20020822Comments of 4 Companies.pdf

Morgan W.Richards,ISB No.1913
MOFFATT,THOMAS,BARRETT,ROCK &
FIELDS,CHARTERED
101 S.Capitol Boulevard,10th Floor
Post Office Box 829
Boise,Idaho 83701
Telephone:[phone]
Facsimile:[phone]
Attorneys for Citizens Telecommunications Company
of Idaho,CenturyTel of the Gem State and CenturyTel of Idaho,
and Potlatch TelephoneCompany
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION CASE NO.GNR-T-02-11
OF CENTURYTEL OF THE GEM STATE,
INC.AND CENTURYTEL OF IDAHO,COMMENTS OF POTLATCH
INC.FOR APPROVAL OF A TARIFF TELEPHONE COMPANY,
ADVICE CONTAINING DEPOSIT CENTURYTEL OF THE GEM STATEREQUIREMENTSBYINCUMBENTANDCENTURYTELOFIDAHO,AND
LOCAL EXCHANGE CARRIERS FOR CITIZENS TELECOMMUNICATION
INTEREXCHANGE CARRIERS.COMPANY
COME NOW Potlatch Telephone Company ("Potlatch"),CenturyTel of the Gem
State and CenturyTel of Idaho ("CenturyTel"),and Citizens Telecommunication Company of
Idaho ("Citizens")and,in response to Order No.29089 issued by the Idaho Public Utilities
Commission ("Commission")and pursuant to IDAPA Rules 31.01.01.201 through .204,file
these comments in support of filings by CenturyTel which propose changes in CenturyTel's
access service tariff concerning deposit requirements for IXCs.
In support of CenturyTel's filings,Potlatch,CenturyTel and Citizens state that
they believe it is appropriate and necessary for an IXC to provide additional security deposits at
any time followingthe installation of service when:(1)the IXC has established a history of late
COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTEL OF THE GEM STATE AND
CENTURYTEL OF IDAHO,AND CITIZENS TELECOMMUNICATION COMPANY -1 BOl MT1:409240.1
payments to a Local Exchange Carrier ("LEC"),(2)the customer's gross monthlybillinghas
increased beyond the amount initiallyused to estimate a security deposit,(3)the IXC's
creditworthiness has fallen below commercially acceptable levels or as determined by an
independentcredit rating or reporting service.If an existing customer fails to remit a deposit
required under such a tariff,services to that customer should be discontinued in the discretion of
the LEC.
Unfortunately,the impacts ofIXC carrier bankruptcies are stacking up.At some
point,LECs will have no choice other than to file for increased rates in order to recover these
losses.The collection of deposits could mitigate the impact of future bankruptcies and provide
our customers with continued rate stability.
In addition to the foregoing general policy comments,the Commission has
requested that parties comment on certain implementation issues.The issues and the preliminary
responses of Potlatch,CenturyTel and Citizens can be stated as follows:
1)What is the level of risk that LECs are exposed to absent the requested
deposit policy and how can this risk be quantified?
Response:Unfortunately,it is impossible to know how many companies will
become insolvent in the future.We do know,however,that bankruptcies involvingtelecom
companies are occurring frequently.Our dutyto our customers requires that we try to mitigate
this increasing risk.
2)Would it be proper to have state requirements regarding these proposed
security deposits that track those that may be endorsed by the FCC?
Response:It is hard to predict how any future FCC requirements may be worded
or when said requirements might be adopted.Generally,Citizens,CenturyTel and Potlatch's
COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTEL OF THE GEM STATE AND
CENTURYTEL OF IDAHO,AND CITIZENS TELECOMMUNICATION COMPANY -2 BO!MT1:409240.1
positions relating to this issue are substantially identical on the federal and state levels.We are
attaching,as an exhibit to these comments,the Comments recently filed with the FCC of The
Mid-size Carrier Group,which included Potlatch's parent company,TDS TELECOM,
CenturyTel and Citizens,in WC Docket No.02-202.
In establishing deposit policy requirements,each regulatoryjurisdiction should be
cognizant of the differences in access rate levels,access revenue requirements,recovery vehicles,
e.g.,pools,bill and keep,primary carrier plan,etc.;and,therefore,non-identical deposit
parameters may be needed.
3)If an IXC is providing both intrastate as well as interstate interexchange
services,would having a state standard and an FCC standard be problematic?
Response:Citizens,CenturyTel and Potlatch assume that standards can be fine-
tuned at a later date,if necessary,to avoid any serious problems.
4)Should small LECs be treated the same as large LECs concerning usage of
the terms of this proposed tariff?Commission experience has shown that access revenues
represent a larger portion of overall revenues for small LECs than for large LECs.With that in
mind,are small LECs at greater risk than large LECs,therebyjustifying different treatment?
Response:All LECs are being affected by the failures of insolvent
telecommunications companies.For companies that are the size of Citizens,Potlatch (and its
affiliates)and CenturyTel or smaller,this is a very serious problem.For example,in the 2001
Annual Report to the Commission,Potlatch reported over 72%of its 2001 revenues were related
to access revenues.This heavy reliance on access revenues leaves very few places to recover lost
revenues.The local ratepayers will ultimatelyend up bearing the burdens relating to lost
revenues.
COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTEL OF THE GEM STATE ANDCENTURYTELOFIDAHO,AND CITIZENS TELECOMMUNICATION COMPANY -3 BOI MT1:409240.1
5)Does the current WorldCom bankruptcy filing demonstrate the need for
this policy or the futility of implementing it?
Response:Potlatch,CenturyTel and Citizens believe that the current WorldCom
bankruptcy demonstrates the need for such rules.The ability to request deposits ahead of the
bankruptcy could have mitigated losses.
6)Is it appropriate to require a deposit from an IXC that has no history of late
payments regardless of its credit rating?
Response:In some circumstances,an IXC may be in substantial risk of filing a
bankruptcy but still manages to pay on time until it is too late for LECs to protect their revenue
streams.In the interest of protecting their customers,Potlatch,CenturyTel and Citizens believe a
deposit would be appropriate and commercially reasonable.
7)Would this requirement become a self-fulfillingprophecy if a financially
struggling company were required to pay a two-month deposit?
Response:Pursuant to Idaho law (§61-528),almost all of the incumbent LECs
in Idaho are required to demonstrate "financial ability."In order to maintain their financial
ability,LECs need authorityto collect deposits and thereby mitigate losses and protect their
customers.Stated otherwise,who should bear the risk:the good customers who pay their bills or
weak companies who are stretched very thin?In addition,the inability to collect revenues could
easily cause a spiraling effect whereby a financiallystable LEC becomes unstable due to a large
cash flow shortage.See also response to Question 4.
8)If the Commission were to find that the proposed deposit policy was in the
public interest,what is the proper trigger for determining creditworthiness?
COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTEL OF THE GEM STATE ANDCENTURYTELOFIDAHO,AND CITIZENS TELECOMMUNICATION COMPANY -4 801 MT1:409240.1
Response:Companies could use a couple of different triggers to make this
determination.Deposits could be required when:
(a)The customer has a proven history of late payments.If a customer fails to
timely pay two monthlybills by the bill due date within a 12-month period,a deposit would be
appropriate.
(b)If a LEC becomes aware that the customer's creditworthiness has fallen
below commercially acceptable levels as determined by 1)If any debt securities of a customer or
its parent are below investment grade as defined by the Securities and Exchange Commission,or
2)If any debt securities of a customer or its parent are rated below the lowest investment grade
by a nationallyrecognized credit rating organization or are put on review by such ratings
organization for a possible downgrade.
9)Under the second proposed condition in the tariff,where a carrier's billing
increases beyond the amount initiallyused 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?
Response:LECs should use a customer's gross monthlybillingto calculate
increase to deposits.In cases where a customer's billinghas increased by 10%over an average
of three months,the deposit should be increased to reflect such an increase.
10)If a required deposit is not paid,how will disconnectionbe 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
COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTEL OF THE GEM STATE ANDCENTURYTELOFIDAHO,AND CITIZENS TELECOMMUNICATION COMPANY -5 Bol_MT1:409240.1
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?
Response:If an IXC chooses to exit the market as a result of not paying a
security deposit,the IXC should be required to notify its customers and facilitate the selection of
a new provider.See Exhibit A.
11)Are there possible alternativesto requiring a deposit from IXCs?Is a
surety bond a reasonable alternative?
Response:A surety bond issued by a fmanciallysound company might be a
reasonable alternative to a deposit except that the terms of the bond can lead to additional
litigation to prove that the bond conditions have been satisfied.
Based on the precedingcomments and concerns,Potlatch,CenturyTel and
Citizens respectfully request that the Commission approve CenturyTel's tariff filings.
DATED this 22nd day of August,2002.
MOFFATT,THOMAS,BARRETT,ROCK &
FIELDS,CHARTERED
Morgan W.KYichards -Of the Firm
Attorneys for Citizens Telecommunications
Company of Idaho,CenturyTel of the Gem
State and CenturyTel of Idaho,and Potlatch
Telephone Company
COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTEL OF THE GEM STATE ANDCENTURYTELOFIDAHO,AND CITIZENS TELECOMMUNICATION COMPANY -6 BOi_MT1:409240.1
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 22nd day of August,2002,I caused a true and
correct copy of the foregoing COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTELOFTHEGEMSTATEANDCENTURYTELOFIDAHO,AND CITIZENS TELECOMMUNICATION
COMPANY to be served by the method indicated below,and addressed to the following:
Commission Secretary (JU.S.Mail,Postage Prepaid
Idaho Public Utilities Commission (/)Hand Delivered
Post Office Box 83720 ()Overnight Mail
Boise,Idaho 83720-0074 ()Facsimile
Pamela Donovan (U.S.Mail,Postage Prepaid
CenturyTel of the Gem State,Inc.()Hand Delivered
805 Broadway ()Overnight Mail
Post Office Box 9901 ()Facsimile
Vancouver,WA 98668-8701
Gail Long (U.S.Mail,Postage Prepaid
Manager,External Relations ()Hand Delivered
TDS Telecom ()Overnight Mail
Post Office Box 1566 ()Facsimile
Oregon City,Oregon 97045-1566
Lance Tade (U.S.Mail,Postage Prepaid
Citizens Telecommunications ()Hand Delivered
4 Triad Center,Suite 200 ()Overnight Mail
Salt Lake City,Utah 84180 ()Facsimile
Ted Hankins (U.S.Mail,Postage Prepaid
Century TelephoneEnterprises,Inc.()Hand Delivered
Post Office Box 4065 ()Overnight Mail
Monroe,Louisiana 71211-4065 ()Facsimile
Conley Ward (U.S.Mail,Postage Prepaid
Givens Pursley,LLP ()Hand Delivered
277 North 6th Street,Suite 200 ()Overnight Mail
Post Office Box 2720 ()Facsimile
Boise,Idaho 83701-2720
Mary S.Hobson (U.S.Mail,Postage Prepaid
Stoel Rives ()Hand Delivered
101 South Capitol Boulevard,Suite 1900 ()Overnight Mail
Boise,Idaho 83702 ()Facsimile
Morgan Richards
COMMENTS OF POTLATCH TELEPHONE COMPANY,CENTURYTEL OF THE GEM STATE ANDCENTURYTELOFIDAHO,AND CITIZENS TELECOMMUNICATION COMPANY -7 BOl MT1:409240.1
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington,D.C.20554
In the Matter of:
Verizon Petition for Emergency Declaratory and WC Docket No.02-202
Other Relief
COMMENTS OF THE MID-SIZE CARRIER GROUP
R.Michael Senkowski
Robert J.Butler
John F.Papandrea
Wiley Rein &Fielding LLP
1776 K Street NW
Washington,D.C.20006
[phone]
Its Attorneys
August 15,2002
EXHIBIT A
TABLE OF CONTENTS
I.INTRODUCTION AND SUMMARY ......................................................2
II.THE MID-SIZE CARRIER GROUP .......................................................4
III.THE VERIZON PETITION FOR EMERGENCY DECLARATORY
AND OTHER RELIEF............................................................5
IV.THE COMMISSION SHOULD SUPPORT EFFORTS TO ENSURE
CONTINUITY OF SERVICE TO THE PUBLIC WITHOUT SHIFTING
THE RISK OF NONPAYMENT TO UNDERLYING ILECS AND
THEIR CUSTOMERS........................................................8
A.The Commission Should ExpeditiouslyApproveReasonable Tariff
Revisions That Protect Customers And Carriers Alike .............................8
B.InvocationOf Protective Measures Can Be Governed By Objective
Criteria That Eliminate Any Concerns Regarding Potential For
Abuse ...............................................................10
C.Successful Implementation Of Protective Measures Requires The
FCC And State Regulators To Participate Appropriately In
Bankruptcy Court Proceedings .....................................................12
V.THE COMMISSION SHOULD SUPPORT THE MID-SIZE CARRIER
GROUP'S SEAMLESS TRANSITION CUSTOMER PROTECTION
PLAN...............................................................13
A.Seamless Transition Of Switched Access Customers..............................15
B.Special Access And CLEC Transition Plan.............................................18
1.Special Access Transitions ........................................................18
2.CLEC Transitions ................................................19
VI.CONCLUSION......................................................22
1
Before the
Federal Communications Commission
Washington,D.C.20554
In the Matter of:
Verizon Petition for Emergency Declaratory and WC Docket No.02-202
Other Relief
COMMENTS OF MID-SIZE CARRIER GROUP
ALLTEL Communications,Inc.,CenturyTel,Inc.,FairPoint Communications,
Inc.,Citizens Communications Company (on its own behalfand on behalf of the Frontier
and Citizen ILECs under its ownership),Iowa Teleconmaunications Services,Inc.,
Madison River Telephone Company,LLC,Rock Hill Telephone Company d/b/a
COMPORIUM Communications,Roseville Telephone Company,TDS
Telecommunications Corporation,The Concord Telephone Company,Valor
Telecommunications Enterprises,LLC,Virgin Islands Telephone Corporation d/b/a
InnovativeTelephone,and their respective affiliates and subsidiaries (collectively,the
"Mid-Size Carrier Group"or "Group")hereby submit their comments in the above-
captioned proceeding,in which Verizon has asked the Federal Communications
Commission ("FCC"or "Commission")to "provide 'clear guidelines'to the industry that
will allow carriers to protect their ability to obtain payment for services they render to
other companies."'To that end,the Group urges the Commission to authorize
'See Wireline Competition Bureau Seeks Comment on Verizon Petition for Emergency Declaratory and
Other Relief WC Docket No.02-202 (July 31,2002)("Public Notice"),at 1;Verizon Petition for
establishment of a seamless transition customer protection plan ("STCPP")that will:(1)
ensure continuity of incumbent local exchange carrier ("ILEC")service to interexchange
carriers ("IXCs")and competitive local exchange carriers ("CLECs")(and their
customers);and (2)permit ILECs to receive payment for the services they render to
financially distressedIXCs and CLECs.
I.INTRODUCTION AND SUMMARY
The Mid-Size Carrier Group strongly supports efforts to strengthen and clarify the
protections afforded the customers and suppliers of carriers in distress.As described in
more detail below,the Mid-Size Carrier Group recommends that the Commission:(1)-
permit ILECs to modify their tariffs to authorize appropriate measures to protect against
nonpayment of bills;and (2)clarify IXC/CLEC obligations to provide notice to end users
of possible discontinuance as part of a self-executing STCPP that prevents customers
from losing service due to the financial distress of their local or long distance carrier.
In achieving these objectives,the Commission should not simply shift the risk of
IXC or CLEC nonpayment from distressed carriers to the underlying ILEC suppliers and
their other customers.Rather,the Conunission should permit ILECs to implement
measures,such as requiring deposits,advance payments,and accelerated invoicing,that
can increase the chances that the ILECs receive payment for services provided to
distressed IXCs or CLECs.In so doing,the Commission would minimize the risk that
end users of distressed IXC/CLEC services will be "caught in the middle"of payment
Emergency Declaratory and Other Relief,WC Docket No.02-202 (filed July 24,2002)("Verizon
Petition")at 2.
*Unless the context otherwise requires,the Mid-Size Carrier Group uses the terms ILEC,IXC/CLEC,and
end user to reference the various groups with strong interests in the issues addressed in this proceeding.The
following example illustrates these interests:Mid-Size Carrier Group members (ILECs)provide access
services to WorldCom (distressed IXC),which in turn provides long distance services to numerous
businesses and individuals (end users).
2
disputes between ILECs and IXCs/CLECs and find themselves at risk of losing service
due to their IXC's or CLEC's inability to pay the ILEC for services the ILEC provides.
The Mid-Size Carrier Group believes that such measures can be implemented on the
basis of objective criteria that will negateany concerns regarding the potential for abuse
of the safeguards.
The Mid-Size Carrier Group also supports Verizon's request that the
Commission direct distressedcarriers to provide ILECs with the basic information
necessary to transition end users from one carrier to another.In addition,the
Commission should adopt an effective STCPP that provides a framework for an orderly
migration of at-risk end users to alternative service providers in the event of default by an
IXC or CLEC.A viable STCPP would:
be seamless and cost-free to end users;
provide timely notice and appropriate choices for end users;
be self-executing so as not to be vulnerable to unnecessary regulatory and
other delays;and
require the cooperation of the distressed IXC or CLEC to minimize the
risk of service disruption.
To this end,an STCPP should include the followingfeatures:
an objective trigger for implementation based on IXC or CLEC default;
notice to covered end users upon adoption of the plan;
jointnotice to end users upon implementation of migration;
interim service rates that will not disadvantage migrated end users;
provision of all relevant information and perfonnance of all actions by
distressed carriers necessary to the migration;and
a reasonable timeframe during which end users can make informed
decisions regarding their preferred future service providers.
3
Given the current turmoil and instability in the telecommunications market,the
Commission should act quickly to approve such appropriate protective measures to
ensure that this crisis neither interrupts deliveryof telecommunications services to the
public nor inflicts unnecessary economic hann on carriers that remain in the market or on
end users of telecommunications services.
II.THE MID-SIZE CARRIER GROUP
The Mid-Size Carrier Group,'including subsidiary and affiliated companies,
representswell over 200 individual operating companies that provide a wide-range of
communications services to rural and insular communities.These companies serve
smaller and less densely populated communities than the regional Bell Operating
Companies ("RBOCs")and other multi-national communications conglomerates,and are
often one of very few choices for local service available to telecommunications end users
in their service areas.The Mid-Size Carrier Group thus plays a vital role in the nation's
telecommunications infrastructure.
Members of the Mid-Size Carrier Group offer users myriad communications and
related services,including basic telephone service,wireless service,Internet access,video
programming and other advanced services to a large number of communities.In
addition,they provide numerous services to CLECs and IXCs,such as WorldCom,
including access services for the origination and termination of toll traffic,
interconnection services for the transport and termination of local traffic,billing and
collection services,fiber capacity and other offerings.Mid-size ILECs,including
members of the Mid-Size Carrier Group,account for roughly 13.4 million of the nation's
3 For purposes of these comments,"mid-size"carriers are those with 50,000 to 3 million access lines.
4
193.8 million access lines (or approximately 7 percent of total access lines in the United
States)and a substantial percentageof the nation's rural and insular lines.
Importantly,the conunitment of mid-size ILECs to rural and insular areas requires
them to maintain a delicate financial balance.Their relatively small size,coupled with
the low populationdensities of the areas they serve,increases their costs and limits their
ability to achieve economies of scale.In addition,the topography of the mid-size ILECs'
service areas further burdens their costs of doing business.It follows that the Mid-Size
Carriers would be acutely harmed where an IXC's or CLEC's financial distress requires
them to absorb substantial lost revenues or to continue to provide their already high-cost
services without compensation.
IIL THE VERIZON PETITION FOR EMERGENCY DECLARATORY AND
OTHER RELIEF
In its petition,Verizon requests that the Commission provide "clear guidelines to
the industry that allow carriers to protect themselves from the industrywide financial
turmoil."4 Specifically,Verizon asks that the Commission:(1)permit ILECs to file
revised tariffs that include measures that protect them against nonpayment of bills by
their IXC and CLEC customers;(2)"support independent local exchange carriers'efforts
in the bankruptcy courts to obtain adequateassurance of payment for service rendered to
customers in bankruptcy;(3)ensure that purchasers of bankrupt carriers'existing service
arrangements comply with the cure requirements of bankruptcy law;and (4)direct
competitive local exchange carriers to provide the information necessary to coordinate
carrier-to-carrier transfers."'
4 ŸÐTÌZOn Petition at 2.
*Public Notice at 1.
5
The Mid-Size Carrier Group recognizes that the Commission is addressing certain
of these issues in connection with earlier petitions filed by Verizon and Winstar as well
as in the agency's review of tariff revisions filed by Verizon and other carriers.6 The
Comrnission should act promptlyhere and in those proceedings to better protect the
interests of communications end users in the continuation of their services and those of
ILECs in obtainingreasonable assurance of compensation for the services they provide to
distressed IXCs and CLECs.The Group stands ready to work with the Commission and
state regulators to that end.
As the FCC is aware,the WorldCom bankruptcy court is addressing these types of
issues,and the Mid-Size Carrier Group is activelyparticipatingin those proceedings.
Yesterday,the court granted,in part,the Group's August 5,2002 request for "adequate
assurance"of payment for post-petition services to minimize "the possibility of abrupt
and potentially catastrophic terrnination of services to customers."'Iri particular,the
court made clear that service providers such as the members of the Group can take
"appropriate action under any applicable tariff or regulation,"without further order of the
court,to protect their interests in the event of an uncured post-petition default by
6 See Verizon Counter Petition for Declaratory Ruling Regarding ILEC Obligations to Continue Providing
Service.s,WC Docket No.02-80 (Apr.29,2002);Winstar Communications,LLC Emergency Petition for
Declaratory Ruling Regarding ILEC Obligations to Continue Providing Services,WC Docket 02-80 (Apr.
17,2002);Verizon Telephone Companies,Tariff FCC Nos.1,l 1,14,and 16,Transmittal No.226 (July 25,
2002);Southwestem Bell Telephone Company,Tariff FCC No.73,Transmittal No.2906 (Aug.2,2002);
Public Notice at 1.
7 In re:WorldCom,Inc.et al.,Opposition of Mid-Size Carrier Group to Motion Pursuant to Sections 105(a)
and 366(b)of the Bankruptcy Code for Authorization to Provide Adequate Assurance to Utility Companies
and Request for Approval of Seamless Transition Customer Protection Plan,Chapter 11 Case No.02-
13533 (AJG)(Bankr.S.D.N.Y.Aug.5,2002)at 5-6 ("Mid-Size Carrier Group Opposition");In re
WorldCom,Inc._et al,Order Pursuant To Sections 105(a)and 366(b)Of The Bankruptcy Code
Authorizing WorldCom To Provide Adequate Assurance To Utilie:Companies,Chapter 11 Case No.02-
13533 (AJG)(Jointly Administered)(Bankr.S.D.N.Y.Aug.14,2002)("Section 366 Order").
6
WorldCom."This effectively means that the bankruptcy court will not stand in the way of
approval and implementation of a self-executing STCPP such as the one the Group
proposes.Accordingly,the Commission should now promptly move to approve such an
STCPP in order to protect the interests of end users and carriers alike in this time of
unprecedented upheaval in the telecommunications sector.
As discussed in more detail below,the measures the Group proposes can
guaranteethe important objective of continuity of service to end users of IXC/CLEC
services (many of which are also local service customers of an ILEC)while increasing
the opportunity for ILECs to receive payment fiom financially distressed IXCs and
CLECs.The Mid-Size Carrier Group believes that it is crucial that any Commission
action protect the interests of ILECs that serve financially distressed IXCs or CLECs so
that the financial woes of such companies do not impair the viability of the ILEC
community.The Commission should recognize how devastatingly destabilizing recent
bankruptcies have been to the entire teleconnnunications industry,including mid-size
ILECs,which are less able to weather financial setbacks than larger ILECs.Thus,in
devising any strategy to protect end users from discontinuance,the Conunission should
resist imposing additional,unnecessary financial burden on the ILEC community,which
could lead to the failure of one or more mid-size ILECs and render those companies
incapable of providing critical cononunications services to individuals,businesses,and
government end users.Such a result could not possibly serve the public interest.
*Section 366 Order at 3-4.
*See Section 366 Order.WorldCom would still be free to seek an injunction against implementation of
such a plan from the court,but the burden would be on WorldCom to justify such action.See Section 366
Order at 4,
7
IV.THE COMMISSION SHOULD SUPPORT EFFORTS TO ENSURE
CONTINUITY OF SERVICE TO THE PUBLIC WITHOUT SHIFTING
THE RISK OF NONPAYMENT TO UNDERLYING ILECS AND THEIR
CUSTOMERS
The highest priority of the Mid-Size Carrier Group is to ensure continuity of
service to end users.This can be facilitated seamlessly and without additional cost if
ILECs are permitted to revise their tariffs to establish reasonable security deposit
requirements,shorter collection schedules,abbreviated notice periods for delinquent
customers,and other measures to better encouragepayment for services rendered.These
measures are necessary because ILECs cannot discontinue service freely.The Mid-Size
Carrier Group also asks the Commission to support its efforts in the bankruptcy courts to
obtain "adequate assurance"of payment by these and other means,subject to all relevant
statutory and regulatory requirements.As discussed below,the Commission should
approve these types of changes expeditiously in order to ensure continuity of service to
end users,boost distressed IXC/CLEC efforts to retain customers,and ensure that the
financial distress of troubled IXCs and CLECs does not impair the financial health of the
ILECs that serve them.
A.The Commission Should Expeditiously Approve Reasonable Tariff
Revisions That Protect Customers And Carriers Alike
The Commission should expeditiouslyapprove tariff revisions that permit ILECs
to institute reasonablemeasures that both facilitate continuity of service to end users and
mitigate the risk ofnonpayment by IXCs and CLECs.As the Mid-Size Carrier Group
explained in its August 5,2002 filing in the WorldCom bankruptcy proceedings,Group
members are exposed to substantial risk of loss in the event of nonpayment by an IXC,
such as WorldCom.This is the result of the fact that they are often required to continue
providing service for more than ninety (90)days between the start of a billing period and
8
the date on which they can terminate service.'°Given the multimillion-dollar magnitude
of the obligationsto the Mid-Size Carrier Group that WorldCom and other large IXCs
can accrue during such a time period,Group members simply cannot sustain this level of
risk without an adverseimpact on the cost and delivery of services to their end users.
They therefore require the payment of deposits in order to offset such risks.IXCs and
CLECs could satisfy this requirement through a varietyof means,including prepayment,
cash deposits,accelerated billing,irrevocable letters of credit,and third party guarantee
agreements.
Permitting ILECs to revise their tariffs to incorporate advance payment,security
deposits,and other protections is fully consistent with Commission precedent and is
necessary to permit ILECs to protect themselvesjust as creditors of distressed firms in
other industries do.As the Verizon Petition notes,the Commission historically has
refused "to second-guessa carrier's decision,with respect to a particular customer,to
impose deposit,advance payment,or other security arrangements provided for in its
tariff.""Given the exigent circumstances presented by the current upheaval in the
telecommunications sector,the Mid-Size Carrier Group submits that such tariff revisions
are more justifiable and necessary now than ever before.Accordingly,the Commission
should,consistent with its past practice,approve tariff revisions similar to those that the
Mid-Size Carrier Group and other carriers are proposing and permit their prompt
implementation.
10 Mid-Size Carrier Group Opposition at 5-6.
"See Verizon Petition at 5,quoting Affinity Network Inc.v.AT&T,FCC Rcd 7885,¶3 (1992)
(Memorandum Opinion and Order).
9
B.Invocation Of Protective Measures Can Be Governed By Objective
Criteria That Eliminate Any Concerns Regarding Potential For
Abuse
The Mid-Size Carrier Group supports the use of objective criteria to determine
whether a customer's creditworthiness is impaired and,in turn,whether it is appropriate
to invoke deposit requirements or other safeguards.Use of such criteria will remove any
concerns regarding the potential for abusive application of such requirements that have
been raised by commenters.For example,SBC has suggested that a customer's
creditworthiness be deemed"impaired"when:"[(1)]any debt securities of a customer or
its parent are below investment grade...;[(2)]any debt securities of a customer or its
parent are rated the lowest investment grade by a nationallyrecognized credit rating
organization and are put on review for a possible downgrade;[(3)]the customer does not
have outstanding securities rated by credit rating agencies and the customer is rated 'fair'
or below in a composite credit appraisal published by Dunn &Bradstreet or 'high risk'in
a Paydex score as published by Dun &Bradstreet;[(4)]the customer or its parent informs
[the carrier]or publicly states that it cannot pay its debts as they become due;and/or
[(5)]...voluntary or involuntary receivership or bankruptcy."'2 The Mid-Size Carrier
Group also supports other reasonable objective impaired creditworthiness criteria,such
as:(1)limiting relief to those carriers whose default would have a material impact on the
ILEC because of the amount of services purchased;and (2)"habitually late"invoice
payment (i.e.,more than 30 days late in paying undisputed invoices two or more times in
any six-month period).
"Southwestern Bell Telephone Company,Tariff FCC No.73,Transmittal No.2906 (Aug.2,2002)at 3.
10
The Mid-Size Carrier Group recognizes that the Cormnission is reviewing deposit
tariffs that BellSouth,SBC,and Verizon have filed."Nonetheless,the Mid-Size Carrier
Group respectfully urges the Commission to act swiftlyand establish a framework that
appropriately protects the interests of consumers and carriers alike.As explained above,
because objective criteria do not give ILECs the discretion to determine when the
"impaired creditworthiness"standard is met,they negate the possibility that the ILECs
will manipulate or abuse them for their own advantage.Rather,objective criteria:(1)
promote the interests of end users by ensuring continuity of service;(2)help distressed
IXCs and CLECs retain business by demonstrating to end users of their services their
ability to ensure uninterrupted service;and (3)ensure that the risk of distressed
IXC/CLEC nonpayment is not shifted to the ILEC conununity.
Accordingly,the Mid-Size Carrier Group urges the FCC to be receptive to
combinations of deposit requirements,advancepayment,letters of credits,and service
termination policies that are commensurate with the level of risk ILECs bear when
serving distressed IXCs and CLECs.For example,with respect to special access
services,which are billed in advance,there is a 60-day revenue risk period (i.e.,
customers have 30 days to pay the invoice and then another 30 days before the ILEC can
terminate service).In the case of switched access services,ILECs face an even longer
risk exposure period-90 days between the start of a billing period and the date on which
they can terminate service.14 Deposits covering these risk periods are clearly warranted
in the absence of a reduction in such periods as a result of advance payment and changed
"See,e.g.,BellSouth Telecommunications,Inc.,TariffFCC No.1,Transmittal No.657,DA-02-1886
(Aug.1,2002)(Order).
"Following one month of service,customers have 30 days to pay the invoice for the prior month's service,
and,under typical existing tariffs,ILECs cannot terminate service until payment is 30 days late.
11
notice requirements.In fact,such timeframes should at a minimum be reduced to 45 days
and 75 days,respectively,through shortened termination notice periods.
C.Successful Implementation Of Protective Measures Requires The
FCC And State Regulators To Participate Appropriately InBankruptcyCourtProceedings
The Commission,state regulators,and the bankruptcy courts each have an
appropriate role to play in bankruptcy proceedings involving communications companies.
Although there is no inherent conflict between the Bankruptcy Code and communications
regulations administered by the Commission and state regulators,the volume of
telecommunications bankruptcies and the numerous issues raised in the context of those
proceedings have created some uncertainty.The Commission and state regulators,
consistent with the Corununications Act and the enabling statutes pursuant to which state
authorities act,can eliminate that uncertainty by exercising their authority to permit
ILECs to implement the types of safeguards and customer protection plans discussed
herein.
Members of the Mid-Size Carrier Group have been creditors in court proceedings
involvingseveral telecommunications bankruptcies and are actively participating in the
WorldCom bankruptcy.As noted above,in their August 5,2002 opposition to
WorldCom's 366 motion,the Mid-Size Carrier Group urged the court to permit
implementation of elements of a broad STCPP and to allow its members to seek various
forms of "adequate assurance"of payment,including deposits,shorter billing and
collection cycles,and reduced notification times for service termination."However,
is See Mid-Size Carrier Group Opposition at 5-9.
12
implementation of any relief granted by the court is subject to the approval of the
Commission and state regulators.
Accordingly,the Conunission should permit ILECs expeditiouslyto revise their
tariffs as part of a broader STCPP.As Verizon has noted,the Commission has rightly
intervened in bankruptcy proceedings to protect the rights of end users."Where it does
no harm to those end users,it should similarly advocate and protect the interests of ILECs
in such proceedings and work to ensure that state regulators do likewise,including
through the Joint Board or other appropriate mechanisms.
V.THE COMMISSION SHOULD SUPPORT THE MID-SIZE CARRIER
GROUP'S SEAMLESS TRANSITION CUSTOMER PROTECTION PLAN
The primary purpose of an STCPP is to ensure continuity of service to customers
and,if necessary,cost-free and orderly transition of end users to new providers upon
discontinuance of service by distressed IXCs or CLECs.As noted above,STCPPs can
also help distressed carriers retain customers as they go through the bankruptcy process
because such plans guarantee that service will continue in the event of subsequent default
by the distressed carrier.Absent such assurances,end users are much more likely to
switch providers rather than risk abrupt and potentially ruinous terminations of service.
Moreover,STCPPs can help to prevent further carnage in the telecommunications
industry by permitting ILECs to invoke protective safeguards in order to ensure their
receipt of payment for services provided,thereby avoiding adding additionalcarriers to
the critical list.In contrast,requiringILECs to absorb enormous financial losses or to
receive no payment at all for services rendered to financially distressed IXCs or CLECs
"Verizon Petition at 6.
13
unfairlyshifts the risk ofnonpayment to the ILEC connnunity and threatens further
disruption as economic problems spreadto additional carriers.
As discussed below,consistent with the principles that underlie end user
migration plans outlined by the Commission and by state regulators such as the New
York Public Service Commission,"an STCPP should contain the following features:
Seamless:From an end user's point of view,the transition from a
distressed carrier to an alternative provider should be virtuallytransparent,
automatic,seamless,and cost-free;
Notice and Choice:The STCPP should give end users reasonable notice
of the migration and a fair and equitable opportunity to transition to a new
provider of their choice;
Self-Executing:STCPPs should be self-executing and should become
effective automatically without additional FCC or state authorization;and
.Distressed Carrier Cooperation:The STCPP should require the full
cooperation of the carrier whose customers are being migrated.
The following sections provide an overview of the key features of the Mid-Size
Carrier Group's proposed STCPP.As discussed below,the seamless transition of
switched access customers from one IXC to another is relatively easy to accomplish
because there are few technical barriers to such migrations.On the other hand,mass
migrations involving special access or CLEC customers are more complex and pose
additional technical challenges.The Mid-Size Carrier Group stands ready to work with
the Commission,state regulators,and other carriers to resolve those issues.
17 See 2000 Biennial Review--Review ofPolicies and Rules Concerning Unauthorized Changes of
Consumer Long Distance Carriers;hnplementation oftheSubscriber Carrier Selection Changes
Provisions ofthe Telecommunications Act of1996;Policies and Rules Concerning Unauthorized Changes
of Consumers Long Distance Carriers,CC Docket No.00-257;CC Docket No.94-129,16 FCC Red I1218
(2001)(First Report and Order in CC Docket No.00-257 and Fourth Report and Order in CC Docket No.
94-129)("FCC Customer Migration Order");Order Adopting Mass Migration Guidelines,Case 00-C-
0188 (Adopted by Order Dec.4,2001)("NYPSC Mass Migration Guidelines").
14
A.Seamless Transition Of Switched Access Customers
As noted above,the transition of switched access customers to a new provider
presents no major technical issues.In order to ensure that such transitions are conducted
in an orderly manner that protects the interests of end users,the Mid-Size Carrier Group
suggests that switched access seamless transition plans incorporate the following
elements:
Timing.The transition plan is triggered when an IXC default threatens the loss of
service to end users,such as for nonpayment for post-petition services in a bankruptcy
setting,or followingdefault,notice,and lapse of the cure period in a non-bankruptcy
setting.As soon as that standard is met,the STCPP should go into effect automatically,
without additionalFCC or state regulatory approval.
Pre-Obligation Notice From IXC.When a distressed IXC satisfies the objective
impaired creditworthiness criteria,IXCs should be required:(1)to inform end users of
the risk that service will be changed;(2)to provide to end users a clear written overview
of the transition plan;and (3)to advise end users of their rights and of the events that will
unfold in the event the transition plan is invoked.
Joint Transition Letter.Immediatelyupon commencement of the transition
period,the defaulting IXC and the ILEC (or the ILEC's long distance affiliate)should
send a previously drafted and signedjoint letter to the affected end users explainingthe
transition process and informing end users of their options for establishing new long
distance service.This letter should also include specific information about the rates the
ILEC (or its long distance affiliate)will charge during the transitionperiod.Such
notification would be consistent with the procedures outlined in the FCC Customer
Migration Order to ensure that end users of an acquired carrier's services are notified of
15
their right to select a service provider other than the purchaser and to permit carriers to
lift presubscribed interexchange carrier ("PIC")freezes."The jointtransition letters
recently sent to over 13,000 customers of AdelphiaBusiness Solutions ("ABS")
following SBC's purchase of ABS's assets suggest that it is both permissible and
efficient for carriers to work together to advise end users of their rights during
migrations.
ILEC Waiver of PIC Change Charge.In order to implement this aspect ofthe
plan,the Commission and the state regulators should permit ILECs (or their long distance
affiliates)to revise their tariffs to limit the universe of end users eligible for the PIC
change waiver to those end users that are affected by the severe financial distress of their
IXC.PIC change charge waivers should not be available to a broader group of end users.
Seven (7)Cents Per Minute Long Distance Calling With No Monthly
Minimums or Service Fees.Upon migration and throughout the 30-day transition
period,affected end users would receive long distance service from their Mid-Size
Carrier Group member,its long distance affiliate,or other eligible long distance provider
at 7 cents per minute,with no monthly minimum charges or service fees.This low rate is
below no-fee and no-minimum rates charged by most companies and would be more than
fair,even to those end users that have special deals with their prior IXC.
"See FCC Customer Migration Order,16 FCC Red at 11229-230.
"See In Re:Adelphia Business Solutions,Inc.et al.,Order Pursuant to Sections 105,363,and 1146 ofthe
Bankruptcy Code,Approving Service Transition Agreement for the Sale to Southwestern Bell of Certain
Resale Customer Accounts and Authorizing the Consummation of Transactions Contemplated Therein,Chapter 11 Case No.02-11389 (REG)(Jointly Administered)(Bankr.S.D.N.Y.Aug.8,2002);In Re:Adelphia Business Solutions,Inc.et al.,Notice ofDebtors for Order,Pursuant to Sections 105,363,andI146oftheBankruptcyCode,Approving Purchase Agreement For the Sale to Southwestern Bell of Certain
Resale Customer Accounts and Authorizing the Consummation of the Transactions Contemplated Therein,Chapter 11 Case No.02-11389 (REG)(Jointly Administered)(Bankr.S.D.N.Y.Aug.8,2002),Exhibit A,
Purchase Agreement by and between Southwestern Bell Telephone,L.P.and Adelphia Business SolutionsOperations,Inc.and Adelphia Business Solutions Investment,LLC,at 8.
16
IXC Cooperation.Although in most cases,ILECs,such as the members of the
Mid-Size Carrier Group,will already have a billing relationship with the affected end
users,in some cases they will require addresses and other information in order to
generate and transmit invoices.They may also require a distressed IXC point of contact
who can help them deal with late or missed payments,failures to credit past payments
appropriately,and other disputes that might arise.In the context of special access or
CLEC mass migrations,automatic,mandatory cooperation of the distressed carrier is
even more critical since much information uniquelyin the possession of the distressed
carrier is necessary to coordinate migrations.
30-Day Transition Period.Establishing a 30-day period for end users to select
and implement their choices for a new primary interexchange provider would be
consistent with the Commission's goal of "provid[ing]customers with a reasonable
opportunityto find and transition to a new service provider."'°Although ILECs
implement PIC changes on a daily basis,implementing preferences for significant
numbers of end users is not feasible in a compressed time frame.During the 30-day
transition period,end users may select a new IXC or make arrangements to receive long
distance service from the ILEC (or its long distance affiliate).After the transition period,
end users who do not select a new IXC would begin receiving long distance service at the
ILEC's lowest per minute,no monthly minimum rate or the lowest rate plan for which
they qualify.A simple transition plan containing these elements would ensure that end
users received continuous,high-quality service and would protect them from the
impositionof unreasonable charges during the transition period.At the same time,the
20 See Letter from Michael K.Powell,Chairman,Federal Communications Commission,to John Sidgmore,President and CEO,WorldCom,Inc.(July 22,2002)at 2.
17
plan would permit ILECs to transition affected end users to a different IXC in an orderly
fashion in keeping with the goals of the NYPSC Guidelines and the FCC Customer
Migration Order and without the need to obtain waivers of FCC slamming and other
rules.
B.Special Access And CLEC Transition Plan
Transitioning special access and CLEC customers to new providers potentially
raises additional complex issues such as coordination with another provider,availability
of facilities,and establishing a billing relationship with a former CLEC customer.Thus,
devising an effective STCPP for such services involves important technical and other
considerations that are not present in the context of switched access transitions.
Moreover,state regulatory authorities must be heavily involved.The Mid-Size Carrier
Group has identifiedbelow a number of the most critical issues as well as several interim
steps the Commission could take to support ILEC efforts to employ arrangements such as
"virtual switchovers"that ensure continuity of service and payment.But,the complexity
of such migrations makes it impossible to address the full spectrum of special access and
CLEC transition issues comprehensively in the context of the instant comments.
As an initial matter,the principles of notice,efficiency,and minimizing disruption
to end users that govern switched access migration should also be the foundationof any
STCPP for special access and CLEC transitions.However,cooperation of the exiting
carrier is an even more critical element of such plans.
1.Special Access Transitions
Given the complexity of establishing new dedicated or virtual network
connections for special access customers and the likely required involvement of at least
one additional carrier on the opposite end of the affected dedicated circuits,transitioning
18
special access customers to a new providerrequires more time than transitioninga
switched access customer does.Because of the difficultyof transitioningspecial access
customers,it is even more crucial that ILECs be permitted to implement protective
measures,such as deposits,in the context of such migrations.
In order not to prejudice the customer's ability to receive uninterrupted special
access services,ILECs should be allowed to establish shortened time periods in which
customers can make payment.For example,special access is billed in advance,and,as
explained above,ILECs currently face 60 days of revenue risk with respect to such
accounts (i.e.,30 days to pay invoices,then another 30-days before the ILEC can
terminate service).The Mid-Size Carrier Group believes,however,that this period of
risk could be reduced to 45 days without adversely affecting the rights of end users or
financially distressed IXCs.Under such a reduced risk schedule,distressed IXCs would
have 20 days to pay invoices and 5 days to cure.Upon default,the ILECs would work
with the exiting IXC during the following 25 days to transition the special access end-
user to the ILEC or to another provider of special access services.During the transition
period,the end-user could establish a direct billing arrangement with the ILEC to ensure
that the ILEC gets paid and that the end-user continues to receive service.In order to
establish this billing relationship and transition of the end-user to the ILEC or another
provider,the cooperation of the exiting IXC is essential.
2.CLEC Transitions
Due to the large number of CLEC bankruptcies,the Commission and the state
regulators are well aware of the numerous complex issues that a CLEC's exit from the
marketplace presents.Because CLEC transitions raise numerous issues that are under the
jurisdiction of state regulatoryauthorities,the Mid-Size Carrier Group asks that the
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Commission support state regulatory efforts to implement STCPPs consistent with the
framework set forth herein.
The inherent complexities of CLEC transitions require ILECs and CLECs to
cooperate to ensure continuity of service to the end-users,and involve important issues,
such as the following:
Certain Waivers Needed.In order to ensure that end users receive uninterrupted
service,the Commission should grant ILECs a blanket waiver insulating them from
liability in connection with mass migrations of end users of CLEC services.Absent a
waiver,ILECs could be liable for violating the Commission's slamming rules.In
addition,to the extent that end users of CLEC services with local line freezes must
receive individual notice of the transition,the exiting CLEC,which has ready access to
the end-user's contact information,should be responsible for providing it.
CLEC Obligation To Notify ILEC And Other Carriers.The Commission
should require CLECs to notifythe underlying ILEC and other certificated carriers of
their plans to discontinue service.The Commission should also require CLECs to make
their customer lists available to ILECs and other certificated carriers on a non-
discriminatory basis to facilitate transition of end user service and to give other carriers
an opportunityto solicit the business of the CLECs'end users.
No Interoperability With CLEC CPE.To the extent that an end user of a
CLEC's services utilizes customized customer premises equipment ("CPE"),ILECs that
inherit such end users following the CLEC's exit from the market should not be required
to modify their networks in order to be interoperable with customized CPE during the
transition period.Requiring ILECs to become interoperable with customized CPE during
20
the transition period would burden ILECs with unnecessarycosts,with no guaranteethat
the end user will remain with the ILEC following the transition period.
Obligations To Defaulting End Users.When a CLEC exits the market,the
underlyingILEC should be required to assume end users in keeping with their standard
customer acceptance criteria.Moreover,911 service should remain the responsibilityof
the exiting CLEC until the transition is complete.
To ensure minimal prejudice to customers,the Commission should require the
exiting CLEC to provide detailed informationregarding the arrangements it had with
each end user so that the ILEC can replicate those arrangements to the greatest extent
possible.Under no circumstances,however,should ILECs be required to purchaseor
utilize assets of exiting CLECs in order to serve the exiting CLECs'end users.
Return Of Numbering Resources.The FCC should clarify that its numbering
policy requires CLECs that exit the market to return numbering resources to the
numbering and/or pool administrator.In addition,the Commission should not permit
exiting CLECs to deactivate their switches until they have finished migrating ported
numbers and updating local number portability databases.
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VI.CONCLUSION
The Mid-Size Carrier Group welcomes the Commission's efforts to address the
significant problems posed by the current economic crisis in the telecommunications
sector.Above all,the FCC should act so as to minimize the risk that the crisis will be
exacerbated in terms of either the risk of service discontinuance to end users,the risk of
expansion of economic problems to additional carriers,or the risk of rendering small and
mid-size ILECs incapable of providing critical communications services in rural and
insular areas.The Group looks forward to providing additional input on their and other
proposals as they take form in the coming weeks and to encourage Commission action
that ensures against nonpayment and provides for the orderlymigration of end users to
different service providers in the event that ILECs must terminate service to a defaulting
IXC or CLEC.
Respectfully submitted,
THE MID-S IE ROUP
By:/
RI Michael Se owski
Robert J.Butlér
John F.Papandrea
Wiley Rein &Fielding LLP
1776 K Street NW
Washington,DC 20006
[phone]
August 15,2002
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