28548.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF UNIVERSAL TELECOM, INC. FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO PROVIDE COMPETITIVE TELECOMMUNICATIONS SERVICES.
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CASE NO. UTI-T-00-1

ORDER NO. 28548
On May 17, 2000, Universal Telecom, Inc. (“Universal”) filed an Application for a “Certificate of Public Convenience and Necessity” to provide competitive local telecommunications exchange services in Idaho. Universal proposed to provide basic local exchange and long distance services to residential and business customers through a combination of facilities-based and resold services.
The Application provided Universal’s unaudited financial statements for the year ending December 1999 and for the month of March 2000. According to these statements Universal has no income. Expenses for the full 1999-year were $252,401. Expenses for March 2000 were $118,152. At the end of March, Universal showed $44,640 in assets, $32,555 of which was cash. The March statement also showed $272,964 in liabilities, $235,000 of which was a line of credit. Universal also showed a negative ($479,344) in equity after about 1.5 years of operation.
On July 13, 2000, the Commission issued a Notice of Application and Notice of Modified Procedure to process Universal’s Application. The Commission Staff was the only party to file written comments. Staff’s comments stated that Universal submitted all information required by the Commission in Order No. 26665 and its rules. However, Staff recommended that the Commission require Universal to post a surety bond in the amount of $50,000 for a period of two years to protect customers from possible financial harm as a condition of issuance of a certificate. Staff cited the following factors to support this recommendation: 1) Universal’s limited experience and operation in Idaho; 2) its financial status; and 3) the risk to customers presented by advance billing for local services should Universal be unable to provide them.
On August 25, 2000, the Commission issued final Order No. 28481 granting Universal a Certificate, subject to the posting of a $50,000 surety bond.
On September 13, 2000, Universal filed a timely Petition for Reconsideration. See Idaho Code §§ 61-626(1) and 62-619; IDAPA 31.01.01.331.01. The Commission Staff timely filed its opposition to reconsideration.
COMMISSION FINDINGS
Commission Rule 111 and Procedural Order No. 26665 set the requirements for applicants seeking a certificate to provide basic local exchange service. In addition, Procedural Order No. 26665 gives the Commission authority to require a company to post a performance bond or establish an escrow account with a bonded escrow agent as a condition of issuance of a certificate. Order at p. 8. Accordingly, the Commission acted within the scope of its authority when requiring the posting of a bond as a condition for issuance of a certificate.
The circumstances of this case also justify this condition. First, Universal has a limited history before this Commission. Second, although the Company did not propose to collect advance deposits and would not be required to provide the escrow provided by Order No. 26665, it still, like most telecommunications companies, requires payment in advance for its fixed costs (e.g., service and equipment). As illustrated by its tariff, page 11, ¶ 2.3.2, Universal states, “Charges for facilities and service other than usage charges, are due monthly in advance. All other charges are payable upon request of the Company.” (Emphasis added). Because of these advance payments it is imperative to consider the harm that could come to customers of Universal if it should, for whatever reason, be unable to provide service.
Finally, Universal’s unaudited statements show negative stockholder’s equity of nearly a half million dollars. This financial situation is not unusual for a start-up operation, but this status still causes concern about Universal’s ability to continue to provide services for which they are paid in advance.
Universal asserts the Commission’s requirement in this case creates both a barrier to entry of new telecommunication businesses in Idaho and a financial hardship for it. However, Universal has not indicated how this requirement constitutes a barrier to entry. Indeed 47 U.S.C. § 253(b) allows States to impose on a “competitively neutral basis . . . requirements necessary to. . . protect the public safety and welfare. . . .” Furthermore, it has been customary for the Commission, under the authority of Commission Rule 111 and Procedural Order No. 26665 to require surety or performance bonds to protect consumers from possible financial harm that could be caused by the failure of a company to meet its service obligations. Since 1996, the Commission has approved more than 50 certificates and in a number of these cases it has conditioned issuance upon the posting of a surety or performance bond. The Commission also chose to require performance or security bonds rather than escrow accounts because they can be obtained for pennies on the dollar, leaving more resources free to the company.
O R D E R
IT IS HEREBY ORDERED that Universal Telecom’s Petition for Reconsideration is denied. The requirement that a $50,000 surety bond be posted as a condition of the granting of a certificate is reaffirmed .

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of October 2000.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

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The Company has filed illustrative tariffs for business, residential, vertical and “managed modem” service.

A copy of these comments was mailed to Jeffrey Martin, President of Universal Telecom, Inc., at the address provided in the Application.
Primarily stockholders’ equity and a line of credit fund these expenses.

Order No. 28248, 1/5/00 – Fretel, $10,000 bond
Order No. 28243, 12/29/00 – Comm South, $50,000 indemnity bond
Order No. 28228, 12/17/00 – JATO, $100,000 performance bond based on Company’s own projections that it may not generate a positive cash flow for at least two years.
Order No. 28185, 10/22/99 – dPi-Teleconnect, LLC, $5,000 + whatever to equal $50/customer.
Order No. 28080, 6/24/99 – Preferred Carrier Services, $15,000 cash bond.
Order No. 28074, 6/18/99 – CCCID, Inc., $50,000 surety bond for two years in lieu of evidence of financial stability.
Order No. 27883, 1/22/99 – Highspeed.com, LLC, $50,000 performance bond
Order No. 27806, 11/20/98 – One Eighty Communications, Inc., $100,000 performance bond
Order No. 27122, 9/4/97 – Max-Tel, Inc., $5,000 to begin, maintain bond level at no less than $50 per customer.
Order No. 28413, 6/15/00 – Maxcell - $150,000 performance bond.

ORDER NO. 28548 -1-

Office of the Secretary
Service Date
November 1, 2000