Even before the passage of the 1996 Act, the Commission's Part 69 access charge rules were in need of reform. Charges paid by IXCs for access services included subsidies that flowed to other services, producing an inefficient rate structure vulnerable to inefficient competitive entry and pricing arbitrage. While access reform was long overdue before passage of the 1996 Act, it became essential after passage of the 1996 Act. SWBT agrees with the Commission that "[c]ompetition isolates and highlights the inefficiencies and distortions present in the current Part 69 access charge rules." By design, unbundled elements are directly substitutable for switched and special access services provided by LECs. Interconnection pricing rules have had the practical effect of forcing LECs to price access at the levels of unbundled elements.

The clearest message in the proposals for access charge reform contained in the Commission's NPRM is that regulation of incumbent LECs' access rates is likely to continue for some time into the future. Of course, competitors of those ILECs will not be constrained by regulation, and they will be able to price and structure their services freely. An effective regulatory structure is one that is purposely absent in a competitive market. For incumbent LECs, the most critical aspects of access reform are the need for a pricing structure based on cost causative principles and the opportunity to recover their actual costs.

In Part II of these Comments, SWBT sets forth in detail its proposed plan for access reform. SWBT's plan for access reform involves a two step process. Step one is "prescriptive-oriented" and establishes efficient access prices by addressing public policy cost recovery issues. Step two is "market-oriented" and establishes a competitive access pricing structure. These steps should be implemented concurrently.

In step one, efficient access prices would be established by removing implicit support and other public policy costs. Those costs should be recovered from the cost causer or from new public policy elements when recovery from the cost causer is not possible because of public policy considerations. Step one includes the following: (1) Reduce CCL to account for Universal Service Fund changes and removal of LTS and pay telephone costs; (2) Eliminate CCL through changes to the SLC; (3) Implement a new end user port charge to reduce local switching prices; (4) Reallocate marketing expense pending separations reform; (5) Recover the TIC and its underlying costs through other access rate elements or public policy elements; (6) Lower special and dedicated switched transport prices to local interconnection price levels, with the difference to be recovered through public policy elements; and (7) Amortize the depreciation reserve deficiency over five years and recover such deficiency through a specific capital recovery charge to all IXCs.

Under SWBT's plan, the SLC would be incrementally increased over a two year period. SWBT anticipates nominal SLC increases of approximately $0.65 per month at the end of year one and $0.65 per month at the end of year two for residence and single line business customers. The new SLC cap would be approximately $4.80, and the SLC for multiline business customers would be immediately lowered to that amount. SWBT estimates the end user port charge to be $0.35 per line per month; these charges would recover the non-traffic sensitive cost of a switch port dedicated to an end user.

In step two of SWBT's plan, a market-oriented, flexible pricing structure that reflects the realities of the marketplace would be put in place. SWBT proposes that the Commission change its rules to prescribe only public policy elements and to leave other rate structure issues to the marketplace. Pricing flexibilities should be based on the competitiveness of a particular market, and two market categories should be identified. The Open Market Category identifies markets in which competition has begun to develop as a result of facilities-based supply. It includes markets into which competitors have not yet entered even though SWBT has made interconnection and unbundled network elements available. The Effective Competition Category identifies markets in which competition is operating at levels sufficient to provide the price discipline needed to justify replacing price regulation. Finally, deregulation is appropriate when services satisfy the forbearance criteria set forth in the 1996 Act.

SWBT's plan also proposes that the ESP exemption be eliminated and replaced with a modified access charge structure. SWBT's plan would not apply public policy elements to those services that meet the "information service" definition contained in the 1996 Act. Otherwise, the elements of switched access service would apply to ESPs, but at the new price levels. SWBT's plan would also introduce pricing flexibility that will encourage LECs to deploy new technologies.

In these Comments, SWBT also addresses the approaches to access reform proposed in the NPRM and shows that SWBT's plan meets the goals of access reform more effectively than do the NPRM proposals. Under the NPRM's "market-based approach," the Commission proposed that regulation of ILECs be relaxed on a service-by-service, market-by-market basis in conjunction with meeting certain market triggers. ILECs do not, however, have the luxury of methodically, over an extended period of time, meeting all of those triggers. Direct substitutability of unbundled network elements constitutes imminent "potential," "actual," and "substantial" competition -- all at the same time.

Under its "prescriptive" approach, the Commission contemplated a phased-in move to TSLRIC-based access rates in a more predictable and uniform manner than in a market-based approach. This approach represents an inappropriately heavy regulatory hand that forces ILECs to price access services at forward-looking cost with only a vague and temporary possibility of revenue shortfall recovery. The prescriptive approach violates the deregulatory spirit of the 1996 Act. Also, access rates prescribed at TSLRIC levels would not necessarily be a byproduct of freely competitive markets. Finally, a prescriptive approach that does not provide an opportunity for full and ongoing recovery of actual LEC costs is fatally flawed.

The issues that the Commission must address in this docket are readily apparent. Now is the time to implement the deregulatory intent of the 1996 Act.

1. The abbreviations and acronyms used in this Summary are defined in the body of these Comments and have the same meanings as used therein.