20020813Decision Memo.doc

DECISION MEMORANDUM

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

FROM:

DATE: AUGUST 13, 2002

RE: CASE NO. QCC-T-02-1
APPLICATION FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR QWEST COMMUNICATIONS CORPORATION

On April 24, 2002, Qwest Communications Corporation (QCC) filed an Application for a Certificate of Public Convenience and Necessity to provide basic local exchange service within the State of Idaho. QCC is a wholly-owned subsidiary of Qwest Service Corporation, which also owns Qwest Corporation. Qwest Corporation is an incumbent local exchange carrier in Idaho and a Bell Operating Company (BOC) as defined by the 1996 Telecommunications Act. QCC intends to provide intra and interLATA toll service upon approval from the Federal Communications Commission pursuant to 47 U.S.C. § 271 and § 272. Section 272 requires a BOC, which includes Qwest Corporation, to provide interLATA services through an affiliate separate from the BOC. As initially stated in its application, QCC also intends to provide local exchange service and vertical features to business and residential customers in the service area of Qwest Corporation and Verizon Northwest, Inc. using both its own facilities and resold service or unbundled network elements. QCC’s local telecommunication services would be subject to the Commission’s jurisdiction pursuant to Title 62, Idaho Code.
On June 10, 2002, the Commission issued a Notice of Application and Notice of Modified Procedure to process QCC’s Application. During the comment period, written comments were filed only by the Commission Staff. Staff determined that QCC met the Commission’s filing requirements for approval of a CPCN, but raised concerns regarding two issues. Staff is concerned that customers may not understand the distinction between the regulated basic local service provided by Qwest Corporation and the relatively unregulated basic local service provided by QCC if those services are marketed by the same entity. In reply comments, QCC asserts joint marketing by QCC and Qwest Corporation is expressly permitted by Section 272 of the Telecommunications Act. Nevertheless, QCC on August 12, 2002, filed a motion to amend its application “to exclude the Idaho service territory in which Qwest Corporation operates as the incumbent local exchange carrier.” Accordingly, QCC now seeks authorization to provide local service only in the service area of Verizon.
Section 272(g)(3) states that “the joint marketing and sale of services permitted under this subsection shall not be considered to violate the nondiscrimination provisions of subsection (c).” The joint marketing referred to and thus “permitted under this subsection,” in terms of this case, would be marketing by QCC of Qwest’s local exchange services and Qwest’s marketing of QCC’s long-distance service. See 47 § U.S.C. 272 (g)(1) and (2). The section does not refer to QCC’s marketing of local service, ostensibly in competition with Qwest’s local service. If QCC and Qwest were jointly marketing local services offered by both entities, the potential for customer confusion is great.
The joint marketing of local services also presents additional challenges for Qwest’s compliance with the separation requirements of Section 272. For example, QCC must “operate independently” from Qwest. The companies must maintain separate records and accounts, and have separate officers, directors and employees. Transactions between the two companies must be conducted “on an arm’s length basis,” and must be reduced to writing. Qwest may provide facilities and services to QCC only if “such services or facilities are made available to all carriers at the same rates and on the same terms and conditions, and so long as the costs are appropriately allocated.” 47 U.S.C. § 272 (e)(4). The closer the companies work together, especially in dual offerings of local service in the same territory, the more likely they would encounter difficulties in complying with the Section 272 requirements. Accordingly, Staff supports QCC’s modification to its application to limit its local service authority to Verizon’s service area.
Staff in written comments also expressed concern about the financial capability of QCC, given the current financial problems of the parent company, Qwest Communications.
With the modification to QCC’s application to limit its local service authority to the area served by Verizon, Staff supports the application and recommends the Commission issue an order approving the Application of QCC for a Certificate of Public Convenience and Necessity to provide basic local exchange service within the service area of Verizon Northwest, Inc.
In a related matter, QCC submitted an Application to withdraw the CPCN the Commission previously issued to LCI International Telecom Corp. (LCI). LCI no longer exists, and Staff recommends the Commission approve the withdrawal of the CPCN issued to LCI.

Commission Decision
Should the Commission approve the Application of QCC for a Certificate of Public Convenience and Necessity to provide basic local telecommunication service in the service area of Verizon Northwest, Inc.?
Should the CPCN of LCI International Telecom Corp. be revoked?

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DECISION MEMORANDUM 1