Source: http://www.kcc.state.ks.us/telecom/94gimt478git.htm
Timestamp: 2013-06-18 07:37:32
Document Index: 670438900

Matched Legal Cases: ['§ 6', '§ 254', '§ 6', '§ 6', '§ 6', '§ 9', '§ 9', '§ 9', '§ 9', '§ 9', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 5', '§ 10', '§ 251', '§ 251', '§ 332', '§ 254', '§ 153', '§ 153', '§ 254', '§ 1', '§\n1']

In the Matter of a General Investigation Into Competition within the Telecommunications
THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS Before Commissioners: Timothy E. McKee, Chair Susan M. Seltsam John Wine In the Matter of a General Investigation Into Competition within the Telecommunications
Industry in the State of Kansas
Docket No. 190,492-U
94-GIMT-478-GIT
ORDER NOW the above-captioned matter comes before the State Corporation Commission
of the State of Kansas (Commission). Having examined its files and records,
and being duly advised in the premises, the Commission finds and concludes
as follows: SUMMARY OF CONTENTS I. Background
B. Phase II Hearing/Appearances
C. Petition for Approval and Adoption of Stipulation and
Agreement Filed by Columbus and State Independent Alliance
D. Legislation II. Summary of Parties' Positions
A. Kansas Universal Service Fund (KUSF)
1. Rate Rebalancing
2. Methodology for Funding the KUSF
3. Size of the Fund
4. Lifeline Service Program 5. Kansas Relay Services, Inc. (KRSI) B. Form of Regulation
1. Price Cap Baskets a. Sub-Categories Within Baskets b. Price Cap Factors
(1) Productivity Factor/Price Cap Adjustment Formula
(2) Exogenous Adjustments
2. Range of Rate Pricing
a. Range of Rate-Fixed
b. Range of Rate-Flexible
C. Public Hearings III. Findings of Fact and Conclusions of Law A. Jurisdiction B. Notice C. Kansas Universal Service Fund (KUSF) 1. Access Rate Reduction 2. Revenue Reduction Recovery From KUSF 3. KUSF Assessment on All 4. How LECs Flow Thru 5. Three Year Transition 6. Review Procedures for KUSF Administration 7. Who Receives Support and on What Basis
8. Supplemental Funding 9. Lifeline Service Program 10. Kansas Relay Services, Inc. (KRSI) D. Form of Regulation/Selection of Regulatory Plan 1. Price Cap Baskets a. Competitively Flexible Pricing (1) Basket One (2) Basket Two
(3) Basket Three b. Should Unbundled/Wholesale Service Require Price Caps 2. Price Cap Factors a. Inflation Factor/Price Cap Adjustment Formula b. Productivity Factor c. Exogenous Adjustments d. New Services e. Imputation f. Bypass 3. Rate of Return Regulation E. Miscellaneous Issues/Positions and Conclusions 1. Rural Entry Guidelines 2. Customer Information 3. Boundary Issue 4. Sprint Spectrum's Argument of Federal Preemption
5. Wireless Providers Argument: Statutory Terms "Equitable
and Non-Discriminatory" Are Not Synonymous With "Equal"
6. Whether the State Act (HB 2728) Violates the Federal
Telecommunications Act of 1996 7. Yellow Pages Profits Adjustments 8. Interim Access Plan 9. ALEC Access Rates 10. April 4, 1996 Order RE: Universal Service Issues
Glossary Attachment A
Link updated 30.Dec.1996
Attachment B Link updated 30.Dec.1996
I. BACKGROUND A. HISTORY 1. On April 22, 1994, the Commission issued an Order establishing a
generic docket "to investigate the level of competition for each regulated
or flexibly regulated telecommunications service within the telecommunications
industry and other issues related to competition within the telecommunications
industry." (Order dated April 22, 1994, at 14). 2. On August 17, 1994, the Commission issued an Order indicating deliberation
of issues in this docket would be accomplished in two phases. Phase I would
involve certain policy determinations pertaining to competition in the
telecommunications industry. Phase II would involve implementation issues,
including service pricing and costing issues. (Order dated August 17, 1994,
at 2). 3. On May 5, 1995, the Commission issued its decision in Phase I. The
Commission determined those changes in state regulatory structure necessary
to provide a timely yet orderly transition to a competitive local exchange
telecommunications market. 4. On April 4, 1996, the Commission issued an Order scheduling the Phase
II competition hearing to be held August 12 - 15, 1996. 5. On April 4, 1996, the Commission issued another Order in this same
docket and determined that a fund should be created to administer the collection
and distribution of universal service support payments including a Lifeline
program. Such fund should be called the Kansas Universal Service Fund (KUSF).
The Commission stated that high cost rural service, low income customers
who are affected by rate rebalancing, and residential customers who could
experience rate shock should be supported by the KUSF. (Order dated April
4, 1996, at 6, 12). The Commission determined the need to have a fund administrator
who should be a neutral third party responsible to the Commission. The
Commission stated "Universal Service" is the group of services
that local exchange companies (LECs) and alternative LECs (ALECs) offer
to customers. "Basic Service" is a list of what consumers can
expect when obtaining basic telephone service. (Order dated April 4, 1996,
at 16). The Commission also determined that it is appropriate to accomplish
a defined rebalancing of rates. (Order dated April 4, 1996, at 6-7). 6. The Commission further determined that it should continue its policy
of requiring statewide average toll rates. However, the Commission noted
that with the reduction in access and the similarity of the access charge
levels among LECs, the pressure to deaverage rates should be relieved.
(Order dated April 4, 1996, at 16). 7. On May 10, 1996, the Commission issued an Order on reconsideration
in which it determined that various issues in the April 4, 1996 Order would
be addressed in the Phase II proceeding: rate rebalancing, access rate
reduction, end user common line charge (EUCL), assessment on toll minutes
of use (MOU), additional rate rebalancing, subsequent rate rebalancing,
support recipients, initial support, and managing future support. 8. On June 17, 1996, the Commission issued an Order scheduling four
public hearings to be held across the state. The Commission determined
that public hearings on the issue of rate rebalancing were necessary because
of the potential for increased rates for local telephone service and decreases
in long distance rates as a result of the revenue neutrality mandated by
House Bill 2728. (HB 2728, State Act or Kansas Act). The public hearings
were also necessary for the purpose of receiving public comment from telecommunications
customers with regard to the proposed rate changes and other relief sought.
The Commission directed all telecommunications companies to notify their
customers of the hearings in the form of a billing insert during the July
1996 billing cycle and a newspaper advertisement in newspapers having general
circulation in the counties where the telecommunications companies provide
service. 9. On June 26, 1996, the Commission issued an Order amending the June 17,
1996 Order and determined that the LECs should generate an affidavit listing
the newspapers and counties in which the advertisement was placed and the
date on which the advertisement was published. 10. On July 1, 1996, the Commission issued an Order and determined that
although Sections 3(c) and 5(b) of the State Act direct the Commission
to initiate proceedings to adopt guidelines in regards to the issues outlined
in each section, the Commission currently has open dockets which address
such issues (Docket Nos. 190,492-U and 191,206-U). The Commission determined
that a proceeding to adopt guidelines regarding universal service and rural
entry requirements should be consolidated into Docket No. 190,492-U and
a proceeding to adopt guidelines regarding quality of service should be
consolidated into Docket No. 191,206-U. 11. On August 7, 1996, CMT Partners, Inc., AirTouch Cellular of Kansas,
Inc. and Topeka Cellular Telephone Company, Inc. (collectively referred
to as the "Wireless Providers") petitioned to intervene in the
present docket for the limited purpose of: a) cross-examining witnesses;
and b) filing a brief on issues relevant to wireless telecommunications
service providers which arise during the proceedings. The Wireless Providers
asserted that they sought intervention pursuant to K.A.R. 82-1-225(a) or
K.A.R. 82-1-225(b). On August 12, 1996, the Commission issued a bench ruling
granting intervention to the Wireless Providers. 12. On August 12, 1996, Wamego Telephone Company, Inc. (Wamego Telephone)
filed an Affidavit demonstrating compliance with publication of the newspaper
notice of the public hearing. On August 13, 1996, Moundridge Telephone
Company, Inc. (Moundridge Telephone) filed a similar Affidavit. On September
5 and 17, 1996, Sprint Communications Company, L.P. (Sprint) and United
Telephone Company of Kansas (United) (collectively referred to as "Sprint/United")
filed their Affidavit and on September 20, 1996, Southwestern Bell Telephone
Company (SWBT) filed its Affidavit demonstrating compliance. B. PHASE II HEARING/APPEARANCES 13. The technical hearing was held August 12 - 15, 1996, with the Commission
presiding. SWBT appeared by Michael C. Cavell and William R. Drexel; the
Independent Telecommunications Group, Columbus, et al. (Columbus) appeared
by Thomas E. Gleason, Jr.; the State Independent Alliance appeared by Mark
E. Caplinger and James M. Caplinger; Sprint/United appeared by Stephen
D. Minnis; AT&T Communications of the Southwest (AT&T) appeared
by Robert A. Fox and Dana Bradbury Green; MCI Telecommunications Corporation
(MCI) appeared by Michael Lennen; CompTel of Kansas (CompTel) appeared
by James R. Roth; Kansas Cable Telecommunications Association (KCTA) appeared
by Victor A. Davis, Jr.; Kansas City Fiber Network, L.P. (KC Fiber) and
Multimedia Hyperion Telecommunications (MHT) appeared by Mark P. Johnson;
KIN Network of Salina appeared by Jay Emler; the Citizens' Utility Ratepayer
Board (CURB) appeared by Walker Hendrix and Edward E. Peterson; CMT Partners,
Inc. (CMT), Topeka Cellular Telephone Co., Inc. (Topeka Cellular) and AirTouch
Cellular of Kansas, Inc. (AirTouch Cellular) appeared by Marc E. Elkins;
the Commission Staff (Staff) and the public generally, appeared by Eva
Powers, Janette Corazzin and Marianne Deagle. 14. On August 13, 1996, Mark Johnson, counsel for Sprint Spectrum, L.P.
(Sprint Spectrum), entered his appearance and orally moved its intervention.
No party voiced objection and the Commission granted such intervention.
C. PETITION FOR APPROVAL AND ADOPTION OF STIPULATION
AND AGREEMENT FILED BY COLUMBUS AND STATE INDEPENDENT ALLIANCE 15. On December 2, 1996, Columbus and State Independent Alliance (collectively
referred to as "Petitioners") filed a Petition for Approval and
Adoption of Stipulation and Agreement. The Stipulation and Agreement (S&A)
was adopted by thirty-three (33) rural telephone companies providing local
service in the state of Kansas. Petitioners stated that the S&A "provides
for equitable and nondiscriminatory recovery from the stipulating parties'
customers of these parties' contributions to the KUSF." (Petition
at 1). "The terms of the S&A will limit and reduce possible increases
in charges to customers of rural telephone companies for the preservation
and advancement of universal telephone service at reasonable and affordable
rates." (Petition at 1-2). 16. Petitioners asserted that the S&A's purpose is principally to
provide contributions to the KUSF from rural telephone companies, and to
recover such contributions from their customers, on a per-line basis applicable
equally to all such companies and ratepayers. Petitioners stated "it
is unclear that the legislature intended rural companies with low local
service rates to increase those rates by $1.00 per month and additionally
to impose the full scope of charges on their customers necessary to recover
these companies' KUSF contributions." (Petition at 5). Petitioners
concluded that in order to address the issue of multiple recovery from
customers the S&A proposes, for those companies effectively required
to raise their local rates to the statewide average, that customer charges
for recovery of KUSF contributions be recognized as rate increases complying
with the requirements of Section 6(d) of the State Act. D. LEGISLATION 17. State and federal telecommunications laws were enacted this year
in response to changes occurring in the telecommunications arena nationwide.
18. The Telecommunications Act of 1996 (Federal Act) establishes a pro-competitive,
deregulatory policy framework for telecommunications. Generally, the Federal
Act opens local telecommunications to competition by establishing ground
rules for carrier interconnection and Universal Service; preempts State
and local entry barriers; removes the remaining line-of-business restrictions
in the Modification of Final Judgment and authorizes utility entry into
telecommunications. 19. The State Act establishes a framework that calls for the implementation
of competition in compliance with the new Federal Act and in a manner which
accommodates the interest of Kansans. The State Act declares a public policy
of ensuring access to a first class telecommunications infrastructure at
an affordable price; ensuring consumers receive benefits of competition;
promoting access to a full range of telecommunications services that are
comparable in both urban and rural areas; advancing development of infrastructure
that is capable of supporting public safety, telemedicine, distance learning,
access to the Internet, etc.; and promoting protection of consumers from
fraudulent business practices. 20. The primary action items of the State Act call for: establishment
of quality of service standards; establishment of a KUSF; establishment
of a Kansas Lifeline Service Program (KLSP); establishment of a funding
mechanism to provide telecommunications equipment for persons with special
needs and funding for the Dual Party Relay Services for speech and/or hearing
impaired; establishment of regulatory reform plans for LECs; implementation
of a discounted toll plan for use in accessing the Internet in areas where
a local Internet provider is not yet located; and adoption of any additional
guidelines that are necessary to parallel the federal standards in "slamming"
enforcement. 21. The Commission is charged with oversight and implementation of the
State Act. Addressed in the Competition Docket's Phase II are the issues
of the KUSF, KLSP, reductions in access charges, regulatory reform plans
for LECs, consumer protection and information. II. SUMMARY OF PARTIES' POSITIONS A. KUSF 1. RATE REBALANCING 22. SWBT proposes to increase local rates by $4.50 over three years
to rebalance as required by the State Act. According to SWBT, this rebalancing
proposal: a) will help keep the KUSF small and thus sustainable (approximately
$35 million initially); b) will provide a larger per minute toll rate reduction
than otherwise would occur with a larger KUSF; c) is consistent with prior
actions at the federal level; and d) is appropriate in light of the increasingly
competitive local service market. (Cooper, Tr. at 2151-47 to 2151-48).
23. According to SWBT, revenue neutral rate rebalancing would be accomplished
by: reducing intrastate switched access rates to the interstate level over
three years; imputing the switched access reductions into SWBT's intraLATA
toll service; increasing residence and single-line business local exchange
service by $4.50 over three years ($1.50 per year); increasing local coin
service to $.35 per call; eliminating the free directory assistance call
allowance and the HNAP (Home Numbering Area Plan) offset associated with
directory assistance; eliminating free directory assistance calling from
coin phones; establishing a Lifeline Service Program for Kansas consumers;
and recovering any revenue shortfall as a result of revenue neutral rate
rebalancing from the KUSF. (Brown, Tr. at 1840-4 to 1840-5). 24. SWBT states the $4.50 increase for both business and residential
customers when fully phased in would offset approximately $58.8 million
of the access and toll decrease for SWBT. SWBT also suggests that other
phased in local exchange rate changes for coin and directory assistance
would offset an additional $7.7 million of the toll and access decrease.
(Cooper, Tr. at 2151-60 to 2151-61). 25. Sprint/United state the Commission rebalance local rates, dollar-for-dollar,
to bring exchange prices in line with the federal benchmark affordable
price. Sprint/United maintain if the Commission does not completely rebalance
rates during any transition to cost-based prices, the KUSF should adopt
a support plan that mirrors the Federal Communications Commission (FCC)
plan, except that the KUSF would provide for contributions from all intrastate
carriers based on intrastate revenues. (Harper, Tr. at 2633-18). 26. Staff proposes to initially rebalance local and access rates to
reduce the intrastate access rate to the interstate access rate based on
November 1, 1996 rate levels. Staff recommends that Billing and Collection
rates for independent local exchange companies (ILECs) be reduced $.05
per message since they also provide substantial support to rural areas.
This reduction is included in Staff's KUSF calculations. Staff includes
all business lines in the rebalance calculation rather than excluding some
select business services. (HB 2728 § 6(c); Lammers, Tr. at 2966-15).
27. Staff proposes that LECs increase their local service rates by an
amount approximately equal to 14 percent of their local service revenues.
The LECs would keep that amount rather than paying it into the KUSF and
receiving a payment which includes an offset of that amount from the fund.
Staff's plan can be summarized as follows: a) SWBT's KUSF assessment would be $4.55 per access line at the end
of three years. This amount is large enough to remove SWBT as a recipient
of the KUSF. United would also rebalance $4.55 to its customers. For the
ILECs, the estimate is an average of $1.72 per access line. (Lammers, Tr.
at 2966-15). b) LECs would avoid further KUSF contributions unless the percentage
of assessment reached 14.1 percent. (Lammers, Tr. at 2966-16). c) Companies defined as telecommunications carriers, including LECs
providing toll service, and wireless providers would be assessed an amount
equal to 9 percent of their retail revenues. The assessment amounts would
be paid into the KUSF. (Lammers, Tr. at 2966-17). d) Staff's proposal would reduce the size of the KUSF from $111 million
to less than $30 million. e) Staff asserts its proposal is equitable and non-discriminatory since
all providers of telecommunications services contribute to universal service,
even though the larger assessment on local revenues is not paid into the
fund, but is retained by the company and off-set against the amount the
company otherwise would receive. 28. AT&T asserts that the Staff and SWBT plans leave all subsidies
implicit to SWBT and violate 47 U.S.C. § 254(c) of the Federal Act.
Section 254(c) sets guidelines and accounting standards to prevent cross-subsidization
of the competitive services by non-competitive services. (AT&T Post-Hearing
Brief at 11). 29. MCI's position is that "each telecommunications carrier, telecommunications
public utility and wireless telecommunications service provider be required
to pay into the fund." (Klaus, Tr. at 3121-9). MCI does not recommend
a specific rate for local service. However, MCI maintains that should the
Commission deem it appropriate to rebalance local rates (as authorized
by the Kansas Legislature) or establish an EUCL as previously decided in
the Commission's April 4, 1996 Order, local exchange rates should not exceed
the lower of the nationwide average rate of $18.00 or total service long
run incremental cost (TSLRIC). (Klaus, Tr. at 3121-5). 30. MCI argues that if SWBT is not drawing from the KUSF, as proposed
by Staff, the KUSF will not be paying any support for rural exchanges to
SWBT nor to any ALEC serving residential customers in those exchanges.
As a consequence, the potential for effective competition to serve higher
cost areas in SWBT's service territory is suppressed, if not extinguished,
and it does not achieve the competitive neutrality required by the Kansas
Act. (MCI Post-Hearing Brief at 14). 31. The ILECs state that in the case of LECs other than rural telephone
companies, rebalancing can be accomplished without demand on the fund by
allowing reasonable local rate increases. (Krehbiel, Tr. at 2528-6). 32. KCTA asserts that it is critical that the Federal and State Acts
be implemented in the most direct, accountable, and competitively neutral
manner. This requires that all carriers pay on an equitable basis and have
the opportunity to receive support from the fund. (Kravtin, Tr. at 2455-54).
33. KCTA also asserts that under Staff's proposal the incumbent LECs
would not be required to make explicit payments into the KUSF unless the
assessment rate on retail billed revenues for the other participants rises
above 14.1 percent. Permitting some carriers to make "in-kind"
contributions or some other form of non-explicit contribution is discriminatory
when all others must make explicit payments to the fund. In order to be
equitable and non-discriminatory and to have the fund work properly, all
contributions by each and every carrier should be explicit in nature. (KCTA
Post-Hearing Brief at 20). 34. KC Fiber states that under Staff's proposal a nine percent assessment
on retail revenues would be paid into the KUSF by toll providers, wireless
providers and "others." Incumbent LECs, such as SWBT and United,
would not have to make any contribution to the KUSF for their local revenue
or other revenue (excluding toll). KC Fiber contends that Staff's proposal
does not state that ALECs are included in the definition of "others."
ALECs are required to make a contribution to the KUSF for their local revenue
and other revenue. KC Fiber asserts if that is the case, the incumbent
LEC would have a considerable advantage over competitors. (Hollingsworth,
Tr. at 3114-8 to 3114-9). 35. Sprint Spectrum argues that it should be exempt from contributing
to the KUSF because of federal preemption. (Sprint Spectrum Post-Hearing
Brief at 4). 36. The Wireless Providers argue that Staff's plan confuses and intermingles
the concepts of rate rebalancing and support for universal service in a
manner not permitted under the statute. According to the Wireless Providers,
Staff's plan fails to satisfy the statutory requirement of Section 9(b)
of the State Act because it excludes LECs from contributing to the KUSF.
(Wireless Providers Post-Hearing Memorandum at 2-3). 37. CURB states that revenue neutrality for each of the three years
of rate rebalancing should be established using base year (Year 1) revenues
for the twelve months ending September 30, 1996: a) Prior to any increases in basic local rates, the Commission should
first authorize increases in other "local residential and business
service rates" as part of the revenue neutrality element of rate rebalancing.
(Ostrander, Tr. at 2684-19). b) For Years 2 and 3 of rate rebalancing, any subsequent growth in other
"local residential and business service rates" which were not
included in Year 1 rate rebalancing should be authorized as offsets to
any proposed increases in basic local rates (and if there are none then
these should offset the KUSF). c) For Sprint/United, the Federal Universal Service High Cost Funds
(FUSHCF) should be directly offset against the incremental cost of basic
local service prior to determining the amount of funds going to the KUSF.
d) For ILECs, if FUSHCF are not used to directly offset the incremental
cost of basic local service, then the dollars allocated to KUSF should
be reduced by these amounts. e) If Yellow Page revenues are not used as a direct offset to the incremental
cost of basic local residential and business services, then the KUSF should
be reduced by the amount of Yellow Page revenues. (Ostrander, Tr. at 2684-20).
38. CURB states in its brief that the standard be implemented to minimize
basic rate increase and to assure that all "residential and local
service rates", without regard to classification, bear equal percentage
contributions to Universal Service. (CURB Post-Hearing Brief at 3). 2. METHODOLOGY FOR FUNDING THE KUSF 39. Several parties propose that the KUSF be funded on the basis of
a surcharge applied to toll MOU or "retail toll revenue." Those
parties include SWBT (Cooper, Tr. at 2151-31), Columbus (Krehbiel, Tr.
at 2528-4), the State Independent Alliance (Mikesell, Tr. at 2589-13) and
Sprint Spectrum (Sprint Spectrum Post-Hearing Brief at 4). 40. Sprint/United acknowledge the need for state-specific universal
service support where actual exchange service prices are below the federal
benchmark affordable price and below the economic cost of providing the
service. Mr. Harper, witness for Sprint/United, testified that the state
jurisdiction should be responsible for funding the difference between the
federal benchmark affordable price and the rate the State allows carriers
to charge for the supported services. Mr. Harper also stated that there
are other factors such as adjusting intrastate access rates to interstate
levels and exogenous cost treatment. (Harper, Tr. at 2633-21 to 2633-22).
41. Other parties support a percentage surcharge assessment in various
forms. AT&T's proposed KUSF would be funded by a surcharge on end user
retail service revenues. (Rhinehart, Tr. at 3118-14). MCI proposes is that
the KUSF be funded on a percentage of net intrastate common carrier revenues.
(Klaus, Tr. at 3121-9). 42. CompTel proposes a quasi-sales tax on the customer's bill for all
telecommunication service in lieu of having a surcharge on toll minutes.
(Ensrud, Tr. at 3116-17). The quasi-sales tax should be limited to retail
services only. (Ensrud, Tr. at 3116-34). 43. KCTA states that a preferable approach would be to impose a uniform
percentage contribution based upon the value added by each industry participant.
(Kravtin, Tr. at 2455-11). 44. KC Fiber proposes that each company's share of overall intrastate
revenues equal its share of overall contributions to the KUSF. (Hollingsworth,
Tr. at 3114-4). "The best formula would rely on the relative intrastate
revenues of each carrier." (Hollingsworth, Tr. at 3114-5). However,
in its brief, KC Fiber stated that the Commission should adopt SWBT's proposal
which is "imposing the surcharge on billed toll MOU, not on retail
revenues." (KC Fiber and MHT Post-Hearing Brief at 8). 45. The Wireless Providers argue that the burden of financing the KUSF
be distributed among all Kansas telecommunications providers, including
LECs, through an industry wide surcharge. (Wireless Providers Post-Hearing
Memorandum at 2-3). 46. CURB proposes that contributions to the KUSF be based on gross intrastate
company revenues earned in Kansas. (Ostrander, Tr. at 2684-32). 47. Staff proposes that the most equitable basis for contributions to
the fund is intrastate retail telecommunications revenues. These revenues
include local service, directory assistance, coin, private line, intrastate
long distance, and an estimate of cellular revenues. (Lammers, Tr. at 2966-14).
48. Mr. Lammers, witness for Staff, testified the assessment on local
revenues is an advantage for the ILECs since most ILECs have low rates
and it fulfills the mandate in the Kansas Act. By participating at the
14.1 percent level, the ILECs along with SWBT and Sprint/United could avoid
having to remit the funds to the KUSF. (Lammers, Tr. at 2966-16). 49. During the August 12, 1996 hearing, Mr. Krehbiel, witness for Columbus,
and Mr. Mikesell, witness for State Independent Alliance, each modified
his testimony after reviewing Mr. Lammer's proposal by stating that it
is a generally acceptable alternative to their testimonies. (Krehbiel,
Tr. at 2525-2526; Mikesell, Tr. at 2587-2588). 50. At the August hearing, Mr. Cooper, witness for SWBT, testified that
he largely agrees with Staff's KUSF. (Cooper, Tr. at 2152). Mr. Cooper
also stated that he recommends the Commission either adopt SWBT's proposal
or Staff's proposal "because of their similarities." (Cooper,
Tr. at 2151-1, 2153-2154). 3. SIZE OF THE FUND 51. Mr. Lammers, Staff's witness, testified the KUSF needs to recover
$111.6 million which is 14.1 percent of the present intrastate revenues.
(Lammers, Tr. at 2966-14). 52. Some parties were not in a position to quantify the appropriate
size of the KUSF at this time. (Klaus, Tr. at 3121-8; Rhinehart, Tr. at
3118-16; Ostrander, Tr. at 2684-31). CURB stated "the fund size should
be whatever falls out of a reasonable policy which will help ensure universal
service, eliminate rate shock for all customers including rural customers
and provide for a Lifeline program." (Ostrander, Tr. at 2684-31).
Other parties stated the fund should be as small as possible. (Krehbiel,
Tr. at 2528-5). 53. Mr. Klaus, MCI's witness, testified that ideally both the combined
KUSF and the yet-to-be determined federal universal service fund would
be sized to recover the difference between the TSLRIC of providing local
exchange service and the nationwide average local exchange rate of $18.00.
(Klaus, Tr. at 3121-8). However, MCI did not explain how to reconcile this
approach with HB 2728. 4. LIFELINE SERVICE PROGRAM 54. Staff proposes to apply the criteria currently required of qualification
for Link­Up Kansas and that the program be phased in over the same
three year period as a local service increase to avoid a reduction followed
by a rate increase. (Staff Post-Hearing Brief at 20). Staff asserts the
programs can be funded by growth in access lines. (Lammers, Tr. at 2966-25
to 2966-26). 55. SWBT generally agrees with Staff's Lifeline proposal with one exception.
The Lifeline subsidy should be funded on a competitively neutral basis
by all telecommunications providers in the state, the same as is required
for universal service support. (Mah, Tr. at 2261-14). SWBT cited Section
9(b) of the State Act. SWBT also recommends that the Lifeline program be
administered by the administrator of the KUSF. 56. CURB states that enrollment of Lifeline and Link-Up customers should
be proactive and virtually automatic. The carriers should work with Department
of Social and Rehabilitation Services (SRS) to establish a data base that
identifies individuals eligible for Lifeline and Link-Up and allows for
expedited or automatic enrollment of these individuals. (Ostrander, Tr.
at 2684-54). 5. KANSAS RELAY SERVICES, INC. (KRSI) 57. Columbus argues that funding for KRSI and the telecommunications
devices for individuals with disabilities should not be handled through
the KUSF. (Krehbiel, Tr. at 2528-7). CURB states that funds for KRSI and
KUSF should not be commingled and that separate books should be maintained.
Technically CURB is recommending two separate funds, two separate sets
of books, and two separate bank accounts, although there could be one common
independent administrator. (Ostrander, Tr. at 2684-34). 58. Staff proposes that the KUSF include KRSI. However, Staff recommends
that the KUSF only collect the funding for KRSI and the equipment fund
and not administer those programs. (Lammers, Tr. at 2966-7). B. FORM OF REGULATION 1. PRICE CAP BASKETS 59. Section 6(e) of the State Act specifies three baskets of services
for companies electing price cap regulation: a) residential and single-line
business, including touch-tone; b) switched access services; and c) miscellaneous
services basket. Section 6(f) requires the Commission determine the price
cap adjustment formula for Baskets One and Three and any sub-categories
within those baskets. The adjustment formula for Basket One is to be applicable
after December 31, 1999, and for Basket Three it applies after December
31, 1997. a. SUB-CATEGORIES WITHIN BASKETS 60. Although the State Act authorizes the creation of sub-categories
within Baskets One and Three, it does not require the creation of sub-categories.
In order to address concerns that falling prices for certain basic local
services in Basket One might be offset with dramatically rising prices
for other basic services, SWBT proposes 16 sub-caps for Basket One services
(eight rate groups for residential service and eight for single-line business
service). Under this proposal SWBT states the prices in each rate group
would not rise more than the general level of inflation as measured by
the Consumer Price Index Less Food and Energy (CPILFE). (Brown, Tr. at
1840-9 to 1840-10, 1840-24). 61. Staff testified sub-categories within Basket One for different rate
groupings would be appropriate. (Matson, Tr. at 2691-15). Staff also proposed
one sub-category (multi-line business, PBX and PLEXAR lines) in Basket
Three, miscellaneous services to accommodate Staff's rebalancing proposal.
(Matson, Tr. at 2691-16). 62. SWBT opposes Staff's proposal. SWBT states it would be willing to
recover the residual $8-10 million in Staff's revenue neutral calculation
from Basket Three services generally rather than from the KUSF. (SWBT Brief
at 7). 63. AT&T recommends the creation of a limited number of sub-categories
of services or elements in Basket Three. Factors considered in establishing
the sub-categories would include: a) basic network functions (BNFs) versus end user services; b) the availability of both services and BNFs; c) cost characteristics; d) the ability of the LEC to cross-subsidize an end user service with
a BNF; and e) the competitiveness of the functions or services. (Rhinehart, Tr.
at 3118-29). b. PRICE CAP FACTORS (1) PRODUCTIVITY FACTOR/PRICE CAP ADJUSTMENT FORMULA 64. The productivity factor "X" is critical in the development
of a price cap plan. SWBT proposes a productivity offset not to exceed
1.25 percent for Basket One. (Van Pelt, Tr. at 2251-6). SWBT states that
a 2.1 percent productivity offset is the starting point that represents
the average of long term productivity offsets for telecommunications which
were developed in seven widely recognized and accepted total factor productivity
(TFP) studies. (Van Pelt, Tr. at 2251-7). According to SWBT, the 2.1 percent
productivity offset is the difference between TFP growth of the U.S. economy
to that of the telecommunications industry. (Van Pelt, Tr. at 2251-7).
In his testimony, Dr. Van Pelt recommends, based on his experience with
both the technical and practical aspects of productivity measurement, a
productivity offset of 1.25 percent for Basket One. (Van Pelt, Tr. at 2251-6).
SWBT recommends that no productivity offset be included in the Basket Three
price cap index (PCI) formula. (Van Pelt, Tr. at 2251-16). 65. Sprint/United recommends the use of fifty (50) percent of the Gross
Domestic Product Price Index (GDPPI) for the single-line and residential
basket because of its simplicity and relative fairness. (Harper, Tr. at
2633-13). Sprint/United also recommends that if the Commission finds 50
percent of the GDPPI inappropriate, a productivity factor of approximately
1.25 percent be adopted. (Harper, Tr. at 2633-61). 66. AT&T expressed concern for any proposal of extremely low, or
even no, productivity offset factors by SWBT and Sprint/United for the
basic residential and single-line business basket and the miscellaneous
services basket. Further, AT&T is concerned that the lack of sub-categories
in these two baskets will give price cap-electing incumbents far too much
ability to discriminate in the marketplace, particularly since the incumbent
LECs continue to provide most miscellaneous services basket services. (Rhinehart,
Tr. at 3118-87). 67. AT&T asserts that "X" be based on the expectation
that the LECs' productivity will improve under price caps and should therefore
be set to reflect those expectations. AT&T gave the example that in
Illinois, Ameritech proposed an "X" of 0.7 and the Illinois Commerce
Commission prescribed an "X" of 3.8 percent. In the FCC plan,
the LECs may choose an "X" of either 4.0, 4.7 or 5.3 depending
on the level of earnings sharing they are willing to do. (Rhinehart, Tr.
at 3118-35 to 3118-36). 68. MCI does not recommend a specific adjustment formula or productivity
factor. (Klaus, Tr. at 3121-39). 69. KCTA asserts there are two components of the "X" factor:
a) a productivity growth rate; and b) an input price differential. The
productivity growth rate is expressed as the TFP and measures the difference
in the rate of growth between output and inputs. This should be based upon
either total company or intrastate TFP, consistent with what the FCC does
in this regard and should be in the range of two to three percent. The
input price differential is designed to take into account the fact that
the kinds of inputs the typical LEC purchases have experienced considerably
less inflation over the past decade than the economy as a whole, and should
be in the range of three to five percent. The TFP and the input price differential
combine to make the total productivity offset in the range of five to seven
percent. (Kravtin, Tr. at 2455-18 to 2455-19). 70. CURB's position is that rates should be subject to the same factors
recently established by the FCC, which is GDPPI less the 5.3 percent productivity
factor (subject to discouraging discriminatory pricing practices and not
favoring urban customers over rural customers in any repricing). (Ostrander,
Tr. at 2684-24). CURB, CompTel and Staff state that since SWBT adopted
the 5.3 percent productivity option at the federal level it is reasonable
for adoption in Kansas. (Ostrander, Tr. at 2684-26; Ensrud, Tr. at 3116-5
and 3116-51; Rearden, Tr. at 2867-10). (2) EXOGENOUS ADJUSTMENTS 71. Various parties define exogenous adjustment as a factor which would
allow changes to the price cap plan for circumstances beyond the carriers'
control. 72. SWBT asserts that exogenous factors are particularly appropriate
for legislative/regulatory mandates, such as number portability. (Brown,
Tr. at 1840-68). 73. Sprint/United assert that it is essential that the Commission establish
guidelines for the recovery of exogenous adjustments, either through the
price cap adjustment formula or through the KUSF. Sprint/United propose
exogenous treatment be given for significant changes in revenues or expenses
incurred due to legislative or regulatory mandates outside the company's
control. (Sprint/United Post-Hearing Brief at 8). Sprint/United suggest
the Commission should clearly define the treatment of all exogenous costs
before a LEC elects an alternative regulatory plan. (Harper, Tr. at 2633-70
to 2633-71). 74. AT&T expresses concerns about Sprint/United and SWBT's suggestions
that tax law changes be considered eligible exogenous costs. (Rhinehart,
Tr. at 3118-89). 75. KCTA asserts the adjustment formula should provide for exogenous
conditions. Such adjustment should be used to flow through costs associated
with one-time exogenous events resulting from conditions uniquely applicable
to LECs. (Kravtin, Tr. at 2455-19 to 2455-20). 76. CURB's position is that exogenous costs should not be approved up-front.
CURB asserts that a company should be required to petition the Commission
for pass-through of certain uncontrollable "economic" cost increases,
subject to a maximum 120-day proceeding. CURB maintains that "the
petition should provide evidence of no offsetting cost decreases and that
the cost increase has a significant negative impact upon company operations
(and documenting the negative impact on earnings and other matters)."
(Ostrander, Tr. at 2684-24 to 2684-25). 77. Staff urges the Commission to narrowly define the circumstances
under which a petition for exogenous adjustment may be filed and to exercise
great caution in granting such a petition. (3) IMPUTATION 78. Section 6(j) of the State Act requires imputation by LECs as part
of the price floor for toll services. "Access charges equal to those
paid by telecommunications carriers to local exchange carriers shall be
imputed as part of the price floor for toll services offered by local exchange
carriers on a toll service basis." (HB 2728 § 6(j)). The purpose
of imputation is to prevent the LECs from subjecting dependent competitors
to price squeezes. (Rhinehart, Tr. at 3118-40; Klaus, Tr. at 3121-10; Staff
Post-Hearing Brief at 8). Imputation is appropriate when the incumbent
LEC is the sole or principal source of inputs necessary to the deployment
of competitive or potentially competitive retail services. (Rhinehart,
Tr. at 3118-41). 79. SWBT contends that toll services represent a single market and that
the imputation required by HB 2728 should be applied across the entire
toll service market, not on a plan-by-plan basis. (Vining, Tr. at 2298-9;
SWBT Post-Hearing Brief at 28). However, Ms. Vining identifies an alternate
application of the imputation test which requires each pricing plan to
pass an imputation test without considering other toll pricing plans. The
price floor for a new plan is the direct incremental costs associated with
the new plan and the imputed access costs associated with the new plan.
(Vining, Tr. at 2298-9, 2325). 80. Many parties raise concern regarding imputation being performed
on a total toll service approach. Commingling individual pricing plans
with all toll services will not disclose whether individual plans are priced
below long run incremental costs and the imputed cost of access. (Klaus,
Tr. at 3121-55). Combining all services in the imputation requirement allows
one or more elements to be priced anti-competitively below cost, yet appear
to be priced above cost because they are combined with other services.
This places competitors at a competitive disadvantage. 81. CompTel also states that the purpose of imputation is to prevent
a specific service from being priced anti-competitively. CompTel maintains
that imputation must be applied to a specific service to have its intended
effect. (Ensrud, Tr. at 3116-36). 2. RANGE OF RATE PRICING 82. Staff proposes two price range plans: range of rate-fixed and range
of rate-flexible. a. RANGE OF RATE-FIXED 83. Basket One prices would remain unchanged until the year 2000 except
for rate changes authorized by the Commission as a part of the rate rebalancing
between local and access. Basket Two prices would be reduced to parity
with the corresponding interstate rates. (Matson, Tr. at 2691-15 to 2691-16).
84. Staff proposes that all services in Basket Three, except for the
sub-category of local access lines (PBX, digital trunk for PBX, PLEXAR
access lines and multi-line business services), would be eligible for immediate
petitioning for movement into range of rate-fixed pricing. (Matson, Tr.
at 2691-17). 85. Staff proposes the minimum/maximum rates be established as set forth
in the Kansas Act. The price could be set no lower than the wholesale rate
discount.(1) Staff proposes the company be allowed additional flexibility to reduce
rates by lowering the minimum range an additional amount each year by an
amount equal to the productivity offset that is recognized in the rate
cap adjustment formula. (Matson, Tr. at 2691-17). 86. Staff proposes the following constraints on rate changes: the rate
for any one service may not increase more than 10 percent in any two year
period; and the rates charged times quantities may not exceed the price
cap for the basket as a whole. No service may be priced below long run
incremental costs (LRIC) plus imputed access; or in the case of local service,
imputed prices of unbundled network elements. Range of rate pricing must
at a minimum apply to a rate group. Fines may be requested if a rate is
found not to be in compliance. (Matson, Tr. at 2691-18 to 2691-19). b. RANGE OF RATE-FLEXIBLE 87. Staff proposes that the next step in the transition would be a petition
to move from range of rate-fixed pricing into the range of rate-flexible
designation. The difference between fixed and flexible is that companies
would be able to deaverage rates within a rate group provided that all
similarly situated customers receive service at the same rate. 88. Staff proposes evaluation of the following criteria for movement
to range of rate-flexible pricing: number of facility and resale based
entrants in each exchange of the total service territory; number of providers
offering comparable products and/or services; current and historical market
share information of the company; and the essential nature of the service.
(Matson, Tr. at 2691-19 to 2691-20). 89. SWBT asserts that Staff's proposed range of rate-flexible pricing
would give SWBT the ability to price services on an individual customer
basis within an exchange as long as the price is available to similarly
situated customers. However, according to SWBT, Staff has conditioned the
availability of this flexibility on ambiguous criteria similar to the effective
competition criteria not adopted by the Legislature as a predicate to complete
price deregulation. (Brown, Tr. at 1840-85). SWBT proposes that the Commission
deregulate a service if there is an alternate provider as allowed by HB
2728 § 6(p). (SWBT Post-Hearing Brief at 12). 90. Sprint/United recommend that Basket Three have no sub-baskets and
the annual change in aggregate prices for all services in the basket be
constrained by the current year price cap index. (Harper, Tr. at 2633-64).
Sprint/United argue that a company should be able to petition to have a
service immediately moved to the range of rate-flexible or price deregulation
status without first having to file for range of rate-fixed. (Harper, Tr.
at 2633-66). 91. AT&T supports the general concept and methodologies expressed
in the Phase I Order.(2) In the alternative, AT&T supports Staff's recommendation concerning
reduced regulation. According to AT&T many of Staff's recommendations
overlap with the Commission's previous determination as to whether a service
should be deregulated. AT&T also states that SWBT's request for a "competitive
alternative" as the only requirement for reduced regulation should
be denied. (AT&T Post-Hearing Brief at 27). 92. MCI concurs generally with Staff recommendations, but cautions that
in the telecommunications setting most competitors are dependent on LECs
for input services. MCI asserts that the incumbent LECs have enormous market
power over interconnection prices for interexchange services and entering
local exchange providers. Thus, development of effective competition is
not possible unless the incumbent LECs impute the prices charged dependent
competitors into the prices set for their competing retail services. (Klaus,
Tr. at 3121-35). 93. CompTel generally supports Staff's recommendation on reduced regulation
as well as the Commission's previously established two-pronged test contained
in its Phase I Order of May 5, 1995. (CompTel Post-Hearing Brief at 22).
C. PUBLIC HEARINGS 94. Garden City, Kansas: Some attendees expressed concerns over
telephone local rate increases "affordable basic telephone service
is essential for all Kansans but it is extremely important to low income
and older persons on a fixed income. It just does not seem fair or right
that nearly seventy (70) percent of Kansas residential customers should
be burdened with a rate increase that benefits only 30 percent of its users."
(Garden City Public Hearing, Tr. at 7). However, other attendees welcomed
the long distance reduction for business service and residence service.
(Garden City Public Hearing, Tr. at 9). 95. Hays, Kansas: Some attendees expressed their opposition to
telephone rate increases. (Hays Public Hearing, Tr. at 6). Attendees requested
the Commission to keep the infrastructure investments flowing to the non-metro
areas of the state to preserve and enhance the ability to stay connected
to the information age. (Hays Public Hearing, Tr. at 9). 96. Other public hearings were also held in Topeka and Wichita, Kansas.
Attendees expressed similar comments as stated above. III. FINDINGS OF FACT AND CONCLUSIONS OF LAW A. JURISDICTION 97. The Commission has been given full power, authority and jurisdiction
to supervise and control the telecommunications public utilities doing
business in Kansas, and is empowered to do all things necessary and convenient
for the exercise of such power, authority and jurisdiction. K.S.A. 66-1,187
et seq. Although wireless providers are statutorily exempt from
Commission jurisdiction (K.S.A. 66-1,143 - 1,145), the State Act covers
all telecommunications providers and mandates that wireless providers be
required to pay into the KUSF fund. B. NOTICE 98. At the August 12, 1996 hearing, CURB entered an objection to notice.
CURB stated the impact that rate rebalancing and other issues would have
on rates was not reflected in the notice. (Tr. at 1761). In an accompanying
brief, CURB contended that pay phones and directory assistance services
were not part of this docket when first opened and should not be made a
part of this proceeding. CURB stated no notice was given that pay phone
and directory assistance rates would increase. It is a violation of due
process to order increases of this kind without specific notice. (CURB
Post-Hearing Brief at 4). 99. The record demonstrates that SWBT, Sprint/United, Wamego Telephone
and Moundridge Telephone submitted proof of publication to the Commission(3)
attesting to the completion of the public notice of hearings before
the Commission regarding possible rate changes. The public notice was provided
in newspapers of general circulation where those telecommunications companies
provide service. Notice was also provided to the customers by way of bill
inserts. The content of the notice was broad enough to include "possible
increases in local service rates to offset decreases in long distance rates
in accordance with the Kansas Act." The language "possible increases
in local rates" is all inclusive and covers any increase, even
pay phone and/or directory assistance. The Commission finds notice is proper
because ratepayers were provided sufficient notice of possible rate increases.
100. The Wireless Providers stated they objected to receiving notice
via telephone call on August 1, 1996. The Wireless Providers alleged neither
the Commission nor Staff gave notice of these proceedings to providers
of wireless telecommunications services. (Wireless Providers Memorandum
at 22; Tr. at 1761-1762). However, the Wireless Providers did not oppose
going forward with the hearing in light of HB 2728. (Tr. at 1762). 101. At the hearing, the Commission noted the Wireless Providers' objection
stating the docket had been opened since 1994. The Commission further noted
it has no jurisdiction over cellular providers. However, due to HB 2728's
mandate that all telecommunications carriers are to contribute to the KUSF
fund, the Commission found the notice was proper and the Commission proceeded
with the hearing. (Tr. at 1763). 102. The Wireless Providers again argued in their Post-Hearing Memorandum
that notice was defective. The Commission reaffirms its bench ruling and
finds that notice was proper. At the hearing the Wireless Providers were
given the opportunity to either file testimony during the hearing or provide
oral testimony. (Tr. at 1764). The Wireless Providers did not prefile testimony
and did not provide oral testimony. The Wireless Providers were notified
of the hearing and given the right to fully participate at the hearing,
cross-examine all the witnesses, file briefs and/or findings of fact and
conclusions of law. The Wireless Providers decided to go forward with the
hearing, which demonstrated a waiver on their part. The Commission affirms
its bench ruling and finds that notice to Wireless Providers was proper.
C. KANSAS UNIVERSAL SERVICE FUND 1. ACCESS RATE REDUCTION 103. The State Act states that all local exchange carriers shall reduce
intrastate access charges to interstate levels. (HB 2728 § 6(c)).
Rates for intrastate switched access, and the imputed access portion of
toll, shall be reduced over a three-year period for SWBT and United with
the objective of equalizing interstate and intrastate rates in a revenue
neutral, specific and predictable manner. The amount of access rebalancing
in Years 1 and 2 will correspond to the portion of assessment recovery
by the LECs discussed below. That is, the move to interstate access parity
shall be in proportion with the LECs KUSF assessment phase in, i. e., for
SWBT, miscellaneous increases plus $2.00 per line, per month in Year 1
and $1.00 per line, per month in Year 2 and the remainder in Year 3. 104. The Commission also finds Staff's arguments persuasive that parity
should be based upon the interstate rates in effect on November 1, 1996.
(Lammers, Tr. at 2966-8). 105. MCI argued the State Act requires interstate access parity at interstate
access rates in effect in 1999. (MCI Post-Hearing Brief at 9). However,
the Commission believes interstate access and federal universal service
will change considerably over the next two years. It is premature at this
juncture to determine how interstate access parity will be achieved based
upon currently unknown 1999 access rates. Consequently, the Commission
will not specify how access parity will be achieved when the full impact
and extent of such access changes are unknown at this time. However, the
Commission believes it is reasonable to revisit the access parity issue
after the FCC access guidelines are issued, and no later than September
1998. 2. REVENUE REDUCTION RECOVERY FROM KUSF 106. The initial amount of the KUSF shall be comprised of local exchange
carrier revenues lost as a result of rate rebalancing pursuant to the State
Act. Revenues shall be recovered on a revenue neutral basis. The revenue
neutral calculation shall be based on the volumes and revenues for the
12 months prior to September 30, 1996, adjusted for any rate changes. (HB
2728 § 9(a)). The Commission interprets "adjusted for any rate
changes" to require that revenues be determined by using the intrastate
access rates in effect at the end of the twelve (12) month period, September
30, 1996. To ensure that current information is available, the interstate
rates will be those in effect on November 1, 1996. (Lammers, Tr. at 2966-8).
As part of the access rate reduction, the Commission finds that ILECs should
reduce their Billing and Collection rates to $.05 per message as determined
by the Commission in its April 4, 1996 Order. (Order dated April 4, 1996,
at 8). 107. SWBT argued that changes in MOU subsequent to September 30, 1996,
be factored into its revenue neutral calculation. (Brown, Tr. at 1840-29
to 1840-30). The Commission rejects this position for the purposes of this
rebalance and finds that the State Act is specific in requiring the calculations
of volumes and revenues be made on the twelve (12) months ending September
30, 1996. Reductions in access and toll rates will encourage further growth
in MOU which will provide additional revenues to SWBT. The Commission does
not believe the likely growth in MOU resulting from access rebalancing
should result in further revenue neutral replacement. 3. KUSF ASSESSMENT ON ALL 108. In accordance with the State Act, the Commission shall require
every telecommunications carrier, telecommunications public utility and
wireless telecommunications service provider that provides intrastate telecommunications
services to contribute to the KUSF on an equitable and non-discriminatory
basis. (HB 2728 § 9(b)). 109. Upon review of the evidence presented by the parties, the Federal
and State Acts, the Commission finds that the KUSF shall be funded by an
equal assessment on all intrastate retail revenues. The State Act requires
that the KUSF assessment be imposed on the LECs, telecommunications providers,
and wireless providers. These companies all generate revenues. An assessment
on revenues assures every telecommunications carrier, telecommunications
public utility and wireless telecommunications service provider that provides
intrastate telecommunications services, will contribute on an equitable
and non-discriminatory basis in accordance with the State Act. 110. Various parties proposed that the KUSF be funded based on toll
MOU or by assessing a quasi-sales tax on customer bills for telecommunications
services in lieu of having a surcharge on toll MOU, or a percentage assessed
in various forms. Unresolved is the method by which to separate the amount
to be recovered from lines and MOU. The Commission believes these proposals
may leave out some revenues and not assure an equitable contribution. The
Commission rejects the proposals based on MOU or surcharges and finds the
most equitable and reasonable approach is a contribution on a "retail
revenue" basis as proposed by Staff. (Lammers, Tr. at 2966-14). 111. The phrase "rate rebalancing" is only applicable if the
Commission decides to raise any rate in excess of the KUSF assessment amounts.
Since the Commission is adopting an equal assessment on all retail revenue
amounts, no rebalancing to local rates will occur beyond the impact of
the KUSF assessment and the ILEC transition to the statewide average. The
Commission finds all intrastate retail revenues shall be assessed on the
same percentage basis, reaching an estimated 14.1 percent at the end of
three years. (Lammers, Tr. at 2966-16). 112. The Commission finds that the initial revenue neutral amount should
be consistent with the $111.6 million estimate originally proposed. The
record supports that the size of the fund shall be determined in the same
manner as the estimated $111.6 million and shall be phased in over three
years. (Lammers, Tr. at 2966-14). The Commission also finds that LEC payments
and distributions may be offset, so as to avoid unnecessary fund transfers.
The Commission's intent is to have record keeping and monitoring reports
to assure that all recipient LECs are only receiving payments due them
which exceed the assessments retained by the LEC. The assessments shall
be redetermined by the administrator annually. The Commission wishes to
ensure that all telecommunications carriers forward the correct level of
assessment to the fund administrator. Allowing LECs to retain their assessment
will reduce the amount paid by the administrator and somewhat reduce the
administrative burden on the LECs. This process does not reduce the size
of the fund or in any way reduce the responsibility of LECs to assess their
customers as prescribed in this Order and HB 2728. In the event a LEC's
assessment exceeds its required rate rebalancing amount, the LEC will submit
the difference to the administrator. 4. HOW LECs FLOW THRU 113. The portion of the assessment attributed to the LECs' local service
which may be recovered on a flat per line basis will approximate $3.21
per month for SWBT customers over three years, and slightly less than $3.00
per month for United customers over three years. These amounts per line
are after the adoption of increases in miscellaneous charges such as directory
assistance and pay phones. These miscellaneous charges shall be increased
by $7.7 million per year as requested by SWBT. (Cooper, Tr. at 2151-61).
Similar miscellaneous increases shall be implemented by United. The rates
for pay phone calls shall be $.35 and the free call allowances for directory
assistance shall be eliminated. These rates shall go into effect March
1, 1997. SWBT and United are hereby ordered to file tariffs reflecting
these rates thirty (30) days after receipt of this Order. 114. Since the assessment is based on retail revenue, flow through of
the assessment should only apply to retail customers and not to resold
or unbundled services. The purchasing ALEC will be responsible for its
own KUSF contribution. 5. THREE YEAR TRANSITION 115. The estimated $3.21 per month rate increase for SWBT customers
would be allocated as follows: a) $2.00 per month for the first year, b)
$1.00 per month for the second year, and c) the remainder for the third
year. United will implement the pass through of its KUSF assessment on
a similar per line basis, determined by dividing its assessment amount
(less coin and directory assistance) by its number of lines. 116. An equal assessment on the ILECs would result in a per line increase
of $1.42 to $3.23 per month. However, the actual increase may be different
since the Commission has reviewed the Stipulation and Agreement (S&A)
submitted by the ILECs and finds the S&A is reasonable because it averages
the impact on ILEC customers much the same as the flow through averages
the impact on SWBT and United customers. This reduces the rate shock effect
on customers who have the highest local rates while at the same time ameliorating
the increase on those who are below the statewide ILEC average. The Commission
approves the S&A with the following clarifications: a) Provision number
3 of the S&A combines the KUSF assessment with the movement to statewide
average. The Commission finds this provision acceptable as long as it does
not reduce the amount of funding for the KUSF. b) The Commission clarifies
that the Petitioners reference to "an assessment on net revenues"
is in actuality "an assessment on retail revenues". The Commission
approves the S&A with these clarifications and incorporates it as Attachment
"A" of this Order. 6. REVIEW PROCEDURES FOR KUSF ADMINISTRATION
117. The Commission requested bids from parties interested in being
the KUSF administrator. Four parties submitted bids. Based upon qualifications
and costs, the Commission has awarded the initial contract (January 1997
to June 1998) to the National Exchange Carriers Association, Inc. (NECA).
118. Various parties recommended that the Commission require an annual
audit of the KUSF administration by an independent accounting firm and
that the audit report be of public record. (Rhinehart, Tr. at 3118-16;
Klaus, Tr. at 3121-9). AT&T also recommended that the size of the KUSF
requirements and the resulting surcharge on retail service revenues be
reviewed at least annually for the first five years. (Rhinehart, Tr. at
3118-16). 119. CURB recommended an audit be performed at least every two years
(and at least once for every administrator's term) and that the audit focus
on compliance with fund procedures and proper administration of funds.
(Ostrander, Tr. at 2684-33). 120. The Commission generally agrees with the above recommendations
and finds it is reasonable to require an annual audit of the fund administrator.
This audit will include a traditional financial review, as well as a review
of the sufficiency of NECA's internal controls. The Commission also directs
Staff to conduct periodic audits of intrastate telecommunications providers
to verify that intrastate revenues are being reported accurately for assessment
purposes. Further, the Commission directs Staff to coordinate with an outside
consultant in reviewing the internal controls for the KUSF administrator.
Compliance with these controls will be included in the annual KUSF audit.
However, the Commission is not limited to these audit options. Over time,
circumstances may change, necessitating additional fund oversight or adoption
of other procedures. 7. WHO RECEIVES SUPPORT AND ON WHAT BASIS
121. The Kansas Act provides KUSF support for companies "that are
deemed eligible both under subsection (e)(1) of section 214 of the Federal
Act and by the Commission." (HB 2728 § 9(c)). This could include
ALECs which may be eligible for KUSF to the extent that they provide service
in a high cost rural area. (Lammers, Tr. at 2966-27). CURB stated KUSF
funds should be available to incumbent LECs and competitors on a non-discriminatory
basis and under equivalent terms and conditions. (Ostrander, Tr. at 2684-31).
122. Section 254(e) of the Federal Act requires that subsidies go only
to eligible telecommunications carriers certified by the Commission. (Harper,
Tr. at 2633-22). 123. An ALEC is required to meet the following KUSF eligibility and
qualification criteria: a) Meet the Federal Act eligibility criteria (Section 214(e)(1). (Lammers,
Tr. at 2966-27); and b) The universal service area in which an ALEC may qualify for KUSF
support is an exchange area with 10,000 or fewer access lines. (Lammers,
Tr. at 2966-27). 124. Support should be distributed to achieve revenue neutrality pursuant
to the State Act. (HB 2728 § 9(c)). Based on the evidence of record
the Commission finds that those companies that provide service in high
cost rural areas shall receive support. Rural areas shall be defined as
exchanges with 10,000 or fewer access lines. ALECs are eligible to receive
support to the extent they provide service in high cost rural areas. (Klaus,
Tr. at 3121-7; Lammers, Tr. at 2966-27). The support shall be paid at a
rate of up to $36.88 per residential loop. (Lammers, Tr. at 2966-31). A
portion of the revenue neutral support for LECs will be designated as the
amount per residential loop. 125. The pay out of $36.88 shall apply to residence lines only. Business
service rates should generally be based on cost and not subsidized by the
KUSF. (Rhinehart, Tr. at 3118-85 to 3118-86; Lammers, Tr. at 2962). The
Commission recognizes that the FCC is currently reviewing universal service
and access charges, the outcomes of which will impact all telecommunications
providers. Therefore, the $36.88 pay out may need to be revisited based
upon the ultimate decisions reached in those proceedings. 8. SUPPLEMENTAL FUNDING 126. The Commission must act on requests for supplemental KUSF funding
within 120 days if the request is based on the criteria in Section 9(e)
of the State Act. However, the Commission is not bound by the 120 day requirement
if the request is based on the criteria in Section 9(f). Eligible new entrants
providing local service are also permitted supplemental funding under the
State Act § 9(f) on a per line served basis which can be fixed monthly
with the KUSF administrator. The Commission concurs with the provisions
of the State Act with regard to supplemental funding. 9. LIFELINE SERVICE PROGRAM 127. Section 7 of the State Act requires the Commission establish the
Kansas Lifeline Service Program (KLSP) to assist low income persons in
retaining and obtaining telephone service. 128. At the public hearings held across the state (Garden City Public
Hearing, Tr. at 7; Hays Public Hearing, Tr. at 6) attendees expressed a
strong concern regarding the impact rate increases may have on persons
living on fixed incomes who are not eligible for or do not participate
in the following programs: a) Aid to Dependent Children (ADC) b) Food Stamps c) General Assistance (GA) d) Medicaid e) Supplemental Security Income (SSI) f) Food Distribution Program Based on the above programs, 1) an applicant must provide the LEC with
proof of participation in any of the programs, and 2) the subscriber must
not be a dependent (unless 60 years old or older). The Commission is aware
that welfare reform is changing participation in these programs. The Commission
is open to new criteria which may effectively identify low income households.
129. In order to protect the interests of this segment of the population,
the Commission believes that an income specific criterion should be added.
This criterion would include determining a minimum income level based on
the Kansas Adjusted Gross Income as filed with the Kansas Department of
Revenue which will become a benchmark below which a person qualifies for
Lifeline support during the ensuing year. In addition: a) The Department of Revenue would annually provide the Commission a
data file of the names and telephone numbers reported on Kansas Income
Tax forms for those with income below the benchmark level. b) This data would be provided to the local telephone service provider
to determine whether or not each identified subscriber is already participating
in the KLSP. c) Subscribers not already receiving benefit of Lifeline will be granted
KLSP support for the next year (12 months) or until the service is disconnected.
(i. e., If the data were available by May 15, the subscriber could receive
Lifeline credit from July 1 through the following June 30.) 130. The Commission directs Staff to contact the Department of Revenue,
the Department of Aging and any other state agency necessary to investigate
the feasibility of applying a minimum income criterion plan. The investigation
should also include the methodology of developing and implementing a minimum
income criterion plan. 131. The Commission hereby adopts a KLSP plan in which all local service
providers (existent LECs and new LECs or ALECS) will participate. The KLSP
will use the criteria outlined above. The Lifeline discount of $3.50 per
month as proposed by Staff will be recovered from the KUSF and will be
phased-in in conjunction with the line assessment. (Lammers, Tr. at 2966-25).
LECs should file tariffs annually to reflect the phase in reduction of
$2.00 on March 1, 1997; $3.00 on March 1, 1998 and $3.50 on March 1, 1999.
Funding of the Lifeline program will be collected by the KUSF administrator
as part of the KUSF assessment. 10. KANSAS RELAY SERVICES INC. (KRSI) 132. Section 3(g) of the State Act requires the Commission to establish
a competitively neutral mechanism or mechanisms to fund: a) dual party relay services for Kansans who are speech or hearing impaired;
b) telecommunications equipment for persons with visual impediments;
and c) telecommunications equipment for persons with other special needs.
This funding mechanism(s) shall be implemented by March 1, 1997. 133. Dual party relay service for Kansans who are speech or hearing
impaired was established in Docket No. 168,334-U. Operations have been
funded by contributions from all toll service providers based on an assessment
upon intrastate MOUs plus a proportional share assumed by each LEC based
upon the distribution (local vs. toll) of traffic handled by the Kansas
Relay Center (KRC).(4) 134. The only relay services issues to be addressed and decided in this
proceeding are the funding mechanisms for KRSI and whether to direct the
KUSF administrator to collect and distribute these funds. Most of the parties
assert that KRSI is a part of universal service and should be funded on
the same basis as the KUSF generally. The funding mechanism should be a
percentage surcharge on all retail telecommunications service revenues.
(SWBT Post-Hearing Brief at 25-26; Rhinehart, Tr. at 3118-86; Lammers,
Tr. at 2966-6). 135. To ensure the competitive neutrality of future funding of KRC operations
under the State Act, the Commission changes the assessment base for relay
services to become an assessment on the retail revenues of all present
and future intrastate telecommunications services providers in Kansas.
SWBT and Sprint/United propose that KRSI be included in the KUSF. (Harper,
Tr. at 2633-45). The economies of administration on a common or centralized
basis seem apparent. The Commission finds that these funds shall be collected
by the KUSF administrator as part of the KUSF assessment and paid out to
KRSI for the ongoing operational support of both KRSI and the KRC. 136. The telecommunications equipment provisioning requirements of persons
with hearing and visual impediments and persons with other special needs,
are addressed in a separate proceeding, Docket No. 194,283-U (96-GIMT-435-MIS).
Issues such as the size of the fund and the type(s) of equipment to be
provided are part of that docket. However, the assessment methodology as
well as the collection and distribution of funds for the Telecommunications
Access Program (TAP) Fund(5) should be part of the KUSF to gain the advantages and efficiencies of
common, central administration. 137. The Commission finds that the funding for TAP shall be collected
by the KUSF administrator as part of the KUSF and shall be distributed
to the agent or designee of the TAP Fund as determined and prescribed in
Docket No. 194,283-U (96-GIMT-435-MIS). 138. The KUSF administrator will keep separate accounting records for
the various funds. Distribution of funds shall be made in the following
priority: KRSI, TAP, Lifeline, and Universal Service. The Commission shall
be notified of adjustments in the assessment percentages. D. FORM OF REGULATION /SELECTION OF REGULATORY
PLAN 139. Section 6 of the State Act requires that "each local exchange
carrier shall file a regulatory reform plan at the same time as it files
the network infrastructure plan." As part of the regulatory plan,
LECs may elect traditional rate of return regulation or price cap regulation.
Carriers that elect price cap regulation shall be exempt from rate base,
rate of return and earnings regulation. Infrastructure plans must demonstrate
a LEC's ability to comply on an ongoing basis with quality of service standards
the Commission will adopt no later than January 1, 1997. If the Commission
finds, after a hearing, that a carrier subject to price cap regulation
violated minimum quality of service standards, the Commission may require
the carrier to resume rate of return regulation. (HB 2728 § 6(a)(b)).
The Commission directs Staff to review the election and infrastructure
plans submitted by the LECs and review the applicant's request for either
price cap or rate of return regulation in an expedited manner. The Commission
retains its statutory requirement that rates be just and reasonable for
carriers electing rate base rate of return regulation. 1. PRICE CAP BASKETS a. COMPETITIVELY FLEXIBLE PRICING 140. A review of the evidence of record, the Federal Act and the State
Act indicate there is a need for pricing flexibility by a LEC faced with
a competitive local service provider or ALEC. SWBT indicated general agreement
with Staff's range of rate-fixed and range of rate-flexible pricing, but
suggested the latter does not go far enough. (SWBT Post-Hearing Brief at
11). Sprint/United recommended range of rate pricing flexibility within
Basket Three. (Sprint/United Post-Hearing Brief at 2). These and other
variations on the range of rate pricing plans are the reasons the Commission
has decided to rename the pricing flexibility plan "Competitively
Flexible Pricing" to avoid confusion. The Competitively Flexible Pricing
plan combines range of rate-fixed, range of rate-flexible, as well as other
comments and suggestions for change, revision or replacement. As compared
to Staff's plan, the Competitive Sub-Basket provides greater flexibility
to the LEC while simultaneously providing protection against cross-subsidization
of competitive service losses or price reductions. This plan allows effective
responses by competing firms within the telecommunications industry without
disturbing the balance between consumer interests and competing providers.
In determining this formula, the Commission has balanced the public policy
goals of encouraging efficiency and promoting investment in a quality,
advanced telecommunications network in the state of Kansas. The Competitively
Flexible Pricing plan would function as follows: (1) Basket One 141. Basket One shall contain rates for basic telecommunications services
which will remain unchanged until the year 2000, except for rate changes
authorized by the Commission. (HB 2728 § 6(g)). In the event a competitor
enters a local market and the existing range of prices is constrictive
to the incumbent provider for the purpose of meeting competitor pricing,
the LEC may petition the Commission for additional price flexibility within
that exchange without the necessity of maintaining averaged rates for all
similarly situated exchanges. This relief is only applicable for lowering
the rates, which must remain above incremental costs and meet an imputation
test as appropriate. Rates within all other exchanges may not be increased
for the purpose of offsetting potential revenue losses in the competitive
exchange(s). Determinations will be made on a case-by-case basis. 142. An exception to the Basket One price cap for single line residence
and single line business (until January 1, 2000, as set out in § 6(g)
of the Kansas Act) shall be the reclassification of an exchange from one
rate group to another based upon growth or decline in the number of telephone
access lines. Pursuant to SWBT's Local Exchange Tariff (Section 1.3 Application
of Rates, Paragraph 1.3.8 Classification of Exchanges), rates for local
exchange services are based on the number of exchange access arrangements
(EAAs) within the primary service area of an exchange or zone. 143. When
an exchange or zone consistently exceeds the number of EAAs for the assigned
rate group classification (over a minimum period of twelve (12) months
or has remained above the range by two percent for six (6) months or more),
SWBT shall inform the Commission and file amended tariffs for the purpose
of regrouping the exchange(s). Conversely, should the number of EAAs in
an exchange decline and remain consistently below the EAA level for the
assigned rate group classification over a similar period of time, SWBT
shall initiate action to regroup the exchange(s) downward. Access lines
acquired for resale by an ALEC shall not be counted toward the total EAAs
within an exchange or zone until connected for a subscriber's use. Regrouping
will be done in a manner consistent with that employed prior to price cap
regulation. (2) Basket Two 144. Price cap adjustments are not applicable to switched access services.
Prices are subject to reduction to match interstate rate levels. (HB 2728
§§ 6(c) and 6(e)) (3) Basket Three 145. Basket Three will contain rates for multi-line business and for
services which are optional or more competitive in nature. The price cap
will be adjusted annually after December 31, 1997. (HB 2728 § 6(i))
All Basket Three services shall be subject to a broader, less regulatory
treatment when competition enters a local market and the existing prices
are constrictive to the incumbent provider for the purpose of meeting a
competitor's prices. 146. Section 6(p) of the State Act grants the Commission discretion
to price deregulate within an exchange area, or on a statewide basis, any
individual service or service category upon a finding that there is a telecommunications
carrier or an alternative provider providing a comparable product or service,
considering both function and price, in that exchange area. 147. A variety of factors determine when competition within a local
exchange occurs. They include: the number and type of providers, comparable
products and/or substitutable services, and customer choice of providers
and/or services. Once competition exists, a LEC may petition for treatment
of specific service(s) within the exchange to be moved into a Competitive
Sub-Basket. Prices of these services are subject to a price cap and price
floor which may change based upon an adjustment factor and applicable offset
for the sub-basket as determined separately in this proceeding. 148. Within the Competitive Sub-Basket, the LEC will have additional
pricing flexibility within the competitive exchange without the necessity
of maintaining averaged rates for all other customers within that same
exchange. Rates for the same services for other customers within the same
exchange may be increased to offset the potential loss of revenue resulting
from competitive pricing in any other location within the same exchange.
However, rates for services for customers from other non-competitive exchanges
or services may not be increased to offset revenue losses that may result
from competitive pricing in competitive exchanges. The decreased rates
must remain above incremental cost as well as appropriate imputation within
this Competitive Sub-Basket. 149. When the Commission determines that services and/or an exchange
are so competitive that the market can determine prices that are not too
high without the need for price limits or other regulatory safeguards,
then the prices will be deregulated. b. SHOULD UNBUNDLED/WHOLESALE SERVICE REQUIRE PRICE CAPS 150. AT&T states that in the market for basic network functions,
the LECs currently have market power and will for the foreseeable future.
Access services and resold local services fall into that market. It is
AT&T's position that the market for basic network functions, including
services that are resold, will require price cap regulation. (Rhinehart,
Tr. at 3118-32). The Commission finds that it is not necessary to provide
price cap regulation for "unbundled" and/or "wholesale"
prices. 2. PRICE CAP FACTORS a. INFLATION FACTOR/PRICE CAP ADJUSTMENT FORMULA 151. The PCI calculated for each category (basket or sub-basket) would
apply to the weighted average price of the elements within the category,
not to each individual element. It is this provision in the mechanism that
allows the LEC to have a certain amount of pricing flexibility. Beginning
on March 1, 1997, a new price index would be calculated once a year, based
on the percentage change in GDPPI over the previous year offset by "X"
and "Z" factors. (Rhinehart, Tr. at 3118-34). The percentage
change in the PCI is GDPPI minus "X" plus or minus an additional
adjustment for "Z". (Rearden, Tr. at 2867-6). 152. There is general agreement among the parties on the use of the
price cap formula of the GDPPI chain-weighted (GDPPI-CW) as the basic inflation
index for Basket One. (Tr. at 1795). The chain-weighted index is recommended
because the fixed weight index is based on spending patterns from a base
period, and often referred to a market basket approach. As such, the fixed
market basket is unable to reflect either new products or the substitution
between products as rapidly as a chain-weighted index. The fixed weight
index is likely to be discontinued as a published price index series in
the year 2000. (Van Pelt, Tr. at 2251-5). The Commission agrees with SWBT
witness Dr. Van Pelt that the GDPPI-CW is a more appropriate mechanism
to incorporate into the price cap formula than a fixed weighting system.
(Van Pelt, Tr. at 2251-5). Therefore, the Commission finds that the GDPPI-CW
shall be the basic inflation index for Basket One. 153. SWBT proposes that the CPILFE is the appropriate index to be used
as the basis for a PCI applicable to Basket Three services. (Van Pelt,
Tr. at 2251-3). Based on the evidence of record the Commission finds that
the price cap formula for Basket Three should be GDPPI-CW. (Rearden, Tr.
at 2867-8). This index has several advantages. It is widely used, and it
is a relatively stable index, since it incorporates all final goods produced
within U.S. Boundaries. Although SWBT witnesses Dr. Weisman, Dr. Van Pelt
and Mr. Brown offer output market reasons to justify the CPILFE as the
inflation factor for Basket Three, no evidence was presented that indicates
costs change differently between Baskets One and Three. The Commission
was not persuaded by SWBT's position that a consumer price index (CPI)
be used for Basket Three. The Commission has provided the opportunity for
pricing flexibility as discussed at length within this Order. Additional
pricing flexibility through the use of the CPILFE as the inflation factor
is unnecessary. The Commission finds there is no compelling justification
for the use of different inflation factors for Baskets One and Three. b. PRODUCTIVITY FACTOR 154. The parties varied widely in their recommendations concerning an
appropriate productivity factor, between 1.25 percent as proposed by SWBT
and Sprint/United(6) and 5.3 percent as proposed by Staff, CURB, and other parties. Concerns
were expressed by some of the parties for any proposal of extremely low,
or even no, productivity offset factors. (Rhinehart, Tr. at 3118-87; MCI
Post-Hearing Brief at 23). 155. Many other states have already addressed the issue of TFP. The
record demonstrates that a nationwide average of "indexed price cap
states" TFP approximates 2.6 percent. (Weisman, Tr. at 2060-50). 156. The FCC has incorporated a stretch factor of 0.5 percent in the
interstate LEC price cap plans. Further, KCTA proposed and supported the
use of a stretch factor in order to both encourage the company to improve
its overall efficiency and also recognize the salutary effects of alternative
regulation itself in stimulating additional productivity improvements.
(Kravtin, Tr. at 2455-19). However, the Commission is not persuaded to
adopt a stretch factor because there are differences between interstate
and intrastate operations. The LECs have existing incentives to achieve
the greatest possible efficiencies. Further, the Commission finds that
a 3 percent TFP factor is appropriate on a total company basis. (Kravtin,
Tr. at 2455-18). The Commission believes that a finding in the upper end
of the range as supported in the record is warranted given the KCTA's testimony
concerning the input price differential. 157. The Commission has also considered the infrastructure requirements
set forth in Section 6(a) of the Kansas Act for the deployment of universal
service capabilities by July 1, 1998, and enhanced universal service capabilities
by July 1, 2001, when establishing the TFP near the mid-range of those
proposed by the parties. The higher TFP rates were deemed inappropriate
and prohibitive given the required investment in infrastructure. 158. In reaching its decision of the 3 percent TFP, the Commission has
reviewed not only the proposed productivity factors but the evidence as
a whole. In Mobil Exploration & Producing U.S. Inc. v. Kansas Corporation
Comm'n, 258 Kan. 796, 843 (1995), the Kansas Supreme Court determined
that achieving such a result based on a review of all the evidence is proper:
Under these circumstances, the KCC crafted a compromise after viewing
the evidence as a whole. The KCC decided to create an incentive to
drill infill wells and produce allowables in an orderly fashion. (Emphasis
added). Id. at 845. 159. The Commission, after viewing the evidence as a whole, hereby determines
that the 3 percent factor for Baskets One and Three is well within the
range of the productivity factors presented in the record, and balances
public policy goals of encouraging efficiency and promoting investment
in a quality, advanced telecommunications network in the state of Kansas.
The Commission believes that its flexible pricing plan meets the flexibility
objectives. The Commission generally agrees with SWBT that additional flexibility
be granted for Basket Three services and the lower the productivity offset
the more pricing freedom for the price cap firm. 160. The Commission believes
that the combination of a low productivity offset and lack of sub-categories
would provide a degree of pricing flexibility that is not in the public
interest. The Commission finds that sufficient pricing flexibility is provided
under the Competitively Flexible Pricing plan as determined in paragraph
No. 140 of this Order. The establishment of a TFP is not an appropriate
tool to provide for pricing flexibility. The Commission does not find persuasive
evidence in the record to support a different TFP for Basket Three services
compared with Basket One services. 161. SWBT argued that competition will have a negative impact on productivity
(SWBT Brief at 9), thus any productivity factor must be reduced by a competitive
adjustment for the onset of competition. Further, SWBT witness Dr. Bernstein
quantified the competition effect on the productivity factor to be .45
percent. (Bernstein Tr. at 2278-82). The Commission finds this argument
unpersuasive. As competition emerges in a given industry, companies which
have previously enjoyed monopoly status are given incentive to increase
efforts to improve efficiency. While the Commission realizes that SWBT
has achieved efficiencies in the last several years, it is not persuaded
that continued efficiencies are precluded due to the introduction of competition.
c. EXOGENOUS ADJUSTMENTS 162. As stated earlier, SWBT and Sprint/United have stated that exogenous
cost adjustments are necessary. They agree that such adjustments should
not be automatic, but be subject to a decision by the Commission upon the
filing of a request for such an adjustment. Dr. Weisman testified that
a failure to allow exogenous adjustments could undermine the Commission's
commitment to price caps. (Weisman, Tr. at 2060-24). Dr. Weisman also stated
"this would permit the Commission to review the specific facts and
circumstances of any adjustment on a case-by-case basis in the future but
would not require any binding determination by the Commission at the present
time." (Weisman, Tr. at 2130). 163. The Commission finds that it should consider applications for exogenous
adjustments on a case-by-case basis. Such requests should be infrequent
and reserved for large dollar items. The Commission will take into consideration
the general definition of exogenous in this record which is an event that
is outside of the company's control and has a disproportionate effect on
the industry so that its effect is not reflected by the price index. (Weisman,
Tr. at 2060-22 to 2060-23; 2064). However, the Commission finds that it
is premature to determine at this time which exogenous adjustments would
be appropriate. The Commission further finds that this mechanism should
be symmetrical in application such that a negative or a positive adjustment
could result if the facts support such a conclusion. d. NEW SERVICES 164. This section deals with the treatment of "new" services
within the pricing flexibility structure. One of SWBT's witnesses, Mr.
Brown, stated that any new service introduced subsequent to the establishment
of the initial price caps will likely be in response to competition and
should therefore be price deregulated with individual customer pricing
flexibility approved at the time they are introduced. (Brown, Tr. at 1840-19
to 1840-20). However, Mr. Brown also stated that the Commission has discretion
to determine whether these services are competitive. (Brown, Tr. at 1886).
This argument does not seem sufficiently compelling to support automatic
price deregulation of all new service offerings. A more practical and consumer
oriented approach seems to be for the LEC to petition for treatment of
a new service as it deems appropriate and for the Commission to determine
where in the Competitively Flexible Pricing structure that service should
be placed. The Commission finds that any new service should be reviewed
to determine its placement based on the merits and the competitive aspects
of the service. 165. Mr. Brown also expressed the opinion that LECs should be allowed
to repackage existing services into bundles or packages of services not
previously offered which would be "new" services (Brown, Tr.
at 1840-20) for regulatory oversight purposes. This position was not widely
supported. Professor Alfred Kahn refuted this assumption in cross-examination
stating if the only novelty is that one takes existing services and bundles
them in a way not previously bundled, that would seem to not qualify as
a new service. (Kahn, Tr. at 2030). 166. Based on the evidence of record, the Commission finds that repackaged
services should undergo the same scrutiny as new services to determine
where they belong within the Competitively Flexible Pricing structure.
The burden of proof as to whether or not a bundle of services previously
offered separately or in any other combination constitutes a new service
offering shall rest upon the LEC's ability to demonstrate the uniqueness
of the new bundle/package. A "new service" is one which is introduced
subsequent to the establishment of a company's price cap plan. Each application/petition
filed by the LEC for placement of new or repackaged services will be considered
on a case-by-case-basis and the Commission will determine after an appropriate
proceeding the proper treatment of that new or repackaged service within
the Competitively Flexible Pricing structure. e. IMPUTATION 167. The Commission finds that requiring imputation on an individual
service basis is consistent with the provisions of the State Act. Individual
pricing plan imputation is preferred because it precludes a new service
from being offered at retail rates which are below cost and established
retail price based on LRIC costs plus imputed access price. Further, imputation
on a service by service basis is necessary to prevent price squeezes. (AT&T
Post-Hearing Brief at 22-23 citing Kravtin, Tr. at 2509-2510). The total
service approach allows one or more services to be priced below cost while
the toll service category remains above cost. When imputation is distributed
over all toll services instead of by specific service element, the potential
to price anti-competitively is increased. The Commission's directive is
for the continued application of the "stand alone" imputation
methodology to protect potential competitors from inappropriate, below
cost pricing. It also addresses the concerns raised by some of the parties.
168. To the extent pricing flexibility is provided for local exchange
service, imputation for local services is a concern for the Commission.
The Commission believes that competition in the local service market through
unbundled elements is comparable to the long distance market. Therefore,
the Commission will continue to consider applications on a case-by-case
basis. f. BYPASS 169. Staff and SWBT testimony agree that bypass of LEC access services
should decrease imputed access prices. (Vining, Tr. at 2298-5; Rearden,
Tr. at 2867-23). 170. SWBT proposes to use local switching MOUs to estimate bypass. The
formula for bypass percentage on both ends of a call proffered by SWBT
is (originating local switching MOU minus terminating local switching MOU)
divided by the originating local switching MOU. (Vining, Tr. at 2298-18).
The Commission agrees with Staff that this formula may not be valid for
bypass on both originating and terminating ends of a call. (Rearden, Tr.
at 2867-23). Therefore, the Commission orders use of a bypass adjustment
when it is appropriate for any particular service being examined. 3. RATE OF RETURN REGULATION 171. Section 6(b) of the State Act requires that a local exchange carrier
may elect traditional rate of return regulation or price cap regulation.
Therefore, the Commission's policy with regard to rate of return will for
the present remain unchanged. The companies retain the right to request
rate increases while the Commission retains the right to investigate the
rates of any company. E. MISCELLANEOUS ISSUES/POSITIONS AND CONCLUSIONS
1. RURAL ENTRY GUIDELINES 172. Section 5(b) of the State Act requires the Commission "to
adopt guidelines to ensure that all telecommunications carriers and local
exchange carriers preserve and enhance universal service, protect the public
safety and welfare, ensure the continued quality of telecommunications
services and safeguard the rights of consumers." 173. The Commission, in accordance with the State and Federal Acts,
affirms that preservation and enhancement of Universal Service is a primary
concern. (HB 2728 § 5(b)). Competition may develop at a slower pace
in rural areas than in urban locations, and the Commission recognizes that
concern for continued availability of service is great in the rural areas
of the state. To ensure continued service availability in all areas, the
State Act designates incumbent local exchange carriers as "carriers
of last resort." (HB 2728 § 10(a); Krehbiel, Tr. at 2528-40).
174. The Federal Act, in apparent recognition that the viability of
competition in rural areas is not assured, exempts rural telephone companies
from requirements of the Federal Act which are essential prerequisites
for competition. (See § 251(f)(1)). Loss of this exemption is triggered
by a bona fide request for interconnection, services or network elements,
and a state commission's determination that such a request is not unduly
or economically burdensome, is technically feasible and is consistent with
Section 254 of the Federal Act (preservation of Universal Service). (See
§ 251(f)(1)(A)(B); Mikesell, Tr. at 2589-10; Columbus and State Independent
Alliance Post-Hearing Brief at 4). 175. Section 251(f)(2) of the Federal Act allows incumbent rural telephone
companies to petition state commissions for suspension or modification
of the interconnection requirements of Section 251(b) or (c). (Staff Brief
at 24-27). Staff attached an Appendix to its Brief which enumerated the
statutory requirements for rural entry. The Commission hereby adopts those
guidelines for rural entry and it becomes Attachment "B" of this
Order. Conditioning rural entry on these guidelines will help ensure universal
service in rural areas. 176. The Commission further finds that in accordance with Section 5(c)
of the State Act, any telecommunications carrier seeking to provide services
in a rural telephone company area must be designated by the Commission
as an "eligible telecommunications carrier" as defined in Section
214(e)(1) of the Federal Act. The Commission agrees with Staff that the
standards should be applied on a case-by-case basis and each applicant
must meet the requirements of K.S.A. 66-131. 177. Section 214(e)(4) of the Federal Act establishes the procedure
which state commissions must follow to assure continued universal service
if a carrier wants to abandon service. The protection of the public safety
and welfare, and assurance of the continued quality of telecommunications
services, will be addressed in Docket No. 191,206-U. Further, the Commission
has opened Docket No. 194,734-U to consider issues arising from the State
Act. In that docket the Commission is addressing many issues such as customer
notice and billing issues. 2. CUSTOMER INFORMATION 178. The LECs believe it is not appropriate to require incumbent LECs
to provide in-depth information regarding a competitive LEC's services.
However, it may be appropriate to provide specific information in the white
pages regarding a competitive LEC, but not without a charge for additional
listings. (Harper, Tr. at 2633-27). 179. SWBT proposes that incumbent LECs not be required to provide their
customers' specific information regarding competitors' services or prices.
The nature and extent of information a competitor chooses to provide to
its customers is a business decision to be reached by the individual providers.
(Mah, Tr. at 2261-4). 180. The Commission's role in providing general information to consumers
regarding the expansion of competition could come in a variety of forms
including news releases, brochures, etc. (Mah, Tr. at 2261-5). 181. Staff suggests that, at least during the initial stages of competition,
consumers will continue to rely on telephone directories for consumer information
and telecommunications services. Staff proposes that the Commission require
LECs to list all certificated telecommunications service providers by name
in their directories. (Matson, Tr. at 2691-32). Staff also recommends that
the LECs' standard directory information section include each company and
the services each company provides. 182. The Commission finds a modification of the above proposals is reasonable.
Due to the "static" nature of information published in an annual
telephone directory and the anticipated "dynamic" status of competitors
entering the local market throughout the year, Staff shall draft a generic
notice which describes local competition and consumer rights, but does
not list the competitive service providers. Upon approval and adoption
by the Commission, this notice shall be published in the "call guide"
pages of each directory produced by every telecommunications provider and/or
affiliate. LECs must make directory advertising available to ALECs on a
comparable and non-discriminatory basis. The LECs shall advise Staff of
directory information due dates. Staff shall update the information as
necessary. 3. BOUNDARY ISSUE 183. Staff recommended the Commission review the way LECs provide service
across exchange boundaries to allow consumers greater choice and more competitive
flexibility without requiring ALEC qualification. Staff proposed allowing
service to ten subscriber access lines in a neighboring exchange as the
limit, with requests or demand for service to greater numbers of customers
functioning as the trigger which would require an investigation into the
incumbent's competitive status outside its home territory. (Matson Tr.
at 2691-29). 184. Some parties expressed concern and others commented on the implication
of possible stranded investment. Columbus was specific that if one of its
customers nearest to its service area boundary elects to receive local
service from a neighboring provider, the investment Columbus has made to
provide facilities to that customer's location may represent a significant
stranded investment. 185. The Commission notes that the LECs have tariffs which contemplate
service to a customer outside their service territory by agreement between
the affected companies. Those tariffs require the customer to pay for construction
of facilities beyond the LECs' existing plant at a fixed rate within the
LECs' service territory, and at actual cost beyond the LECs' boundary.
The Commission also notes that boundary change requests have been determined
on a case-by-case basis. The Commission finds that the boundary change
requests shall continue to be considered and determined on a case-by-case
basis and denies Staff's proposal at this time. 4. SPRINT SPECTRUM'S ARGUMENT OF FEDERAL PREEMPTION
186. Sprint Spectrum argued that the Commission cannot impose the KUSF
obligation on it and other providers of commercial mobile radio service
because of the preemption mandated by Section 332(c)(3) of the Communications
Act of 1934, as amended, 47 U.S.C. § 332(c)(3). This provision preempts
the states from regulating rates charged by any commercial mobile service
provider. (Sprint Spectrum Post-Hearing Brief at 2-3). Sprint Spectrum
contended it should have no funding obligation. 187. The State Act and the Commission are not trying to regulate cellular/wireless
rates or prices in any manner. However, the Federal Act expressly allows
states to adopt their own universal service definition and funding mechanisms,
as long as funding is provided by all telecommunications carriers on an
equitable and non-discriminatory basis. (47 U.S.C. § 254(f). Wireless
Providers, both cellular and Personal Communications Service (PCS) Providers,
are carriers under federal law. Carrier is defined as "any person
engaged as a common carrier for hire, in interstate or foreign communication
by wire or radio." (47 U.S.C. § 153(10)). Wireless/PCS Providers
provide telecommunications service. Telecommunications service is defined
as "the offering of telecommunications for a fee directly to the public."
(47 U.S.C. § 153(46)). Wireless/PCS Providers are common carriers
providing telecommunications service. State universal service fund assessments
are authorized by the Federal Act. (See § 254(f)). Therefore,
the Commission concludes that in accordance with state and federal law,
Wireless/PCS Providers must contribute to the KUSF funding in an equitable
and non-discriminatory manner as discussed in paragraph Nos. 109 and 110
of this Order. 5. WIRELESS PROVIDERS ARGUMENT: STATUTORY TERMS
"EQUITABLE AND NON-DISCRIMINATORY" ARE NOT SYNONYMOUS WITH "EQUAL"
188. The Wireless Providers assert that the Legislature has given the Commission
latitude to consider equitable factors in addition to equality of assessment
in determining contribution for the KUSF. (Wireless Providers Post-Hearing
Memorandum at 16-27). 189. The Wireless Providers allege that their rate of assessment should
be lower than that imposed on the IXCs because wireless providers offer
functionally equivalent services to those provided by LECs. (Wireless Providers
Post-Hearing Memorandum at 18). The Wireless Providers assert that consumers
can use either LEC service or cellular service to make the same telephone
call. In contrast, IXC service is not a functional alternative to LEC service.
This difference warrants a difference in the rate of assessment for the
KUSF imposed on IXCs and Wireless Providers. (Wireless Providers Post-Hearing
Memorandum at 18). 190. Further, the Wireless Providers allege that the rate of assessment
to them should be smaller than the amount assessed to the IXCs because
Wireless Providers will realize a much smaller savings from the reduction
in intrastate access charges. The Wireless Providers state according to
Staff estimates, the IXCs will realize a 30 percent reduction in the access
charges paid in connection with providing intrastate long distance service.
(Wireless Providers Post-Hearing Memorandum at 19 citing Lammers, Tr. 2966-17
to 2966-18). 191. The Wireless Providers also allege that their rate of assessment
should be smaller than that of the IXCs because they will not use the network
and infrastructure supported by the KUSF to the same extent as IXCs. The
Wireless Providers argue that the LECs will enjoy the benefit of maintaining
universal service on both the originating and terminating calls they carry
in high cost areas. IXCs will similarly benefit because their residential
service requires that local network and infrastructure for both ends of
every intrastate long distance telephone call. (Wireless Providers Post-Hearing
Memorandum at 21 citing Lammers, Tr. at 3088). 192. In contrast, the benefit to cellular service providers from the
creation and maintenance of infrastructure is qualitatively different.
Cellular service providers have constructed and PCS providers are beginning
to construct, at their own risk and expense, infrastructure and network
to process whichever end of a telephone call involves a cellular customer.
(Wireless Providers Post-Hearing Memorandum at 21 citing Lammers, Tr. at
3084). 193. HB 2728 requires "every telecommunications carrier, telecommunications
intrastate telecommunications service to contribute to the KUSF on an equitable,
non-discriminatory basis." 194. Black's Law Dictionary defines "equitable" as [j]ust;
conformable to the principles of justice and right. (Black's Law Dictionary,
at 279. Abridged Fifth Ed.). Equitable is also defined as . . . . Equitable
does not necessarily mean "equal." In utilizing the term equitable
to determine a telecommunications carrier's contribution, the Legislature
was clearly stating the contribution may or may not be the same. The Legislature
granted the Commission discretionary authority to set the contribution
level on a basis the Commission determined was justified. 195. The Wireless Providers contend that this is not equitable in that
it will require them to provide contributions for calls that do not touch
the wireline network. For example, calls made from cellular to cellular
do not utilize the wireline network and should not be subject to the KUSF.
However, the record does not indicate how much revenue arises solely from
wireless to wireless calls which do not utilize a wireline network, nor
is there any evidence that the value of wireless service can be sustained
without the existence of the wireline network. The wireline network remains
accessible and available for all wireless subscribers. 196. There is no dispute that wireless providers have benefitted for
the past few years by providing service for calls that do use a wireline
network but have not been providing support for universal service. Further,
the Wireless Providers claim that they receive no benefit from the changes
occurring as a result of competition. However, the August 8, 1996 FCC Interconnection
Order, Docket No. 96-98, allows wireless carriers to negotiate interconnection
agreements with LECs in the same manner as ALECs. Such agreements could
substantially reduce the interconnection charges currently paid by cellular
companies from around $.03 to less than $.005. (FCC Docket No. 96-98, ¶¶
1041-1045; Staff Post-Hearing Brief at 28-29). Interconnection charges
are in a State tariff, and interconnection agreements will require state
commission approval. The Commission has looked at the totality of the circumstances
in determining the level of contribution. Based on the evidence of record
the Commission finds that it is equitable and non-discriminatory for the
LECs, the telecommunications providers, and the Wireless Providers to contribute
to the KUSF on the same basis, as an equal assessment based on intrastate
retail revenues, because wireless providers are in a position to benefit
from the changes occurring as a result of competition. The Commission concludes
that the equal assessment is equitable and non-discriminatory in accordance
with state law. The Commission also recognizes that changes may provide
compelling reasons for future revision to allow different treatment based
upon developing criteria. 6. WHETHER THE STATE ACT (HB 2728) VIOLATES THE
FEDERAL TELECOMMUNICATIONS ACT OF 1996 197. CURB argues that HB 2728 violates the Federal Telecommunications Act
of 1996. CURB argues HB 2728 provides reductions in access charge costs
to competitors and raises local rates to preserve excessive profits of
LECs, but it does not ensure that local service will "bear no more
than a reasonable share of the joint and common costs of facilities used
to provide those services." (Ostrander, Tr. at 2684-2). CURB argues
that HB 2728 focuses on deregulating monopoly carriers at the expense of
residential and small business customers, rather than promoting a rational
and economic solution to high access charges and an orderly transition
to local competition. (Ostrander, Tr. at 2684-2). 198. The Kansas Supreme Court has expressly stated that, "[a] fundamental
rule of statutory construction is that the intent of the legislature governs
when the intent can be ascertained from the statute. In construing statutes,
legislative intent is to be determined from a general consideration of
the entire act. . . . " Steele v. City of Wichita,
250 Kan. 524, 529, 826 P.2d 1380 (1992), citing State v. Adee, 241
Kan. 825, 829, 740 P.2d 611 (1987). 199. The intent of the State Act is to "ensure that every Kansan
will have access to a first class telecommunications infrastructure that
provides excellent services at an affordable price; ensure that consumers
throughout the state realize the benefits of competition through increased
services and improved telecommunications facilities and infrastructure
at reduced rates." (HB 2728 § 1(a)(b) et seq.). The interpretation
of a statute is a question of law, and it is the function of the court
to interpret a statute to give it the effect intended by the legislature.
It is a fundamental rule of statutory construction, to which all other
rules are subordinate, that the intent of the legislature governs if that
intent can be ascertained. City of Wichita v. 200 South Broadway,
253 Kan. 434, 855 P.2d 956 (1993). The intent of the State Act can be ascertained.
It is clear the State Act promotes consumer access to a full range of telecommunications
services, including advanced telecommunications services that are comparable
in urban and rural areas throughout the state of Kansas. (HB 2728 §
1(c) et seq.). The Commission concludes that the intent of the State
Act is clear and does not violate the Federal Act. 7. YELLOW PAGES PROFITS ADJUSTMENTS 200. The Commission believes suggestions that yellow pages profits be
considered in this proceeding are misdirected. The current proceeding is
not a rate case, where issues such as the appropriate treatment of yellow
pages profits would be at issue. The Commission is not making a finding
with respect to the inclusion of yellow pages in a traditional rate of
return proceeding. The issue is not relevant in this docket. 8. INTERIM ACCESS PLAN 201. On January 22, 1996, the Commission issued an Order in Docket No.
190,383­U, In the Matter of a General Investigation Into Access
Charges. In that Order, the Commission determined that "the Interim
Plan for access charges should be for a period to include two adjustments,
expiring March 2, 1997, or until such other order is issued by the Commission".
(Docket No. 190,383-U, Order dated January 22, 1996, at 10). Staff testified
that the Commission "will need to include in its order whether the
Common Carrier Line (CCL) should be adjusted, thereby decreasing the amount
which will need to be rate rebalanced." Staff stated the time period
for the CCL and the revenue neutral determinations is the same: twelve
(12) months ending September 30, 1996. (Lammers, Tr. at 2966-40). 202. The State Act provides the same twelve (12) month period ending
September 30, 1996, as specified in the Interim Access Plan and that the
transition be revenue neutral. The Commission is implementing an access
reduction plan in this Order. (See Section III.C. of this Order).
Therefore, the Commission hereby replaces the January 22, 1996 Order in
Docket No. 190,383-U on Interim Access Plan with regard to the CCL rate
adjustment. 9. ALEC ACCESS RATES 203. Staff raised a concern regarding the access rates charged by ALECs
to the IXCs. (Lammers, Tr. at 2966-21). The ALEC has a monopoly situation
with regard to access service for the local exchange customers which it
serves. An ALEC could offer its customers equal access to all the IXCs
and then charge the carriers exorbitant rates per MOU access service. But
the IXCs who are required to serve would be trapped, because they are required
to have statewide average rates and would not be able to pass these rate
disparities on to specific ALEC customers. (Lammers, Tr. at 2966-21). 204. The Commission is mindful of the concern raised by Staff. In this
Order, the Commission is lowering access charges. The Commission favors
competition, however, it will not allow abusive pricing practices by ALECs.
10. APRIL 4, 1996 ORDER RE: UNIVERSAL SERVICE
ISSUES 205. Parties to this proceeding requested reconsideration of several
issues in the Commission's April 4, 1996 Order which addressed several
universal service issues. On May 10, 1996, the Commission issued an order
on reconsideration and granted a hearing on the following issues: rate
rebalancing, access rate reduction, EUCL, assessment on toll minutes of
use, additional and subsequent rate rebalancing, support recipients, initial
support, and managing future support. In this Order, the Commission has
made findings as a result of the State Act, the Federal Act, and the evidence
of record. The remaining issues in the April 4, 1996 Order stand as originally
ordered. IT IS, THEREFORE, BY THE COMMISSION ORDERED THAT: All local exchange carriers shall reduce intrastate access charges to
interstate levels. Rates for intrastate switched access, and the imputed
access portion of toll, shall be reduced over a three-year period for SWBT
and United with the objective of equalizing interstate and intrastate rates
in a revenue neutral. ILEC access charges will reduce to interstate parity
on March 1, 1997, as set forth in this Order. Every telecommunications carrier, telecommunications public utility
and wireless telecommunications service provider that provides intrastate
telecommunications services shall contribute to the KUSF through an equal
assessment on all intrastate retail revenue amounts as set forth in this
Order. The amount of the assessment attributed to the LECs' local service which
may be recovered on a flat per line basis will approximate $3.21 per month
for SWBT customers over three years, and slightly less than $3.00 per month
for United customers over three years. The rates for pay phone calls shall
be $.35 and the free call allowances for directory assistance shall be
eliminated. These rates shall go into effect March 1, 1997, as set forth
in this Order. ILECs' amount would have resulted on an equal assessment basis in a
per line increase from $1.42 to $3.23 per month. However, the ILECs did
file a Stipulation and Agreement (S&A) which averages the impact on
ILEC customers much the same as the flow through averages the impact on
SWBT and United customers. Therefore, the Commission hereby approves the
S&A with some clarifications as set forth in this Order. The Commission hereby determines that the funding for the KRSI and Telecommunications
Access Program (TAP) shall be collected by the KUSF administrator as part
of the KUSF as set forth in this Order. The Commission hereby adopts a KLSP plan in which all local service
providers will participate. The Commission hereby approves and renames the pricing flexibility plan
"Competitively Flexible Pricing." The Competitively Flexible
Pricing Plan combines range of rate-fixed, range of rate-flexible, as well
as other revisions and suggestions. In determining this plan, the Commission
has balanced the public policy goals of encouraging efficiency and promoting
investment in a quality, advanced telecommunications network in the State
of Kansas as set forth in this Order. The Commission hereby adopts GDPPI-CW and a three percent total factor
productivity (TFP) offset for the price cap adjustment formula. The Commission
hereby determines a higher TFP was inappropriate and prohibitive given
the required investment in infrastructure as set forth in this Order. These and other issues are determined as specifically set forth in this
Order. A party may file a petition for reconsideration of this Order within
fifteen (15) days of the service of this Order. If this Order is mailed,
service is complete upon mailing, and three (3) days may be added to the
above time limit. The Commission retains jurisdiction of the subject matter and the parties
for the purpose of entering such further order or orders as it may deem
necessary and proper. BY THE COMMISSION IT IS SO ORDERED. McKee, Chr.; Seltsam, Com.; Wine, Com. Dated: Judith McConnell Executive Director MLC GLOSSARY ALEC Alternative Local Exchange Company BNF Basic Network Function CCL Common Carrier Line CPILFE Consumer Price Index Less Food and Energy EAA Exchange Access Arrangements EUCL End User Common Line Charge FUSHCF Federal Universal Service High Cost Funds GDPPI Gross Domestic Product Price Index GDPPI-CW Gross Domestic Product Price Index Chain Weighted HNAP Home Numbering Area Plan ILEC Independent Local Exchange Company IXC Interexchange Carrier KLSP Kansas Lifeline Service Program KRC Kansas Relay Center KRSI Kansas Relay Services, Inc. KUSF Kansas Universal Service Fund LEC Local Exchange Company LRIC Long Run Incremental Costs MOU Minutes of Use NECA National Carriers Association PCI Price Cap Index PCS Personal Communications Service TAP Telecommunications Access Program TFP Total Factor Productivity TSLRIC Total Service Long Run Incremental Cost 1. 1 The Federal Communications Commission's
interconnection order establishes a default discount of 17-25 percent.
(Docket No. 96-98). 2. 2 The Commission's Phase I Order determined
a two-pronged test to categorize a service as competitive. First, there
must be at least one actual competitor certificated to serve in the specific
geographic and product market. Second, the market must be effectively competitive.
The Commission indicated it would consider relevant market factors on balance
to determine whether the market was effectively competitive: the incumbent's
current market share; the capacity of competitors in the market; the degree
of substitutability of services offered by alternative suppliers; the existence
and level of barriers to entry; and the existence of sustained economic
profits for the service over a long run period. (See Order dated
May 5, 1995, at 37-38). 3. 3 Wamego Telephone filed proof of publication
on August 12, 1996; Moundridge Telephone filed proof on August 13, 1996;
Sprint/United filed proof on September 17, 1996; and SWBT filed proof on
September 20, 1996. 4. 4 SWBT operates the KRC under competitive
contract for KRSI. 5. 5 The Telecommunications Access Program
(TAP) replaced the former Disabled Equipment Acquisition (DEA) Fund in
Docket No. 194,283-U. 6. 6 Sprint/United originally proposed
50 percent of GDPPI. (Harper, Tr. at 2633-13). Some documents on this page may be provided in Adobe Portable Document Format (.pdf).
URL: http://kcc.ks.gov/telecom/94gimt478git.htm
Revised Monday, 26-Jan-2004 14:33:59 CST