April 16, 2001
| Re: | Application of Verizon New England Inc., Bell Atlantic Communications, Inc. (d/b/a Verizon Long Distance), NYNEX Long Distance Company (d/b/a Verizon Enterprise Solutions) And Verizon Global Networks Inc., For Authorization to Provide In-Region InterLATA Services in Massachusetts (CC Docket No. 01-9) |
Notwithstanding serious reservations about Verizon New England’s pricing of unbundled network elements, I vote to approve this application to provide long-distance services in Massachusetts. On balance, I believe that Massachusetts consumers will benefit from heightened competition in both the long distance and local markets. Although I vote for this order with some trepidation, I am optimistic that this Commission and the Massachusetts Department of Telecommunications and Energy (DTE) will maintain vigilance to ensure that the market-opening requirements mandated by Congress continue to be met.
Enduring competition in the local market will only take root and thrive if we and our state colleagues rigorously pursue cost-based pricing. Indeed, pricing is at the very core of the statutory framework Congress constructed to eliminate economic barriers to entry in all telecommunications markets. The use of a forward-looking methodology -- with a reasonable risk-adjusted return to incumbents -- promotes fair and efficient competition.
Since the earliest 271 applications, the Commission has made clear that we must make an independent determination that the rates are based on forward-looking costs -- a statutory responsibility that the Commission diligently undertook in the recent SWBT Kansas/Oklahoma Order.1 Today’s decision squarely reaffirms this obligation.
Our independent evaluation shows that the original switching rates adopted by the Massachusetts DTE were substantially higher than other states and not within a range of prices that would be consistent with forward-looking principles. With average consumer usage, the per month costs for switching, transport, and signaling would have been $21.68 in Massachusetts – more than double the rate in New York and more than 300 percent above the rates in numerous other states in Verizon’s territory and across the country. I would not have approved an application that was based upon such rates absent compelling evidence that switching costs in Massachusetts should differ so extraordinarily from those in other states.
The order permits Verizon to rely on current switching rates from New York -- a neighboring state with similar cost characteristics -- to prove compliance with the statutory requirements. I have significant misgivings about this approach. The rates adopted in New York are several years old and are under active review by the New York Commission with a true-up after it completes its review. As noted above, since our approval of Verizon’s New York application, other states have adopted switching rates that are significantly lower than those in New York. Reluctantly, I am compelled to support the decision to grant this application because the rates that were approved by the New York Commission -- and evaluated by this Commission -- are presently in effect and there is insufficient evidence in the record at this time to determine that those rates are inconsistent with forward-looking principles.
Today’s order correctly recognizes, however, that rates will evolve over time to reflect changed market conditions, new technologies, and updated information on cost inputs. Parties should be forewarned that they should not rely on outdated rates in future applications. Moreover, depending on the New York Commission’s decision, Verizon’s reliance on the present rates to demonstrate continuing compliance in Massachusetts may be undermined. If the New York Commission orders lower rates after determining that the present rates are not cost-based and Verizon does not revise its rates in Massachusetts, the FCC should use its section 271(d)(6) authority to suspend or revoke Verizon’s long-distance authorization in Massachusetts until the DTE completes its cost proceeding.
I am also troubled by the cost inputs used to set the loop rates in Massachusetts. In particular, the fill factor used is exceptionally low. In addition, the designated cost of capital exceeds the figure used to set retail rates in Massachusetts and is substantially higher than the percentages used in the other Verizon states. I have every confidence that the Massachusetts DTE will address any flaws in the inputs through its pending cost proceeding.
As we have consistently noted, opening a local market to competition does not end with the grant of a 271 application. Indeed, the Commission and state commissions must be even more vigilant in ensuring that incumbents live up to their statutory obligations once long-distance authorization is granted.
This application demonstrates the importance of each state commission undertaking an evaluation of forward-looking costs as it establishes rates within its borders. It also demonstrates that, although a forward-looking methodology provides latitude in setting rates, pricing decisions in other states can serve as a benchmark by which a state commission can evaluate the appropriateness of its rates. I encourage state commissions to undertake a pro-active dialogue on pricing with each other and with this Commission so that the benefits of effective competition reach consumers throughout the entire country as quickly as possible.
After this fifth grant of an application to provide long-distance services, there should no longer be any question about getting to yes; rather the focus must be on getting it right.