Opinion ID: 1944130
Heading Depth: 1
Heading Rank: 2

Heading: Bottleneck Facilities

Text: Verizon contends that the Board's application of the bottleneck prong of its imputation rule conflicts with its definition of a bottleneck facility, departs from its precedent  NET's Tariff Filing in particular  defies well-accepted principles of law and economics and will hamper competition in Vermont. Verizon maintains that competitive alternatives exist for both toll access service and business exchange services. Because no Verizon facilities are essential to obtaining either service, Verizon contends that neither is a bottleneck input. In NET's Tariff Filing, the Board adopted a three-part definition for a bottleneck facility: (i) the facility is essential to the supply of some other service, (ii) the facility is exclusively supplied by the provider in question, and (iii) the provider and competitor compete with one another in the supply of some other service for which the facility in question is an essential input. Id. at 19 n. 54. The decision further states that the standard should be met throughout the service area of a given service provider (or the relevant area to which the service obligation applies). That is, an obligation to unbundle should apply throughout a service area to which it is offered, if it remains a monopoly facility in a portion of that service area. Id. Finally, the decision states that the standard of `exclusively supplied' should recognize the practical economic impediments associated with accessing realistic competitive alternatives; that is, the access to an alternative provider should not merely be a theoretical one, but a practical one as well. Id. In this case, the Board clarified that even if the test for a particular input is no longer met throughout an incumbent's entire service territory (or the relevant area to which the service obligation applies), the input would not necessarily lose its classification as a bottleneck. The Board has not required other facilities-based providers to unbundle their networks; consequently, nonfacilities-based providers may not be able to purchase bottleneck inputs from any company but the incumbent. In such circumstances, it would be inappropriate to relieve the incumbent of the bottleneck prong of its imputation obligation because this would effectively bar all other competitors from the market. Thus, the Board concluded that the presence of a single or small number of alternative facilities-based providers does not, by itself, establish that a particular market is competitive. Applying this analysis to toll special contracts, it held that the presence of a single facilities-based competitor that serves limited geographic areas and is not required to make its facilities available to other competitors was not sufficient for Verizon to remove the bottleneck imputation for these services. Concerning the Centrex contracts, the Board found that Centrex facilities are a classic case of a service with a `sole-source provider.' Although there is competition from customer-based facilities, such as PBX and key systems, which offer similar features, any other competitor seeking to compete with Verizon for Centrex services would need to purchase such services from Verizon or construct its own facilities. The imputation standard is intended to avoid such uneconomic investment. Further, the Board recommended that if the imputation of unbundled-network prices does not allow Verizon to compete with customer-based facilities for business exchange services, Verizon could develop separate unbundled-network rates specific to the class of customers who typically purchase Centrex services rather than calculating them on average for all customers. Verizon contends that the Board erred in concluding that toll and business exchange services are bottlenecks because neither service is exclusively provided by Verizon. Verizon focuses on the definition that the Board adopted in NET's Tariff Filing, which required that the input be exclusively provided by the provider in question to qualify as a bottleneck. The definition in NET's Tariff Filing was, however, not as narrow as Verizon contends, and the requirements for showing that a facility is no longer a bottleneck were not limited to the definition. As the Board stated in that case, it takes a practical approach in determining whether a facility is no longer a bottleneck, there must be viable competitive alternatives throughout the incumbent's service area. Id. at 19 n. 54. Unbundling obligations should continue until such time as a market for a feature is truly competitive. Id. at 25. Accordingly, we reject Verizon's contention that the Board was arbitrary and acted contrary to its precedent by concluding that toll and business exchange services are bottlenecks although they are no longer exclusively provided by Verizon. That is not the Board's test. Similarly, we find no clear error in the Board's application of its bottleneck analysis. The burden of proving that a facility or input is no longer a bottleneck rests on the incumbent carrier. Id. at 21 n. 69. First, Verizon challenges the Board's conclusion that Verizon did not meet its burden of showing that its special access for toll service is no longer a bottleneck. The Board found that a single facilities-based competitor that serves limited geographic areas  and is not required to make its facilities available to other competitors  does not show that this input is no longer a bottleneck. All other competitors rely on Verizon facilities to provide this service. Consequently, the Board concluded that the input was still subject to the bottleneck imputation standard. This decision was consistent with NET's Tariff Filing; except for the single facilities-based competitor serving a limited area, competitors have no viable competitive alternative to purchasing these inputs from Verizon. The input is therefore not truly competitive. On this record, we conclude that the Board's decision was consistent with its precedent and its requirements for showing that facilities are no longer bottlenecks. The decision was, therefore, not arbitrary, and we need not decide whether such inconsistency, if present, would provide any legal basis for reversal. Second, Verizon challenges the Board's conclusion that it did not meet its burden of proving that Centrex services are no longer a bottleneck input. We understand Verizon's claim that in providing Centrex services, it must compete with others providing customer-based business exchange services, such as PBX and key systems. Nonetheless, it is the sole provider of Centrex services, and any competitor seeking to provide such service must purchase the inputs from Verizon. Thus, although the market is competitive at the retail level, the market is not truly competitive; PBX providers must compete with each other while Verizon has no competitor for providing Centrex services. While Verizon maintains that it is often unable to compete with PBX providers if it must impute the bottleneck price of its Centrex service, the Board made recommendations that would allow Verizon to lower its rates to Centrex customers. On the record before us, we cannot conclude that the Board was clearly erroneous in deciding that Verizon failed to meet its burden of showing that Centrex services are no longer a bottleneck input. Nor can we conclude, as Verizon urges, that the Board's decision is contrary to its policy to promote competition. As the Board noted, the important point is that the telecommunications market in Vermont is dominated by the incumbent carrier and new entrants rely in part upon the incumbent's network to offer their products. In this environment, it is critical to ensure that the incumbent does not use revenues from its monopoly services to support its competitive offerings. As the Board stated, [i]mputation is the cornerstone of a pricing policy that protects against such `cross-subsidization.' Finally, Verizon contends that the Board erred by imposing a statewide test to determine whether a facility is a bottleneck. The Board ruled that, to prove that a particular input is no longer a bottleneck, Verizon must show that the input no longer meets the Board's bottleneck test throughout Verizon's entire service territory. According to Verizon, [t]he relevant market for determining whether a facility is a bottleneck is the competition for the contract itself, and no more. Given that competition in telecommunications has and will continue to develop unevenly over the entire state, Verizon contends that the statewide rule is extremely bad policy. For several reasons, we find no grounds for reversal. First, the Board's decision is consistent with its precedent. As noted above, this statewide test was first enunciated in NET's Tariff Filing and was applied herein as set forth there. Second, even if we agreed with Verizon that it would be a better policy to determine the bottleneck issue on a contract-by-contract basis based on the services at issue, we would not reverse the Board's decision because such policy decisions are properly made by the Board. Verizon does not contend that bad policy-making is unlawful, nor does it refer to any law violated by the Board in imposing a statewide test. Accordingly, we find no legal basis for any reversal. Similarly, we reject Verizon's contention that the Board's statewide-bottleneck test is unreasonable because it is inconsistent with its imputation rule, which is applied on a service-by-service basis. Verizon points to no legal basis for its claim that such an inconsistency, even if unsound policy, requires reversal. Finally, we note that the Board also states in its decision that any incumbent, remains, of course, free to request the Board to find that a particular facility is no longer a bottleneck (throughout its service territory or in more narrowly defined geographies). Indeed, Verizon concedes in its brief that this language leaves open the possibility that Verizon could prove that a facility is not a bottleneck in a specific limited geographic area and thereby not be required to impute the bottleneck price in its retail price. It complains, however, that the Board's decision offers little guidance on how Verizon can meet this test and, thus, Verizon has little optimism that it will be able to overcome the Board's broad definition of a bottleneck facility even in Chittenden County where there is significant competition. Needless to say, we do not reach these hypothetical issues because they are not properly before us in this case.