Opinion ID: 1250892
Heading Depth: 3
Heading Rank: 2

Heading: Whether the Commission Properly Considered Yellow Pages Competition

Text: 17. A principal controversy between the parties is whether the Commission may consider market competition when fixing a directory-advertising imputation. The AG argued that it is improper for the Commission to consider competition; U S WEST and the Commission argued that it is proper and appropriate. Competition increases business risk, and, as noted above, risk and rate of return are directly related. So, as competition increases, business becomes riskier; expected rate of return also increases to compensate investors for the higher level of risk. 18. U S WEST generally faces diminished competition in most of its areas of business; on the other hand, USWD's broad area of business, advertising, is competitive. If the Commission properly considered competition with regard to USWD and correctly concluded that competition existed, it could reasonably conclude that USWD should not transfer all of its profits to U S WEST. Therefore, the Commission could impute less than 100% of USWD's profits to U S WEST, and USWD could keep a portion of its profits. 19. In Mountain States 1977, 90 N.M. at 339, 563 P.2d at 602, we noted that, during the rate-design phase, the Commission may consider, in addition to cost-of-service evidence, various other types of evidence, including the existence of competition. Cf. New Mexico Telecommunications Act § 2, NMSA 1978, § 63-9A-2 (Repl.Pamp.1989) ([I]t is further the policy of this state to encourage competition in the telecommunications industry. . . .); Mountain States Tel. & Tel. Co. v. New Mexico State Corp. Comm'n (In re Mountain States Tel. & Tel. Co.), 109 N.M. 504, 507, 787 P.2d 423, 426 (1990) (holding that Commission could consider any relevant factor in determining whether effective competition existed to warrant detariffing of pay telephone services under New Mexico Telecommunications Act). We likewise conclude that market competition is a proper factor for the Commission's consideration during the revenue requirement phase. 20. Courts in other jurisdictions have also approved the consideration of competition. In Turpen v. Oklahoma Corp. Commission, 769 P.2d 1309, 1326-27 (Okla.1988), the Supreme Court of Oklahoma upheld a challenge to the Oklahoma Corporation Commission's calculation of imputed revenues and expenses from the Yellow Pages affiliate of Southwestern Bell Telephone Company. The court determined that the commission properly considered evidence of competition in the area of Yellow Pages advertising. Id. Likewise, in MCI Telecommunications Corp. v. Public Service Commission, 108 A.D.2d 289, 488 N.Y.S.2d 840, 845, appeal withdrawn, 66 N.Y.2d 760, 497 N.Y.S.2d 1033, 488 N.E.2d 134 (1985), the New York Supreme Court, Appellate Division held, similarly to Mountain States 1977, that the public service commission could validly set differential utility rates on considerations other than relative costs, such as competitive effects. 21. Finally, ignoring competition is contrary to logic in light of the divestiture of the Bell operating companies from AT & T. The divestiture resulted from an antitrust lawsuit against AT & T and was intended to promote competition in the formerly monopolistic telecommunications industry. See United States v. AT & T, 552 F.Supp. 131 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983). The divestiture order permitted the local operating companies and their affiliates to continue publishing the Yellow Pages, because restricting them from this activity would have been anticompetitive. Id. at 193-94. Although segments of the telecommunications industry remain regulated and monopolistic, other segments are becoming highly competitive. Considering the rapidly evolving nature of this industry, it would be inappropriate to foreclose the Commission from considering such relevant factors as the existence and extent of competition in various market segments.