NOTICES
Wholesale Rate for Resale of Telecommunications Services Provided by Verizon Pennsylvania Inc.
[33 Pa.B. 3106] Public Meeting held
June 12, 2003Commissioners Present: Terrance J. Fitzpatrick, Chairperson; Robert K. Bloom, Vice Chairperson; Aaron Wilson, Jr.; Glen R. Thomas; Kim Pizzingrilli
Wholesale Rate for Resale of Telecommunications Services Provided by Verizon Pennsylvania Inc.; Doc. No. R-00038516
Order By the Commission:
This Order initiates a new proceeding to establish wholesale rates for resale of telecommunications services provided by Verizon Pennsylvania Inc. (formerly Bell Atlantic-Pennsylvania Inc.) (Verizon) to retail subscribers. The existing wholesale rates have been declared unlawful by the United States Court of Appeals for the Third Circuit.1 The Commission, through counsel, has consented to initiate a proceeding to establish wholesale rates that comply with current legal requirements. With Verizon's consent, the rates to be established will become effective on a going-forward basis and will not be retroactive; the existing rates shall remain in effect pending the outcome of the new proceeding.
In 1997, the Commission established Verizon's existing wholesale rates. Pennsylvania Public Utility Commission v. Bell Atlantic, Order entered February 6, 1997, at R-00963578. The Commission established a rate of 18.43% with operator services and 20.69% without operator services, with an additional 5.00% discount for resellers agreeing to indemnify Verizon for the applicable Pennsylvania gross receipts tax. Commission reviewed the rates in 1999 and decided not to change them.2 They remain in existence today.
The Commission followed Federal pricing regulations when establishing the rates. The Federal requirements were promulgated by the Federal Communications Commission (FCC) in 1996 as part of the FCC's implementation of the Telecommunications Act of 1996 (Act).3 In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd 15499 (rel. Aug. 8, 1996) at paras. 863-984; 47 CFR 51, Subpart G--Resale.
In 2000, as a result of litigation over the lawfulness of the FCC regulations, the United State Court of Appeals for the Eighth Circuit struck down the ''reasonably can be avoided'' standard found in 47 CFR 51.609 (providing that ''Avoided retail costs shall be those costs that reasonably can be avoided when an incumbent [local exchange carrier] provides a telecommunications service for resale at wholesale rates to a requesting carrier''). Iowa Utils. Bd. v. Federal Comm. Comm'n, 219 F.3d 744, 755-56 (8th Cir. 2000).4 The Eighth Circuit held that the standard impermissibly conflicted with the Act's requirement that wholesale pricing be established using a ''will be avoided'' or ''actually avoided'' standard. Id.; 47 U.S.C.A. § 252(d)(3) (providing that rates be based ''costs that will be avoided'').
Since the Commission had applied the Federal regulations when establishing the existing rates, the Eighth Circuit's decision led the United States Court of Appeals for the Third Circuit to invalidate the Commission-established rates. The occasion of the invalidation was Federal court litigation initiated by Verizon in Pennsylvania. Since it was undisputed by the litigating parties that the Commission had followed the FCC's regulations and those regulations were deemed unlawful, the Third Circuit concluded the Commission erred in setting the rates and remanded to the federal district court for further proceedings. MCI, 271 F.3d at 519-520.5
On April 15, 2003, before the United States District Court for the Eastern District of Pennsylvania, the Commission, through legal counsel, specifically consented to conducting a new proceeding to establish lawful rates. MCI Telecoms. Corp. v. Bell Atlantic-Pa., Pretrial Conference Hearing Transcript (April 15, 2003) at 55, Civil Action No. 03-CV-00685 (E.D. of Pa.). Thereafter, the District Court issued a one-sentence order remanding the issue of Verizon's wholesale rates to the Commission for a new determination. Id., Order entered April 16, 2003.
Counsel for the FCC has advised6 that the FCC has not promulgated a new rate standard for setting the resale discount at this time. There is no scheduled date for the FCC to set a standard, but the issue has been raised in a pending arbitration at Petition of WorldCom, Inc. Pursuant to Section 252(e)(5) of the Communications Act for Preemption of the Virginia State Corp. Comm'n Regarding Interconnection Disputes with Verizon Virginia Inc. & for Expedited Arbitration, CC Docket No. 00-218, et al. Further, a state commission is not prevented from setting a resale rate in the absence of a FCC standard, assuming it is otherwise consistent with Federal law.
Accordingly, we hereby initiate a proceeding for the purpose of a new determination of the wholesale rates for resale of telecommunications services provided by Verizon Pennsylvania Inc. The matter shall be referred to the Office of Administrative Law Judge for appropriate action.
The presiding Administrative Law Judge shall apply appropriate law in considering what the new rates should be. As discussed, the law currently requires that the rates ''be determined based on retail rates charged to subscribers, excluding 'the portion thereof attributable to any marketing, billing, collection, and other costs that will be avoided by the local exchange carrier.' '' (Emphasis added.) MCI Telecom., 271 F.3d at 519, quoting 47 U.S.C.A. § 252(d)(3). Costs that ''will be avoided'' is the proper standard, not costs that ''reasonably can be avoided.'' Id. at 519-520, citing Iowa Utils. Bd. II, 219 F.3d at 755-56. Furthermore, the rates must be ''just and reasonable, and in conformity with regulations or orders of the commission.'' 66 Pa.C.S. § 1301.
Through legal counsel representing the Commission and Verizon in the Federal litigation that gave rise to this Order, the Commission and Verizon have agreed that the existing rates will remain in effect pending the outcome of the new proceeding and that the rates to be established will be prospective only. Thus, there will be no true up/refund calculated as a result of the new proceeding; Therefore,
It Is Ordered That:
1. A proceeding is hereby initiated for the purpose of determining wholesale rates for resale of telecommunications services provided by Verizon Pennsylvania Inc. to retail subscribers under 47 U.S.C.A. § 252(d)(3) and other applicable law.
2. The matter is assigned to the Office of Administrative Law Judge for proceedings consistent with this order.
3. The Secretary shall serve this order on all jurisdictional resellers of telecommunications services.
4. The Secretary shall cause this order to be published in the Pennsylvania Bulletin.
5. Any Petition to Intervene must be filed within 30 days after publication in the Pennsylvania Bulletin.
JAMES J. MCNULTY,
Secretary
[Pa.B. Doc. No. 03-1300. Filed for public inspection June 27, 2003, 9:00 a.m.] _______
1 MCI Telecom. Corp. v. Bell Atlantic-Pa., 271 F.3d 491, 519-520 (3d Cir. 2001), cert. denied 123 S. Ct. 340 (2002) (reversing District Court judgment upholding the rates). The relevant District Court proceeding is MCI Telecom. Corp. v. Bell Atlantic-Pa., Civil Action No. 03-685 (E.D. Pa.), originally filed at Civil Action No. CV-97-1857 (M.D. of Pa.).
2 Joint Petition of NEXTLINK Pennsylvania, Inc., et al., for Adoption of Partial Settlement Resolving Pending Telecommunications Issues and Joint Petition of Bell Atlantic Pennsylvania, Inc., et al., for Resolution of Global Telecommunications Proceedings, PUC Docket Nos. P-00991648 and P-00991649, Order entered Sept. 30, 1999, at 124-125.
3 Pub. L. No. 104-104, 110 Stat. 56, codified at §§ 151 et seq.
4 The FCC did not appeal the Eighth Circuit's invalidation of the ''reasonably can be avoided'' standard. Other determinations were reviewed by the Supreme Court of the United States. See Verizon Communs., Inc. v. Federal Comm. Comm'n, 122 S. Ct. 1646 (2002).
5 The Commission has initiated this proceeding with the consent of Verizon and the District Court in the absence of any new FCC pricing standard. While the Third Circuit assumed the FCC would issue a new standard, the FCC has not done so and has no scheduled plans to do so.
6 Letter of Trial Attorney Rachel J. Hines of the Federal Programs Branch, Civil Division, U. S. Department of Justice, dated March 19, 2003, addressed to PUC Assistant Counsel Maryanne Reynolds Martin and copied to all counsel of record in the District Court proceedings. We note that the FCC was granted leave to appear as amicus curiae in the action to assist the District Court; the FCC was represented by the U. S. Department of Justice.
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