Case Title: In re New England Telephone & Telegraph Co.

Citation: 172 Vt. 405, 779 A.2d 693

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2001-08-17T00:00:00Z

Document:
In re New England Telephone & Telegraph Co. (2000-128); 172 Vt. 405;
779 A.2d 693

[Filed 17-Aug-2001]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of  Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.

                                No. 2000-128

Investigation Into Three Special Contracts       	Supreme Court
Filed by New England Telephone and Telegraph
Company, d/b/a Verizon	                                On Appeal from
   	                                                Public Service Board

 
                                                        May Term, 2001

Michael H. Dworkin, Chair

Karen McAndrew and Elizabeth H. Miller of Dinse, Knapp & McAndrew, P.C., 
  Burlington, and Victor D. Del Vecchio and Gregory M. Kennan of Bell 
  Atlantic-Vermont, Boston, Massachusetts, for Appellant.

Kenneth W. Salinger of Palmer & Dodge LLP, Boston, Massachusetts, Mary E. 
  Burgess, AT&T Communications of New England, Inc., New York, New York, 
  and Charles F. Storrow of Kimbell & Storrow, Montpelier, for Appellee 
  AT&T Communications of New England, Inc.

Leslie A. Cadwell and Dixie Henry, Montpelier, for Appellee Department of 
  Public Service.

PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.

       AMESTOY, C.J.   New England Telephone and Telegraph Company d/b/a
  Verizon appeals  from an order of the Public Service Board denying approval
  of five special contracts between  Verizon and individual business
  customers.  Verizon claims that the Board erred in applying its  pricing
  rules for special contracts by (1) requiring shared and common fixed costs
  to be included in  the price floor of a special-contract service, (2)
  expanding the definition of a bottleneck facility to  include facilities
  that are not essential to a competitor's ability to provide equivalent
  service, and (3)  

 

  holding that volume discounts should generally be offered in the form of
  tariffed rates  available to all customers rather than by special contract
  to individual customers.  We affirm.

       Until recently, telephone service in Vermont, like in most other
  states, was provided through  regulated monopolies.  Under this system,
  Vermont granted exclusive franchises to local exchange  carriers.  Verizon
  and its predecessors have operated the largest local exchange service in
  Vermont  for many years.  Advances in technology during the 1980s and
  1990s, however, saw a trend toward  regulated competition in the
  telecommunications industry, see e.g., 30 V.S.A. § 202c (general  assembly
  finds that advances in telecommunications technology and changes in federal
  regulatory  policy are rapidly reshaping telecommunications services;
  therefore, it enacts planning and regulatory  changes, including supporting
  competition, to direct benefits to all Vermonters), and as competition 
  emerged, the Public Service Board has established policies and rules to
  govern both incumbents and  competitors.  Having operated in a monopoly
  environment, Verizon, the incumbent local exchange  carrier, owns most of
  the facilities over which competitors must generally supply service.  To 
  promote competition, the Board has developed fair prices for the use of
  these facilities and pricing  rules for Verizon that allow new carriers to
  compete fairly for customers.  

       At issue in this case are the Board's rules for imputing the price
  floor for Verizon's special  contracts.  In general, a schedule of the
  prices of the retail services offered by Verizon and other  utilities must
  be filed with the Board, see 30 V.S.A. § 225(a), and cannot be unjustly
  discriminatory,  see 30 V.S.A. § 218(a).  The schedule shows the tariffed
  rates offered to all customers.  Under 30  V.S.A. § 229, a utility must
  obtain Board approval for any contract for a "special product or special 
  service not provided for or covered in the schedule."   In this case,
  Verizon sought approval for five  special contracts under 30 V.S.A. § 229. 
  Three of the contracts provided individual business 

 

  customers with volume discounts on instate toll service.  The other two
  contracts were for  Centrex business exchange services, which provide
  features such as abbreviated-digit intra-system  calling, conference
  calling, call transfer, and call forwarding.

       The main issue in the proceeding was whether Verizon had priced the
  contracts properly  based on the price-floor standard required by previous
  Board decisions, which have required an  incumbent carrier to price a
  service at or above a price floor equal to "the sum of the prices that it 
  charges competitors for any bottleneck inputs required to provide the
  service and the TSLRIC [Total  Service Long-Run Incremental Cost] of the
  non-bottleneck inputs for that service."  Investigation of  Proposed Vt.
  Price Regulation Plan and Proposed Interim Incentive Regulation Plan of New
  England  Tel. and Tel. Co., No. 5700/5702, slip op. at 122 (Vt. Pub. Serv.
  Bd. Oct. 5, 1994) (Price Regulation  Plan).  In other words, the Board has
  required Verizon to include in the price floor of special  contracts,
  first, the price it charges competitors for use of any so-called bottleneck
  facilities, which  are Verizon facilities required to provide the service. 
  This rule is intended to put Verizon on an even  footing with its
  competitors.  Second, the Board has required Verizon to include in the
  price floor the  total costs of the retail services.  Preventing the
  incumbent local exchange carrier from pricing  special contracts below the
  cost of providing the special-contract service prevents it from using its 
  monopoly services to subsidize special contracts and allows competing
  carriers, which have no  monopoly services to subsidize special contracts,
  to compete fairly.  

       In this case, the Board rejected two of the volume discount contracts
  on the grounds that they  failed to comply with price-floor requirements of
  previous Board decisions, and ordered Verizon to  file revised price-floor
  calculations to conform to Board requirements for the other three
  contracts.   The Board also held that volume discounts generally should be
  offered in tariffed rates available to 

 

  all customers who qualify, rather than through special contracts to
  individual customers,  unless the customer's usage is fundamentally
  different from other customers with similar volume  usage.  

       Verizon appeals from the Board's decision.  It does not dispute that
  the basic imputation  standard establishes the price floor equal to the
  wholesale prices that Verizon would charge its  competitors for any
  bottleneck inputs required to offer the same service, plus the Total
  Service Long-Run Incremental Cost of the non-network inputs (TSLRIC). 
  Rather, it challenges the Board's  decisions that its toll service and
  Centrex service are bottleneck inputs and that the TSLRIC of the 
  non-network inputs must include shared and common fixed costs.  Verizon
  also objects to the  Board's ruling that volume discount cannot be offered
  by special contract but must be offered in  tariffed rates.

       We apply a deferential standard of review to decisions of the Public
  Service Board, which  enjoy a strong presumption of validity.  In re Tariff
  Filing of Central Vt. Pub. Serv. Corp, 167 Vt.  626, 626,