20020822AT&T Comments.pdf

ECEIVED
Mark P.Trinchero
DAVIS WRIGHT TREMAINE LLP 2 ÃUG 22 AB
Suite 2300
1300 S.W.Fifth Avenue
Portland,Oregon 97201 0 i iLi i lob --
Telephone:[phone]
Facsimile:503-778-5299
Rebecca DeCook
AT&T Communications of the
Mountain States,Inc.
1875 Lawrence Street,Room 1575
Denver,Colorado 80202
Telephone:[phone]
Facsimile:303-298-6301
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )OF CENTURYTEL OF THE GEM STATE,)INC.AND CENTURYTEL OF IDAHO,)Case No.GNR-T-02-11INC.FOR APPROVAL OF A TARIFF )ADVICE CONTAINING DEPOSIT )REQUIREMENTSBY INCUMBENT )COMMENTS OF AT&TLOCALEXCHANGECARRIERSFOR)INTEREXCHANGECARRIERS )
INTRODUCTION
Pursuant to the Commission's Notice of Application and Notice of Modified Procedure in
Order No.29089,issued August 5,2002,AT&T Communications of the Mountain States,Inc.
("AT&T")submits the followingComments regarding the tariff advices filed by CenturyTel of
the Gemstate,Inc.and CenturyTel of Idaho,Inc.(collectively "CenturyTel")proposing to
change deposit regulations related to conditions under which CenturyTel may request security
deposits from Interexchange Carriers ("IXCs").These proposed tariff modifications
significantly expand the ability of CenturyTel to impose security deposits on IXCs.
CenturyTel'sexisting tariff language allows it to require a security deposit only if a customer has
a history of late payments or no established credit history at the initial establishment of service.
If allowed to go into effect,the proposed tariff revisions would allow CenturyTel to require a
security deposit where an existing customer's gross monthly billing has increased beyond the
amount initially used to estimate the customer's current security deposit,or where an existing
customer's credit worthiness has fallen below "commerciallyacceptable levels".AT&T urges
the Commission to reject the proposed tariff revisions because they are unnecessary,
unsupported,undulyburdensome and discriminatory.
COMMENTS
In the Notice of Modified Procedure,the Commission requests that parties submitting
written comments focus on two aspects of this issue:the first being the general policy question
of whether or not the requirement of a deposit is good public policy,and secondly,if the
Commission decides that this is good public policy,what are the implementation issues
associated with it.AT&T's comments focus primarily on the first of these two issues.The
proposed modifications are not consistent with sound public policy.Thus,the Commission
should reject the proposed tariff revisions in their entirety,obviating the need to address
implementation issues.With this as the basic premise of AT&T's recommendation herein,the
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followingcomments respond in part to the specific questions set forth in the Commission's
Notice of Modified Procedure.
The Commission has asked parties to address the followingrelevant issues:
1)What is the level of risk that LECs are exposed to absent the
requested deposit policy and how can this risk be quantified?
The bad debt "emergency"that CenturyTel and other LECs have conjured up to defend
their burdensome and discriminatory tariff revisions simply does not exist.CenturyTel and others
can and are pursuing their Bankruptcy Code rights in pursuit of adequate assurances of payment
from WorldCom and other bankrupt carriers.The tariff revisions at issue here are not directed at
bankrupt carriers or even at delinquent debtors,but at responsible carriers with sound payment
histories.CenturyTel has provided no evidence that there has been any significant change to its
traditionallylow levels of bad debt expenses.Nor has it shown that its rate of return has in any
way been impacted by the downturn in the industry.It would be irresponsible to allow CenturyTel
to implement draconian security deposit measures on mere speculation.This is especially true in
light of the fact that other LECs will likely attempt to follow suit.If this Commission allows
CenturyTel to amend its tariffs in this manner,without specific evidence that significant financial
harm will otherwise befall CenturyTel,it will be hard pressed to deny similar requests from other
LECs.
In all events,these "bad debt"triggers are vastly overbroad and would allow
CenturyTelto sweep in virtually any IXC,regardless of the actual credit risk posed by that
IXC.CenturyTel could (and would)use this virtually unbounded discretion to demand
security deposits to discriminate against captive IXC customers,which happen also to be
competitors of CenturyTel'slong-distance affiliates.CenturyTelcould,for example,demand
substantial security deposits/advance payments from all unaffiliated IXCs,but deem their own
long-distance affiliates to meet CenturyTel'sstandards of creditworthiness,thereby providing
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CenturyTel'slong-distance affiliates with a competitive advantage in the long-distance market.
Endowing CenturyTelwith the unilateral power to determine whether competitors and other
captive customers are credit risks would truly place the fox in charge of the hen house.
2)Would it be proper to have state requirements regarding these
proposed security deposits that track those that may be endorsed by the
FCC?
No.Imposing significantlydifferent security deposit requirements from those applicable
to interstate services will create undue burdens on carriers that provide services nation-wide.In
the past,CenturyTel's (and other ILECs')intrastate and interstate security deposit regulations
have been consistent.This is significant because the Federal Communications Commission
("FCC")has examined these policies extensively.In adopting the existing interstate access
security deposit regulations that have been in place since 1984,the FCC struck an appropriate
balance by allowing LECs to require security deposits,but only for certain IXCs with either poor
payment histories or with no established credit.Since that time,the FCC has repeatedly
reaffirmed its prescribed tariff language -and has determined that language to be sufficient in
good times and bad -to handle any risks to LECs presented by the potential for nonpayment by
bankrupt carriers.There is no indication that this prescribed language has caused financial
hardship for any LEC,and no demonstration here by CenturyTel that such hardship is likely in
the future.These FCC findings are persuasive and should inform this Commission's
deliberations on the issue.
3)If an IXC is providing both intrastate as well as interstate
interexchangeservices,would having a state standard and an FCC standard
be problematic?
See response to question 2,above.
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4)Should small LECs be treated the same as large LECs concerning
usage of the terms in this proposed tariff?
Yes.Absent clear and convincingevidence that small LECs have a significantlygreater
risk of financial harm than the larger LECs,there should be no difference in security deposit
regulations.As noted above,the FCC's existing security deposit regulations are generally
consistent across all sizes of LECs.There is no reason for individual states to conclude that
smaller LECs should be treated in a manner significantlydifferent from large LECs.
There is no evidence on the record in this proceeding that CenturyTel bears a
significantlygreater risk of financial harm than any other provider of access services.It should
be incumbent upon the LEC that is requesting changes to its security deposit regulations to bear
the burden of showing,in a quantifiable manner,the increased level of risk and whether that risk
is greater than the risk borne by other LECs.
5)Does the current WorldCom bankruptcyfiling demonstrate the
need for this policy or the futility of implementingit?
CenturyTel and the other ILECs that have filed similar requests at the FCC would like to
use the example of WorldCom as the justification for imposing draconian security deposit
requirements on all IXCs.But the "sudden collapse"of WorldCom was apparently a result of
massive -and unprecedented -accounting issues that masked WorldCom's financial problems
long after they would otherwise have been evident.CenturyTel'sother large access customers
can hardly be painted with WorldCom's unique circumstances.To be sure,carriers should
have the right to demand assurances from customers that they will pay their bills and even,in
appropriate circumstances,to demand a security deposit.However,as with other tariff
provisions,LECs have the proven ability and the incentive to abuse any discretion in that area
to create unfair terms that exclusively serve their own interests without regard to the harms
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inflicted on customers.Here,the FCC has already prescribed the proper balance regarding
security deposits:LECs may demand security deposits,but only for a narrow class of IXCs
that have no credit history or a proven history of non-payment.The WorldCom debacle is not
grounds for altering this sound public policy that has governed the industryfor nearly20 years.
6)Is it appropriateto require a deposit from an IXC that has no
history of late paymentsregardless of its credit rating?
No.CenturyTel'scurrent tariffs,and those of the other ILECs,have for nearly 20 years
permitted them to demand security deposits "only"for a narrow class of IXCs:first,those carriers
that "ha[ve]a proven history of late payments"to the LEC,and second,those carriers that "d[o]
not have established credit."The FCC's original prescription of a narrow security deposit
requirement was prompted by LEC proposals -strikingly similar to the Advices filed by
CenturyTel -to give the LECs discretion to require deposits from virtually any IXC.See
Investigation of Access and Divestiture Related Tariffs,97 F.C.C.2d 1082,1168-70 (1984)
("1984 FCC Access Tariff Order").The FCC found "several flaws"in the LECs'proposed tariff
on security deposits,including the fact that it applied so broadly that "only AT[&T]"-the
recent affiliate of the BOCs -"will escape this deposit requirement."Id.at 1169.Because the
proposals applied so generallyand could be applied selectivelyto carriers chosen unilaterally
by the LEC,the FCC found that the LECs'proposed tariffs were "unreasonably onerous"in
scope and had "anticompetitive effects."Id.Accordingly,the FCC determined that those
proposed tariffs "must be amended"and prescribed the more narrow language limitingsecurity
deposits to carriers with a "proven history of late payments"or with "no established credit."
Id.
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ILECs have repeatedly attempted in a variety of contexts to expand their ability to
demand significant security deposits from other carriers.In each instance,the FCC has refused
to allow these dominant LECs the broad discretion to determine whether their captive IXC
customers must provide a security deposit prior to purchasing access services.In 1987,for
example,BellSouth sought to revise its tariff to increase -by 50 percent -the deposit that
affected IXCs were required to pay BellSouth.See Annual 1987 Access Tariff Filing,2 FCC
Rcd.280,317-18 (1987)("1987 Access Tariff Order").BellSouth had claimed that such
provisions were necessary because "some IXCs have filed for bankruptcy while owing
payments to BellSouth."Id.at 304.The FCC,however,rejected the proposed tariff revisions,
noting that "BellSouth does not adequately identify the need"for its proposed increase and
"has not explained why other available measures have been unavailingto avoid the risks"of
non-payment.E at 318.Further,the FCC again found that the proposal to increase the
security deposit was overbroad,and that any advantages to be gained by BellSouth were
"outweighed by the disadvantages to customers that may not pose a risk to BellSouth."Id.at
318 (emphasis added).
In short,the FCC has,for nearly two decades,prescribed and enforced the specific
language that LECs must use in their tariffs when demanding a security deposit.The
CenturyTelfilings are at odds with this very persuasive body of federal precedent.
7)Would this requirement become a self-fulfilling prophecy if a
financiallystrugglingcompany were required to pay a two-month deposit?
It is likely that IXCs with perfect payment histories who are called upon to make a two-
month advance security deposit payment simply due to "credit worthiness"may experience
significant financial hardship because of the security deposit requirement.It is contrary to the
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public interest to design a security deposit scheme that is so burdensome and onerous that it may
result in the collapse of competing IXCs.Such a policy would only serve to harm customers.
Protecting ILEC access revenues at the expense of potentiallytoppling IXCs is simply bad public
policy.The existing security deposit requirements are sufficient.
8)If the Commission were to find that the proposed deposit policy
was in the public interest,what is the proper trigger for determiningcredit
worthiness?
"Credit worthiness"is not a sound basis for requiring a security deposit -only payment
history is relevant.Accordingly,there is no proper "trigger"point for determining credit
worthiness in this context.
9)Under the second proposed condition in the tariff,where the
carrier's billing increases beyond the amount initially used to estimate a
deposit,what size increase will trigger a deposit?How big of an increase
should trigger a deposit?Also,over what period will this increase be
determined:should it be a one-month increase or a longer term,such as a
three-month average?
This proposed tariff provision is extremely problematic because of its potential anti-
competitive consequences.The proposed revision would create a disincentive for IXCs to
increase sales and would lock in existing market shares.Permitting CenturyTel to require a
security deposit,or increase the amount of a security deposit,based on an access customer's
increased monthly access billings,would simply grant CenturyTel a method to maintain market
share because a gain of market share by the competitor would also increase the competitor's
costs of doing business beyond the incremental cost of supplying the additional retail service.
This is the type of "market leveraging"that antitrust law seeks to prohibit.It would create a
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barrier to entry,and could lead to an inefficient allocation of market resources,resulting in the
increased possibility that the less efficient competitor would gain or maintain market share.
10)If a required deposit is not paid,how will disconnection be
accomplished?How will end users be transitioned to a new provider and
how will that provider be determined?Should customers be polled to see
what their preferences are or should they be allocated based on the current
distribution of carriers?What will be done to ensure that the transition is
done in accordance with the Commission's Customer Relations Rules?
AT&T takes no position on these issues,other than to point out that the proposed tariff
revisions,if allowed to go into effect,will create a host of problems for customers and should,
therefore,be rejected.
11)Are there possible alternatives to requiringa deposit from IXCs?
Is a surety bond a reasonable alternative?
The current security deposit requirements are adequate.Accordingly,"reasonable
alternatives"to the proposed tariff revisions are unnecessary.
CONCLUSION
For the foregoing reasons,AT&T urges the Commission to reject CenturyTel's proposed
tariff revisions.In the alternative,the Commission should require CenturyTel to prove that the
proposed revisions are needed to prevent significant financial harm.Such a demonstration must
be made with credible evidence,and parties should be permitted additional rounds of comments
to address such evidence,or in the alternative,an opportunityto cross-examine CenturyTel's
witnesses and to sponsor rebuttal evidence.Accordingly,in the event that the Commission does
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not reject the proposed tariff revisions,AT&T requests,at a minimum,additional rounds of
comments,or a hearing be held in this matter.
DATED this 21st day of August,2002.
DAVIS WRIGHT TREMAINE LLP
By,
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CERTIFICATE OF SERVICE
I hereby certify that I served a copy of the foregoing "COMMENTS OF AT&T"upon
the following:
Pamela Donovan
CenturyTelof the Gem State,Inc.
805 Broadway
PO Box 9901
Vancouver,WA 98668-8701
I further certify that said copies were placed in sealed envelopes addressed to said
partys'/attorneys'last known addresses as shown and deposited in the United States Mail at
Portland,Oregon,and that the postage thereon was prepaid.
DATED this 21st day of August,2002.
DAVIS WRIGHT TREMAINE LLP
By
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Portland