost allocation requirements,” the association urged.