20040817Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE SECTION 272
BIENNIAL AUDIT AND REPORT FOR QWEST )
COMMUNICATIONS INTERNATIONAL, INC. )
CASE NO. QWE-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Weldon B. Stutzman, Deputy Attorney General, in response to the Notice of
Filing of Audit and Report and Notice of Comment Deadline in Case No. QWE-04-16 issued on
July 1 , 2004, submits the following comments.
BACKGROUND
Pursuant to Section 271 of the Telecommunications Act of 1996 , Qwest Corporation, a Bell
Operating Company (BOC), was authorized by the Federal Communications Commission to
provide interLATA telecommunications services. Section 272 of the Act requires that a BOC
providing interLATA services create a separate affiliate to provide the services. 47 U.
~ 272(a)(1). Qwest Communications Corporation (QCC) and Qwest LD Corp. (QLDC) are the
Section 272 affiliates. QCC and QLDC are wholly owned subsidiaries of Qwest Services
Corporation (QSC) as is the Qwest BOC. QSC is a wholly owned subsidiary of Qwest
STAFF COMMENTS AUGUST 16 2004
Communications International, Inc. (QCII). QCII is the parent of all Qwest companies and is the
publicly traded entity. Section 272( d) also requires that an audit be conducted every two years to
determine whether the BOC and the separate affiliates have complied with the provisions of Section
272 and regulations promulgated by the Federal Communications Commission (FCC).
On June 14 2004, a Section 272 Biennial Report for Qwest Communications International
Inc. was filed with the Commission by Ernst and Young LLP. The audit specifically addresses the
requirements of Section 272 that are intended to keep the activities of the long distance carrier
separate from the operations of the BOC. Thus, the Biennial Report addresses Section 272
objectives that the auditors specifically reviewed, including whether the separate affiliate has
operated independently of the BOC, whether the separate affiliate has maintained books, records
and accounts in the manner prescribed by the FCC that are separate from the books, records and
accounts maintained by the BOC, and whether the BOC has discriminated between the separate
affiliate and any other entity in the provision or procurement of goods, services, facilities and
information or in the establishment of standards.
Staff reviewed the Report of Independent Accountants on Applying Agreed Upon
Procedures and finds that it generally supports a conclusion that Qwest is not substantially out of
compliance with the requirements of Section 272. The audit was able to verify that systems and
procedures had been implemented to ensure compliance and the audit failed to find significant
evidence of widespread or systematic discriminatory treatment of affiliated entities.
It is important to clarify that this was an audit for specific limited purposes. 47 CFR
~ 53.209(b) lists the specified compliance requirements of the Section 272(d) Biennial Audit. The
independent accountants conducted an examination using agreed upon procedures as elected by the
Joint Federal/State Oversight Team. Staff believes the Report is adequate to support this limited
purpose.
Staff does find that a few of the specific findings identified in the report merit additional
attention and continued review.
1. Objective I, Procedure 5.
As a result of the QCII financial statement restatements for 200 I and 2002, QCC recorded
a total credit to fixed assets for restatements and asset impairment of $6 549 000 000. This
adjustment was reflected in the Trial Balance but has not yet been recorded in the fixed asset
listings." In its comments, the Company indicated that it continues to update the fixed asset listings
STAFF COMMENTS AUGUST 16 2004
and expected to complete this process during the third quarter. Staff believes the sheer size of the
restatement merits continued Commission attention and review.
2. Objective V NI: Procedure
Agreements for services provided to affiliated entities are to be posted on the Qwest web site
within 10 days of their effective date. A sample of 80 agreements was selected for this audit, and
33 of the 80 agreements tested were posted to the Qwest Internet site more than 10 days after their
effective date. In its response, the Company indicates that it had already found and disclosed some
of the late po stings, and that it "has further strengthened its controls related to the posting
requirement" . The Company also claimed that the procedures resulted in some agreements being
double counted, and that the Report overstates the extent of the problem.
Regardless of whether the Company had discovered and disclosed the late postings, more
than 40% of the tested agreements were filed late. Some of the agreements were posted more than a
year late.
3. Objective VII: Procedure 6.
Persons who call a Qwest call center to order new service or move an existing service are to
be informed that they have a choice of long distance service providers in addition to Qwest Long
Distance. A total of 114 of the calls monitored by Ernst and Young involved new or moved service.
In 19 of the 114 calls, the customer service representative did not inform the caller of his or her
right to choose a long distance provider. In its comments, Qwest identified the procedures it has
established and the training and supervision that are provided to its customer service
representatives. The Company stated it had implemented additional training and supervision and
that its own monitoring indicated 83 - 97% compliance in the business call centers and 91 - 100%
compliance in the residential call centers.
The finding indicates that the Qwest procedures to ensure customer service representatives
provide non-discriminatory service is inadequate. Nearly 17% of the callers failed to receive the
proper information, which is a high enough percentage to suggest a systemic problem. Qwest had
the procedures in place and provided extensive training and supervision prior to the audit. While
the additional supervision and training the Company implemented may improve performance, as
claimed by the Company, Staff believes any improvement may not last. The incentives that Qwest
uses to affect the earnings of customer service representatives encourage non-compliance.
customer service representative logically will believe he or she will sign up more long distance
STAFF COMMENTS AUGUST 16 2004
customers, and therefore make a larger commission, ifhe or she does not inform customers of the
right to choose a long distance provider other than Qwest.
This finding by the auditors is consistent with numerous complaints received by Staff
indicating customer service representatives failed to follow Qwest's established procedures when it
may jeopardize commissions. Additional training and monitoring may not be sufficient. The
results identified in the Report demonstrate that Qwest has created incentives that result in
unsatisfactory performance by customer service representatives.
4. Objective IX: Procedure 3.
The Report indicates that the amount paid by the affiliate differed from the amount billed by
the BOC in 16 of the 45 invoices tested. The explanation for the discrepancy was that the affiliate
disputed portions of the bill and/or there were billing adjustments. This is not necessarily evidence
of discriminatory treatment, but of inadequate service. The audit result supports claims by CLECs
that Qwest's bills contain excessive errors and that they must devote considerable manpower to
reviewing and disputing Qwest's bills. Billing system performance was one of the areas that needed
attention during the ROC third party test of Qwest' s OSS, and it is also one of the areas in which
Qwest's performance has resulted in significant payments to CLECs in accordance with Qwest'
Performance Assurance Plan (QP AP). The results of this Report is just further evidence that
Qwest's billing systems need attention.
ST AFF RECOMMENDATION
Staff recommends the Commission continue to monitor Qwest's performance in these four
areas.
DATED at Boise, Idaho, this
(p+"'--
day of August 2004.
Weldon B. Stutzman
Deputy Attorney General
-:::::::...._--- -
Technical Staff: Wayne Hart
Patricia Harms
i:umisc/comments/qwetO4.16wswh
STAFF COMMENTS AUGUST 16 2004
CERTIFICA TE OF SERVICE
HEREBY CERTIFY THAT I HAVE Tl1IS 16TH DAY OF AUGUST 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN CASE
NO. QWE-04-, BY MAILING A COpy THEREOF POSTAGE PREPAID TO THE
FOLLOWING:
MARY S HOBSON
STOEL RIVES LLP
SUITE 1900
101 S CAPITOL BLVD
BOISE ill 83702-5958
jJt Jl, K' 0&..
SECRETARY
CERTIFICATE OF SERVICE