DT 99-003
BELL ATLANTIC
Special Contract with Vitts Networks, Inc.
Order Denying the Special Contract Without Prejudice
O R D E R N O. 23,138
February 8, 1999
On January 7, 1999, New England Telephone and Telegraph
Company d/b/a Bell Atlantic (Bell Atlantic or the Company) filed
with the New Hampshire Public Utilities Commission (Commission) a
petition for approval of a Special Contract Frame Relay Service
(FRS) and Digital Data Service (DDSII) with Vitts Networks,
Inc.,pursuant to RSA 378:18. In support of the petition, Bell
Atlantic filed a contract overview and cost study details.
Concurrently, Bell Atlantic filed a Motion for
Protective Order, seeking to exempt portions of the Special
Contract and supporting materials from public disclosure. The
Commission issued Order No. 23,110 on January 25, 1999 granting
in part the motion.
Bell Atlantic's cost study avers that the special
contract's proposed rates exceed the incremental costs of the
services being provided, pursuant to the requirements of RSA
378:18-b. RSA 378:18 applies to special contracts in general and
RSA 378:18-b applies specifically to special contracts offered by
telephone utilities. Those statutes state:
378:18 Special Contracts for Service.
Nothing herein shall prevent a public utility from
making a contract for service at rates other than those
fixed by its schedules of general application, if
special circumstances exist which render such departure
from the general schedules just and consistent with the
public interest and, except as provided in RSA
378:18-b, the commission shall by order allow such
contract to take effect.
378:18-b Special Contracts; Telephone Utilities
Any special contracts for telephone utilities providing
telephone services shall be filed with the commission
and shall become effective 30 days after filing,
provided the rates are set not less than:
I. The incremental cost of the relevant service;
or
II. Where the telephone utilities competitors
must purchase access from the telephone
utility to offer a competing service, the
price of the lowest cost form of access that
competitors could purchase to compete for
customers with comparable volumes of usage,
plus the incremental cost of related
overhead.
Commission Staff's review of the proposed special
contract raises a strong question as to whether the proposed
rates meet the requirement of RSA 378:18-b, a question which we
believe must be fully argued before us by Bell Atlantic and
Staff. The question arises in the context of the current
evolution of the telecommunications industry to a competitive
industry after passage of the Telecommunications Act of 1996
(TAct). Bell Atlantic's filing follows the incremental cost
calculation methodology which we heretofore accepted as adequate,
that is, a minimum amount of costs incurred in order to serve the
specific special contract customer at a specific location.
However, as required by the FCC in implementing the TAct, the
Commission must employ a Total Element Long Run Incremental Cost
(TELRIC) methodology for calculating the costs of unbundled
network elements (UNEs) that Bell Atlantic offers for sale to
Competitive Local Exchange Carriers (CLECs).
It is Staff's concern that relying upon an incremental
cost methodology other than TELRIC may create unacceptable market
barriers, in violation of the TAct, for CLECs attempting to
compete against Bell Atlantic and, in this case, other CLECs.
Specifically, the TELRIC rates of certain underlying network
elements that make up FRS and DDS II services which Bell Atlantic
proposes to offer other CLECs are higher than the rates at which
Bell Atlantic proposes to offer Vitts. In addition, this
contract essentially constitutes a resale agreement. The level
of proposed discounts range from 22% to 32% and are in excess of
the discount levels (18.78%) currently being provided under the
Company's Statement of Generally Available Terms and Conditions
(SGAT). Staff is concerned that wide differences in the level of
discounts offered between Vitts and other CLECs reselling
services out of the SGAT will create a business environment where
resellers are treated differently for no apparent reason. While
it is true that CLECs can, as a result of the Supreme Court's
recent decision in AT&T v. Iowa Utilities Board, No. 97-826 (Jan.
1998) "pick and choose" individual provisions of a Bell Atlantic
agreement with any other CLEC, it is not entirely clear at this
point in time whether or not a CLEC can obtain the same level of
discounts as Vitts.
The threshold question of which incremental cost
methodology should be used when applying RSA 378:18-b must be
resolved before this and future special contracts can be become
effective. We issued an Order of Notice on February 3, 1999, in
Docket 99-018, scheduling a full but expeditious proceeding in
order to properly consider this question. The scope of the
proceeding will consider, inter alia, whether the public interest
would be served by permitting Bell Atlantic to continue pricing
special contracts based upon non-TELRIC costing principles, and
whether and how residential and small business ratepayers may be
protected from subsidizing special contracts customers.
The language of RSA 378:18-b would have this Special
Contract go into effect 30 days from filing if the conditions set
forth therein are present. Because we are unable to determine at
this juncture the appropriate "incremental cost" as that term is
used in RSA 378:18-b, we will deny the Petition without
prejudice. Bell Atlantic may refile the petition after
resolution of the question outlined above. In the alternative,
Bell Atlantic may refile the petition after it discloses the
number of units purchased for each type of service contained in
the proposed agreement. In addition, Bell Atlantic may refile
after supplementing its cost study indicating the proposed rates
exceed TELRIC costs as stipulated in DE 97-171. We grant this
alternative because this proposed contract is between Bell
Atlantic and Vitts, a CLEC, and we are concerned that postponing
a decision until after a generic investigation into Bell Atlantic
special contracts will unnecessarily impede the development of
competition. If the outcome of the separate investigation
supports Bell Atlantic's position, we will consider making this
Special Contract, refiled after such resolution, effective 30
days from December 22, 1998, the date of the original filing.
Based upon the foregoing, it is hereby
ORDERED, that Bell Atlantic's petition for approval of
the Special Contract is hereby denied without prejudice.
By order of the Public Utilities Commission of New
Hampshire this eighth day of February, 1999.
Douglas L. Patch Susan S. Geiger Nancy Brockway
Chairman Commissioner Commissioner
Attested by:
Thomas B. Getz
Executive Director and Secretary