20020903Reply Comments Verizon.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSICI ED
IN THE MATTER OF THE APPLICATION )
OF CENTURYTEL OF THE GEM STATE,)
INC.AND CENTURYTEL OF IDAHO,INC.)CASE .Sl0NFORAPPROVALOFATARIFFADVICE)
CONTAINING DEPOSIT REQUIREMENTS )
BY INCUMBENT LOCAL EXCHANGE )
CARRIERS FOR INTEREXCHANGE )
CARRIERS )
REPLY COMMENTS OF
VERIZON NORTHWEST INC.
Verizon Northwest Inc.(Verizon)hereby replies to the initial comments of the
interexchangecarriers (IXCs).In general,they argue that deposit requirements are
unnecessary.However,as Verizon has pointed out in filings before the Federal
Communications Commission ("FCC"),the conclusion is inescapable that the recent
spate of telecommunications bankruptcies,restatements,and other signs of financial
turmoil are symptomatic of an industry wide problem that affects all carriers.'For
example,publicly reported ARMIS data shows that total uncollectible revenues for
reporting carriers (large and mid-size ILECs)grew more than 50%between 2000 and
2001,while total operating revenues during the same time period grew only about
0.02%.2 As FCC Chairman Michael Powell recently warned,the telecommunications
industryis "in a state of 'utter crisis."'Yochi J.Dreazen,FCC's Powell Says Telecom
'WorldCom'sbankruptcy filing reportedly was the largest in American history,even before it reported its
discovery of an additional accounting error requiring the restatement of another $3.3 billion in earnings,
bringingthe tally to over $7 billion.And WorldCom represents merely the tip of the iceberg.More than
50 telecommunications firms have filed for bankruptcy in the past year,and of the 25 largest bankruptcy
filings in the United States,10 have been made by telecommunications companies.See Reply Comments
of Verizon,Petition for Emergency Declaratoryand Other Relief FCC WC Docket No.02-202,at 5-6
(filed Aug.22,2002).
2 See ARMIS 43-01,Rows 1060 and 1090 (showing industry uncollectibles rising from $1.74 billion to
$2.64 billion between 2000 and 2001,while total operating revenues stayed around $116.5 billion both
VERIZON COMMENTS
'Crisis'May Allow a Bell to Buy WorldCom,Wall St.J.,July 13,2002,at Al.By any
objective measure,the scope of this problem is worsening and,if left to continue,will
almost certainly cause even greater harm to many carriers'financial well-being.In light
of these very serious and tangible concerns,ILECs such as CenturyTel should be
permitted to implement protections similar to those available to other telecommunications
carriers (includingprotections already available to many of the IXCs who are objecting
here)and firms in other industries.
The IXCs and their trade association -AT&T,WorldCom,and ASCENT -all
make the same principal arguments.First,they argue that the FCC has rejected previous
attempts by ILECs to obtain additional assurances of payment.3 As Verizon has pointed
out in previous filings before the FCC,the FCC never stated that the deposit provisions
issued almost twentyyears ago could not be revisited.4 ÑÍOreover,these FCC rulings were
issued in 1984 and 1987,under a dramatically different telecommunications regulatory
regime,and at a time when the telecommunications industry was not in a state of "utter
crisis."
Second,the IXCs argue that CenturyTel's proposed deposit requirements are
"anticompetitive"and "discriminatory,"because they permit CenturyTel (and other
ILECs)to require deposits from their competitors but forego deposits from their affiliated
IXCs."This claim is unsupported -ILECs'current security deposit requirements are
applied on a nondiscriminatory basis,and any changes would likewise be applied on a
nondiscriminatory basis.Furthermore,WorldCom's claim that CenturyTel can request a
years),availableat http://gullfoss2.fcc.gov/cgi-bin/websql/prod/ccb/armisl/forms/armis.hts (select Preset
Reports,Basic Financial Data,and add data fromBOC (includes Verizon-GTE)and Mid-Size ILECs).
3 See,e.g.,AT&T Comments at 4-6.
4 See Reply Comments of Verizon to Petitions to Reject or Suspend and Investigate,Verizon Telephone
Companies TariffF C C.Nos.l,ll,14,and 16,FCC Transmittal No.226,at 25-27 (filed Aug.7,2002)("Verizon Tariff Reply Comments").
*See,e.g.,AT&T Comments at 7-8;WorldCom Comments at 3-4,6-9;ASCENT Comments at 2.
VERIZON COMMENTS 2
cash deposit "from virtuallyany of CenturyTel's competitors"and thereby "deprive them
of capital that they would otherwise use to ...compete against CenturyTel"is specious.6
CenturyTel could require cash deposits only from those companies that present a risk of
non-payment;CenturyTel cannot impose its tariff at whim.
Third,the IXCs argue that CenturyTel's trigger for imposing additional security
deposit requirements -where a customer's "credit worthiness has fallen below
commercially acceptable levels as determined by an independentcredit rating service"-is
too subjective,and that the only appropriate trigger is a history of late payments.'This
argument,too,is insupportable.As an initial matter,many of the same carriers seeking to
block the proposed revisions to CenturyTel's tariffs employ similar protections in their
own tariffs;that fact alone underscores the reasonableness of CenturyTel's proposals (and
the hollowness of those other carriers'arguments).For example,AT&T has a tariff that
states that it may require a deposit of up to three months'estimated usage charges from a
customer if,inter alia,if the customer has "an unsatisfactory credit rating.""AT&T's
tariff does not specify what will be deemed "unsatisfactory",but lists a number of criteria
that may be considered,including "bankruptcy history,""financial statement analysis,"
and commercial credit bureau rating.Other carriers'tariffs give them even more
discretion in whether to require a deposit.For example,WorldCom's tariff states that it
can require a security deposit of customers "whose credit worthiness is not acceptable to
the Company or is not a matter of general knowledge."'°The tariff does not specify what
criteria the company will use to determine whether a customer's creditworthiness is
6 WorldComComments at 8-9.
7 See,e.g.,AT&T Comments at 8-9;WorldCom Comments at 6-10.
*AT&T Tariff FCC No.30,§3.5.5(A).See also Verizon Tariff Reply Comments,at Exhibit C (listing
many of the deposit provisions in other carriers'tariffs).
AT&T Tariff FCC No.30,§3.5.5(A).
io WorldCom Texas PUC Tariff No.1,§2.7.
VERIZON COMMENTS 3
"acceptable."As these carriers undoubtedly realized when they set their own tariff
provisions,there may be reasons to suspect the creditworthiness of a customer even if the
customer has in the past had a perfect payment history.For example,long before
WorldCom filed for bankruptcy,public reports of massive internal accounting
irregularities led many to question its future financial viability.In these types of
circumstances,suppliers in other industries can -and do -seek adequate assurances of
future payment before providing additional services to the financially troubled customer.
ILECs should not be barred from seeking equal protections.
Moreover,by setting a trigger that is defined by criteria set by "an independent
credit rating service,"CenturyTel'stariff revisions will require a deposit only if the lack of
creditworthiness is verified by outside,objective and independent criteria.This is similar
to Staffs suggestion that "if one of the major rating services (Fitch,Moodys,S&P)rates a
company at a certain level,such as two levels about [sic]junk bond status,this could
trigger a deposit requirement.""And,as demonstrated above,it is far less "subjective"
than many of the tariff provisions in other carriers'tariffs.
Fourth,WorldCom argues that,with respect to WorldCom,CenturyTel'sproposed
tariff is "moot and superceded"by a court order in WorldCom's bankruptcy proceeding.
Specifically,WorldCom argues that the bankruptcy court rejected proposals for deposits
of the kind CenturyTel seeks in this proceeding and therefore the Commission (1)cannot
impose them on WorldCom and (2)should not impose them on any company as a matter
of policy.12
WorldCom's argument misses the point -it confuses post-bankruptcy payments
with pre-bankruptcy security deposits.In the WorldCom bankruptcy proceeding,the
"Staff Comments at 3.The Staff's suggestion is similar to provisions in Verizon's proposed federaltariffs.See Verizon Initial Comments at 6-7.
12 WorldCom Comments at 2-3.
VERIZON COMMENTS 4
couri.granted each utility an "administrative expense priority claim"for all post-petition
services they provide,and the court ordered WorldCom to pay the utilities "on a timely
basis in accordance with applicable contracts and tariffs."The bankruptcy court will
continue to closely monitor WorldCom's financial situation.If WorldCom fails to make
timely payments,then the utilities may demand payment from WorldCom and WorldCom
must make payment by wire transfer within three business days,otherwise the utilities
may seek a "show cause"order."Also,WorldCom must provide to each utility a weekly
report setting forth,among other things,WorldCom's "unrestricted cash"to ensure that
WorldCom has sufficient cash to pay its bills.Again,these protections were put in place
for post-petition services provided by the utilities.In contrast,CenturyTel's proposal here
is intended to ensure payment for services before a company files for bankruptcy.In this
way,an ILEC (and its end users)can better ensure that the IXC continues to pay for the
services it receives rather than default on such payments and thereby transfer the
responsibility for them to someone else.
Finally,Time Warner Telecom of Idaho (TWTC)states that it has been reviewing
its deposit requirements "to reduce or avoid further negative financial impacts associated
with other carriers'financial distress,"but suggests that the Commission open a generic
proceeding to address the issue.Such a proceeding is unnecessary -the Commission can
and should approve CenturyTel's tariff in this docket.The one issue that may warrant a
generic proceeding is Issue #10,which centers on the transition of disconnected
customers.This issue arises not only where companies go bankrupt,but also where
companies discontinue services for other reasons.In such instances,it is essential that the
exiting company bear the responsibility and cost of transitioning its customers.This issue
may deserve separate treatment,and Verizon does not object to a generic proceeding.
"See page 3 of Bankruptcy Court Order attached to WorldCom's Comments.
VERIZON COMMENTS 5
VERIZON
Allan T.Thoms
ice President -Public Policy &External Affairs
DATED:August 29,2002
VERIZON COMMENTS 6