19991102Comments.doc

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION ) CASE NO. GNR-T-99-10
OF JATO OPERATING TWO CORP. FOR A )
CERTIFICATE OF PUBLIC CONVENIENCE ) COMMENTS OF THE
AND NECESSITY TO PROVIDE LOCAL ) COMMISSION STAFF
EXCHANGE TELECOMMUNICATIONS )
SERVICES. )
)
__________________________________________)

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Weldon B. Stutzman, Deputy Attorney General, in response to Order No. 28176, the Notice of Application and Notice of Modified Procedure in Case No. GNR-T-99-10 issued on October 13, 1999, submits the following comments.

BACKGROUND

On June 30, 1999, JATO Operating Two Corp. (JATO) filed an Application with this Commission for a Certificate of Public Convenience and Necessity in compliance with Commission Rules of Procedure, IDAPA 31.01.01.111 and Procedural Order No. 26665. JATO subsequently filed revisions on September 23, 1999 and October 6, 1999.

JATO is a newly formed Delaware corporation with headquarters in Denver, Colorado and is seeking authority to provide local exchange telecommunications service pursuant to Title 61 to Idaho residences and businesses. JATO also intends to provide high-speed DSL data-based telecommunication services. Both services will be provided using the incumbent local exchange carrier’s unbundled network elements in conjunction with its own facilities collocated at the incumbent’s central office. The company anticipates providing competitive local exchange services throughout the state of Idaho and is requesting authorization as a CLEC.

DISCUSSION
Staff has reviewed the Application and illustrative tariff submitted by JATO and believes that the filing meets the requirements of the Commission’s Procedural Order No. 26665. In its Application, the company agreed to comply with the Commission’s Rules of Procedure. However, as presented in the company’s filing, the financial statements for JATO raised certain concerns. Following Staff’s inquiry about financial viability of JATO, the company presented financial statements of its parent company, JATO Communications Corp.
Following review of the parent company JATO Communications Corp. financial statements, Staff discovered that the parent company is raising operating capital through equity financing. Because of the risks associated with this form of corporate financing, Staff requested that the company provide a business plan reflecting start-up dates, cash flows and any other associated information to assist in its analysis.
On September 23, 1999, JATO’s Idaho Projections were received. According to the projections, the company plans to start business operations in Idaho during the third quarter of 2000 and will not experience a positive cash flow until the end of the second year of operation. Because of the negative cash flow projection, Staff recommends JATO provide a performance bond of $100,000 for two years. Staff has discussed this with the Company president who indicated that this proposal was acceptable.

OTHER COMMENTS RECEIVED
On October 21, 1999, the independent local exchange carriers who are members of the Idaho Telephone Association (ITA) submitted comments regarding JATO’s Application. In their comments, the companies state that they are “exclusive providers” of basic local exchange service within their “respective service areas pursuant to Certificates of Public Convenience and Necessity” issued by this Commission. The ITA comments point out that the members
meet the definitions of a “Common Carrier,” “Telecommunications Carrier,” and “Rural Telephone Carrier” under the federal Telecommunications Act of 1996 (“1996 Act”), and by Commission Order No. 27255. Specifically, the ITA members note they have “obtained suspension of the requirements of Section 251 (c) of the federal 1996 Telecommunications Act until January 1, 2001”.
Staff recognizes that the ITA members currently have an exemption on file. On December 17, 1997, the Commission issued Order No. 27255 in Case No. GNR-T-97-17 wherein it found that each of the ITA members met the requirements to be designated as a rural telephone company and an eligible telecommunications carrier pursuant to federal and state law. The Commission found that granting rural exemptions pursuant to 47 U.S.C. Section 251(f) and Idaho Code Section 62-615 (2) and suspending the requirements of Section 251 (c) for a period of three years, beginning January 1, 1998, was consistent with the public interest, convenience, and necessity. However, the rural carrier exemption does not necessarily guarantee that the ITA members will remain “the exclusive providers of basic local exchange service within their respective service area pursuant to Certificates of Public Convenience and Necessity issued by the Idaho Public Utilities Commission”. The Federal Communications Commission issued Order Nos. FCC 97-336, FCC 98-205 and FCC 99-100 wherein it ruled that a company cannot acquire an “exclusive provider” status by virtue of a certificated area because a rural incumbent protection provision that broad is not competitively neutral. Furthermore, the rural exemption only protects the independent companies from having to interconnect with competitive carriers. The exemption does not prohibit a competitive carrier from entering the incumbent carrier’s certificated area and competing by other means. An absolute prohibition on competitive entry could be a violation of section 253 (a) of the 1996 Act.

STAFF RECOMMENDATION
JATO has complied with all filing requirements for issuing a certificate. Staff recommends that the Commission grant the company a Certificate of Public Convenience and Necessity for all certificated areas in Idaho. It is further recommended that the issuance of a certificate to JATO be conditioned on the procurement of a performance bond of $100,000. Because JATO is a start-up company and the Company’s revenue projection shows that it may not generate positive cash flows for a period of least two years, Staff recommends that the performance bond be in place for a period of two years, unless the company petitions the Commission to eliminate the bond requirement before the expiration of the two-year period.

Respectfully submitted this day of November 1999.

_______________________________
Weldon Stutzman
Deputy Attorney General

Technical Staff: Carolee Hall

WS:CH:gdk/i/umisc/comments/gnrt9910.wsc

STAFF COMMENTS 1 NOVEMBER 2, 1999