Bells Urge Fewer Separations Requirements in Comments to FCC

AT&T said an initial round of comments in Aug. showed most parties agree separations isn’t needed under price cap controls. “These commenters generally agree that the separations process is a vestige of rate-of-return regulation that was designed to prevent local exchange carriers from recovering the same costs through both federal and state rates,” AT&T said. Price cap regulation -- which applies to the Bells and others, is “utterly divorced from cost,” AT&T said. “The separations process is out-of-step with today’s regulatory and competitive landscape, particularly with respect to local exchange carriers subject to… price cap regulation… and increasingly robust regulation,” the company said.

Verizon took a different tack, urging elimination of separations where regulators have dropped price regulation: “The Commission and many states have eliminated archaic price regulation and in these jurisdictions separations should be preemptively eliminated. Where states still utilize separations, the Commission should maintain the [current] freeze and reemphasize that it is binding on the states.” Simply modifying the separations process doesn’t account for “the efficacy of competition on constraining local telephone rates and the highly burdensome and counter-productive nature of their proposals.”

“Essentially all of the commenters in this proceeding agree on one thing: The jurisdictional separations process should be brought into line with the tectonic shifts that have occurred in the communications industry since the current separations rules were adopted,” said USTelecom. Local exchange companies now operate in very competitive markets, the group said: “In the long run, these fundamental changes in both market and regulatory conditions point to eliminating the Part 36 separations rules. In the near term, the rules are relevant only where traditional rate-of-return regulation still applies.” The FCC should start by eliminating separations for carriers that “either are subject to price cap regulation or deregulated at both the federal and state levels,” USTelecom said. “For other carriers, the Commission should largely extend the existing separations freeze pending a transition to price cap regulation or deregulation.”

The National Assn. of State Utility Consumer Advocates (NASUCA) saw matters differently: “Despite assertions to the contrary, separations rules continue to be an important tool for regulators.” NASUCA, made up of state consumer advocates, said “carriers’ efforts to discourage regulators from examining and enforcing proper cost assignment and cost allocation are thinly disguised efforts to protect carriers’ unregulated operations from bearing a fair share of the cost of common network facilities and resources.” Carriers want all the subsidy they can get for regulated, noncompetitive services while making sure their unregulated services pay as little as possible into subsidy pools, NASUCA said.

Qwest said most of those filing in the first round of comments “other than NASUCA, favored extending the existing separations freeze and acknowledge that separations requirements service little, if any purpose for carriers subject to price cap regulation.” Qwest said “NASUCA, on the other hand, is a strong proponent of more expansive separations regulation.” The company disagreed with NASUCA’s claims that competition isn’t broad enough to restrain rates or that “costs are over-allocated to intrastate regulated services.” Qwest said separations reform is necessary but should occur in concert with reform of intercarrier compensation and universal service.

“Some local exchange carriers apparently view this proceeding as another battle in their seemingly unending campaign to eliminate rate regulation,” said the Ad Hoc Telecommunications Users Committee, which represents corporate buyers of telecommunications services. “Contrary to the assertions of local exchange carriers, new technologies and changes in market conditions have not eliminated the need for jurisdictional separations, nor made separations impossible,” Ad Hoc said: “Contentions that cost assignment and allocation rules are onerous and counter- productive given contemporary digital networks are overstatements and erroneous. Carriers have used their networks for multiple services for decades and have long engaged in regulated and unregulated activities. During these many years, they have been subject to separations… There is nothing about digital networks that obviates the need for or practicality of such allocations.” There’s a very important reason to continue separations, the Committee said: “Accounting rates of return, which depend on separations, are still needed to evaluate the lawfulness of special access rates.”

Groups representing rural telecoms said separations reform shouldn’t happen until the FCC completes current proceedings on intercarrier compensation, universal service reform and IP-enabled services. “Pending such reform, the existing freeze should be maintained,” while making minor, technical changes to the rules, the joint filing said. The 5-year-old freeze on separations rules hurts states like Wash., the Wash. Utilities & Transportation Commission (WUTC) said: “The FCC’s separations freeze… produces a jurisdictional imbalance that risks subsidizing interstate investments by raising local exchange rates.” The freeze also has “led to uncertainty in intrastate ratemaking,” the Commission said, urging the FCC should quickly reform separations so the freeze can be lifted.