CENT993_CGST994.BPbb.doc

Brad Purdy
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3472

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE JOINT APPLICATION OF CENTURTEL OF IDAHO, INC. AND CENTURYTEL OF THE GEM STATE, INC. TO REDUCE ACCESS RATES AND REBALANCE OTHER RATES FOR TELECOMMUNICATIONS SERVICE. )
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CASE NO. CEN-T-99-3/
CGS-T-99-4

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its attorney of record, Brad Purdy, Deputy Attorney General, and in response to the Notice of Application and Notice of Modified Procedure issued on October 20, 1999, submits the following comments.
The Commission received a Joint Application from CenturyTel of Idaho and CenturyTel of the Gem State, Inc. on September 2, 1999 requesting authority to rebalance its rates. More specifically, the Companies both propose to decrease intrastate access rates in a manner consistent with the requirements of the Telecommunications Act of 1996 and Idaho Code § 62-623; reprice local services to generate additional revenue to partially offset reduced revenues from intrastate access charges, and generally modernize the tariffs and service offerings. The Company does not seek a change in its authorized revenue requirement or an increase in company revenues. CenturyTel’s Application consists of proposed tariff revisions with an effective date of November 1, 1999, as well as Direct Testimony. The Company has requested that these cases be processed by Modified Procedure. By Order No. 28171 the Commission establishes Modified Procedure and suspends the tariff revisions pending the resolution of this case.
CenturyTel, Inc. is a fully regulated Title 61 company. The original Century Telephone Company served the Salmon, Leadore and North Fork exchanges in north central Idaho and it continues to serve these areas under the name of CenturyTel of Idaho.
These Comments address that portion of CenturyTel’s Application that applies to the northern central Idaho communities of Salmon, Leadore and North Fork (the area formerly known as Century Telephone Company).

Federal and State Requirements
As a part of the federal Telecommunications Act of 1996 (Telecom Act), Congress encouraged states to identify and reduce subsidies that were implicit in local exchange rates. Section 254 of the Telecom Act states that the availability of quality services at just, reasonable and affordable rates should be supported by specific, predictable and sufficient” support mechanisms rather than by implicit subsidies hidden in above-cost rates for other services. 47 U.S.C. Section 254(b)(1), (b)(5). The Federal Communications Commission, recognizing that access charge reductions are necessary in order to send the proper pricing signals to facilitate competition in the telecommunications marketplace, encouraged the states and federal government to take steps to remove the implicit subsidies that have long supported basic service:

[I]mplicit intrastate universal service support is substantial. States have maintained low residential basic service rates through, among other things, a combination of: geographic rate averaging, high rates for business customers, high intrastate access rates, high rates for intrastate toll service, and high rates for vertical features and services such as call waiting and call forwarding. . . . [B]y ordering that the Commission and the states together achieve universal service goals, Congress intended that states . . . must in the first instance be responsible for identifying intrastate implicit service and support.
In the Matter of Access Charge Reform, First Report and Order, FCC 97-158, CC Docket No. 96-262 (May 7, 1997) at para. 11.

In response, the Idaho Legislature directed the Commission to determine a mechanism for removal of the subsidies from the rates of incumbent telephone corporations. Idaho Code  62-623. The legislature specifically identified access charges as one of those implicit subsidies.

STAFF COMMENTS
Access Charges
CenturyTel proposes to withdraw from participation in the Idaho Rural Exchange Carriers (IREC) access charge tariff and file its own access tariffs that will expand the Company’s local transport structure. Its proposed access tariffs were submitted as part of this Application.
The proposed tariffs show a reduction of the composite switched access rate for services provided to interexchange carriers from $0.1599 cents per minute to $0.0600 cents per minute. A detailed breakdown of the rates that comprise the composite elements is shown in Attachment A. CenturyTel proposes to restructure its access rates in a manner that conforms to the federal goal of identifying traffic-sensitive and non traffic-sensitive costs and revenues. The Company establishes per-minute switching and termination rates, and per-mile per-minute transport rates. This rate structure provides more flexibility for carriers who will benefit from a choice of dedicated (direct) or switched (common) transport facilities. Non-traffic sensitive costs are assumed to be included in the carrier common line charges that are residually set to achieve CenturyTel’s target of $0.06 per minute.
The Company’s access charges, which are clearly priced well above the actual cost of providing access, could well be viewed as a form of subsidy. The Idaho legislature required, as stated in Idaho Code ( 62-623, that such subsidies are to be reduced. CenturyTel has identified many of its access cost items and proposes to reduce its overall access rates by nearly $.10 per minute using a two-phase implementation that will bring its Idaho access rates closer to its interstate rates. By bringing the composite rate down to levels approaching statewide average, the Company would reduce its access rates approximately 62% and also accomplish the stated goals of reducing subsidies implicit in current access rates, a move consistent with the requirements of the federal Telecommunications Act of 1996.
CenturyTel proposes to introduce these rate changes in two steps — an initial transitional step followed by full implementation in one year. The initial step reduces the composite rate by one half of the target amount to a composite rate of $0.10934 for CenturyTel. The second step is a further reduction of carrier common line rates to bring the composite rate to $0.06 per minute. Century’s target rate of $.06 per access minute is consistent with the rates targeted by other Idaho telephone companies in their rebalancing efforts. Staff believes this reduction to $.06 per minute is sufficient at this time. The implementation of this rate reduction in two steps allows the Company to also phase in its offsetting local rate increases, thus reducing the “rate shock” to its local customers. Staff does not oppose the phase-in process.

Basic Service Rates
As would be expected, a decrease of this magnitude in CenturyTel’s access rates will result in a significant shortfall in revenue. CenturyTel proposes several changes to its local service rates in order to offset, at least partially, the reduction in revenues that will result from the proposed change in access rates. Attachment B shows the first and second phases and the total amount of the proposed changes CenturyTel plans to implement. CenturyTel expects that the proposed changes will modernize and simplify CenturyTel’s rate structure.

Local Service
CenturyTel’s plan would increase basic local business and residential rates in two phases to 125% of the statewide average rates in Idaho – rates consistent with the requirements for participation in the state Universal Service Fund. CenturyTel currently charges diverse rates for the Salmon, Leadore and North Fork exchanges, with urban one-party business rates ranging from $29.20 to $36.00 and urban one-party residential rates ranging from $15.20 to $17.20. This proposal would eliminate the differentials in these rates in the first phase of its plan.
The first proposed rate change would convert all remaining four-party service to single party service and bring residential service to $19.34 and business service to $36.14 for all exchanges. For residential customers, this represents a rate increase of about $1.14 for the North Fork exchange, $2.14 for the Leadore exchange and $6.94 for the Salmon exchange (not including the $0.70 decrease per customer realized from the elimination of touch-tone charges discussed below). Business customers will see an increase of $2.14, $2.84 and $4.14 respectively. CenturyTel notes that “these transition period prices are only modestly higher than current prices, particularly for customers in Leadore and North Fork, and could actually be a reduction for customers located outside [the base rate area].”
Staff assumes that new customers receiving service after this first phase has been implemented will pay the same rate for monthly service as the existing customers, and will see the same rate increase implemented at the beginning of the second phase. The tariffs should be clear on this issue and the Company should be sure to discuss the pending rate changes with new customers when they subscribe to service.
The second phase of CenturyTel’s proposal will, after a year, increase all residential rates again by $3.63 for residential and $1.94 for business exchanges, to reach $21.28 for residential and $39.77 for business customers. Attachment A shows the proposed first and second rate changes for each type of service and the total of each rate increase. It is important to note that although CenturyTel proposes to set its rates equal to125% of statewide average, which is consistent with Idaho USF funding requirements, CenturyTel does not propose to receive draws from the USF at this time.
Staff agrees with CenturyTel that the proposed rates appear consistent with other rural telephone companies in the State and are significantly less than those companies that have expanded calling areas. Staff also agrees that the plan to phase in the rate changes help the customers adjust to these significant rate increases. Customer notice is required to be given 30 days prior to the implementation of rate changes. Staff recommends that in addition to the notice that is required at the onset of this plan, that the Company also give a 30-day “reminder” notice before the implementation of the second phase. This notice could be accomplished by a bill stuffer, separate mailing or a statement printed directly on the bills.

Rural Mileage Charges
CenturyTel proposes to eliminate the $1.00 per quarter mile rural mileage charge, which is capped at $12.00 per month, for service outside the base rate area. The current average mileage charge is about $9.50 per line. However, CenturyTel has requested a $3.00 flat rural additive for residential and a $6.00 flat rural additive for business customers that are included in the basic rates.
CenturyTel maintains that this rural additive is reflective of the higher cost of providing rural service in an area where mountains, rivers and hard rock prevail. The Commission has discouraged additional charges for the provision of rural service for several years since new technology has made distances less and less significant. In this case, Staff supports CenturyTel’s plan to significantly reduce charges for rural services but retain these relatively small differentials for several reasons. Many of the areas that CenturyTel serves are truly difficult to access and there is little question that rural lines cost more to provide than urban lines. Urban customers should not be required to bear the full cost of reaching customers in these remote areas. In addition, the Federal Communications Commission has called for a deaveraging of wholesale rates charged to competitors, and it will be difficult to maintain averaged retail rates if competitors can purchase wholesale products at deaveraged rates. The proposed changes can be viewed as consistent with the Legislative charge that implicit subsidies be removed from the rates. Finally, CenturyTel will not recover its full revenue requirement in this rebalancing effort and will probably request a rate case in the near future. Staff believes that a full rate case would present a better opportunity to examine the costs of providing rural service and the other factors that should be considered. The current rural/urban rate differences will be significantly reduced by this plan.

One Party Service
One-party service has been one of CenturyTel’s goals with its recent plant modification and upgrade. Although conversion to one-party service has been available to CenturyTel customers for several years, there are still 18 business and 241 residential customers who have not yet converted their service. With the first phase of CenturyTel’s rate changes, which includes the elimination of rural zone charges, multi-party service will no longer be made available and all customers must convert to one-party service.
The conversion to one-party service will ultimately benefit the customers in that it will allow such calling features as Caller ID and Last Call Return, and will also allow high speed data connections for Internet and other new services.

Touch-Tone Charges
CenturyTel proposes to eliminate the Touch-Tone additive of $0.70 per month. Since Touch-Tone has become an integral part of modern telecommunications services and is provided by most switches at no additional cost to telephone companies, Staff agrees with CenturyTel that these charges should be eliminated.

Directory Assistance
To more closely recover its costs to provide Directory Assistance, CenturyTel proposes to reprice Directory Assistance calls to $0.50 per call and eliminate the monthly “free call allowance.” The elimination of “free” calls is consistent with the practices of other telephone companies and eliminates potential “subsidies” where customers making multiple calls are paying for the “free” calls of other customers. CenturyTel anticipates less than $10,000 of annual revenue as a result of this change.

Other Services
The Company further proposes to reprice custom calling features and other services to be more consistent with statewide rates. Additionally, the Company would price payphone, key and PBX services at regular business rates. The full list of proposed revisions is included in Attachment A.

Local Measured Service
Customers who find these increases to be too high and who do not make a large number of local calls may find relief in CenturyTel’s proposed new Local Measured Rate service. Local Measured Service is proposed at $8.00 less than the fully phased in flat rated service. That is, residential measured service will be $13.28 per month and business measured service will be $31.77 per month for non-rural customers ($16.28 and $37.77 for rural customers) and will include a 90-minute allowance for local calls. Local minutes of use in excess of the monthly 90-minute allowance will be billed at $0.03 per minute. These rates are very similar to those of other independent telephone companies. CenturyTel estimates an approximate $20,000 reduction in revenue through the provision of this service. Customers who do not spend a lot of time on the telephone will benefit from this plan even though the minutes for all local calls will be counted and applied to the minimum allowances. Many people can realize a significant savings by using this plan.
Staff recommends that the Company provide some type of billing detail to be optional to customers using the measured rate service. If this service is to be provided for a charge, it should be reasonably priced and included in the tariff. Staff also recommends that the Company’s tariffs be revised to clarify whether a single customer can mix flat and measured services on the same premises. Staff further recommends that the Company allow a period of ninety days when the customers can change to or from measured service without incurring a nonrecurring charge. This will allow customers to move to or from their flat or measured calling plan as they find the option that best fits their calling patterns.

Idaho Telephone Service Assistance Program
The proposed rates may create difficulties for certain CenturyTel customers who have low incomes. The recent revisions to the Idaho Telephone Service Assistance Program (ITSAP) have increased the amount of assistance provided and the number of customers who will be eligible for assistance. Eligible ITSAP customers will now receive credits to their monthly charges for local service that can total up to $10.50 per month.
Customers qualifying for this program would be able to obtain measured rate services, for example, for less than seven dollars a month plus the cost of their local calls at $0.03 per minute. Staff believes that ITSAP can provide the necessary relief to those customers who would find it most difficult to pay the proposed increases.

Consumer Issues
CenturyTel of Idaho has done a very good job in dealing with the concerns of its customers. The history of Commission complaints and inquiries from January 1, 1996 through September 30, 1999 indicates that only 69 customers have contacted the Idaho Public Utilities Commission during that three and a half year period. Thirty-six were inquiries of an informational nature, and were not investigated. An analysis of those complaints indicates that nearly one-half involved rate or policy issues, and of these, twenty-two were seeking relief from the rural zone charges. Five families called requesting a single-party line and four called anxious to have equal access. These issues became obsolete when CenturyTel upgraded their system several years ago. Only 11 customers had contacted the Commission in regard to billing issues, and there was one held order due to needed construction. Not a single customer asked for Commission assistance in working out reasonable payment arrangements with the Company. Staff would be remiss if it didn’t take this opportunity to acknowledge and compliment the Company’s effective customer service methods.
The Consumer Division notes that, due to a misunderstanding, CenturyTel did not file a copy of the press release announcing its Application as required by Commission Rules, nor did they send out a press release. Soon after Staff brought this matter to the attention of CenturyTel, the Company issued a press release to all appropriate media. In addition to that public notice CenturyTel agreed to individually notify customers of the Application and the public meetings to be held about the middle of November.

Recommendations
CenturyTels proposal does not result in additional revenue or income being received by the Company and, in fact, reduces revenue and income. It reduces access rates, removing some of the implicit subsidies that have historically been used to supplement local rates. The rate increases are large for local service, but given the mandates of federal and state lawmakers, they are unavoidable. CenturyTel’s proposal tends to equalize the effect of the costs of providing telephone service among its urban and rural customers in the three exchanges. Additionally, the Company has proposed a two-step introduction of increased rates in order to mitigate the “rate shock” some of its customers will experience and has introduced a local measured service plan that may reduce the costs of basic service for customers who do not make a large number of local calls.
Staff recommends that the proposal submitted by CenturyTel of Idaho be accepted as submitted with a few modifications: 1) The Company will be required to issue two customer notices — one at least 30 days before the implementation of the first phase of the plan, and the second at least 30 days before the implementation of the second phase. 2) CenturyTel’s proposed tariff should be revised to include a clarification that new customers who arrange for service during the interim period will be charged the same rates as existing customers and will be notified of the pending second-stage increase. 3) Customers should be given a 90-day trial period (ending three months after the new rates are implemented) to try the new measured service and determine whether it will work for them. 4) CenturyTel should modify its proposed tariff to restrict customers from mixing measured and flat rate service on the same premises. 5) CenturyTel should include in its tariff an optional item that provides measured service customers with call detail records.

Respectfully submitted this day of November 1999.

___________________
Brad Purdy
Deputy Attorney General
Technical Staff: Birdelle Brown
Carol Cooper

BB:va:word:u/umisc/cent993_cgst994.BPbb
COMMENTS OF THE
COMMISSION STAFF 1 NOVEMBER 5, 1999