20020823Verizon Comments.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMI SION
IN THE MATTER OF THE APPLICATION )
OF CENTURYTEL OF THE GEM STATE,)S COMSSION
INC.AND CENTURYTEL OF IDAHO,INC.)CASE NO.GNR-T-02-11
FOR APPROVAL OF A TARIFF ADVICE )
CONTAINING DEPOSIT REQUIREMENTS )
BY INCUMBENT LOCAL EXCHANGE )
CARRIERS FOR INTEREXCHANGE )
CARRIERS )
COMMENTS OF
VERIZON NORTHWEST INC.
Verizon Northwest Inc.(Verizon),pursuant to Commission Order No.29089 dated
August 5,2002,respectfullysubmits that security deposits from inter-exchange carriers
(IXCs)are appropriate and necessary to protect its other customers in Idaho from having
to pay higher rates if IXCs fail to pay their bills.More than 55%of Verizon's total
intrastate and interstate regulated revenues in Idaho are from access services.Moreover,
Verizon and its local telephone company affiliates'total amount of uncollectibles has
almost doubled from 1999 to 2001.If Verizon is unable to collect the revenues from the
carriers which owe them,it will have no choice but to raise its rates for other services to
maintain its financial viability.Rather than have to resort to that remedy,Verizon and
other incumbent local exchange carriers (ILECs)should be permitted to protect
themselves and their customers who pay their bills by obtaining reasonable assurances of
payment by IXCs through security deposits and other measures when it is obvious that a
carrier is in financial difficulty.
Verizon's existing Idaho access tariff (I.P.U.C.No.9,Section 2.4,Original Sheet
15)already permits a security deposit equal to two months'charges where an IXC has a
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history of late payment or does not have established credit.Verizon and other ILECs,
however,should have the flexibilityto modify deposit requirements to address the current
economic climate in the telecommunications industry.The IXCs'many unregulated
suppliers such as equipment manufacturers,software vendors,and the myriad of others
who provide the goods and services necessary to run any company have no regulatory
restrictions on making sure that they get paid,and there is no reason why Verizon and
other ILECs should stand in line behind these unregulated companies to protect
themselves against non-payment.To the contrary,to protect their other customers who
pay their bills,Verizon and other ILECs should be permitted to take reasonable measures
to assure payment.
Verizon has therefore filed proposed revisions to its federal access tariffs to
institute deposit protections similar to those requested by CenturyTel in this case.See
Verizon Transmittal No.226,Regarding Tariff FCC Nos.1,11,14,and 16 (filed July 25,
2002).The FCC is currently considering these tariff revisions,as well as similar
modifications filed by other ILECs.As Verizon pointed out in its comments in the federal
tariff proceeding,the deposit protections it and other ILECs propose are similar to -or
more favorable to customers than -provisions that many non-ILEC carriers,including
many IXCs,already have in their tariffs.'Rather than delay implementation of these
proposals,they should be approved as soon as possible.
Verizon's responses to the Commission's specific questions are 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?
'See Verizon Telephone Companies Tariff FCC Nos.1,11,14 and 16,Reply Comments of
Verizon to Petitions to Reject or Suspend and Investigate,at 16-22 &Exh.C thereto (filed August 7,2002)
("VerizonFederal Reply Comments").
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Answer:
The level of risk is high.Based on Verizon's most recent ARMIS Annual Report
for Idaho,access revenues make up more than 55%of its total intrastate and interstate
regulated revenues.Moreover,the amount of total uncollectibles that Verizon and its
affiliated ILECs have experienced throughout the United States has almost doubled from
1999 to 2001.Given today's economic environment and the overall condition of the
telecommunications industry,it is critical that ILECs have the ability to protect themselves
and their customers who pay their bills by obtaining reasonable assurances of payment,
such as through security deposits.In this way,ILECs can avail themselves of the same
accepted commercial practices that other suppliers routinelyexercise.
2.Would it be proper to have state requirements regarding these proposed security
deposits that track those that may be endorsed by the FCC?
Answer:
Yes.Consistent federal and state requirements would be more efficient to
administer.
3.If an IXC is providingboth intrastate as well as interstate interexchangeservices,
would having a state standard and an FCC standard be problematic?
Answer:
See answer to Question 2.
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
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Iarge LECs.With that in mind,are small LECs at greater risk than large LECs,
thereby justifying different treatment?
Answer:
Different treatment between carriers is not warranted.The critical point is that
every ILEC should have the opportunityto seek assurances of payment when an IXC is in
financial distress.
5.Does the current WorldCom bankruptcy filing demonstrate the need for this
policy or the futility of implementingit?
Answer:
The WorldCom bankruptcy demonstrates the need for security deposits and other
such arrangements.These arrangements help ensure that a supplier receives at least some
of the revenue to which it is entitled.Equipment manufacturers have such protective
measures available to them,and there is no reason why other suppliers should not have
these same measures.Indeed,many non-ILEC carriers -including WorldCom and other
IXCs -already have tariffs that allow them to require security deposits based upon criteria
similar to those proposed by CenturyTel.2
This is especially true in today's telecommunications industry -in fact,Verizon
and its local telephone company affiliates are currentlyparty to 92 different bankruptcy
proceedings.Expanding the use of security deposits will allow ILECs protections similar
to those available to unregulated lenders and suppliers with financially troubled
customers.Because non-dominant carriers and suppliers in other industries already can,
and do,require adequate assurance of payment from customers with troubled financial
2 See Verizon Federal Reply Comments,at 16-22 &Exh.C thereto.
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situations,preventing ILECs from obtaining these same protections will not insulate the
financiallytroubled carrier from such demands.Instead,it will only put ILECs at the back
of the line of the creditors and cause the cost of one carrier's failure to ripple further
throughout the telecommunications industry.
In addition,while each carrier has to deal with its own financial risks,the ILECs
often take the risk for not just one,but dozens of potentially defaulting customers -
CLECs,ILECs,wireless carriers,and retail special access customers.Thus,the current
WorldCom bankruptcy underscores the need for additional payment assurance protections
for ILECs.
6.Is it appropriateto require a deposit from an IXC that has no history of late
paymentsregardless of its credit rating?
Answer:
Yes.While a prior historyof late payments may be one indicator that a carrier will
not timelypay its bills,it is not the only one.In response to Question #8,Verizon has set
forth the specific triggers proposed in its federal tariff filings for conditions that would
warrant the request for a security deposit (or,in the alternative,a letter of credit or
advance payments).
7.Would this requirement become a self-fulfilling prophecy if a financially
strugglingcompany were required to pay a two-month deposit?
Answer:
No.As stated above,non-dominant carriers and suppliers in other industries
already can,and do,require adequate assurance of payment from customers with troubled
financial situations.Preventing ILECs from obtaining these same protections will not
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insulate the financially troubled carrier from such demands -it will only serve to put
ILECs at the back of the line of the creditors if the customer ultimatelycannot pay.
If the Commission is concerned about a customer's short-term cash flow,it could
allow carriers to revise their tariffs to provide other ways to assure payment instead of a
cash deposit.For example,in Verizon's federal tariff filing,Verizon has proposed
alternatives to a cash deposit -such as a letter of credit,or payment one month in advance
for services rendered -which provide additional options with dealing with a financially
troubled carrier.
8.If the Commission were to find that the proposed deposit policy was in the public
interest,what is the proper trigger for determining credit worthiness?
Answer:
Verizon has filed revisions to its federal tariffs proposing that a customer may be
required to provide a security deposit (or a letter of credit,or payment one month in
advance for services)if one or more of the followingconditions occur:
1.The customer's account balance has fallen in arrears in any two months out of any
consecutive twelve month period;
2.The customer owes $250,000or more to the LEC that is 30 days or more past due;
3.The customer or its parent informs the LEC or publicly states that it is unable to pay its
debts as such debts become due;
4.The customer or its parent has initiated a voluntary receivership or bankruptcy
proceeding,or if such a proceeding has been initiated against the customer or its
parent;
5.The senior debt securities of a customer or its parent are below investment grade;or
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6.The senior debt securities of a customer or its parent are rated at the lowest investment
grade-rating category by a nationallyrecognized credit rating organization,and are put
on review for a possible downgrade.
While many of these conditions already could be grounds for requiring a security
deposit under Verizon's current tariffs,this list provides clarity to all concerned by setting
forth objective,clearly defined criteria for requiring adequate assurance of payment for
services rendered.These criteria,however,are not the only potential indicia of
creditworthiness,and other ILECs -like other carriers and companies in other industries -
should be permitted to set different objective tests for creditworthiness.
9.Under the second proposed condition in the tariff,where a 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?
Answer:
The Commission does not have to set any specific criteria for the size of any
additional deposit requirement,or the time over which it must be calculated.As a
practical matter,ILECs would not have an incentive to increase the requested deposit
unless the change in the customer's monthly billings is material and sustained.That is
because,as a practical matter,it is simply too difficult administratively to track and
request an increase in deposit amount for infrequent or immaterial changes in monthly
billing amounts.Moreover,even if an ILEC were to request that a deposit be increased
based on a marginal increase in the customer's billingrecords,the requested amount of the
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additional security deposit would be marginal because the increase in billing would be
only marginal.If the Commission wants to ensure that a one month "blip"in increased
billings does not cause a material increase in the deposit,it could require that the amount
of any security deposit (including the amount of any increase in the deposit)be based on
an average of the amounts of the prior three months'billings.However,if less than three
months of billing history exists,the deposit should be based on an average of the months
of service that actuallyoccurred.
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?
Answer:
If a deposit is not paid,the ILEC should be allowed to discontinue service
pursuant to contract or tariff.This is in accord with provisions already existing in many
ILEC tariffs.See,e.g.,Verizon's Idaho Tariff,I.P.U.C.No.9,Section 2.1.8,Original
Sheet 8.
As part of the transition,the IXC should be required to give advance notice to its
customers that it is exiting the market with instructions for the customers to choose a
different IXC.The IXC,of course,should be required to continue to pay ILECs for any
services provided during the transition period.If the IXC cannot pay,or if the IXC
abandons the market without transitioning its customers,then customers may experience
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a brief period where they will have to dial an "access code"to complete long distance
calls until they select a new preferred carrier.
11.Are there possible alternatives to requiring a deposit from IXCs?Is a surety
bond a reasonable alternative?
Answer:
In Verizon's federal tariff filing,Verizon has proposed alternatives to a cash
deposit -such as a letter of credit,or payment one month in advance for services rendered
-which provide additional options with dealing with a financially troubled carrier and
require less cash at the outset.Verizon has tried to use surety bonds,but they have not
been effective because they have a relatively short expiration date (typically one year),
and Verizon has had problems cashing them.
Conclusion
No reason exists for putting ILECs at the back of the line of other creditors who
can and do protect themselves against the failure of IXCs to pay their bills.To the
contrary,the public interest would be served by permitting ILECs to assure payment by
IXCs for services rendered.Otherwise,those customers who pay their bills will have to
pay higher rates to cover the cost of these uncollectibles.
VERIZON
Allan T.Thoms
Vice President -Public Policy &External Affairs
DATED:August 22,2002
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