960724.docx

DECISION MEMORANDUM
TO:COMMISSIONER NELSON
COMMISSIONER SMITH
COMMISSIONER HANSEN
MYRNA WALTERS
TONYA CLARK
DON HOWELL
STEPHANIE MILLER
DAVE SCHUNKE
EILEEN BENNER
JOE CUSICK
BIRDELLE BROWN
GARY RICHARDSON
WORKING FILE
FROM:WELDON STUTZMAN
DATE:JULY 24, 1996
RE:CASE NO.  GTE-T-96-2
COMMENTS REGARDING GTE’S TARIFF ADVICE 96-10 TO REMOVE RESALE PROHIBITION ON INTRALATA TOLL SERVICES AND PROVIDE A 5% DISCOUNT FOR MTS
On May 22, 1996, GTE Northwest, Incorporated (GTE) filed Tariff Advice No. 96-10 to remove resale prohibition on intraLATA toll services and provide a wholesale discount for MTS effective June 27, 1996.  The tariff provides a 5% discount on dialed station-to-station calls for resale companies.  GTE stated that the pricing is not intended to be a final rate, but is instead an interim measure until intraLATA equal access is fully implemented.  On July 1, 1996, the Commission issued a Notice of Modified Procedure establishing a comment period that terminated on July 22, 1996.  Comments were filed by the Telecommunications Resellers Association (TRA), AT&T Communications (AT&T), and Commission Staff.  
The TRA and AT&T raise similar issues in their comments.  The TRA stated that “while GTE’s removal of resale prohibitions and establishment of an interim wholesale discount are entirely appropriate and indeed, an obligation under Sections 251(b)(1), 251(c)(4) and 252(d)(3) of the Telecommunications Act of 1996, GTE’s proposed 5% discount is hardly sufficient to serve, even on an interim basis, as a viable starting point for resale of its services.”  The TRA urged the Commission to reject GTE’s discount “in favor of more significant interim wholesale discounts.”  According to the TRA, GTE’s proposed wholesale discount is arbitrary and bears no relation to avoided costs.  The TRA represented that other states adopting interim resale discounts have adopted discounts ranging from 7% to 57%.  TRA urged the Commission to reject GTE’s proposed wholesale discount in favor of a cost-based discount, but did not request a hearing.
AT&T, in its comments, supports GTE’s move to provide unrestricted resale of local exchange services, but also believes the 5% discount is inadequate.  Pointing out that the Telecommunications Act requires wholesale rates to be based on “avoided costs,” AT&T provided a discussion of the meaning of avoided costs.  AT&T stated that it does not believe the 5% discount rate proposed by GTE includes deductions for the appropriate avoided costs.  AT&T states it would not be able to compete in the market at that discount because AT&T’s own additional cost to provide the service would increase the price of the same service to well above the 5% difference.  AT&T also stated that GTE has not provided the Commission with sufficient information to determine whether the appropriate costs are deducted from the retail price.  AT&T requested that the Commission reject GTE’s proposed 5% discount rate and hold a hearing to fully examine the issues and the underlying support for the 5% discount.  AT&T suggested the appropriateness of the 5% discount could be discussed during the prehearing conference set in Case No. GTE-T-96-1, the case considering GTE’s tariff for implementing equal access dialing.
Staff pointed out in its comments that GTE’s local calling plans provide greater savings to its customers than the 5% discount on MTS rates would provide to qualified resellers.  Staff also pointed out that the proposed discount is not a result of any financial analysis or cost determination. However, despite the fact that there is no cost justification for the amount of the discount, Staff recognized that this is solely an interim discount until such time as the process for fully implementing intraLATA equal access is in place.  Staff stated that GTE has expressed an intent to determine more precise wholesale rates after the FCC publishes its rules on interconnection in August, and that new rates can be determined by year end.  Staff stated that there may be benefits for an interim discount, even though it appears inadequate.  Staff recommended that the proposed 5% discount be allowed, only on an interim basis, so long as local ratepayers will not suffer from the revenue loss and provided that GTE will calculate accurate wholesale rates by December 31, 1996.  Staff suggested that approval of the tariff by the Commission should not imply the Commission’s acceptance of the 5% interim rate as approval of the difference between the cost of providing wholesale and retail service.
Commission Decision
1.Should GTE’s tariff advice No. 96-10 to remove resale prohibition on intraLATA toll services and providing a 5% discount on MTS service be approved?
2.Should a hearing be convened to allow GTE and interested parties to provide additional information regarding the adequacy of a 5% interim discount rate?
3.Should this docket be combined with Case No. GTE-T-96-1 and set for prehearing conference at the same time as Case No. GTE-T-96-1 (August 26, 1996)?
Weldon Stutzman
vld/M:gtet962.ws