DR 97-180
Bell Atlantic
Investigation into Rate Reductions
Order NISI Approving Petition to Introduce CallAround 603 Plus as
a New Optional Intrastate Toll Calling plan and to Restructure
the Existing CallAround 603 Plan
O R D E R N O. 22,869
March 16, 1998
I. PROCEDURAL HISTORY
On October 31, 1997, New England Telephone and
Telegraph, d/b/a/ Bell Atlantic (Company, filed a notification
detailing a proposal to reduce rates for residence, business and
carrier access customers, establish expanded local calling areas
on a "home and contiguous" basis throughout the State and
implement a plan establishing network and Internet access for
schools and libraries. The proposal is part of a comprehensive
effort by the Company, as a result of Staff investigations, to
reduce total intrastate revenues by $26 million. As a part of its
proposal, the Company filed on February 17,1998, a petition to
introduce CallAround 603 Plus and restructure the existing
CallAround 603 plan. The total amount of the reduction related to
this portion of the proposal is $3.5 million.
II. POSITION OF BELL ATLANTIC AND STAFF
A. Bell Atlantic
CallAround 603 Plus (603 Plus) is a new optional
intrastate toll calling plan for residence customers only.
Subscribers to 603 Plus will be assessed no service establishment
charge, pay $6.00 per month for an initial period of 1 hour and 9
cents for each minute in excess of the initial period. In
addition, subscribers will receive a 25% discount on customer
dialed, in-state calling card calls and an anniversary discount
waiving the $6.00 monthly subscriber charge for one month after
12 full months on the 603 Plus plan. No restrictions apply to the
anniversary discount.
The 603 Plus plan applies to all directly dialed
intrastate toll calls. Per second timing of calls is applied. At
the end of the subscriber's billing period, the sum of
accumulated seconds are rounded to the next highest minute of use
(MOU). All residence customers currently subscribed to CallAround
603 ("603 Plan") will automatically be subscribed to the 603 Plus
plan upon approval.
Furthermore, CallAround 603 will be restructured by
changing it from a residence and business customer plan to a
business only customer plan. All terms and conditions remain the
same.
As filed, 603 Plus is limited to New Hampshire
residences; business customers are prohibited from subscribing.
Limiting optional toll calling plans to a specific customer class
departs from the Commission's decision in DR 89-010, Re NET, 76
NHPUC 150 (1992). In DR 89-010, Bell Atlantic's last rate design
case, the Commission concluded there is no difference in the
actual cost to provide residential versus non-residential toll
services. As a result, Bell Atlantic has extended optional
calling plans to both customer classes.
Bell Atlantic argues that this holding in DR 89-010
should not apply to 603 Plus because the Company needs additional
marketing flexibility in the newly competitive telecommunications
market. Bell Atlantic contends that the same arguments the
Company made in its Business Link filing apply equally to the 603
Plus plan. See, Order No. 22,794 at 4,5. As Bell Atlantic argued
in Business Link, the Company contends it is at a similar
competitive disadvantage in the residence toll market because
other major toll competitors have the flexibility to "target
market" optional calling plans to New Hampshire residence
customers while Bell Atlantic is forced to provide optional
calling plans to all customers. Because it must provide optional
calling plans to all customers, Bell Atlantic claims it will
incur additional costs and risk greater revenue erosion than
anticipated.
Pursuant to DE 90-002, Re Generic Investigation Into
IntraLATA Toll Competition Toll Rates, 78 NHPUC 365 (1992), Bell
Atlantic has had the authority to adjust the retail rates of
existing services and introduce new services provided it can
demonstrate that the average revenue per minute of use (ARPM)
generated from such services is equal to or greater than the
relevant price floor. Accordingly, Bell Atlantic provided
analyses in support of its petition.
Bell Atlantic's ARPM calculations are based upon
proprietary March 1997 data indicating that the ARPM of the
proposed 603 Plus plan exceeds the relevant MTS A toll service
price floor. Price floor calculations are based upon the
methodology established in DE 90-002. 78 NHPUC at 402.
Adjustments to the price floor were made to reflect reductions in
access rates since the conclusion of DE 90-002. The Bell
Atlantic analysis does not, however, anticipate stimulation in
toll usage by residence customers subscribing to 603 Plus. The
ARPM calculations assume the level of toll traffic will not
change after the introduction of 603 Plus. Further, the
calculations do not anticipate increases in residence toll demand
as a result of eliminating daytime calling restrictions under the
current 603 plan, nor the migration of residence customers from
other Bell Atlantic and non-Bell Atlantic toll services.
B. Commission Staff
Based on its review of the petition and supporting
documentation, Staff recommends approval of the request to
introduce 603 Plus, limit 603 Plus to residence customers and to
restructure CallAround 603 from a business and residence customer
plan to a business only plan.
In Staff's opinion, Bell Atlantic's analysis
demonstrates that the proposed rate exceeds the incremental cost
of providing 603 Plus and, therefore, the service is not
subsidized by non-competitive Bell Atlantic services. This
analysis also demonstrates that 603 Plus service rates are set at
levels which yield ARPM results above the relevant price floor
pursuant to the Commission's order in DE 90-002.
Staff notes that although Bell Atlantic did not project
any stimulation in toll usage, the proposed rates are structured
in a manner that prohibits ARPM from going below the relevant
price floor. As stated, 603 Plus is rated at 10 cents per MOU
assuming the subscriber utilizes the full amount of the initial 1
hour period. For each MOU after the initial period, subscribers
will pay 9 cents per MOU. On average, therefore, higher volume
subscribers pay between 9.1 cents per MOU and 10 cents per MOU
depending on toll usage. The relevant MTS A price floor is
currently 7.7 cents per MOU. Conversely, subscribers with toll
usage of less than 1 hour per month will pay in excess of 10
cents per MOU. Thus, any increases or decreases in aggregate
toll usage will not negatively impact the price floor test of 603
Plus.
Staff's concern with ascertaining demand levels focuses
on anticipated revenue reductions. It is Staff's opinion that
should demand for 603 Plus increase, then anticipated revenue
reductions will fail to materialize as proposed price reductions
will be offset by increased revenue associated with higher MOU.
Similarly, if demand for 603 Plus deteriorates, then revenue
reductions will be greater than anticipated.
Because Bell Atlantic could not provide Staff with up-to-date MOU data in a timely manner, Staff could only project the
impact of changes in MOU demand as a result of this filing on BA
revenues. In making these projections, Staff tested its own
concerns regarding toll rate reductions, MOU demand and revenue,
by running various scenarios using the most recent customer
counts (a/k/a Billing Telephone Numbers's or BTN)for the existing
603 Plan.
The tests indicate that rate reductions do not
necessarily result in revenue reductions. However, because Bell
Atlantic has lost a significant number of 603 subscribers, the
demand for toll MOU by the remaining subscribers would have to
increase substantially before the anticipated revenue reduction
would be eliminated
According to Staff, the conditions related to the
pricing of toll services that were imposed on Bell Atlantic as a
result of the Commission's Order in DE 90-002 have expired.
Nevertheless, Staff believes the methodologies relied upon in
that docket to establish ARPM and price floor calculations remain
valid.
Although Bell Atlantic's request to limit 603 Plus to
residence customers and restructure the current 603 plan is a
departure from the Commission's past ruling on toll services,
Staff supports the limitation. It is Staff's opinion that the
arguments proffered by the Company in its Business Link filing
regarding the conditions of the IntraLATA business toll market
apply equally to the residence toll market. As Staff asserted in
the Business Link filing, the intrastate toll market is becoming
increasingly more competitive. Thus, Staff believes approval of
the petition will provide Bell Atlantic the opportunity to
respond to competitive pressures and retain customers by target
marketing high volume residence customers with a more distinct
and competitively priced service.
In Order No. 22,794, Staff also opined that a cost
study in support of pricing a similar service differentially
across customer classes was no longer necessary. In this
particular situation, Staff does not believe that a cost study is
necessary and that this requirement on Bell Atlantic should be
waived. Conducting a cost study would cause unnecessary delay,
prevent Bell Atlantic from responding to competitive pressures
and postpone rate reductions indefinitely. Moreover, the standard
by which the Commission now considers the prudence of tariff
revisions is the price floor test. As discussed above, 603 Plus
rates yield ARPM results in excess of the relevant price floor.
Therefore, it is Staff's opinion that 603 Plus meets the
aforementioned conditions and introduction of the service is in
the public interest.
Staff notes, however, that departure from the principle
of pricing telecommunication services on the basis of cost should
be used with discretion. The movement away from the cost of
service principle in this particular case is more indicative of
changes in the competitive conditions of the intrastate toll
market and should not be construed as a rejection of the
principle of basing rates on costs.
III. COMMISSION ANALYSIS
We find the proposed changes to the tariff just,
reasonable and in the public interest. The analysis provided by
Bell Atlantic demonstrates that 603 Plus service rates are
appropriately set at levels which yield ARPM results above the
relevant MTS A price floor. Therefore, the service rates exceed
the incremental cost of providing 603 Plus service and are not
subsidized by a non-competitive service.
Consistent with our decision in Order No. 22,794, we
will not require Bell Atlantic to submit a cost study in support
of pricing toll services differentially across customer classes.
Our decision is based on Bell Atlantic's analysis indicating that
603 Plus rates exceed incremental cost. Similarly, we again find
that our prohibition in DR 89-010 against differential toll
pricing among customer classes is not appropriate in this
particular situation. Thus, we will depart from our previous
ruling in DR 89-010 pertaining to the requirement of extending
discounted calling plans to both residential and non-residential
customers. Our decision is based on the premise that granting
additional marketing flexibility will provide Bell Atlantic
adequate opportunities to respond to changes in the intrastate
toll market. The decision should not be interpreted as a
rejection of cost-based principles used to develop rates for
other telecommunications services.
Based upon the foregoing, it is hereby
ORDERED NISI, that the Bell Atlantic proposed tariff
revisions to NHPUC No. 77 consisting of:
Part A,Section 1, Revised page 4
Part A,Section 9, third revision of page 10
Part A,Section 10, second revision of page 24
Part A,Section 10, original page 38 and 39
Part M,Section 1, second revision of page 33
Part M,Section 1, third revision of page 35 and it
is APPROVED
FURTHER ORDERED, that pursuant to N.H. Admin. Rules,
Puc 1604.03 or Puc 1605.03, the Petitioner shall cause a copy of
this Order Nisi to be published once in a statewide newspaper of
general circulation, such publication to be no later than March
23, 1998 and to be documented by affidavit filed with this office
on or before March 30, 1998; and it is
FURTHER ORDERED, that all persons interested in
responding to this petition be notified that they may submit
their comments or file a written request for a hearing on this
matter before the Commission no later than April 6, 1998; and it
is
FURTHER ORDERED, that any party interested in
responding to such comments or request for hearing shall do so no
later than April 13, 1998; and it is
FURTHER ORDERED, that this Order Nisi shall be
effective April 16, 1998, unless the Commission provides
otherwise in a supplemental order issued prior to the effective
date; and it is
FURTHER ORDERED, that the Petitioner shall file a
compliance tariff with the Commission on or before April 16,
1998, in accordance with N.H. Admin. Rules, Puc 1603.02(b).
By order of the Public Utilities Commission of New
Hampshire this sixteenth day of March, 1998.
Douglas L. Patch Bruce B. Ellsworth Susan S. Geiger
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary