20020412Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LYNN ANDERSON
LOU ANN WESTERFIELD
DON HOWELL
RANDY LOBB
JOE CUSICK
DOUG COOLEY
TONYA CLARK
BEV BARKER
GENE FADNESS
WORKING FILE

FROM: LISA NORDSTROM

DATE: APRIL 12, 2002

RE: IN THE MATTER OF THE APPLICATION OF LEVEL 3 COMMUNICATIONS, LLC TO AMEND ITS CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO PROVIDE LOCAL EXCHANGE AND INTEREXCHANGE TELECOMMUNICATIONS SERVICES STATEWIDE. CASE NO. LEV-T-02-1.

On February 8, 2002, Level 3 Communications, LLC (“Level 3”) filed an Application to amend its current Certificate of Public Convenience and Necessity. In Case No. GNR-T-98-13, the Commission previously granted Level 3 authority to provide facilities-based local exchange and interexchange services in the Qwest and Verizon service territories. Order No. 27855. Level 3 now seeks to expand its authority under the Certificate to provide such services statewide. In the Notice of Application and Modified Procedure issued on February 28, 2002, the Commission solicited comments regarding Level 3’s Application. Order No. 28963. Comments were filed by Staff, Farmers Mutual Telephone Company (Farmers) and the Idaho Telephone Association (ITA). On May 10, 2002, Level 3 filed Reply Comments and Staff filed Supplemental Comments.

THE APPLICATION
Level 3 initially intends to expand into the service area of Farmers Mutual Telephone Company. Application at 3. According to its Application, Level 3 plans to offer service to Internet service providers who currently do not have points of presence in many of Idaho’s exchange areas. Id. Furthermore, Level 3 states that it has established nationwide contractual arrangements with major Internet Service Providers for the deployment of points of presence on the Level 3 network. Id. The Application contends that customers who currently have to dial long-distance for Internet service will benefit from the establishment of points of presence within their local calling areas. Id.
According to its Application, Level 3 intends to deploy an independent network by either building its own facilities or leasing facilities owned by other carriers. Id. However, Level 3 has not finalized its construction plans and thus initially plans to rely primarily on the leased facilities or tariffed services of other certificated carriers. Id. at 5.
To the extent a small local exchange carrier (LEC) possesses a rural exemption or suspension under Section 251(f) of the Telecommunications Act of 1996, Level 3 does not seek interconnection under Section 251(c) at this time. Id. at 3. Moreover, the Application states that Level 3 does not currently seek to challenge the exemption from any of the other obligations specified in Section 251(c). Id.
To support market entry and the exchange of all kinds of traffic between the small LEC’s customers and Level 3 customers, Level 3 presently intends to lease the facilities of third-party carriers or purchase the tariffed services of LECs exempt under Section 251(c). Id. at 4. To preserve its right to provide service using a small LEC’s unbundled network elements at some future date, Level 3 requests that the Commission grant Level 3 full facilities-based authority statewide with the following qualification: Level 3 may not provide service using unbundled network elements of a LEC that qualifies for a rural exemption under Section 251(f) unless and until it submits a bona fide request for interconnection and the Commission determines that the request satisfies the requirements of Section 251(f). Id.
STAFF COMMENTS
According to Staff, Level 3 is incorporated in the State of Delaware and is headquartered in Broomfield, Colorado. The Company obtained a Certificate of Authority from Idaho's Secretary of State on February 6, 1998. Level 3 does not maintain an office in Idaho but does have a registered in-state agent. Staff found no complaints against Level 3 registered with this Commission. Staff Comments at 2.
Level 3 states that it intends initially to expand into the service area of Farmers Mutual Telephone Company to offer service to, among others, Internet service providers who currently do not have points of presence in many of Idaho’s exchange areas. Level 3 does not seek to interconnect with those companies that posses a rural exemption under Section 251(f) of the Act at this time.
In its Application, Level 3 maintains that it is financially qualified to provide telecommunications services in Idaho. Level 3 Communications, LLC will continue to rely on the financial resources of its parent company, Level 3 Communications, Inc., and submitted a SEC Form 10-K report for its parent company for the fiscal year that ended December 31, 2000. Id. The Company agrees to continue complying with Commission rules regarding advanced deposits, consumer relations, and all other Commission rules and regulations.
Staff has reviewed the Application and financials submitted by Level 3. Staff believes the Company understands and agrees to comply with the Commission’s Rules and requirements. Id. Based on Staff's review of Level 3 Communications, LLC’s Application, Staff believes the Company’s filing satisfies all the requirements of the Commission’s Rules and Procedural Order No. 26665. Id. Staff recommends approval of the Application for an amendment to its existing Certificate of Public Convenience and Necessity to allow the Company to provide telecommunications services statewide. Id.
FARMERS AND ITA COMMENTS
Farmers Mutual Telephone Company is a telephone cooperative that provides local exchange service and other telecommunications service in and around Fruitland, Idaho. Farmers is also a member of the Idaho Telephone Association, a non-profit association that represents the interests of 12 rural telephone companies that provide local exchange service and other telecommunications services in rural Idaho.
In their comments, Farmers and the ITA express skepticism that the expansion of Level 3’s Certificate will benefit customers who currently have to dial long-distance for access to Internet service providers (ISPs) since almost all rural customers can reach Level 3’s ISPs without incurring a toll charge if Level 3 has a presence in Boise, Twin Falls, and Pocatello or Idaho Falls. Farmers and ITA Comments at 2. Neither Farmers nor the ITA object to the expansion of Level 3’s Certificate to include Farmers’ service territory so long as: 1) Farmers’ Section 251(c) rural exemption is not terminated as a result, and 2) Farmers’ right to seek a modification of the obligations imposed by Section 251(b) or (c) is not waived. Id. at 3.
However, the ITA is opposed to Level 3’s request for statewide authority insofar as it would extend to ITA members other than Farmers. Id. at 3. The high cost rural areas served by ITA members are particularly vulnerable to unfair “cherry picking” of their few low cost, high volume customers. The ITA argues that Congress thus provided that State commissions can require a competitive carrier seeking entry into a rural telephone company’s service territory to meet an eligible telecommunications carrier’s (ETC) obligations to offer, and market, universal services throughout the rural company’s territory “before being permitted to provide such service.” 47 U.S.C. § 253(f) (emphasis added).
Farmers and the ITA argue that Level 3 has made no attempt to show it intends to offer the full range of universal services or compete for all the customers in the rural telephone companies’ service territories. Id. at 3. On the contrary, they argue that the tenor of Level 3’s Application suggests that it intends to engage in precisely the sort of selective marketing that led Congress to enact Section 253(f). Id. They insist that this type of unfair competition will drive up costs for non-targeted rural customers and increase Idaho Universal Service Fund levies and disbursements. Id. at 3-4.
Finally, Farmers and the ITA argue that Level 3’s Application for statewide authority should not be processed under Modified Procedure. Instead, the Commission should conduct an investigation and evidentiary proceedings before deciding whether to grant new and unconditional competitive certificates in rural telephone company service areas. Id. at 4.
LEVEL 3 REPLY COMMENTS
In response to the comments filed by Farmers and the ITA, Level 3 reiterated its request that the Commission grant it full facilities-based authority statewide with the qualification that Level 3 may not provide service using unbundled network elements of a LEC that qualifies for a Section 251(f) rural exemption, unless and until it submits a bona fide request for interconnection and the Commission determines that the request satisfies the Section 251(f) requirement. Level 3 Reply Comments at 2. Because it conditioned its Application to specifically avoid any rural exemption implications at the outset, Level 3 does not believe that there is any conflict between its request in this case and the concerns raised in the comments of Farmers and the ITA. Moreover, any issues relating to the continued qualification for exemptions can, and should, be considered at such time as Level 3 makes a bona fide request for interconnection. Since no substantive dispute is before the Commission with regard to its Application, Level 3 requests that the Commission grant its Application according to Modified Procedure. Id.
Level 3 further asks the Commission to reject the ITA’s request for evidentiary hearings to explore “adoption of Section 253(f) protections against cherry picking” for three reasons. Quoting Farmers and ITA Comments at 4. First, Level 3 states that the ETC requirements in Section 253(f) are not applicable by the statute’s express language. Section 253(f) provides
This subsection shall not apply – (1) to a service area served by a rural telephone company that has obtained an exemption, suspension or modification of section 251(c)(4) that effectively prevent a competitor from meeting the requirements of section 214(e)(1)…

Level 3 argues that it is not proposing to provide resale services pursuant to 251(c)(4) or to eliminate any Section 251(f) rural exemptions enjoyed by any ITA member. Id. at 3. Moreover, it is inconsistent for the ITA to assert the rural telephone exemption for the obligations of Section 251(c) yet claim Level 3 must satisfy Section 214(e)(1)’s ETC requirements based upon Section 253(f). Id. Level 3 argues that Section 253(f) makes clear that the ITA companies cannot “cling stubbornly” to rural company protections and see to burden Level 3 with ETC requirements at the same time. Id.
Second, Level 3 argues that it would produce inconsistent results. Id. It notes that an ITA member, Project Mutual Telephone (PMT), offers telephone exchange service in Qwest’s Burley exchange. PMT has access to approximately 30% of Qwest’s customers but only provides services to 4%. Thus, PMT appears to engage in the very “cherry picking that the ITA finds so worrisome in this case.” Id. Level 3 notes that to its knowledge, the ITA has never suggested that PMT be subject to eligible telecommunication carrier requirements in the Burley exchange. Id.
Finally, Level 3 argues that the issue does not lend itself to consideration in a global proceeding. Id. According to Level 3, Section 253(f) contemplates a fact-specific inquiry focused on discrete service areas in which a new entrant seeks to provide service rather than statewide examination of the issue. Id.
STAFF SUPPLEMENTAL COMMENTS
Staff believes that the process of certification or, in this case, expanding a company’s certification, is a method of determining that a company has the necessary qualifications to provide service while still fostering competition in the local telecommunications market. Certification is a separate function from interconnection. Staff Supplemental Comments at 2 (emphasis added).
According to Staff, Farmers applied for an exemption of Section 251(c) obligations pursuant to Idaho Code § 62-615(2), which the Commission approved in Order No. 27255. Pursuant to Order No. 27255, Farmers’ exemption terminated on January 1, 2001. Staff does not believe approval of Level 3’s Application can be construed as a waiver by Farmers of its right to seek a modification of the obligations imposed by Section 251(b) or (c). Id.
Farmers also points out that, under Section 253(f) of the 1996 Telecommunications Act, State commissions
can require a competitive carrier seeking entry into a rural telephone company’s service territory to meet an eligible telecommunications carrier’s obligation to offer, and market, universal services throughout the rural company’s territory before being permitted to provide such services.

Farmers suggests that failure to require this of Level 3 would be unfair competition and not in the public interest. Staff notes that Section 253(f) allows, but does not require, State commissions to obligate a competitive carrier to meet the obligations of an ETC. Id. Staff does not believe the Commission should require this of Level 3 and that the Commission should approve Level 3’s Application to expand its Certificate. Id. Since Level 3 does not seek to interconnect with those companies that hold an exemption under Section 251(f) of the Act at this time, Staff states that any decisions regarding Farmers’ Section 251 obligations are best made when there is a bona fide request for interconnection. Id.
As to the grant of a certificate for the entire State, Staff also points out that other competing carriers currently have certificates to serve the entire State and could serve customers in Farmers’ territory today. Id. at 3. Staff cites Comm South Companies, Inc. (GNR-T-99-12, Order No. 28243); Essex Communications (GNR-T-00-26, Certificate No. 387); and Pac-West Telecomm, Inc. (GNR-T-99-21, Certificate No. 373), as examples. Id. Staff believes, because there are no factual issues to decide and adequate comments already appear in the record, that this matter does not require a hearing and that no oral arguments are necessary. Id.
COMMISSION DECISION
Does the Commission wish to conduct an investigation and evidentiary proceedings as requested by the ITA before issuing an Order on Level 3’s Application?
If the Commission determines that it has sufficient information upon which to base its decision, should Level 3’s Application to amend its current Certificate of Public Convenience and Necessity be approved?

Lisa Nordstrom

M:LEVT0201_ln

DECISION MEMORANDUM 1