2001313_ws.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
RANDY LOBB
JOE CUSICK
GENE FADNESS
WORKING FILE
FROM:
DATE:
MARCH 13, 2001 RE: CASE NO. GNR-T-00-40; APPROVAL OF INSTALLATION OF FIBER OPTIC ROUTE BETWEEN RIGGINS AND GRANGEVILLE, IDAHO

On January 3, 2001, the Commission issued a Notice of Proposal, Notice of Modified Procedure and Order No. 28606 notifying interested parties that the Commission was considering whether installation of a fiber route between Riggins and Grangeville, Idaho is in the public interest. Staff recommended that the Commission approve installation of the fiber route by use of a portion of the gain on the sale of Qwest exchanges in northern Idaho to Citizens Telecommunications Company of Idaho. In its Notice, the Commission provided a period of 28 days for the filing of written comments. Written comments were filed by Citizens Telecommunications Company of Idaho, Verizon Northwest, Inc., Avista Communications of Idaho, Inc., Qwest Corporation, and the Commission Staff. In addition, the Commission received dozens of written comments from the public.
In light of the issues presented by the parties in their written comments, the Commission determined to provide an opportunity for reply comments. Accordingly, the Commission issued a Notice and Order No. 28640 on February 7, 2001, providing an additional comment period of 21-days. Reply comments were filed by Verizon, Qwest, and the Staff.
In its comments, Avista expressed support for the goal of improving telecommunication service in Idaho overall and in particular for deployment of state of the art high speed fiber optic telecommunications route between Riggins and Grangeville. However, Avista nonetheless is concerned that the proposal is not “sufficiently competitively neutral.” Avista stated that “a decision by this Commission that would, in effect, provide an incumbent telephone company with an additional $4.94 million in assets free and clear…would not be competitively neutral absent provisions which ensure that all CLECs are assured equal access to the fiber at revenue neutral rates charged by Citizens.” Avista also asserts that CLECs competing with Citizens “must be assured that their customers will not be required to pay for fiber optic connectivity access that Citizens customers receive ‘cost-free’.” Avista cautioned the Commission to be sensitive to its role in fostering competition in Idaho.
Verizon in its comments likewise stated its support of the proposed fiber facilities. In addition, Verizon recommended the Commission “direct its Staff to investigate and evaluate adding the Lewiston to Genesee link to the fiber construction project at issue in this proceeding.”
The comments of Citizens and Staff are similar in identifying reasons to support the proposed fiber optic construction. Staff and Citizens note that the fiber route could improve communications between northern and southern Idaho, provide Citizens’ customers with access to high speed broad-band service, and improve access to emergency services in Idaho County, including by improving 911 service.
In its comments, Qwest recognized that the creation of a fiber route between Riggins and Grangeville would provide benefits. Qwest stated that it is not its intention to attempt to “block” the construction of such a facility. Qwest nonetheless expressed its concern that, “on the record provided here, it is not clear what the benefits of such a facility or who the beneficiaries might be. Nor is it clear, given the source of the funds proposed for the construction, that these benefits exceed those provided by the original use stipulated by Staff.” Qwest posed several questions regarding the proposal. For example:
Will long distance rates be reduced because customers will enjoy more efficient routing? Alternatively, will more efficient routing only benefit carriers and end users? Will new services be made available to the former Qwest exchanges? Who would provide such services and on what economic basis, given that the underlying facility will be constructed with sale proceeds?

Does the Commission believe that the presence of such a facility will justify granting EAS between White Bird, or possibly White Bird and Riggins, to one or more of the former Qwest exchanges? If so, does this benefit to a very small number of customers outweigh the number of benefits that all Idaho telecommunications customers would enjoy from using the funds to offset Idaho high-cost fund surcharges?”

In regard to a fiber route increasing high-speed broad-band service, Qwest stated that “there is no information in the record in this case that allows for analysis of this statement.” Qwest presented numerous questions it stated are unanswered in the record regarding access to broad-band services, improvement of emergency services and the status of a north-south fiber route after the proposed construction. Qwest also raised questions regarding the regulatory treatment for the proposed fiber route and access to the facility by competitors.
Reply comments were filed only by Verizon, Qwest and the Staff. In its reply comments Verizon again expressed its support for construction of a fiber route between Lewiston and Genesee and, in response to the questions raised by Qwest, stated its assumption that additional information could be provided by further investigation by Staff. Nonetheless, Verizon recommended that the Commission make a decision tentatively approving the project, and directing further investigation.
In its reply comments, Staff responded to the specific questions raised by Qwest and Avista regarding access by competitors. Staff noted “this is an opportunity for the Commission to oversee infrastructure development that the market place has not addressed and probably will not address for some time.” Staff recommended if the construction is approved that sufficient facilities, including a spare duct, be available to other carriers on the route and that other carriers be treated equitably. Staff noted that competitors will have the ability to carry traffic north and south through the fiber optic cable which will mean increased capacity, reduced route mile requirements for leasing or installing facilities, and a more reliable service because of the redundancy it provides. As for regulatory treatment, Staff stated the treatment would be similar to that for the switch replacement in Lewiston approved by the Commission as part of the Qwest-Citizens sales transaction. Money for the fiber construction could be transferred into an Idaho intrastate regulatory liability account and then used to offset the intrastate cost of the fiber route when it is actually completed. The effect will be a fully depreciated intrastate asset so there will be no increase in intrastate rate base or depreciation expense. Staff again reiterated that “to ensure maximum benefit, the Commission must provide that this fiber is available to competitors on a competitively neutral, non-discriminatory basis.”
In its reply comments, Qwest conceded that “it is not seriously disputed that a fiber route between Riggins and Grangeville is in the public interest.” Nonetheless, Qwest believes the real question is “whether building a fiber route is a better use of the $4.94 million than the stipulated deposit in the Idaho high-cost fund for universal service support.” Qwest noted that Citizens, as part of the sales transaction, committed to spending at least $27 million to improve infrastructure in the purchased exchanges, and it is not yet known whether Citizens might be willing to spend its own money on a fiber route between Grangeville and Riggins. Qwest stated it believes that “the benefits of a fiber route between Riggins and Grangeville can be achieved by other means and that those companies interested in providing ‘broad-band services in central and north Idaho’ should be encouraged to do so through the private investment contemplated by Governor Kempthorne in his January 2001 budget address in which he favored tax incentives as a means to spur broad-band connectivity.”
The comments filed by members of the public appear to be unanimous in their support of the proposed fiber route construction. The comments voice support “for anything that improves the communication infrastructure in the area, and the improved 911 service that would result from construction of the route.” The Commission received numerous form letters from customers extolling the benefits of the proposed fiber optic route, some of which conclude that “upgrading the services currently available is not only necessary and overdue, but simply the sensible and reasonable thing to do.”
Staff recommends that the Commission issue an order based on the written comments approving construction of the fiber route between Riggins and Grangeville. Any order approving construction of the fiber route should require Citizens to report anticipated and actual construction costs, direct the regulatory treatment of the construction costs, and contain provisions to ensure access to the route by competitor telecommunications companies on a competitively neutral basis.

vld/M:GNRT0040_ws

DECISION MEMORANDUM 4