19991004Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
STEPHANIE MILLER
TONYA CLARK
RON LAW
JOE CUSICK
WAYNE HART
REV BARKER
LYNN ANDERSON
WORKING FILE
FROM:DON HOWELL
DATE:October 4,1999
RE:APPLICATION OF dPi-TELECONNECT FOR A CERTIFICATE OF
PUBL1C CONVENIEi CE AND NECESSITY;CASE NO.GNR-T-99-7
On April 22,1999,dPi-Teleconnect,LLC filed an Application for a Certificate of
Public Convenience and Necessity to provide resold local exchange services within Idaho.dPi is
a Delaware corporation owned by dPi Holding,Inc.(a Texas corporation)and Koch Ventures,
Inc.(a Delaware corporation).The Company proposed to furnish prepaid local exchange service
to individuals who have had their telephone service disconnected.On July 6,1999,the
Commission issued a Notice of Application and Notice of Modified Procedure to process dPi’s
Application.Timely comments were filed by the Commission Staff and TDS Telecom/Century
Telephone Company.On September 7,1999,dPi filed a response to comments of the
Commission Staff.
dPi’s APPLICATION
In its Application,the Company stated its desire to “provide local exchange service
in those areas currently served by U S WEST Communications and GTE Northwest and any
other relevant incumbent-facilities-based LECs.”Application at 4.The Company wants to
provide on a resell basis prepaid monthly recurring,flat-rate residential local exchange service
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including extended area service,customer calling services,and other services available on a
resell basis from the underlying incumbent LEC.dPi indicated that it has an interconnection
agreement with GTE and is currently in the process of negotiating an interconnection agreement
with U S WEST.It indicated that it is certified to offer such services in 10 states and has
Applications pending in 15 other states.The Company stated that it currently does not own any
of its own telecommunications facilities.The Company also maintained that it will comply with
all applicable rules of the Commission but does not accept deposits for service given the prepaid
nature of its intended local exchange service.
TIlE COMMENTS
In response to the Commission’s Notice of Modified Procedure,comments were
filed by TDS Telecom/Century Telephone and the Commission Staff.These comments are set
out below.
1.TDS Telecom and Century Telephone noted that they are incumbent LECs
providing services in rural exchanges in Idaho.They insisted the federal Telecommunications
Act of 1996 and Idaho Code §62-615 restricts competitors desiring to operate within their
certificated service areas.Consequently,they requested that the Commission “take those
restrictions into account if a Certificate is issued to dPi-Teleconnect in relation to its request to
serve areas in ‘other relevant incumbent facilities-based LECs.”TDS/Century Comments at 2.
2.The Commission Staff questioned how well dPi understands the rules of the
Commission when it stated that its target audience is customers who have had their local service
terminated “often for non-payment of long-distance charges.”Staff Comments at 4.As the
Commission is aware,LECs in Idaho may not terminate local service for non-payment of long-
distance charges.In its comments,the Staff specifically noted that dPi indicated in its
Application that it will comply with all Commission rules.The Company has provided an
illustrative tariff with its Application that demonstrates an understanding of tariffing
requirements and processes.Staff Comments at 3.
The Staff also expressed concern regarding the Company’s financial ability.The
Staff was concerned that dPi’s financial statements were unaudited and the Company may not
have the financial cushion necessary to operate in Idaho.Although the Company indicated it had
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an interconnection agreement with GTE,the Staff could find no interconnection agreement
submitted by GTE or dPi.
The Staff noted that the Application identifies three principal individuals as
operating the business.Two of the individuals have prior telecommunications experience and
both were associated with US Telco,another provider of prepaid local service that was
previously acquired by a competitor.The vice president of dPi,Dave Pikoff,was the founder
and president of US Telco.Although US Telco applied for a Certificate of Public Convenience
and Necessity from this Commission,it was withdrawn because the Company was sold to a
competitor.
Given the relationship between dPi principals and the former US Telco,the Staff
also disclosed allegations previously filed against US Telco and/or its successor before the
Colorado Commission.US Telco was accused by the Colorado Office of Consumer Counsel of
failing to provide services at authorized rates.The case before the Colorado Commission was
dismissed when US Telco was purchased by Reconnex,and US Telco promised to cease doing
business in Colorado.A subsequent proceeding in Colorado alleged that US Telco/Reconnex
continued to conduct business in Colorado after their authority had been cancelled.Id.at 3.
Based upon its concerns,Staff recommended that the Commission deny dPi
Teleconnect a Certificate of Public Convenience and Necessity to provide local exchange
telecommunications services within the service territories of U S WEST and GTE.In the
alternative,Staff recommended that if a Certificate is granted,that three conditions be imposed
similar to the conditions imposed upon Max-Tel Communications,Inc.in Order No.27122.
The first condition is that dPi provide a bond or appropriate surety in the initial
amount of $5,000 as a condition precedent to receiving its Certificate.Second,Staff
recommended dPi maintain a bond in the amount no less than $50 per customer.The Company
will report to the Commission on the lO day of each month identifying the number of customers
that it has on the first day of the month and provide evidence of the appropriate bonding amount.
Failure to provide the report in a timely manner would be grounds for revocation of the
Certificate or other penalty as provided by Idaho Code §S 6 1-706 and —707.
Third,the Staff recommended that the Company be allowed to Petition the
Commission for a review of these conditions after one full year of operation and submit revised
financial information including current detailed balance sheets and a detailed income statement
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reflecting current year and prior year results of operations for the 12 months ending as of the date
of the balance sheet.
dPi REPLY
In its reply,dPi urged the Commission to grant dPi a Certificate without the Staffs
suggested conditions.dPi asserted that its proposed service is in the public interest.The
Company maintained that its proposed services and the manner in which these services are
delivered are unique.“Customers are sold a single ‘flat-rate’service that relieves them from
concern over incurring any usage sensitive charges.dPi Reply at 1.The Company also noted
that it enters into relationships with local businesses to provide a means for its customers to pay
for service within a few miles of their residence.These local businesses or agents give dPi a
local presence not only for the delivery of service but also from the customer service standpoint.
dPi also disputed the Staffs allegation that it is not adequately financed.The
Company noted that its management has extensive experience in the telecommunications
industry.It also attached updated financial information indicating the strength of the Company.
dPi stated that it initially received an equity investment of $1.5 million and it currently serves
over 5,000 customers.dPi Reply at 2.Consequently,dPi argued that its financial strength “does
not warrant the posting of a bond.If the Commission believes that a bond is appropriate,dPi
believes that the bond should be capped at $5,000.00 as opposed to $50.00 per customer.dPi is
committed to providing services pursuant to the rules and regulations of the state of Idaho as well
as that of the FCC.”Id.
dPi insisted that granting it a Certificate of Public Convenience and Necessity to
provide its prepaid flat-rate service will offer consumers a choice.The Company maintained that
although ILECs could offer identical services as dPi intends to offer,ILECs choose not to market
such services.“Furthermore,dPi’s provisioning of service advances the goals of universal
service,makes more efficient use of the existing ILEC network and to the extent that any of its
customers are off the existing public switched network for toll fraud,dPi places them in a
position where they can get basic service without perpetrating additional fraud on the
telecommunications industry.”Id.
DECISION MEMORANDUM 4
COMMISSION DECISION
1.Should dPi-Teleconnect’s Application for a Certificate of Public Convenience
and Necessity be denied?
2.If the Commission decides to grant dPi a Certificate,does it wish to impose any
condition?Does the Commission desire to impose a Bond?If so,should the Bond be set at a
fixed amount of $5,000,or should the amount of the Bond be maintained at a minimum of
$5,000,or $50 per customer,whichever is higher?If the Commission desires to adopt a floating
bond amount,should dPi report monthly and provide evidence of its increasing bonding amount?
3.Does the Commission desire for dPi to submit revised financial information and
current balance sheets after one year of operation?
4.If the Commission decides to award a Certificate,does it wish to restrict it to the
GTE,U S WEST and Citizens service areas?
5.Anything else?
Don Howell
vld/M :GNR-T-997dh
DECISION MEMORANDUM 5