On Thursday, December 4, 2008, the California Public Utilities Commission held its regularly-scheduled agenda meeting. Once again, it was a light meeting for the Commission. Perhaps most importantly, it was recognized that the makeup of the Commission will not change, since President Peevey and Commissioner Chong were both reappointed to their posts as of last week. Regarding the substance of the meeting, the Commission resolved call termination disputes between Pac-West and other carriers with respect to VNXX calls. These and other telecommunications-related items addressed during the meeting are summarized below.
REGULAR AND CONSENT AGENDA ITEMS
- Decisions Ordering Termination Fees from Various Carriers to Pac-West Telecomm Adopted (Items 4 and 5, adopted 5-0) – Pac-West had filed complaints against Blue Casa, Telscape, and Comcast for unpaid call termination fees on Virtual NXX or VNXX calls. The carriers challenging the charges argued that Pac-West’s local tariffs do not apply to VNXX calls, that the tariffs do not apply to ISP-bound calls, and that Pac-West’s claims were barred by jurisdictional and statute of limitations doctrines. In decisions adopted regarding Telscape and Comcast, the Commission rejected these arguments, and entered judgments in Pac-West’s favor. Telscape Communications has been ordered to pay $554,605.39 and Comcast has been ordered to pay $379,446.43. The dispute with Blue Casa was withdrawn in light of a recent settlement between the parties.
In introducing these items, Commissioner Simon distilled the issue down to a dispute regarding the correct application of Pac-West’s tariff and related questions of state and federal law. Contrary to what the defendants in these matters suggested, the Commission held that its governance in the area of intercarrier compensation was not preempted by federal law. Commenting on why the decisions were held multiple times, Commissioner Simon explained that “our concerns have only been to have reasonable assurances that our treatment of these ISP-bound traffic issues will be consistent with intercarrier compensation policies being considered at the Federal Communication Commission.” Echoing these comments, Commissioner Chong affirmed that the Commission has been “closely monitoring what is going on at the federal level in the wonderful world of intercarrier compensation.” Finding it “increasingly unlikely” that the FCC will issue a comprehensive order on the issue in the near future, Chong indicated support for continuing reforms at the state level “regardless of what is going on at the federal level.” Along those lines, she offered a “firm suggestion” that, perhaps in the first quarter of next year, a proceeding be initiated to review reciprocal compensation rates in California. In Chong’s words, this would “follow up on the good work that President Peevey led on intrastate access rates in recent years.” The final versions of the decisions may be found at the following links:
- Decision Regarding Transaction between Warburg Pincus, Electric Lightwave (ELI), and Eschelon Telecom Adopted (Items 44/44a, Item 44a adopted 5-0) – The Commission voted to adopt Commissioner Peevey’s alternate decision in this matter. The Peevey alternate granted the parties’ request to dismiss the application for approval of a transaction in which Warburg Pincus Private Equity X acquired an indirect control of ELI and Eschelon. Describing the circumstances as a close call, the Peevey alternate found that Public Utilities Code Section 854, which governs transfers of control, did not apply to the transaction because no transfer of control had taken place. Following a merger with a transfer of shares and warrants, Warburg Pincus had acquired a 48.6% interest in ELI and Eschelon when calculated on a fully diluted basis. However, when calculated on a non-fully diluted basis, Warburg Pincus had acquired a 51.2% interest. Since the Commission had not previously determined whether to view stock transfers on a fully diluted or non-diluted basis, the Peevey alternate decided not to take this factor into account and found by looking at other factors of control – including factors regarding the continuity of management – that no transfer had occurred.
Calling this matter “one of those cases that only a lawyer could love,” Commissioner Chong switched her support from her own proposed decision to the Peevey alternate. Explaining that she “thought that the ownership percentage was of course a significant factor,” she nevertheless concurred that it was “not the only factor.” Commissioner Bohn easily reached the presumption that having a majority of shares gives control since “neither warrants not options confer any ownership interest until they’re exercised.” That being said, Commissioner Bohn also noted the “tight balance” with which these types of agreements are structured and supported the Commission’s willingness to examine the effects of the careful structuring and not just the numbers. Commissioner Grueneich expressed her pleasure at a recent deletion to the Peevey alternate. Originally, the alternate had argued hypothetically that even if Section 854 were to apply, the Commission could use its authority under Section 853(b) to dismiss the application. Section 853(b) allows the Commission to forebear application of Section 854 if it finds that Section 854’s requirements are not necessary in the public interest. Commissioner Grueneich cautioned that the Commission “must be particularly vigilant” to avoid using Section 853 to escape necessary analyses under Section 854. The final version of the adopted decision may be found at this link:
- Decisions Determining No Need to Set Batch Hot Cut Prices Approved (Items 20 and 24, adopted on consent agenda) – These decisions represent the last phases of various proceedings initiated to implement provisions of the FCC’s Triennial Review Order (“TRO”) and Triennial Review Remand Order (“TRRO”) with respect to unbundled network elements (“UNEs”). The decisions find that it is not necessary to adopt “batch hot cut” pricing guidelines, and therefore order the proceeding closed. With the issuance of the TRRO, most of the issues surrounding TRO implementation were mooted, leaving only the issue of whether “batch hot cut” prices should be established. This issue was addressed in two companion proceedings, one for AT&T and one for Verizon. In September 2008, the ALJ for these proceedings solicited comments on the “batch hot cut” issue, and asked whether this proceeding should be concluded. The comments filed in response to the ruling revealed that the affected CLECs had either resolved their issues through interconnection agreements, or concluded that they would pursue the issue in other forums. Accordingly, the proceedings are now closed, and the Commission has not established “batch hot cut” prices for either AT&T or Verizon. The final decisions for each carrier may be found at the links below:
- Decision Granting Transfer of Control from Lightyear to Wherify Adopted (Item 11, adopted on consent agenda) – The Commission adopted a decision granting the request for approval of the indirect transfer of control of Lightyear Network Solutions, LLC to Wherify Wireless, Inc. Applicants state that the proposed transaction will enable Lightyear to obtain access to additional financial resources to strengthen its competitive position in California. The parties have a 12-month window within which they must consummate the transaction based on this decision.
- Decision Approved Ordering Sprint to Pay Transiting Rates to AT&T (Item 15, adopted on consent agenda) – The Commission approved a decision finding that Sprint had violated the terms of its interconnection agreement with AT&T by refusing to pay the required transiting rates. Because the agreement was negotiated rather than arbitrated, the decision held that the rates were not governed by TELRIC pricing. Additionally, because transiting is not the same as tandem switching, Sprint was not entitled to a rate adjustment when the Commission changed the rates for tandem switching. The decision orders Sprint to immediately pay all withheld amounts plus late payment charges on the withheld amounts. The final version of the decision is available at the following link:
- Decision Granting Airdis a CPCN Approved (Item 19, adopted on consent agenda) – The Commission granted Airdis, LLC, doing business as Airdis Telecom, a certificate of public convenience and necessity to provide resold local exchange and interexchange services in the territories of AT&T, Verizon, SureWest, and Frontier. A final copy of the decision granting approval is available at the following link:
SIGNIFICANT HELD ITEMS
- Proposed Rate Case Resolutions for Calaveras, Ducor, and Pinnacles (Items 45, 46, and 47, held by Staff until 12/18) – These three proposed resolutions would resolve the rate cases and set the level of California High Cost Fund-A support for Calaveras, Ducor, and Pinnacles for test year 2009. Recent drafts of the proposed resolutions may be found at the following links:
- Proposed Decision Designating ConnectTo as an ETC in California (Item 2, held by Staff until 12/18) – This proposed decision would grant ConnectTo Communications, Inc.’s request to be designated as an Eligible Telecommunications Carrier (“ETC”) in the territories of AT&T, Verizon, SureWest, and Frontier for LifeLine purposes only. The decision had originally rejected the request, but the Communications Division staff reversed its opinion after receiving an Advice Letter from ConnectTo addressing the concerns. The decision is notable in that it would make ConnectTo the first ETC to receive federal subsidies for the LifeLine program only. A recent draft of the proposed decision can be found at the following link:
- Proposed Resolution Designating TracFone Wireless as an ETC in California (Item 7, held by Staff until 12/18) – This proposed resolution would grant the request of TracFone to be designated as an Eligible Telecommunications Carrier (“ETC”) in the territories of Alltel, AT&T, Golden State Cellular, T-Mobile, US Cellular, and Verizon for the limited purpose of offering Federal LifeLine and Link-Up Service. This is the second such request in California, in addition to the request from ConnectTo, as discussed above. The major difference in the two cases is that TracFone is a wireless carrier whereas ConnectTo is a wireline carrier. A recent draft of the proposed resolution may be reached by clicking on the following link:
- Proposed Decision Regarding Unbundled Network Element (UNE) Reexamination Process (Item 43, held by Peevey until 12/18 for further review) – This proposed decision determines that the adopted UNE reexamination process that will apply to AT&T is the same process that currently applies to Verizon. A price cap mechanism would be adopted for annual updates to the UNE rates for Verizon and AT&T, and periodic cost-study proceedings to update UNE rates would be conducted pursuant to Section 252 of the Telecommunications Act of 1996. These proceedings would be based on the Total Element Long Run Incremental Cost (“TELRIC”) methodology. The proposed decision establishes a schedule for future TELRIC costing proceedings for AT&T and Verizon, and mandates the use of the HM 5.3 model in those proceedings. The text of the proposed decision is available at the following link:
NOTES AND COMMISSIONER REPORTS
Reappointment of President Peevey and Commissioner Chong – Commissioner Simon, joined by Commissioners Grueneich and Bohn, acknowledged and congratulated President Peevey and Commissioner Chong on their recent reappointment to the Commission by Governor Schwarzenegger. In a tongue-in-cheek thank you, President Peevey noted that both he and Commissioner Chong were “too modest to call attention to [them]selves, so [they] had Terrie Prosper do that in a memo to the entire staff.” Governor Schwarzenegger announced last week that both Chong and Peevey were being reappointed to the Commission.