Decision - California



ALJ/SRT/abw 1/10/2001 DRAFT

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

|In The Matter Of The Petition Of Sprint Communications Company L.P. For Arbitration Of | |

|Interconnection Rates, Terms, Conditions And Related Arrangements With Verizon | |

|California, Inc. F/K/A GTE California, Incorporated | |

| |Application 00-09-031 |

| |(Filed September 7, 2000) |

DRAFT ARBITRATOR’S REPORT

TABLE OF CONTENTS

Title Page

DRAFT ARBITRATOR’S REPORT 1

I. Summary 2

II. Background 3

A. 96 Act Requirements 3

B. Schedule 3

III. Issues in Dispute 4

A. Local Over Access 4

1. Summary 4

2. Sprint’s Position on Local Over Access Issue 7

3. Verizon’s Position on Local Over Access Issue 13

4. Discussion of Local Over Access Issue 17

B. Resale of Stand-Alone Vertical Features 20

1. Summary 20

2. Sprint’s Position on Resale of Stand-Alone Vertical Features 21

3. Verizon's Position on Resale of Stand-Alone Vertical Features 24

4. Discussion of Resale of Stand-Along Vertical Features Issue 26

C. Unbundled Network Element (UNE) Combinations 31

1. Summary 31

2. Sprint’s Position on UNE Combinations 31

3. Verizon’s Position on UNE Combinations 33

4. Discussion of UNE Combinations 34

IV. Conclusion 34

ORDER 35

Summary

This Draft Arbitrator’s Report (DAR) preliminarily resolves the three open issues between Sprint Communications Company (Sprint) and Verizon California Inc. (Verizon) before the two parties execute a final Interconnection Agreement (ICA) pursuant to Section 252(b) of the federal Telecommunications Act of 1996 (96 Act or Act).[1] Sprint and Verizon will have an opportunity to comment on this DAR before it becomes final. This Commission will then vote on whether to accept or reject the ICA in its entirety.

I find in Verizon’s favor on one issue, and in Sprint’s favor on the two remaining issues submitted to me for arbitration:

• On Sprint’s contention that local calls include Verizon customer-originated calls that route over access trunks to the Sprint Operator Service (OS) platform, and then return to the called Verizon customer located in the same local calling area as the calling party (the “local over access” issue), I find that Sprint shall compensate Verizon for these calls as access, not as local calls.

• On Sprint’s contention that it should be allowed to purchase at wholesale vertical features (call waiting, forwarding and the like) without also purchasing the underlying dial tone line (the “resale of stand-alone vertical features” issue), I find in Sprint’s favor.

• On Sprint’s contention that it may order unbundled network elements (UNEs) from Verizon in combinations that do not currently exist in Verizon’s network (the “new UNE combinations” issue), I find in Sprint’s favor.

Background

1 96 Act Requirements

The 96 Act provides that competitive local exchange carriers (CLECs) wishing to connect to incumbent local exchange carrier (ILEC) networks shall negotiate three-year agreements. In order to encourage competition in the telecommunications market, the Act places obligations on the ILECs that often lead to the resolution of many disputed issues. However, uncertainties and disputes stemming from the Act often remain. The Act places with state Commissions the responsibility to resolve those disputes.[2] This DAR resolves the three remaining issues on which Sprint and Verizon were unable to agree.

2 Schedule

On September 7, 2000, Sprint filed a request for arbitration after negotiations with Verizon did not produce agreement on all disputed points. Notably, however, the parties agreed on all but three issues, and for that I commend them. Of those three issues, the parties agreed that only one – the local over access issue – raised factual disputes requiring an evidentiary hearing. They agreed to submit the other two issues on briefing.[3] The evidentiary hearing occurred on November 28, 2000. The parties filed concurrent briefs on December 6, 2000. They agreed to the following schedule for other steps in the arbitration process:

|Draft DAR Due |January 10, 2001 |

|Comments on DAR Due |January 24, 2001 |

|Final Arbitrator’s Report (FAR) Due |February 23, 2001 |

|Markup Conference (if necessary) |February 27, 2001 |

|ICA and Separate Statement Due |March 2, 2001 |

|Last Day for Commission Decision |April 2, 2001 |

Under the 96 Act, this Commission would have been required to approve the ICA within 9 months of March 31, 2000, the date the parties agree their ICA negotiations began.[4] However, in this case, both parties stipulated to waive the 9-month period.[5] Thus, while the 9-month “clock” began running on March 31, 2000, and should have concluded by December 31, 2000, those deadlines are not binding here.

Issues in Dispute

1 Local Over Access

1 Summary

The first issue, known as the “local over access” issue,[6] arises because of Sprint’s desire to implement a “new” service, and disputes over how it should compensate Verizon for using its network to facilitate that service. Sprint proposes a voice-activated dialing arrangement whereby a Verizon customer would pick up the phone, dial 00 or a Carrier Identification Code (CIC) such as 10-10-333, state “Call [name of called party residing in same local calling area],” and have the call automatically placed to that party.

During the arbitration hearing, the parties used an example of a Verizon customer named “Steve” who desired to call his mother (“Mom”), who lived across the street in the same local calling area. Steve’s chosen long distance carrier is Sprint. Steve would pick up the phone and dial 00 or the 10-10-333 CIC. This dialing pattern would direct the call over access trunks that Sprint leases from Verizon to the Sprint OS platform. Once the call reached the Sprint OS platform, Steve would say, “Call Mom,” and Mom’s telephone number would dial automatically from a stored list residing in Sprint’s database. Because the voice activated dialing service would be a Sprint service, rather than a Verizon service, the information necessary to place the call would reside in Sprint’s, not Verizon’s, network. It is this detour to Sprint’s OS platform that is fundamental to the Sprint-Verizon dispute on this issue.

Sprint contends that despite the OS detour, the call remains a local call and that Sprint should compensate Verizon only for a local call. Verizon contends, on the other hand, that the detour to the OS platform takes the call over access lines Sprint leases from Verizon, thereby rendering the call an access call, for which access charges are due.[7] Verizon similarly contends that any time a CIC code is used to gain access to an interexchange carrier (IEC) such as Sprint, the call is an access call for which access charges are due. Both parties agree that access charges are higher than charges for local calls.

At my request, the parties furnished information indicating the difference in compensation that might be due Verizon if Sprint’s view prevailed over Verizon’s. Intrastate Access charges are billed in originating and terminating segments at the following rates:

|Originating |$0.021388 per minute of use (MOU) |

|Terminating |$0.021353 MOU |

|Total |$0.042691 MOU |

By contrast, local calls receive the following compensation:

|Originating |Not Applicable |

|Terminating |$0.00840984 MOU |

|Total |$0.00840984 MOU[8] |

Thus, while access rates (those Verizon contends are due) are approximately 4¢ per minute, local rates (as advocated by Sprint) are one-fifth that amount.

2 Sprint’s Position on Local Over Access Issue

Sprint’s characterization of the call as local – and thus compensable as a local call – is assertedly based on federal regulation adopted by the Federal Communications Commission (FCC). That regulation defines a local call in the following way:

§ 51.701 Scope of transport and termination pricing rules.

a. The provisions of this subpart apply to reciprocal compensation for transport and termination of local telecommunications traffic between LECs and other telecommunications carriers.

b. Local telecommunications traffic.

For purposes of this subpart, local telecommunications traffic means:

Telecommunications traffic between a LEC and a telecommunications carrier other than a CMRS provider[9] that originates and terminates within a local service area established by the state commission.[10]

As to Verizon’s assertion that because 00 calls use access trunks to reach the Sprint OS platform, they are access calls, Sprint again cites this FCC regulation:

Verizon asserted that the jurisdiction of a call is determined not by the end-to-end points, but by the type of lines or facilities used to carry a call, and by how the carriers compensated such calls prior to pre-1996 local competition. Verizon again flatly disregards that Section 51.701 makes no mention that the type of facilities or lines used to route a call has any bearing on the analysis.[11]

Sprint contends that FCC regulation 51.701, and later case law, determine the jurisdiction of a call through an “end-to-end” analysis. That is, if the call originates in one local calling area and terminates in the same local calling area, that call is a local call. The OS detour described above does not, according to Sprint, change this analysis:

As the U.S. Court of Appeals for the District of Columbia Circuit recently explained in Bell Atlantic Telephone Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000), when faced with the question of determining whether traffic is “local” for purposes of its regulation limiting reciprocal compensation obligations, the FCC has traditionally used the “end-to-end” analysis to determine whether particular traffic is interstate. As the court explained, “[u]nder this method, it [the FCC] has focused on the ‘end points of the communications and consistently has rejected attempts to divide communications at any intermediate points of switching or exchanges between carriers . . . .’” 206 F.3d at 10, citing 14 FCC Rcd at 3695 ¶ 10.[12]

Sprint alleges that Verizon’s own witness, William Munsell, conceded that a call’s jurisdiction could not be determined by the facilities it uses or intermediate points along the path of the call, and agreed with Sprint’s end-to-end analysis:

In fact, Mr. Munsell testified:

Q: Right now I’m talking about whether or not we can define the origination and termination points on the basis of the law that you said you understood to be, you know, how you look at this.

And what I want to know is: Do you know of anything that says that [it] is determined on the basis of the trunk group that it goes out at as opposed to where it starts and where it ends?

A: No, I’m not.[13]

Q: I think this is something that you just mentioned, but when we’re talking about strictly operator-assisted calls for the moment, isn’t it impossible for, let’s say, the Verizon network to determine the jurisdiction of that call at the time it goes outbound from the customer’s premises to the operator?

A: On the 00- call, that is correct.

Q: Because that’s what we talked about earlier. If you don’t know the called party, you don’t know whether it could be across the street or across the state or across the country?

A: I do not know if it’s interstate or intrastate for access charge purposes.

Q: Isn’t the same thing true when a customer dials on your—Verizon’s operator platform by virtue of dialing a zero, that instead of Steve being a Sprint customer, Steve is still a Verizon customer, but instead of dialing 00, he instead dials zero and that would put him to the Verizon operator, correct?

A: That is correct.

Q: And isn’t it also true that at the time Steve dials the 0 and goes out to the operator services platform—now, in my example, the Verizon operator—and it’s outbound, you don’t know where that call is going to terminate until the operator is told how to route the call?

A: That is correct.[14]

Sprint makes four other arguments relating to this issue. First, it argues that the proposed ICA defines “local traffic” consistently with its position. The draft language provides: “The Parties agree that the points of call origination and termination shall be used to determine Local Traffic . . . .”[15] (The ICA contains other provisions defining local calls that Verizon asserts contradict Sprint’s view of the case. I discuss those in the section below describing Verizon’s contentions.) Sprint argues that this definition, like the FCC regulation quoted above, defines local calls using an “end-to-end” analysis. It does not matter, according to Sprint, whether the call takes an intermediate detour to the OS platform, so long as the call originates and terminates in the same local calling area.

Second, Sprint argues that Verizon is unfairly treating calls to its own OS platform differently from calls to Sprint’s OS platform.

Moreover, Mr. Munsell testified that like Sprint’s operator service platform, Verizon’s operator service platform may not even be in the same local calling area as the end user. (TR, 79:17-26). Thus, although the two platforms are analogous, Verizon essentially wants to characterize its operator services calls as always local/intraLATA while it characterizes Sprint’s operator service calls as always access traffic. As calls to both operator platforms may be outside the local calling area, it is discriminatory for Verizon to consider its calls as “local/intraLATA” because it is an ILEC and Sprint’s calls as “access” simply because it used to be only an interexchange carrier.[16]

Third, Sprint claims that several Verizon arguments have no merit. Verizon claims that Sprint has agreements with other CLECs treating them just as Verizon proposes to treat Sprint. Sprint claims that these agreements do not cover California, and that the parties to the agreements never sought to treat “local over access” traffic as local, rather than access, calling. Sprint also argues that the fact the call to its OS platform requires a CIC code is irrelevant to label the call as an access call, because LECs, as well as IECs, have CIC codes. Thus, using Sprint’s reasoning, a CIC code could indicate a local (LEC) call.

Fourth, and finally, Sprint takes on Verizon’s concern – discussed more fully below – that Verizon will be unable to track calls as local when they travel over access trunks. Neither party disputes that calls dialed using the 00 dialing pattern travel over such trunks; the dispute is over how Verizon should bill them to Sprint. In the ordinary course, Verizon’s billing system automatically treats such calls as access calls and applies the applicable access charge rates to them. However, if, as Sprint desires, the calls are treated as local calls, there is no automatic Verizon billing system to track payments due.

In this regard, Sprint alleges that Verizon’s billing and accounting concerns are irrelevant to whether Verizon is required to characterize the relevant calls as local calls. Further, Sprint claims it introduced uncontroverted evidence that Sprint has the ability to measure and compensate operator assisted local calls delivered over its access lines.

In response to a question about how Verizon will know that a call is local or something else, [Sprint’s witness] Robert H. Steinmetz testified:

Verizon will know the jurisdiction of that call because Sprint accurately measures or will be measuring as soon as this product is rolled out, which is pending, it has the requirement to accurately measure and report all local traffic for this product as well as access.

It looks at the originating and the terminating to determine what the jurisdiction of that call is because remember that a local call is a local call. It’s the end points, not the intermediate steps, that determine the jurisdiction.[17]

Sprint claims that despite ample opportunity to challenge the reliability of these Sprint measuring devices, Verizon produced no controverting evidence.

3 Verizon’s Position on Local Over Access Issue

Verizon counters Sprint’s assertions about the “local over access” issue in five ways. First, it claims that calls dialed using an access-dialing pattern are subject to access charges. It reminds the Commission that the parties agree that the traffic at issue will be routed to Sprint’s OS platform over access facilities. They also agree that the traffic uses either a 00 dialing pattern (for Verizon customers with Sprint as their presubscribed IEC), or a dial-around sequence employing the CIC code assigned to Sprint. Verizon asserts that these two undisputed facts – the use of access facilities and of the 00 dialing pattern or a CIC code – warrant the imposition of access charges on the relevant calls.

While Sprint asserts that the “call Mom” voice activated service is new and innovative and that Verizon “wishes to continue doing business the old way,”[18] Verizon asserts that “this kind of traffic is not new”:[19]

Prior to seeking interconnection “in its capacity as a certified provider of local telecommunications services,” Sprint made its Operator Services platform available to end-user customers of Verizon for the basic local dial tone service. Moreover, Sprint compensated Verizon for traffic initiated by dialing the CIC assigned to Sprint in its capacity as an IXC and routed over Feature Group D (FGD) access facilities purchased by Sprint pursuant to Verizon’s access tariff consistent with industry guidelines for such traffic.

As required under Verizon’s access tariff, Sprint historically has paid Verizon the applicable access charges to compensate Verizon for use of Verizon’s network in routing calls from the end-user customer of Verizon for basic local service to the Sprint Operator Services platform. The fact that Sprint is now proposing a new use of its Operator Services platform does not change the routing of this traffic, the use of Verizon’s network, or the manner in which Verizon should be compensated.[20]

Reduced to its essence, Verizon’s claim is that because calls to Sprint’s OS platform or using its CIC code have always been compensated as access calls, it should not matter that the service Sprint now proposes is innovative. As long as it uses the same dialing sequences and access facilities, Verizon contends, the service is an access service compensable by the payment of access charges. Local calls, by contrast, are not routed using access codes, and do not travel over access facilities.

Second, Verizon contends that the ICA itself provides a different definition of local traffic than that proposed by Sprint. The ICA, in the same paragraph quoted by Sprint in Section III(A)(1)(b) above,[21] provides the following:

For purposes of compensation between the Parties, Local Traffic is GTE Traffic that terminates to SPRINT and SPRINT traffic that terminates to GTE, that is within GTE’s then current local serving area, including mandatory local calling scope arrangements.[22]

Verizon states that Sprint’s argument ignores the requirement in the foregoing definition that local traffic be Verizon traffic that terminates to Sprint or Sprint traffic that terminates to Verizon. Because, Verizon contends, the traffic both originates and terminates with a Verizon customer, it meets neither definition. Indeed, Sprint does not contend the traffic is “Verizon traffic that terminates to Sprint.” Rather, it contends that the traffic is Sprint traffic that terminates to Verizon because once the Verizon customer dials 00 or the Sprint CIC and reaches the Sprint OS platform, that end-user becomes a Sprint customer.[23] Verizon states that in fact, “the traffic both originates and terminates on Verizon’s network,”[24] and thus fails to meet the ICA definition of local traffic.

Third, Verizon further contends that the traffic at issue does not meet an FCC definition of local traffic eligible for reciprocal compensation. It points out that under Section 251(b)(5) of the 96 Act and an FCC decision interpreting the Act, reciprocal compensation only “encompass[es] telecommunications traffic that originates on the network of one LEC and terminates on the network of a competing provider in the same local service area . . . .”[25] In summary, Verizon contends, Sprint “focuses solely on origination and termination within Verizon’s ‘then current local serving area’ and mistakenly ignores the equally applicable requirement that the traffic originate and terminate on the networks of different LECs.”[26]

Fourth, Verizon contends that Sprint nowhere explains why it should not be required to pay for using Verizon’s facilities on the originating side of the call as it travels to Sprint’s OS platform. Verizon points out that “Sprint compensates Verizon for that same use either when the call goes no further than the [OS] platform or terminates outside the local service area.”[27] Sprint should not benefit from a different compensation scheme when the call terminates within the local service area, Verizon contends.

Fifth, Verizon takes on Sprint’s assertions regarding the adequacy of records to segregate calls that use access facilities, but should be compensated as local calls, from those compensated with access charges. Because “Verizon has no way of identifying the ultimate destination of traffic that originates with the Sprint CIC,” Sprint’s offer to keep track “is tantamount to Sprint saying ‘trust us’ with respect to approximately $45 million of access revenue owed to Verizon . . . on an annual basis.”[28] While there are audit provisions in the ICA, Verizon does not feel it should have to bear the expense of an audit to facilitate Sprint’s “attempt to evade access charges or otherwise reduce the compensation it pays to Verizon for use of Verizon’s network.”[29] Thus, Verizon argues, the record-keeping problem militates against Sprint’s interpretation.

4 Discussion of Local Over Access Issue

I resolve the local over access issue in Verizon’s favor. It simply makes no sense for Verizon to receive no compensation for use of its access lines for the calls at issue to take the detour to Sprint’s OS platform. Nowhere does Sprint claim it gains no benefit from such use. Indeed, an offer Sprint made during the hearing to compensate Verizon for part of the access line use constituted acknowledgement that Sprint should not be allowed such use for free.[30]

At that time, Sprint’s counsel made the following stipulation:

| |Q: Are you aware that Sprint is willing to agree to pay any incremental switching charges that are reasonable if |

| |more than one facility is used? |

| |Q: On the terminating side of the call, I think you are, because that’s part of the recip comp terms of the |

| |agreement. |

| |Q: On the originating side if in fact, as you've just testified in response to your counsel's questions, there are|

| |additional switching costs that Verizon incurs to take that call out to the operator service platform, are you |

| |aware that Sprint is willing to pay reasonable incremental switching charges if they apply? |

| |A: I am not aware of that. |

| |Q: That didn’t come up in the conversations you had last week with Mr. Reed? |

| |A: I do not believe so. |

| |ALJ Thomas: Has that been committed to writing anywhere? |

| |Mr. Weingard: I do not know. |

| |ALJ Thomas: Are you representing that Sprint has made that commitment? |

| |Mr. Weingard: Yes. And if it had come up with our Public Utilities Commission, State of California, San |

| |Francisco, California witness we would have said that today, and since I can’t I guess—I think this is the only way|

| |I can get it in. but Sprint is willing to pay reasonable switching charges if they are conditional on the |

| |originating side. |

| |ALJ Thomas: All right. And the definition of “reasonable?” |

| |Mr. Weingard: Well, I don’t know what the amount is, but I assume that it’s a rate that’s set somewhere. |

| |Mr. Kukta: OANAD. |

| |ALJ Thomas: So I’ll take that as a stipulation from you on behalf of Sprint, counsel. |

| |Mr. Weingard: Correct. |

| |ALJ Thomas: So you can assume that they are willing, based on the fact that counsel has just stipulated on behalf |

| |of Sprint.[31] |

Thus, Sprint acknowledged that it should not be allowed to use Verizon’s access lines without compensation.

Moreover, I disagree with Sprint’s characterization of the call as purely local and not deserving of access charge compensation. Sprint’s assumption that any call that originates and terminates in the same ILEC’s local calling area is a local call proves too much. As Verizon explains, Sprint currently pays access charges for calls to the OS platform that go no further, and those that continue outside the local calling area. Yet Sprint seeks to create an exception here despite the fact that the “OS detour” here uses identical Verizon facilities as do calls for which Verizon receives access charge compensation.

I agree with Verizon that the ICA definition of a local call requires that the call originate with one party and terminate with the other. Sprint attempts to fit into this requirement by asserting that the call originates with Sprint at the OS platform and terminates with Verizon. This interpretation ignores Sprint’s own end-to-end analysis by placing the “origination” of the call at a point that is actually midstream.

Further, I am not persuaded by Sprint’s attempt to distinguish situations in which it, acting as an ILEC, makes CLECs pay for precisely the same type of calls as access. Whether the issue was raised in the context of those other agreements is irrelevant. What matters is Sprint’s admission - evidenced in the other agreements - that “local over access” calls should be compensated as access.

Finally, I am concerned at the record-keeping nightmare Sprint’s proposal would create. Sprint acknowledges Verizon cannot separately track the relevant traffic. While this is not, in itself, a basis to deny Sprint’s claim, it helps illustrate the anomalous nature of Sprint’s approach.

Thus, the calls at issue should be billed and compensated according to the access charge scheme.

2 Resale of Stand-Alone Vertical Features

1 Summary

Of the three issues the parties left open for arbitration, this Commission has already decided two, among them Sprint’s contention that Verizon should sell it vertical features at wholesale without requiring it also to purchase the basic dial tone line. In D.00-10-031, we resolved the issue in Sprint’s favor in its arbitration with Pacific Bell. In this proceeding, the parties did not submit this issue for resolution at the evidentiary hearing, but rather agreed that it was a legal issue without fact disputes that could be resolved on the briefs. For this reason, I find it difficult to understand why Verizon believes the outcome should differ in this proceeding. Nonetheless, I recite the parties’ contentions below.

2 Sprint’s Position on Resale of Stand-Alone Vertical Features

Sprint contends that Verizon is required to sell it vertical features on a stand-alone basis pursuant to Section 251(c)(4) of the 96 Act. That statute provides that an ILEC has a duty:

(A) to offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers; and

(B) not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on, the resale of such telecommunications service . . . .[32]

According to Sprint, Verizon provides stand-alone vertical features at retail to subscribers who are not telecommunications carriers, and therefore must sell those features to Sprint at wholesale prices. Sprint points out that vertical features are offered separately in Verizon’s retail tariffs from local dial tone.[33] Sprint notes that even where basic dial tone and vertical features are offered together in the same tariff, they are priced separately.[34]

Next, Sprint alleges that Verizon misinterprets the FCC’s First Report and Order[35] as requiring that local dial tone be provided by the same carrier as the provider of vertical services. Sprint argues that Verizon should not take comments in the FCC order “out of context”:

Although the FCC stated that incumbents must make available [as] bundled offerings, “services that are actually composed of other retail services,” call forwarding is not such a service. As Verizon’s tariffs demonstrate, local dial tone can be offered without any vertical service at all. Simply put, local dial tone is not “composed of” vertical features such as call forwarding. Verizon argues that the two services can only exist together, but . . . the flaw in Verizon’s argument is that local dial tone does not have to be provided by the same carrier as the provider of vertical services. It is Verizon’s tying of dial tone by the same carrier to provision of vertical features in the resale tariff (K-5) that constitutes an unreasonable or discriminatory limitation in violation of Section 251(c)(4) of the Act.[36]

Third, Sprint cites Verizon’s Enhanced Services Provider (ESP) tariff as evidence that Verizon allows customers to purchase dial tone and vertical services separately.[37] While conceding this is not a retail offering, Sprint alleges that the ESP example is significant because it demonstrates conclusively that as a technical matter, the same carrier need not provide both the dial tone and the vertical features.

Indeed, Sprint cites a recent Commission decision adopting the same reasoning. In the recent Sprint/Pacific Bell arbitration, the Commission cited another Pacific Bell tariff because it demonstrated the technical feasibility of separating vertical features from dial tone. The Commission stated in the context of the Sprint/Pacific arbitration that:

Pacific cannot claim technical infeasibility because its CNS [Complementary Network Services] tariff allows for certain vertical features to be sold without an access line, and voice mail providers, including Pacific’s affiliate PBIS, purchase those features to provide voice mail service.[38]

The Commission concluded that “We concur with the FAR’s [Final Arbitrator’s Report’s] determination that Section 251(c)(4) requires the resale of vertical features, without purchase of the associated dial tone.”[39]

Fourth, and finally, Sprint contends that Verizon cannot avoid its obligation under Section 251(c)(4) of the 1996 Act by forcing Sprint to buy vertical features out of an inapplicable tariff that can be amended at any time. Sprint alleges, “Verizon simply cannot avoid its obligations under the Act by invoking a tariff. Its tariff offerings do not necessarily track its responsibilities under Section 251(c)(4) . . . .”[40] Once again, Sprint notes that the Commission took essentially this same stance in D.00-10-031, its decision on the same issue in the Sprint/Pacific Bell arbitration.

3 Verizon's Position on Resale of Stand-Alone Vertical Features

Verizon summarizes its position on this issue succinctly:

The issue with respect to the sale of vertical features on a stand-alone basis is not whether Sprint may resell vertical features but, rather, whether Sprint is entitled to the resale discount when it wants to resell a specific vertical feature – Call Forwarding Busy/Don’t Answer – to an end-user customer of Verizon for the basic local dial tone service. Just as other Enhanced Service Providers (“ESPs”), Sprint may purchase Call Forwarding Busy/Don’t Answer on a stand-alone basis for resale to the Verizon dial tone customer. But, again just as other ESPs, Sprint is not entitled to the wholesale discount pursuant to § 251(c)(4)(A) of the Act.[41]

Sprint is not entitled to the wholesale discount, Verizon contends, because Verizon does not separately sell dial tone and vertical features at retail: “With respect to Call Forwarding Busy/Don’t Answer, Verizon only offers that service to retail customers in conjunction with basic dial tone service.”[42]

Second, Verizon addresses its ESP tariff, which sells dial tone and vertical features separately:

Verizon does not dispute that ESPs are permitted to purchase Call Forwarding Busy/Don’t Answer on a stand-alone basis as a component to an ESP’s provision of enhanced services. In that situation, consistent with Verizon’s tariffs, Verizon continues to provide the dial tone line, and the ESPs may purchase Call Forwarding Busy/Don’t Answer in order to utilize it in connection with an enhanced service such as voice messaging. In that case, however, Verizon is not offering Call Forwarding Busy/Don’t Answer on a stand-alone basis at retail, which would trigger the requirement to sell that service for resale at a wholesale rate. Rather, ESPs are purchasing the service as a component of another service being sold at retail by the ESP to end-users—hence, the ESP is operating as a wholesaler.[43]

Third, Verizon alleges that the Commission’s prior decision – D.00-10-031 – regarding the Sprint/Pacific Bell ICA does not control here. Verizon states that its tariff does not offer vertical features on a stand-alone basis at retail to subscribers who are not telecommunications carriers:

While Verizon may price vertical features separately, as the tariff makes clear, the terms and conditions include a requirement that subscribers who are not telecommunications carriers may purchase these features only in conjunction with the purchase of the dial tone service. The terms and condition under which Verizon offers a service to telecommunications carriers cannot be used to invoke the requirements of § 251(c)(4).

While an end-user may order a basic dial tone line without vertical features, an end-user may not order a vertical feature without a basic dial tone line. There would be no line on which to place or utilize the vertical feature. Thus, these two services – basic dial tone line and vertical features – are not sold separately at retail to subscribers other than telecommunications carriers.[44]

Fourth, and finally, Verizon asks that if the Commission does adopt Sprint’s view, it not require the wholesale discount in Verizon’s tariff:

That wholesale discount was intended to reflect the costs that Verizon would avoid if it were not providing services at retail. If Sprint were only reselling a single vertical service, however, and Verizon were continuing to provide the basic dial tone service (and other vertical services), Verizon would avoid few, if any, costs. Verizon, for example, would continue to incur the costs of taking customer orders, to incur the costs of billing and collection, and it would avoid few, if any, of the costs it incurs in marketing its services to end-users. In short, if the Commission were to decide that Sprint were entitled to a wholesale discount, the Commission would have to determine a separate wholesale discount applicable to that situation.[45]

Verizon also asks that the Commission reject Sprint’s proposed ICA language.

4 Discussion of Resale of Stand-Along Vertical Features Issue

Verizon does not adequately distinguish its case from that of Pacific Bell. The Commission recently found in Sprint’s favor on the identical issue in connection with the Sprint/Pacific Bell arbitration. Verizon offers no facts that differ materially from those before the Commission in the Pacific Bell case. Indeed, Verizon agreed at the PHC that this issue did not require evidentiary hearings.

The Commission’s prior decision was legally correct. Thus, the only basis to decide the case here differently would be factual. However, Verizon’s sole attempt to distinguish D.00-10-031 is based on the assertion that “Verizon’s tariff makes clear that vertical features are not offered on a stand-alone basis at retail to subscribers who are not telecommunications carriers.”[46] However, Pacific Bell made – and the Commission rejected – precisely the same argument in the proceeding leading up to D.00-10-031. There, the Commission described Pacific Bell’s assertion that “the Commission should reject the FAR’s erroneous conclusion that all vertical features available on Pacific’s basic access service are offered at retail on a ‘standalone’ basis.” There, as here, the Commission relied on two basic facts to reject Pacific Bell’s contention: first, that the ILEC priced vertical features and basic dial tone separately in its tariff, and second, that the ILEC had a tariff – even if not a retail tariff – in which a non-telecommunications carrier customer could separately purchase vertical features and dial tone.

Thus, the reasoning of D.00-10-031 is equally applicable here, and Verizon shall offer Sprint vertical features separate from dial tone and at wholesale rates. As the Commission reasoned in D.00-10-031:

We concur with the FAR’s determination that Section 251(c)(4) requires the resale of vertical features, without purchase of the associated dial tone. Vertical features meet the Act’s requirement of services offered at retail to end-user customers who are not telecommunications carriers. Pacific cannot claim technical infeasibility because its CNS tariff allows for certain vertical features to be sold without an access line, and voice mail providers, including Pacific’s affiliate PBIS, purchase those features to provide voice mail service.

Verizon cannot claim technical infeasibility here because its ESP tariff also allows for certain vertical features to be sold without an access line.

Further, we concur with Sprint’s assertion that it constitutes an unreasonable restriction under Rule 51.613(b) for Pacific to require that Sprint purchase the dial tone, in order to have access to the vertical services for that line. The CNS tariff gives us ample proof that the two elements do not need to be tied together.

In Verizon’s case, the ESP tariff gives us ample proof that the two elements do not need to be tied together.

Finally, I concur with the Commission’s conclusion in D.00-10-031, which applies equally here:

Pacific attempts to hide behind its tariff language, but our mandate when we conduct an arbitration under the Act is to apply the federal law in making our determinations. In this case, the law clearly requires resale of vertical features in the manner requested by Sprint. In the event that a tariff provision is in conflict with a requirement of the Act, we must rule on the side of the Act.[47]

As to Verizon’s request that the wholesale discount differ from that contained in its tariff, there is no record evidence to support another rate. Verizon failed to designate this issue as one requiring hearing, and provided no support for an alternate rate. Thus, I reject Verizon’s request.

Finally, Verizon’s request that I reject Sprint’s proposed language on this issue also lacks record support. Verizon supported its request with the following claim:[48]

Additionally, in the event the Commission adopts Sprint’s position on this issue, Verizon requests that the Commission not adopt Sprint’s proposed contract language in § 2.3.3. In its present form, the ordering provision contained in the proposed ICA pertaining to resold services contemplates and requires the use of industry standard formats.[49] There presently are no OBF[50] guidelines addressing the ordering of stand-alone vertical features. Accordingly, § 3.1.2 cannot, and should not, apply to the ordering of stand-alone vertical features. Accordingly, should the Commission adopt Sprint’s position on this issue – which it should not for the reasons specified above – the Commission also should allow the parties to develop alternative procedures for ordering such stand-alone services until such time as OBF guidelines are issued.[51]

I do not believe Sprint should have to wait for the development of industry-wide guidelines in order to avail itself of stand-alone features the 1996 Act requires Verizon to provide. We urge the parties to work, either in the context of the OBF or elsewhere, to develop standardized ordering guidelines. Pending development of such guidelines, Verizon shall file an Advice Letter within 90 days of mailing of the final Commission decision on the ICA proposing procedures for Sprint ordering of stand-alone vertical features. Within 60 days of mailing of the final Commission decision, Verizon shall meet and confer and share its proposed guidelines with Sprint in an attempt to agree upon proposed language. If the parties cannot come to agreement, Sprint may protest Verizon’s Advice Letter filing. Verizon shall also, with such filing, inform the Commission’s Telecommunications Division of the requirements of this order, and of its meet and confer efforts with Sprint. The approved procedures shall be incorporated into the final approved ICA once it is approved. Prior to approval of such procedures, the language currently proposed by Sprint in the ICA shall govern.

3 Unbundled Network Element (UNE) Combinations

1 Summary

As noted above in connection with the discussion of the “resale of vertical features” issue, of the three issues the parties left open for arbitration, this Commission has already decided two. The second such issue relates to Sprint’s contention that it is entitled to order UNEs in any combination “ordinarily and commonly combined” in the Verizon network.

Sprint asserts that it should have the right to order these “new UNE combinations” without regard to whether the specific customer who is subject to the local service request has that precise combination with Verizon at the time of the order. Sprint contends that even if federal law on this issue is currently uncertain and in a state of flux, the Commission has “independent state authority” to require Verizon to provide new combinations to Sprint. Sprint reminds us that we recently decided this issue in its favor in connection with the Sprint/Pacific Bell arbitration.[52]

Verizon, on the other hand, asserts that this issue is purely one of federal law, and that this Commission is preempted by 47 U.S.C. § 251 from exercising “independent state authority” in this area.

2 Sprint’s Position on UNE Combinations

Sprint claims that regardless of the state of federal law on the issue of “new UNE combinations,” the Commission should affirm its independent state authority to order such combinations even if the particular customer for which Sprint is placing the order does not currently have the same combination on Verizon’s network. The Commission found such authority in Public Utilities Code § 709.2(c)(1), which provides that the Commission’s Open Access and Network Architecture Development of Dominant Carrier Networks (OANAD) proceeding[53] shall determine the extent of fair unbundling of ILEC networks. Sprint points out that the Ninth Circuit has upheld two decisions of our counterpart state Commission in Washington State requiring new UNE combinations.[54] This Commission relied on that Ninth Circuit decision when, in D.00-10-031, it imposed the identical UNE combination obligation on Pacific Bell that Sprint now seeks to have us impose on Verizon.[55]

With regard to its right to such combinations as a matter of federal law, Sprint makes a long and complex argument to the effect that the federal courts have not stripped states of independent state authority to order new UNE combinations.[56]

3 Verizon’s Position on UNE Combinations

Verizon, on the other hand, believes this Commission has no independent state authority to require particular UNE combinations. This power, Verizon claims, rests solely with the federal government, which has not mandated the type of combinations Sprint seeks, and preempts state law.[57]

Verizon also claims this Commission’s OANAD decision is erroneous on the issue of new UNE combinations, and that subsequent decisions D.00-08-011 (AT&T/Pacific Bell) and D.00-10-031 (Sprint/Pacific Bell), which found in favor of CLECs on the new UNE combination issue, run counter to federal court precedent:[58]

[T]he Eighth Circuit’s determination with respect to the rules vacated in the consolidated decision is binding on the Ninth Circuit and all other circuits. Such consolidation is meant to avoid exactly this situation - conflicting decisions on the same questions of law. Moreover, contrary to the CPUC’s position, the vacatur means more than the lack of a requirement for ILECs to combine network elements. The Eighth Circuit’s holding was that the provisions relating to requiring ILECs to combine network elements were contrary to the Act. Thus, incorporating such a provision into an interconnection agreement effectively reinstates subsections (c)-(f), in direct conflict with the Eighth Circuit’s decision that those sections conflict with the Act and are vacated.[59]

4 Discussion of UNE Combinations

Once again, I see no factual or legal basis to depart from the Commission’s prior conclusion that ILECs are required to provide CLECs with new UNE combinations, even if the customer for whom the CLEC orders them does not currently have such combinations for its own service. Once again, Verizon waived its evidentiary hearing on this issue and agreed to submit the issue solely on briefs. It furnishes no evidence or legal argument that persuades me that the Commission’s decisions were in error. Thus, once again I adopt the reasoning of D.00-10-031:

We support the FAR’s determination that Pacific should be required to combine new UNEs for Sprint. As Sprint asserts, this outcome is consistent with the outcomes in our OANAD proceeding and in our recent arbitration between AT&T and Pacific. We reiterate the FAR’s finding that “no court has made a determination that it violates the Act for a state agency to go beyond the requirements of the Act and require an ILEC to combine UNEs for CLECs.”

* * *

We . . . affirm our authority under Public Utilities Code § 709.2(c)(1) to order the combination of UNEs.[60]

Conclusion

I find in favor of Verizon on the issue of whether Sprint should pay it access charges when it uses access lines to reach the Sprint OS platform. On the remaining two issues - resale of stand-alone vertical features and new UNE combinations - I follow the Commission’s earlier decisions finding against the ILEC (here, Verizon) and in favor of the CLEC (here, Sprint) on both issues.

ORDER

IT IS ORDERED that, no later than March 2, 2001, the parties shall file and serve:

An entire Interconnection Agreement, for Commission approval, that conforms with the decisions of this Final Arbitrator’s Report.

A statement that (a) identifies the criteria in the Act and the Commission’s Rules (e.g., Rule 4.3.1, Rule 2.18, and 4.23 of Resolutions ALJ-178 and 181) by which the negotiated and arbitrated portions of the Agreement must be tested; (b) states whether the negotiated and arbitrated portions pass or fall those tests; and (c) states whether or not the Agreement should be approved or rejected by the Commission.

Dated January 10, 2001, at San Francisco, California.

| | |/s/ SARAH R. THOMAS |

| | |Sarah R. Thomas |

| | |Arbitrator |

| | |Administrative Law Judge |

APPENDIX A

October 17, 2000

VIA HAND DELIVERY

Hon. Sarah R. Thomas

Administrative Law Judge

California Public Utilities Commission

505 Van Ness Avenue, Room 5012

San Francisco, CA 94102

Re: Sprint/Verizon Arbitration – A.00-09-031

Dear ALJ Thomas:

As you know, Sprint Communications Company L.P. (U-5112-C) (“Sprint”) filed a Petition for Arbitration with Verizon California, Inc. f/k/a GTE California Incorporated (“Verizon”) with the Commission on September 7, 2000. Since the parties agree that negotiations in this matter began on March 31, 2000, the Commission would normally have until December 31, 2000, to render a decision in the arbitration, in accordance with the Telecommunications Act of 1996. However, the parties have agreed to extend this deadline.

In the prehearing conference with the Arbitrator, held on Thursday, October 12, 2000, the parties agreed to a procedural schedule that we believe is reasonable and desirable in view of the needs of the arbitrator and the parties. Therefore, this letter is to advise the Commission, and confirm between Sprint and Verizon, that Sprint and Verizon have agreed to extend the arbitration deadline pursuant to §252(b) of the Telecommunications Act. Sprint and Verizon hereby commit that they will not appeal either an Arbitrator or Commission decision that is rendered on the basis that it is untimely under the Act.

Please contact either of the undersigned if there are any questions about this extension.

Very truly yours,

/s/ RICHARD L. GOLDBERG Read and approved:

Richard L. Goldberg Kelly L. Faglioni

For Sprint Communications For Verizon California, Inc.

Company L.P. (804) 788-7334

(650) 513-2736

CERTIFICATE OF SERVICE

I certify that I have by mail this day served a true copy of the original attached Draft Arbitrator’s Report on all parties of record in this proceeding or their attorneys of record.

Dated January 10, 2001, at San Francisco, California.

|/s/ ANN B. WHITE |

|Ann B. White |

NOTICE

Parties should notify the Process Office, Public Utilities Commission, 505 Van Ness Avenue, Room 2000, San Francisco, CA 94102, of any change of address to insure that they continue to receive documents. You must indicate the proceeding number on the service list on which your name appears.

-----------------------

[1] 47 U.S.C. § 151 et seq.

[2] See generally 47 U.S.C. § 252.

[3] See Transcript of Initial Arbitration Meeting (IAM), at 4:19-5:22.

[4] 96 Act, 47 U.S.C. § 252(b).

[5] The parties’ letter memorializing the stipulation appears as Appendix A to this decision.

[6] The parties are required by the Commission’s arbitration rules to provide a matrix setting forth each disputed issue, and their respective positions on those issues. They identified the “local over access” issue as item 3 on the matrix Sprint filed as Exhibit B with its application of September 7, 2000. That matrix identifies a total of seven issues that remained in dispute as of the September 7 filing date. The parties have since reached settlement on four of the seven issues.

[7] Generally speaking, access charges are charges long-distance carriers such as Sprint pay ILECs such as Verizon for use of the ILECs’ local network. Since the break-up of the Bell System in 1984, ILECs have owned the poles, wires, switches and other infrastructure in the local calling areas, and charged others access charges to use those facilities. While the access charge scheme has changed significantly over the years, and especially since enactment of the 96 Act, long distance carriers continue to pay access charges to ILECs.

[8] Sprint’s “Local Via 00 Dial Around to Sprint Voice Activated Dialing,” December 20, 2000, filed under seal. I will admit this document as Exhibit C-6. Sprint has clarified that only the assumptions of call volumes for its voice activated calling service are confidential. The local call and access rates are public information. Thus, only those portions of Exh. C-6 that contain volume assumptions shall be placed under seal. Sprint shall file revised public and sealed versions of Exh. C-6 to accommodate this order.

[9] CMRS providers (mobile and wireless carriers) are not at issue here.

[10] 47 C.F.R. § 51.701 (1999) (emphasis added).

[11] Post Arbitration Brief of Sprint Communications Company L.P., filed December 6, 2000 (Sprint Brief), at 7-8 (emphasis in original).

[12] Sprint Brief at 7.

[13] Id. at 8, citing Hearing Transcript (TR), at 76:7-15.

[14] Sprint Brief at 10-11, citing TR 78:19-28; 79:1-16.

[15] Proposed ICA, Hearing Exh. 2 at 40; TR 35:1-28.

[16] Sprint Brief at 11 (emphasis in original).

[17] Id. at 13, citing TR 32:28, 33:1-9 and TR 33:15-28.

[18] Sprint Brief at 2.

[19] Post-Hearing Brief of Verizon California, Inc., f/k/a GTE California Incorporated (Verizon Brief), at 6.

[20] Id. at 6-7 (footnotes omitted).

[21] See n.15 and accompanying text.

[22] Sprint supports its argument with a quotation from a later portion of the same paragraph in the ICA, which states: “The Parties agree that the points of call origination and termination shall be used to determine Local Traffic . . . .”

[23] Verizon Brief at 8, citing TR at 22:8-18.

[24] Verizon Brief at 10.

[25] Id. at 9-10, citing In re the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, First Report and Order, 11 FCC Rcd 15499 (1996) at ¶ 1028 (FCC First Report and Order).

[26] Verizon Brief at 10.

[27] Id. at 11.

[28] Id. at 13.

[29] Id.

[30] TR 92:7-93:15; see also Verizon Brief at 12.

[31] Id.

[32] Sprint Brief at 18, citing 47 U.S.C. § 251(c)(4) (emphasis in original). See also 47 C.F.R. § 51.605(a) (“An incumbent LEC shall offer to any requested telecommunication carrier any telecommunications service that the incumbent LEC offers on a retail basis to subscribers that are not telecommunications carriers for resale at wholesale rates . . . .”)

[33] Sprint Brief at 20-21, citing Verizon’s basic local exchange tariff, Schedule Cal. PUC Tariff A-1, 36th Revised Sheet 2, 35th Revised Sheet 10.2 (basic local exchange services) and Schedule Cal. PUC Tariff A-40, 1st Revised Sheet 10) (vertical features such as call forwarding). Tariffs have the force and effect of law; thus, we may rely on them as a legal matter just as we would a statute or regulation. See, e.g., D.00-09-071, 2000 Cal. PUC LEXIS 875, at *165-66, citing Trammell v. Western Union Telegraph Company (1976) 57 Cal.App.3d 538, 549-551; Dyke Water Co. v. Public Utilities Commission (1961) 56 Cal.2d 105, 123; Dollar-A-Day Rent-A-Car Systems, Inc. v. Pacific Telephone (1972) 26 Cal.App.3d 454, 457.

[34] Sprint Brief at 21-22, citing Verizon’s Schedule Cal. PUC Tariff No. K-5, 5th Revised Sheet 15.

[35] See n.25 above.

[36] Sprint Brief at 23 (emphasis in original).

[37] Id. at 23-24, citing Verizon’s tariff at Schedule Cal. PUC No. A-16, 10th Revised Sheet.

[38] D.00-10-031, mimeo., at 11.

[39] Id.

[40] Sprint Brief at 24.

[41] Verizon Brief at 13-14.

[42] See GTE’s Retail Tariff, Cal. P.U.C. No. A-40 (providing that custom calling service such as Call Forwarding Busy/Don’t Answer are only available in connection with individual line business and residence service); Verizon Brief at 14.

[43] Verizon Brief at 15 (emphasis in original).

[44] Id. at 17-18.

[45] Id. at 18.

[46] Id. at 17.

[47] D.00-10-031, mimeo., at 11-12.

[48] Verizon Brief at 18-19 (footnotes in original).

[49] See Hearing Exhibit No. 2, Resale Attachment, § 3.1.2.

[50] Ordering and Billing Forum. More information about this group is available on the Internet at . According to this website, the OBF “provides a forum for customers and providers in the telecommunications industry to identify, discuss and resolve national issues which affect ordering, billing, provisioning and exchange of information about access services, other connectivity and related matters.”

[51] In the proposed Agreement, Verizon has agreed to continue “to participate in industry forums for developing service order/disconnect order formats” and to “incorporate appropriate industry standards” into its ordering process. See Hearing Exhibit No. 2, Resale Attachment, § 3.1.2.

[52] D.00-10-031, mimeo., at 17 (“We disagree with Pacific’s conclusion and affirm our authority under Public Utilities Code § 709.2(c)(1) to order the combination of [new] UNEs.”).

[53] See D.99-11-050.

[54] Sprint Brief at 29, citing D.00-10-031, mimeo., at 17. The Ninth Circuit decision at issue is MCI Telecommunications v. US West Communications, 204 F.3d 1262 (9th Cir. 2000).

[55] D.00-10-031, mimeo., at 17 (“We find instructive the fact that the Ninth Circuit upheld the two arbitrated decisions cited by Sprint, which came before it on appeal. Those decisions of the Washington Utilities and Transportation Commission, dealt with the identical issue we are addressing here . . . . The Ninth Circuit upheld the decision, stating that a requirement that the ILEC combine UNEs does not violate the [1996] Act.”).

[56] Sprint Brief at 26-28.

[57] Verizon Brief at 20-23, 25-26.

[58] Id. at 24.

[59] Verizon Brief at 24-25 (emphasis in original).

[60] D.00-10-031, mimeo., at 17.

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