gnrt0039.Lnbbla.doc

LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5733

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 APPLICATION OF Z-TEL COMMUNICATIONS, INC. FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO PROVIDE LOCAL EXCHANGE TELECOMMUNICATIONS SERVICES. )
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CASE NO. GNR-T-00-39

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, and in response to Order No. 28734 issued on May 21, 2001, submits the following comments.
On November 29, 2000, Z-Tel Communications, Inc. (“Z-Tel”) filed an Application for a Certificate of Public Convenience and Necessity to provide local exchange service within the State of Idaho. Z-Tel requests that the Commission 1) grant authority to provide facilities-based local exchange telecommunications services in the State of Idaho, 2) grant the waivers requested in its Application, and 3) grant such other relief as the Commission deems necessary and appropriate. Z-Tel proposes to provide basic local exchange service to residential and business customers throughout Idaho as an adjunct to the long distance services the Company currently provides. These local services will be provided using the unbundled network element platform (UNE-P), which qualifies Z-Tel to be classified as a facilities-based provider. Immediately upon approval of its Application and the establishment of resale arrangements with Qwest, Z-Tel proposes to offer service in the Qwest service area and mirror Qwest's basic local calling scopes.
Z-Tel Communications was incorporated in the State of Delaware on January 15, 1998 under the name of Olympus Telecommunications Group. It has since changed its name to Z-Tel Communications, Inc., a subsidiary of Z-Tel Technologies, Inc. Z-Tel Technologies is a publicly traded company on the NASDAQ Exchange. The Company submitted a copy of its consolidated Form 10-K, containing audited financial statements for 1998 and 1999, as well as an unaudited statement for 2000. These reports consistently show significant sales growth (51% in 2nd Quarter, 2000) and a 36% increase in revenues (for the same quarter), with corresponding increases in debt that result in net losses. Losses have been funded primarily through operating revenues and security and stock offerings. Z-Tel states that because its Idaho operations are to be provided by UNE-P, its only costs will be for leasing the UNE-P and administrative and sales overhead. With assets approaching $150 million, Z-Tel appears to be capable of providing local service without imposing undue risk on its Idaho customers.
Z-Tel is one of the few competitive local exchange carriers (CLEC) specifically targeting the needs of residential customers. The Company intends to provide customers bundled telecommunications services including long distance, local exchange service, voice mail, selected custom calling features, access to emergency services, operator services and directory assistance. The Company currently offers a "seamless integration of personal organizational tools" so that customers can initiate calls, forward messages, and configure and manage their own service requirements over the Internet. Its Application describes the technical, managerial and financial qualifications it believes are required to provide local service in Idaho, and Z-Tel meets those requirements. The Company has more than 256,000 residential access line subscribers in its service areas in the United States. The Company asserts that its Application is in the public interest and serves the public convenience and necessity by promoting competition, thus raising the quality of service, lowering prices, and stimulating economic development.

WAIVERS AND REGULATORY COMPLIANCE
Z-Tel has filed an illustrative tariff and its consultant has worked with Staff to eliminate any items that may be out of compliance with Commission Rules and the Idaho Code. A few additional minor changes will be required, but they are not critical to this Application and they will be made when the Company files its first official tariff.
Z-Tel has requested exemption from several Commission Rules. In the following paragraphs, Staff has inserted the IDAPA citations rather than the Title/Chapter/Rule citations used by Z-Tel, then summarized Z-Tel's request and provided its recommendations.

1. IDAPA 31.41.01, Rules 101 to 103.02 once permitted customer guarantees in lieu of deposits and required a guarantee form to be held on file with the Commission. Z-Tel requested exemption from the requirement that they must file these forms.

Staff Comment: References to customer guarantees have been deleted from these rules and no longer apply. Consequently, an exemption is not required.

2. IDAPA 31.41.02 Rule 502 requires the Company to restore local service within 24 hours (or 16 hours in case of emergency). If the Company fails to restore service within the required time frame, the Company must issue a credit equal to the monthly rate for one month of basic local exchange service. Z-Tel requests a waiver from "the requirement to adopt and pursue a maintenance program for outside plant facilities and equipment" to the extent that it offers service on a UNE-P or resold basis from incumbent providers.

Staff Comment: The protection provided to consumers by this Rule has become even more critical with the introduction of companies that provide services that originate on another company's network. A customer has only one option when his telephone is out of service, and that is to call his provider. If the provider does not accept responsibility for the customer's service, the customer has no other recourse. An incumbent local exchange carrier (ILEC) provides service to its customer, the CLEC, but will not provide service for any customer of the CLEC. Consequently, CLECs must accept responsibility for quality service to its customers. If the Company must incur additional costs to be responsible, those costs should either be included in a negotiated agreement with the ILEC or be included in the rates as a cost of doing business. Staff recommends that this request for exemption be denied. Staff further recommends that Z-Tel's first officially filed tariff be revised on page 2 and pages 29 through 33 to conform to the requirements of Rule 501 et seq.

3. IDAPA 31.41.02, Rule 102.3 requires each local exchange company that applies for a rate change for any service regulated by this Commission under Title 61 to issue press releases advising customers of its application to change rates. Z-Tel has requested exemption from this rule because it does not anticipate sufficient market share to warrant the expense. Instead, it proposes to maintain services and rates on its website to keep the customer informed. In addition, Z-Tel says "consumers will be informed of rate increases by bill insert. Therefore, the additional step of notification via press release is unnecessary."

Staff Comment: Rule 102.3 applies to fully regulated rates of companies that fall under Title 61 regulation. Idaho Code § 62-622 (2) says "The commission shall not regulate the prices for basic local exchange services for telephone corporations that were not providing such local service on or before February 8, 1996." Clearly, Rule 102.3 does not apply to Z-Tel. Idaho Code § 62-622 further requires CLECs to maintain price lists on file with the Commission and to give "not less than ten (10) days" notice to the Commission and the customers. If given at least ten days in advance of rate changes, Z-Tel's proposed bill inserts that notify customers of rate changes filed with the Commission would comply with this requirement. In sum, an exemption to Rule 102.3 is not necessary because the Rule does not apply.

4. IDAPA 31.41.01 Rule 601 requires each local exchange company to provide at least one directory annually at no charge to each of its customers. This directory is to include the names, addresses and telephone numbers of customers in that exchange, and of the local exchange company and of the Commission. Z-Tel requests an exemption from the requirement to publish local directories but proposes that the required information will be included in the ILEC directory, which will be distributed to Z-Tel customers.

Staff Comment: While each local exchange company is required to "provide" a directory with the customer's number and other numbers in the exchange, there is no requirement that each local exchange company must "publish" its own directory. As long as Z-Tel ensures that its customers and the Company itself are listed in the ILEC's directory, and that at least one such directory is provided to each Z-Tel customer at no charge, then Z-Tel will be in compliance with this Rule. Thus, no exemption is necessary.

5. IDAPA 31.41.01 Rule 602 requires the Company to provide a summary of the Commission's rules to customers at least once a year and at commencement of service. This summary may be included at least once a year in a regular mailing of the Company's bill or printed in the telephone directory. IDAPA 31.41.02 Rule 501 makes essentially the same requirement to inform customers of Idaho's laws regarding telephone solicitation (Idaho Code § 48-1001 et seq.). Z-Tel maintains that such information is published in the consumer pages of the incumbent local telephone directory and therefore does not need to be re-distributed by Z-Tel on an annual basis.

Staff Comment: Staff does not believe that Z-Tel is in a position to ensure that the ILEC maintains and will continue to publish the information in its telephone directory. An ILEC may decide to use its option of an annual direct mailing at any time. Staff does not recommend that the Commission grant a waiver. Z-Tel must provide its customers with the summaries required by these two Rules. However, Staff would be satisfied if Z-Tel maintained a summary of these rules and laws on its Web page and sent its customers an annual bill message that directed them to its website to review the rules. Although most of Z-Tel's customers will be Internet users, Staff recommends that Z-Tel accommodate those who are not by including in its annual bill message an offer to mail a copy of these summaries upon request.

6. Finally, Z-Tel has requested waivers of any reporting requirements, asserting that they "(1) are not consistent with the demands of the competitive market, and (2) they constitute an undue burden on a competitive provider . . . "

Staff Comment: Staff is not sure what reporting requirements Z-Tel finds burdensome. CLECs are only required to file corporate name, address and contact persons as specified in IDAPA 31.42.01 Rule 202 and to update these lists annually. There are, of course, additional reports associated with the reporting and paying Regulatory Fees, Universal Service Fund surcharges, Telecommunications Relay System fees and Idaho Telephone Service Assistance Program surcharges. None of these reports are complicated or comprehensive, but they must be filed monthly unless Z-Tel makes arrangements with the respective fund administrators to file less frequently. Staff cannot imagine how these funds can survive if the companies don't report and pay into them. Staff recommends that Z-Tel clarify this request for exemption from reporting requirements so that the Commission can determine which reports Z-Tel finds burdensome and why. Upon receiving such information, the Commission can take whatever further action is necessary.

STAFF RECOMMENDATION
Staff recommends that the Commission approve Z-Tel's Application for a Certificate of Public Convenience and Necessity to provide local exchange service in the State of Idaho.
Staff recommends that Z-Tel's request for waivers from IDAPA 31.41.01, Rules 101 to 103.02 regarding customer guarantees and IDAPA 31.41.02, Rule 102.3 regarding publishing customer notices be dismissed because the rules do not apply to Z-Tel.
Staff recommends that Z-Tel's request for waiver from IDAPA 31.41.01 Rule 601 requiring a free directory per customer be denied. However, Z-Tel's proposal to include its customers' listings in the ILEC directory and distribute copies to its customers meets the requirements of the rule.
Staff recommends that Z-Tel's request for waivers from IDAPA 31.41.01 Rule 602 and IDAPA 31.41.02 Rule 501 requiring companies to provide their customers with annual and ongoing information regarding the Commission Rules and the customers rights under the Telephone Solicitation Act be denied. Z-Tel may inform its customers at the time of enrollment and once a year thereafter how the information is accessible to them via the Internet. Z-Tel should also offer to mail paper copies of rule summaries to customers upon request.
Staff recommends that Z-Tel's request to waive the Commission's Quality of Service rule (IDAPA 31.41.02 Rule 502) be denied.
Staff recommends that Z-Tel's request for exemption from filing reports with this Commission be dismissed because it is not complete and does not specify what reports it is not willing to file. Z-Tel may make another application that provides this Commission with sufficient information for the Commission to determine what Z-Tel wants.

Respectively submitted this day of June 2001.

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Lisa D. Nordstrom
Deputy Attorney General

Technical Staff: Birdelle Brown

LN:BB:umisc/comments/gnrt0039Lnbbla

STAFF COMMENTS 5 JUNE 11, 2001