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DECISION MEMORANDUM TO: COMMISSIONER KJELLANDER COMMISSIONER SMITH COMMISSIONER HANSEN JEAN JEWELL RON LAW LOU ANN WESTERFIELD LYNN ANDERSON RANDY LOBB DON HOWELL JOE CUSICK CAROLEE HALL WAYNE HART TONYA CLARK BEV BARKER GENE FADNESS WORKING FILE FROM: WELDON STUTZMAN DATE: JUNE 3, 2002 RE: CONCLUDING DECISION IN QWEST'S SECTION 271 CASE CASE NO. USW-T-00-3 On May 24, 2002, Qwest filed in this case a Notice of Updated Statement of Generally Available Terms and Conditions [SGAT] and Request for Commission Acknowledgment that Rates are Effective on June 7, 2002. Qwest subsequently filed on May 31, 2002 an Affidavit of Jeffrey D. Owens essentially identifying the particular changes to its SGAT and averring that the changes were made to comply with the Commission's earlier decisions in this case. BACKGROUND Section 271 of the Telecommunications Act of 1996 establishes the means for a Bell Operating Company, which includes Qwest, to begin providing in-region interLATA and interstate telecommunication services. The Commission has issued three decisions in Qwest's Section 271 case, each addressing different aspects of Qwest's compliance with the requirements of 47 U.S.C. § 271. The three decisions already issued by this Commission concern: (1) Qwest's compliance with the 14-item checklist in Section 271 (the Checklist Decision) issued November 21, 2001; (2) Qwest's Performance Assurance Plan issued March 7, 2002 (the QPAP Decision); and (3) a decision on public interest, Track A, and Section 272 issued April 19, 2002 (the Public Interest Decision). Each decision identified issues that remained open and conditioned Commission approval on satisfactory resolution of those issues. Qwest asserts in its May 24, 2002 filing that it has responded to the open issues identified by the Commission and claims it has complied with the directives of the Commission. DISCUSSION The Checklist Decision The Commission in the Checklist Decision stated it "is prepared, when consulted by the FCC, to report that Qwest satisfies the access and interconnection requirements of the competitive checklist in 47 U.S.C. § 271(c)(2)(B), so long as Qwest revises its SGAT as set forth in this decision and as may be necessary as this case proceeds to its conclusion." Checklist Decision p. 10. The revised SGAT filed by Qwest on May 24 contains the revisions required by the Commission in its Checklist Decision. Staff makes this determination based on the supporting affidavit submitted by Qwest on May 31, 2002, discussed later in this memorandum. Therefore, Staff believes that Qwest has responded to the decisions of the Commission and has made the necessary revisions to its SGAT. The Commission also referenced changes to the QPAP in its Checklist Decision. The QPAP Decision In the QPAP Decision, the Commission expressed support but was "not yet prepared to recommend approval of the QPAP, however, because changes must still be made." The QPAP Decision directed some specific changes. In addition, the Commission expected that completion of Qwest's operation support system (OSS) testing might result in changes to QPAP measurements, and the Commission anticipated that changes might be prudent based on changes made by other state commissions. Qwest in its May 24 filing asserts that it has made the changes directed or anticipated by the Commission and that its filing complies with Commission instructions. Staff has reviewed the QPAP and believes it is consistent with the Commission's directives in its QPAP Decision. One change to the QPAP Staff believed might be appropriate in the interest of uniformity with other state commission decisions relates to the triggering of Tier 2 penalty payments. The terms approved by the Commission were those recommended by the Facilitator in his QPAP Report. Qwest's original QPAP called for payment of Tier 2 penalties only if three consecutive months of performance measures are missed by Qwest. The Facilitator recommended changes that provide for Tier 2 payments if Qwest misses the performance measures in two out of three consecutive months and subsequently misses the measures again in the calendar year. In monitoring the decisions of other state commissions, Staff noted that some commissions appeared to be requiring Tier 2 payments for each month that the performance measures are missed. Qwest asserts that it has not made that change to its QPAP in any other state, but has committed to providing the change to the Idaho QPAP "in the event that Qwest agrees to remove the phase-in of Tier 2 payments for the QPAP in any state that participated in the ROC multi-state QPAP process." Another change to the QPAP worth noting results from the Commission's instructions for Section 16.1 of the QPAP describing the 6-month review and future changes to the QPAP. In its QPAP Decision, the Commission stated "that the QPAP should leave open the possibility that the Commission may broaden the review if necessary to respond to circumstances arising from actual experience with the QPAP." QPAP Decision p. 8. The Commission also noted that Section 16.1 stated that changes could not be made to the QPAP without Qwest's agreement. The Commission directed that the language be modified "to state that Qwest will make changes if the Commission so directs, whether Qwest agrees or not with the changes." QPAP Decision pp. 8-9. In response to the Commission's instructions, the revised QPAP provides that Qwest, a CLEC, or the Commission every six months "may initiate a review of the performance measurements to determine whether measurements should be added, deleted, or modified; whether the applicable benchmark standards should be modified or replaced by parity standards; and whether to move a classification of a measurement to high, medium, or low, Tier 1 or Tier 2." The QPAP also now limits Qwest's potential liability for changes to the QPAP it does not agree with "to 10% of the monthly payments that Qwest would have made absent the effect of such changes as a whole." That 10% payment collar is in effect for 12 months following the change. For changes to performance measures that have not been submitted to the ROC PID administration process, however, a CLEC may request that the 10% collar be lifted after only six months of payments where the CLEC has received 80% or less of what the total payments would have been without the collar. Staff believes the QPAP satisfies the requirements of the Federal Communications Commission. The Public Interest Decision The Public Interest Decision contains several reservations. In that decision the Commission stated it (1) would review the change management process Qwest was to provide with the OSS test results, (2) would reserve its final decision on the Section 272 separate affiliate requirements until Staff filed supplemental comments, and (3) could not find Qwest in compliance with public interest standards until unbundled network elements (UNE) prices that satisfy the FCC's TELRIC standards are established. OSS Testing Results and Change Management Process Staff acknowledges receipt of the final report of KPMG Consulting and HP Consulting covering the third party test of Qwest's Operational Support System (OSS). Staff believes the testing process was thorough and fair. It identified many concerns and issues and resulted in a number of improvements to Qwest's systems. Staff generally concurs with the report's conclusion that Qwest's systems provide a competitor with the basic tools and services it needs to function and that these are provided in a manner that affords competitors a reasonable chance to compete. Staff notes that a number of issues remained unresolved at the conclusion of the test. Staff recognizes Qwest's ongoing efforts to address each of these issues and believes the appropriate response is continued monitoring and observation of Qwest's actual wholesale service performance. Staff does not believe any of these issues should preclude Qwest's entry into the long distance market. 272 Separate Affiliate Requirements In its Public Interest Decision, the Commission stated regarding Qwest's compliance with the Section 272 requirements that "the Commission conditionally finds that Qwest has put in place a separate affiliate to comply with the requirements of Section 272, but will reserve a final decision until Staff has filed its supplemental comments." Public Interest Decision p. 10. Staff has not filed supplemental comments, and its concerns about Section 272 compliance relate to continuing monitoring of Qwest's separate affiliation transactions. Staff recommends the Commission accept the record on the Section 272 requirements, but review Qwest's continued compliance in future audits, including one to occur six months after Qwest receives FCC approval for interLATA service. UNE Prices and TELRIC Standards In its Public Interest Decision, the Commission stated "the Commission cannot find Qwest in compliance with public interest standards until UNE prices that satisfy the FCC's TELRIC standards are established." Public Interest Decision p. 12. In its May 24 filing Qwest asks the Commission to approve revised UNE prices contained in the filing effective June 7, 2002, pending resolution of the UNE cost docket. According to Qwest's filing, the Company "intends that these new, lower rates remain in effect for its CLEC customers until one of the following occurs: the Idaho Public Utilities Commission establishes a different rate in a cost docket; a mutually acceptable different rate is negotiated between Qwest and its customers; or a change to applicable law takes place triggering a rate change pursuant to any 'change in law' provision of an applicable interconnection agreement." Qwest Notice of Updated SGAT p. 7. Qwest asserts that its updated SGAT "provides substantial reductions in key UNE prices that would not otherwise be reduced until completion of the cost docket." Staff believes that the Company's revised UNE prices are reasonable, pending resolution of the cost case. There is an extremely large amount of work to be done on the rates proposed by the Company. The rates proposed by Qwest are interim and Staff recommends that further review of these rates, along with other state UNE cost dockets be monitored for continuity in the wholesale market and to ensure TELRIC compliant rates. Affidavit by Qwest On May 31, 2002, Qwest filed an Affidavit of Jeffrey D. Owens. Mr. Owens is a Senior Director in the Policy and Law Organization of Qwest Corporation, with responsibilities for managing aspects of Qwest's 271 efforts, including the filing of Qwest's SGAT in each of Qwest's fourteen states. In his Affidavit, Mr. Owens states that Qwest has made modifications to the Idaho SGAT within three categories, as follows: 1) Changes that were recommended or required by the Multi-State Facilitator or by this Commission. 2) Changes that resulted from consensus or other agreements or changes made at the request of CLECs in Idaho or other states, as well as compliance language dictated by an order from the Federal Communications Commission or compliance language from other states that Qwest agreed to carry-forward to Idaho; and 3) Changes that resulted from the correction of typographical, grammatical, name change, capitalization, or other non-substantive matters, such as the deletion of redundant language or updates to web site addresses or technical standards. Affidavit of Jeffrey D. Owens, p. 2 4. The affidavit includes an extensive list of revisions that have been made to the SGAT to comply with Commission decisions. STAFF RECOMMENDATION The Company and Staff have been involved in lengthy detailed processes that have involved many multi-state collaborative workshops. These processes have taken the better part of two years and an incredible amount of the Staff's time. The collaborative processes have saved this Commission many resources and the return has been a thorough review of the 14-item checklist, Qwest's Performance Assurance Plan, a quality OSS final product along with an adequate address of the public interest and Track A items as required by 47 U.S.C. § 271. As represented in the Affidavit of Mr. Owens, Staff believes the required changes have been made to the SGAT and recommends the Commission accept the May 24, 2002 SGAT as the Company's final SGAT filing. Staff also recommends the Commission closely monitor Qwest's performance in the future to prevent backsliding and to ensure that the doors to competition forever remain open. Currently there is little competition in Idaho. Regarding Qwest's revised UNE price list, Staff recommends the Commission approve it pending resolution of the UNE cost case. Because the proposed UNE rates are interim and have not been established as satisfying all TELRIC standards, and because there has been little activity by intervenors in the UNE cost docket, Staff would support another collaborative effort to resolve the cost docket in Idaho and other rural states where little intervenor activity has occurred. Staff commends the Section 271 collaborative process, believing it has proven to be an efficient and effective method to address large complex issues for small rural states. Through a collaborative cost docket process, economies of scale could be achieved, thereby benefiting ratepayers and expediting competitive entry. COMMISSION DECISION: Should the Commission issue a final decision approving Qwest's May 24 compliance filing, adopting the revised UNE prices pending conclusion of the UNE cost case, and stating support for Qwest's anticipated application with the FCC for interLATA service authority? Weldon Stutzman M:USWT003_ws