RULES AND REGULATIONS
Title 52--PUBLIC UTIITIES
PENNSYLVANIA PUBLIC UTILITY COMMISSION
[52 PA. CODE CH. 63]
[L-00990141]
Generic Competitive Safeguards
[33 Pa.B. 6047] The Pennsylvania Public Utility Commission (Commission) on June 12, 2003, adopted a final-form rulemaking order which establishes competitive safeguards to assure the provision of adequate and nondiscriminatory access by incumbent local exchange carriers (ILECs) to competitive local exchange carriers (CLECs) for all services and facilities ILECs are obligated to provide CLEC carriers and to prevent cross subsidization and unfair competition. The contact persons are Carl S. Hisiro, Law Bureau (legal), (717) 783-2812 and Robert Rosenthal, Fixed Utility Services (technical), (717) 783-5242.
Executive Summary
Section 3005(b) and (g)(2) of the Public Utility Code (relating to competitive services) requires the Commission to establish regulations to prevent unfair competition, discriminatory access and the subsidization of competitive services through revenues earned from noncompetitive services. On January 29, 2002, the Commission entered a proposed rulemaking order, which solicited comments from jurisdictional telecommunication utilities and other interested parties regarding proposed generic competitive safeguards mandated by 66 Pa.C.S. Chapter 30 (relating to alternative form of regulation of telecommunications services).
This final-form rulemaking establishes competitive safeguards in furtherance of 66 Pa.C.S. Chapter 30's mandate to encourage and promote competition in the provision of telecommunications products and services throughout this Commonwealth. The competitive safeguards prevent discriminatory access for all services and facilities ILECs are obligated to provide competitive carriers, prevent the unlawful cross subsidization for competitive services from noncompetitive services by ILECs and prevent all local exchange carriers from engaging in unfair competition practices.
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), the Commission submitted a copy of the final-form rulemaking, which was published at 32 Pa.B. 1986 (April 20, 2002) and served on April 8, 2002, to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the House Committee on Consumer Affairs and the Senate Committee on Consumer and Professional Licensure for review and comment. In compliance with section 5(b.1) of the Regulatory Review Act, the Commission also provided IRRC and the Committees with copies of all comments received, as well as other documentation.
In preparing this final-form rulemaking, the Commission has considered all comments received from IRRC, the Committees and the public.
This final-form rulemaking was deemed approved by the House and Senate Committees on October 9, 2003, and was approved by IRRC on October 23, 2003, under section 5(c) of the Regulatory Review Act.
Public Meeting
June 12, 2003Commissioners Present: Terrance J. Fitzpatrick, Chairperson; Robert K. Bloom, Vice Chairperson; Aaron Wilson, Jr.; Glen R. Thomas; Kim Pizzingrilli
Rulemaking Re Generic Competitive Safeguards Under 66 Pa.C.S. §§ 3005(b) and 3005(g)(2); L-00990141
Final Rulemaking Order By the Commission:
On January 29, 2002, the Commission entered an order proposing to adopt a general Code of Conduct, applicable to all local exchange carriers (''LECs''), in order to prevent unfair competition and ensure nondiscriminatory access to an incumbent local exchange carrier's (''ILEC'') services and facilities by competitors as mandated by Chapter 30 of the Public Utility Code and other applicable law. The proposed regulations also would require ILECs with more than one million access lines to maintain a functionally separate wholesale organization for providing certain services to competitive local exchange carriers (''CLECs'').
The January 29, 2002 Order was published April 20, 2002, at 32 Pa.B. 1986. On or about May 20, 2002, the Commission received written comments from Verizon Pennsylvania Inc. (''Verizon-PA'') and Verizon North Inc. (hereinafter referred to collectively as ''Verizon''); Office of Consumer Advocate (''OCA''); the Pennsylvania Telephone Association (''PTA''); AT&T Communications of Pennsylvania LLC, CoreCom/ATX, Inc., and the Competitive Telecommunications Association (hereinafter referred to collectively as ''AT&T''); Sprint Communications Company, L. P. and The United Telephone Company of Pennsylvania (hereinafter referred to collectively as ''Sprint''); XO Pennsylvania, Inc. (''XO''); Full Service Network (''Full Service''); and Representative Frank Tulli, Jr. (''Rep. Tulli''). In addition, late-filed comments were received on May 22, 2002, from Curry Communications, Inc. (''Curry'').
On or about June 4, 2002, the Commission received reply comments from Verizon; AT&T; PTA; Sprint; Office of Small Business Advocate (''OSBA''); MCI WorldCom Network Services, Inc. (''MCI''); Pennsylvania Cable & Telecommunications Association (''PCTA''); and Senator Vincent J. Fumo, Democratic Committee on Appropriations (''Sen. Fumo''). In addition, reply comments were filed on June 24, 2002, by Representatives Dennis M. O'Brien, Chairman, House Consumer Affairs Committee, and Joseph Preston, Jr., House Consumer Affairs Committee (hereinafter referred to collectively as ''House Committee''). On July 3, 2002, the Commission received comments from the Independent Regulatory Review Commission (''IRRC'').
This Final Rulemaking Order discusses the comments and reply comments received and sets forth, in Annex A, final amendments to the Commission's regulations for a telecommunications utilities' Code of Conduct.
General Comments
PTA raises the issue that no party has requested a code of conduct applicable to all ILECs in Pennsylvania, and argues that the Commission should not be quick to impose the types of restrictions found in the Code of Conduct without some type of evidentiary finding that these restrictions are necessary. PTA Comments at 1-4. Further, PTA objects to the specific provisions of the Code of Conduct that apply only to ILECs, arguing that the Code should treat all competitors equally. Id. at 3.
Whether or not any party has requested a code of conduct applicable to all ILECs ignores the fact that the General Assembly, in enacting Chapter 30 of the Public Utility Code, 66 Pa.C.S. §§ 3001--3009, has mandated that regulations be established by the Commission to prevent unfair competition, discriminatory access, and the subsidization of competitive services through revenues earned from noncompetitive services. That is precisely what we have done in developing the Code of Conduct regulation. As to the second concern raised by PTA, we have already addressed this issue in our Proposed Rulemaking Order at 15-16 when we rejected a similar plea by Verizon-PA that any regulation should be equally imposed on all local exchange carriers (''LECs'') and not just ILECs pursuant to the doctrine of regulatory parity. PTA has not presented any arguments on this issue that make us believe we have to reconsider our position as expressed in our earlier order.
OCA submits that throughout the competitive safeguards, the specific provisions use either ''may'' or ''shall'' when stating the requirements of each section. OCA offers that the final regulation should use ''shall'' instead of ''may'' as the word ''shall'' is more mandatory in nature. We note that the word ''may'' is always used before the word ''not'' throughout the competitive safeguards. This change was made by the Legislative Reference Bureau before the proposed regulation was published in the Pennsylvania Bulletin to be consistent with their rule that ''may'' is used whenever expressing a directive in the negative, and the word ''shall'' is used whenever the directive is expressed in the affirmative. The regulation's use of the words ''shall'' and ''may'' are consistent with this directive from the Legislative Reference Bureau, and, therefore, no change is necessary.
The other general comment we wish to address is one made by both Sen. Fumo and Rep. Tulli that the Code of Conduct adopted in the Global Order entered September 30, 1999, at P-00991648 and P-00991649, is superior to the Code of Conduct adopted in the present proceeding and should be adopted in place of the Code of Conduct proposed herein. Rep. Tulli Comments at 2-3; Sen. Fumo Reply Comments at 1-2. As we stated in our Proposed Rulemaking Order, the regulations we proposed in the instant proceeding ''are modeled, in part, after similar provisions contained in the 'Code of Conduct' adopted for Verizon-PA in the Global Order. . . .'' Rulemaking Re Generic Competitive Safeguards Under 66 Pa.C.S. §§ 3005(b) and 3005(g)(2), Dkt. No. M-00960799, at 15 (Proposed Rulemaking Order, entered January 29, 2002) (hereinafter Proposed Rulemaking Order). Therefore, many of the provisions are the same or very similar. On the other hand, the Global version only applied to Verizon-PA, whereas the Code of Conduct adopted herein applies to all LECs unless otherwise noted, and so by its very nature must take into account a broader range of issues than if it were directed at only Verizon-PA. In any event, as will be discussed in greater detail below, we have adopted in this Order several changes to the regulations that will bring them more into conformity with the Global version.
Moreover, the touchstone for a Code of Conduct is the market conditions that exist in the telecommunications industry. Market conditions could change that would result in the Code being revisited at a later date. We, therefore, retain our authority to make changes as appropriate to the competitive safeguards approved today to reflect these changing market conditions.
Section 63.141. Statement of purpose and policy.
Three concerns were expressed in the comments relating to this particular section of the Code of Conduct. First, in regard to Subsection (c), IRRC asks what other codes of conduct besides the Code of Conduct adopted in the Global Order for Verizon-PA are applicable to telecommunications carriers, and it suggests that these codes should be identified in this regulation. OCA, on the other hand, submits that this subsection ''should be deleted or modified so that other codes of conduct applicable to any LECs are not replaced or superseded unless such provisions are inconsistent with the new safeguards.'' OCA Comments at 4 (emphasis in original). Sprint, in its reply comments, urges rejection of OCA's claim that the rulemaking should not eliminate ''other existing competitive safeguards'' unless inconsistent because it does not identify them. Sprint Reply Comments at 1-2. Accord, OSBA Reply Comments at 6 (''[f]or efficiency and to avoid confusion these regulations should supercede any code of conduct that is currently in place'').
As there is only one Commission-imposed code of conduct currently in effect relating to the telecommunications industry--the one approved in the Global Order applicable only to Verizon-PA--the Commission agrees with IRRC and believes the best approach is to specifically refer to that code of conduct as being superseded so that there is no ambiguity on the issue. We continue to believe that having more than one code of conduct in effect would be confusing and make compliance and enforcement more difficult.
The other comments relating to this section come from AT&T and XO. AT&T suggests that the statement of policy portion of the regulation should recognize the inclusion of a provider-of-last-resort function (''POLR'') as part of the ILEC's wholesale function, at least on a transitional basis if not a permanent basis.1 AT&T Comments at 13-14. XO argues that the statement of policy should make the regulation expressly applicable to ILEC affiliates and subsidiaries that provide competitive and non-competitive telecommunications services. XO Comments at 4-5.
For the reasons discussed below, we are withdrawing from the final regulation that portion of the proposed regulation dealing with functional separation and accounting/auditing safeguards, and, therefore, comments regarding the POLR issue become moot and no further discussion is necessary. As for the statement of policy encompassing an ILEC's affiliates and subsidiaries, the definitions of both ILECs and CLECs in the instant regulation already incorporate ''affiliates, subsidiaries, divisions or other corporate subunits'' so it is not necessary to make XO's suggested change.
Section 63.142. Definitions.
Several of the comments address various definitions contained in the regulation. For example, OCA asserts that definitions for ILECs, CLECs, and LECs do not recognize the diverse nature of telecommunications services, including data services such as access to e-mail or the Internet, which such carriers currently provide to customers. OCA Comments at 5-6. Accord, OSBA Reply Comments at 6. Both Sprint and PCTA object to the expansion of these definitions to include data local exchange carriers (''DLECs''). PCTA's position is that the Federal Communications Commission (''FCC'') has specifically ruled that data services are not telecommunications services. PCTA Reply Brief at 2. Sprint's reply comments also address the FCC's on-going effort to classify broadband services, and further argue that OCA's attempt to define CLECs to include DLECs is unnecessary as state jurisdictional LECs providing jurisdictional data services are already deemed CLECs, and those LECs that provide interstate data services cannot be regulated by the Commission. Sprint Reply Brief at 2-4. We agree with Sprint that there is no further need to include ''data services'' within the definitions of ILECs, CLECs, or LECs as those services are already included in the definition of CLECs. Letter-Petition of BlueStar Networks, Inc. for Waiver of Certain Tariff Requirements Pertaining to Voice-grade Service, Docket No. A-310862 (Final Order entered August 17, 2000).
IRRC suggests that the acronym ''ILEC'' should replace the word ''incumbent'' in the definition for ''competitive service'' to be consistent with other references to ILECs in this regulation. IRRC Comments at 1. We agree that this change should be made and have incorporated it in the final regulation.
Both PTA and Verizon submit that the second sentence of the definition for an ILEC, which makes clear that the term includes any of the ILEC's affiliates, subsidiaries, divisions or other corporate subunits that provide local exchange service, should be deleted. The PTA, in particular, contends the language is unnecessary and may create confusion in the application of the code of conduct. PTA Comments at 6. Neither party contends, however, that the same language that appears in the definition of CLECs should be removed. In any event, we disagree with this suggestion as we believe it is appropriate to include this language in both definitions. The Commission wants to deter LECs from creating new entities within their business organization for the purpose of avoiding any of the safeguards created in the Code of Conduct. As drafted, any such potential loophole is closed.
IRRC, Verizon, and Sprint each object to the definition of telecommunications services as departing from the definition used in Chapter 30 of the Public Utility Code. IRRC Comments at 1; Verizon Comments at 17; Sprint Comments at 2-3. Specifically, they complain that the proposed definition includes the words ''signaling'' and ''data'' which are not included in the statutory definition of ''telecommunications services'' at 66 Pa.C.S. § 3002. We agree with this suggestion and will delete these references from the final-form regulation so that the definition is the same as what appears in Chapter 30.
IRRC and OCA also suggest that clarity would be aided if the terms ''wholesale functions'' and ''retail services'' are defined in the regulation. IRRC Comments at 1; OCA Comments at 6-8. However, these terms are used almost exclusively in section 63.143 of the proposed regulation, which as we discuss below, is being withdrawn from the final-form regulation. Therefore, these terms do not need to be defined in the final regulation.2
Verizon recommends that the definition for ''market price'' should be eliminated; however, it offers no rationale or explanation for this particular suggestion. No other party raised objections to this definition. We believe the definition is useful and see no reason to delete it from the final-form regulation.
Finally, on our own motion, the Commission has amended the definition of ''CLECs'' to make clear that it includes CLECs who have received provisional authority to operate in the state. This change closes a potential loophole that may have exempted CLECs with only provisional authority from being bound by the Code of Conduct.
Section 63.143. Accounting and audit procedures for large ILECs.
This section of the regulation was the most contentious among the parties. Generally, most comments fall into two camps: either they support the proposed procedures, often with the caveat that the Commission needs to impose full functional separation on an ILEC serving more than one million access lines, or the procedures are viewed as serving no useful purpose and would be costly to implement. Typical of the first camp were comments filed by XO, AT&T, the OCA, Full Service, and Sprint, while the second camp included comments filed by IRRC, Verizon, and the House Committee.
In regard to the type of functional separation imposed in the regulation on ILECs that serve more than one million access lines, AT&T, XO, and Full Service each argue that the Commission has taken a step backwards in its decision not to impose full functional separation on ILECs with over one million access lines. AT&T Comments at 2-5; XO Comments at 2-4; Full Service at 1-5. In making its case, AT&T argues that without full functional separation, many of the rules imposed in this section of the regulation ''are internally unsound and have no practical effect or meaning.'' AT&T Comments at 4. Verizon in its Reply Comments states that the Commission has already rejected a wholesale/retail split of Verizon-PA's internal operations, and that to impose such a split now would be so onerous and burdensome as to equate to full structural separation. Verizon Reply Comments at 3-4. In sum, Verizon claims that imposing full functional separation would require a complete restructuring of its retail business and would duplicate resources, create inefficiencies, and add unnecessary costs to its doing business in the state. Id. at 22-31.
In focusing on the actual accounting rules proposed in our initial rulemaking order, IRRC, Verizon, and the House Committee each addresses the same concern--that these accounting rules will serve no useful purpose and could impose significant expenses to implement. IRRC Comments at 2-3; Verizon Comments at 2-15; Verizon Reply Comments at 22-31; House Committee Comments at 1-2. As noted above, even AT&T acknowledges in its comments that these rules will have no practical effect when applied to the type of wholesale/retail structure permitted by the originally-proposed section 63.143 for ILECs with over one million access lines. The similar comments from a wide range of participants that include the state's largest ILEC and CLEC, IRRC, and legislators questioning the soundness and practical effect of the proposed accounting and auditing rules in a situation where full functional separation is no longer part of the equation, coupled with the anticipated costs to impose these rules on large ILECs, have caused the Commission to re-examine the validity of imposing such requirements in the context of this rulemaking.
When the accounting rules were first being devised, the Commission was considering full functional separation where the ILEC's retail and wholesale operations would be split into different divisions within the ILEC's corporate structure. Under this scenario, the accounting rules that were proposed in section 63.143 would have provided a workable, useful tool to ensure that the ILEC's wholesale operations were providing the same services on a non-discriminatory basis to both the ILEC's retail division and to CLECs. When the Commission's approach evolved into permitting the ILEC to create a separate wholesale unit that deals only with CLECs while at the same time allowing the ILEC's retail and wholesale operations to be part of the same business organization without splitting them into separate divisions, the continuing usefulness of the proposed accounting rules became suspect.3
Verizon recognized as much when it stated in its comments that:
. . . the provisions on ''Accounting and audit procedures for large ILECs'' . . . appear . . . to be carried over from the previously-rejected attempt to structurally separate Verizon PA. . . . In directing preparation of these regulations, the Commission unequivocally rejected expensive reorganization requirements designed to ''fix a problem that has not been shown to exist.'' Yet, the regulations retain . . . unnecessary ''accounting'' requirements that could be interpreted to require the very same type of expensive system changes that the Commission found were not warranted [when it rejected structural and then full functional separation of Verizon-PA.]Verizon Comments at 2. IRRC and the House Committee referenced the same problems in their respective comments. The purpose of the accounting rules is to ensure that the ILEC does not discriminate in its dealings with CLECs when compared to its dealings with its own retail operations. By setting up a separate wholesale organization within the ILEC that only deals with CLECs and has no interaction with the ILEC's own retail operations, however, the ability to determine whether the ILEC is discriminating against the CLECs through the use of these accounting rules is no longer possible.
Moreover, where, as here, the ILEC's retail and wholesale operations are not separated and the wholesale services purchased from the ILEC by CLECs that are needed to provide retail local service are at rates that have been approved by the Commission, a discrimination charge based on rates is not legally possible.4 That is because where the ILEC's operations are not separated, the ILEC does not have to account for these same wholesale services at the same prices charged to CLECs. These costs are instead blended into the total cost of providing the retail service to the ILEC's customers. As such, these individual costs become both unnecessary and, at the very least, very difficult if not impossible to break out in a way that allows for a fair and reasonable comparison with the charges paid by CLECs for the same wholesale services.
In addition to the issues raised as to the usefulness of the accounting rules where full functional separation is not mandated and as to the costliness to implement these rules, the Commission is also troubled by the fact that the procedure set up in the proposed regulation basically involves a ''one-size-fits-all'' approach. That is to say, the regulation originally proposed has the unintended consequence of favoring the approach Verizon-PA has adopted of creating a wholesale operating unit that deals only with CLECs for any ILEC that reaches one million access lines through internal growth and/or by merger. Obviously, other ILECs may believe it is more beneficial, from a business standpoint, to create separate wholesale and retail divisions or even separate affiliates for their local service business. We, therefore, have concluded that the better approach is not to adopt accounting rules that are not useful or cost effective in every case in which they are to apply, and instead to rely on our general authority under: (1) 66 Pa.C.S. §§ 504--506 to obtain reports and inspect records of public utilities, (2) 66 Pa.C.S. § 3009(b)(1) to audit the accounting and reporting systems of LECs and their transactions with affiliates, and (3) 66 Pa.C.S. § 516 to conduct audits, to aid in the enforcement of the Code of Conduct as finally approved herein.5
In summary, the proposed accounting rules only make practical sense for large ILECs that separate their retail and wholesale operations into different divisions or affiliates. In this type of situation, the proposed accounting rules could be applied to determine if the ILEC is engaged in discriminatory or unfair practices vis-a-vis how it is treating CLECs. At present, however, there are no large ILECs with over one million access lines other than Verizon; and, therefore, there is no existing large ILEC that has separated its wholesale and retail operations into different divisions or affiliates. In addition, for the reasons stated in our earlier Proposed Rulemaking Order, we are not prepared to require Verizon at this time to adopt this type of organizational structure.
After considering all the comments filed on this important issue, we are not prepared at this time to impose accounting rules that may be appropriate only in future circumstances when a large ILEC adopts a full functional separation or structural separation approach. Nor are we prepared to encourage or require, through this rulemaking, all ILECs that reach one million access lines in the future to adopt Verizon-PA's present business structure for their own wholesale and retail operations. We will remove the accounting rules, therefore, as being both unnecessary and too costly to implement when compared with the anticipated benefits if they were put into force. We will instead rely on the enforcement of the Code of Conduct promulgated herein as the best means to protect against discriminatory and unfair competitive practices that were the subject of concern in Chapter 30 of the Public Utility Code.
Old Section 63.144. New Section 63.143. Code of Conduct.
Paragraph (1) addresses nondiscrimination and is divided into two subparts. Subparagraph (1)(i) in the proposed regulation states that ''an ILEC may not give itself . . . or any CLEC any preference or advantage over any other CLEC . . . unless expressly permitted by State or Federal law.''6 Several commentators raise issues relating to Subparagraph (1)(i). First, IRRC, AT&T and XO each complain about the proposed exception, ''unless expressly permitted by state or federal law,'' as ambiguous, which may lead to misinterpretation and increased litigation to resolve disputes. IRRC Comments at 3; AT&T Comments at 21; XO Comments at 9-10. IRRC also notes that the comparable language in the code of conduct adopted for the electric industry, this exception does not exist. See 52 Pa. Code § 54.122(1). To avoid any vagueness or confusion, IRRC suggests that the final-form regulation should expressly reference the state and federal laws that allow an ILEC to give itself a preference or the exception should be eliminated. In making its argument, XO states that the exception should only be available if the language is further qualified to make clear that express prior approval from the Commission is necessary before any such preference is given to the ILEC's own retail operations.
After carefully considering these comments, we agree that this exception to the rule has the potential to lead to significant litigation and may ultimately result in the provision becoming unenforceable as the qualifying language will swallow the rule. Reinforcing this conclusion, we find persuasive the fact that this Commission did not include a similar exception in a nearly identical rule adopted for the electric industry as cited by IRRC,7 and that the Global Code of Conduct did not contain this exception in its comparable Rule No. 1. We, therefore, will remove this language from the final regulation.
The other comment to this subparagraph is offered by Verizon, which suggests that the word ''unreasonable'' should be added before ''preference.''8 In making this argument, Verizon states that this change would be consistent with the general obligation under the federal Telecommunications Act at 47 U.S.C. § 251 to provide ''reasonable and nondiscriminatory'' services to CLECs. Verizon Comments at 15. For the same reasons we are deleting the exception language in the same subparagraph, we decline to accept this proposal. We believe adding such a qualifier would result in increased litigation to determine what is reasonable, and we note that both the Global Code of Conduct and electric code of conduct do not contain this qualifying language.
Subparagraph (1)(ii) addresses tying arrangements. The proposed regulation provides that ''an ILEC may not condition the sale . . . of any noncompetitive service on the purchase, lease or use of any other goods or services offered by the ILEC or on a direct or indirect commitment not to deal with any CLEC.'' Consistent with the antitrust laws, the provision does permit such bundling where the ILEC offers, on an individual basis, the noncompetitive service offered in the bundle. Several parties offer comments to this subparagraph.
First, both IRRC and Sprint submit that the phrase, ''direct or indirect commitment'' is vague and should be changed or further defined. IRRC Comments at 3; Sprint Comments at 4. Sprint suggests that the phrase should be rewritten as a ''written or oral commitment.'' We agree that clarity would be aided by changing this phrase but believe it would best be accomplished by modifying Sprint's suggested language to read ''written or oral agreement'' as it is ultimately the entering into an agreement that should be prohibited by the final regulation.
Both Sprint and PTA submit that parity dictates the second sentence should be changed so that it refers to ''LECs'' instead of only ''ILECs,'' and Sprint further suggests another sentence being added to prohibit ''LECs'' from conditioning the sale of ''any noncompetitive service on a written or oral commitment not to deal with any other LEC.'' Sprint Comments at 3-5; PTA Comments at 8. As to the first suggestion, we decline to accept changing ''ILECs'' to ''LECs'' in the second sentence because tying/bundling arrangements only have an anticompetitive effect under the antitrust laws if the party imposing the tie has market power in the tying product market. As we previously recognized in our Proposed Rulemaking Order, CLECs do not have market power, and, therefore, imposing this restriction on them would not be consistent with this country's competition policy as defined by the antitrust laws.
As to Sprint's other suggestion, however, it attempts to address a loophole in the originally-proposed first sentence that only addresses such arrangements when undertaken by ILECs. We agree that this type of behavior, whether by ILECs or CLECs, to elicit agreements among competitors not to deal with other LECs is generally considered to be anticompetitive and serves no valid business purpose other than to restrain trade. We, therefore, agree that the final regulation should incorporate this proposed change offered by Sprint to close this perceived loophole in the Code of Conduct with the minor adjustment to change ''commitment'' to ''communication'' to be consistent with Sprint's suggestion for the prior sentence that we adopted above.
Both AT&T and XO also raise concerns as to whether the proposed language in this subparagraph achieves the same result as the existing Rule No. 9 in the Global Code of Conduct applicable only to Verizon-PA that provides that ''[a]ny incumbent local exchange company that bundles its services must provide the same opportunity at the same terms to competitors.''9 AT&T Comments at 22; XO Comments at 10. In an effort to address this issue more fully, AT&T suggests, in its words, ''a more practical and straightforward manner that focuses directly on the potential for cross-subsidization between competitive and non-competitive services in a bundled service package.'' AT&T Comments at 22. Specifically, AT&T offers the following amendment to this subparagraph:
An ILEC shall offer to CLECs for resale any bundled competitive and noncompetitive services it provides to end-users at the same price it offers such bundled services to end-users less the wholesale discount approved by the Commission and shall make the unbundled network elements associated with those services available to CLECs as may be required by applicable law.AT&T Comments at 7-8 of Attached Redlined Version of Code of Conduct.
We agree that this additional language, with a small clarifying change, eliminates the ambiguity that existed with the original Rule No. 9 in the Global Code of Conduct while at the same time addressing the potential for cross-subsidization between competitive and noncompetitive services that is the focus of concern within section 3005(g)(2) of the Public Utility Code. We, therefore, will incorporate this language as a new Subparagraph (1)(iii) in the final regulation, which at the same time addresses the concern that the competitive safeguard contained in Rule No. 9 of the Global Code of Conduct was absent in the instant Code of Conduct.
Finally, we address briefly OCA's concern that this subparagraph should specifically provide that ILECs cannot discriminate in the provisioning of unbundled network elements to CLECs. OCA Comments at 8. We believe this issue is already addressed in Subparagraph (1)(i), which provides that an ''ILEC may not give itself . . . any preferences . . . over any other CLEC in the preordering, ordering, provisioning, or repair and maintenance of any . . . network elements . . .'' (Emphasis added.) We, therefore, do not believe it needs to be further addressed in Subparagraph (1)(ii), which focuses more directly on tying arrangements and refusals to deal.
Paragraph (2) is intended to proscribe certain types of employee conduct when LEC employees are dealing directly with end-user customers. The only comments offered to this paragraph came from Verizon where its suggested changes would correct what it characterized as ''unintentional typos.'' Verizon Comments at 16. The first change would be to add the word ''falsely'' before ''disparage'' in Subparagraph (2)(i). The other change would be to add ''retail'' before ''services'' where that word is used in Subparagraph 2(ii).
In examining these suggestions, we can assure Verizon and all parties that the Commission's original language did not contain ''unintentional typos'' in this paragraph. Rather, we believe the language as originally articulated in the Proposed Rulemaking Order is correct, and we see no reason to adopt the suggested changes now offered by Verizon. In making this determination, we particularly wish to note that we see no added benefit to including ''falsely'' before ''disparage'' in Subparagraph 2(i). The word ''disparage'' itself has a negative connotation, generally meaning to belittle or to slight something, and we see little distinction in allowing a competitor to disparage another competitor's product or service as long as it is ''truthful'' in the words of Verizon. If what Verizon is trying to assert is that a competitor should be allowed, in appropriate circumstances, to advertise differences between its services and that of a competitor's in a truthful manner, then of course that is permitted under this regulation. What is restricted, however, is the manner in which the company accomplishes that goal. A company should be able to provide comparison information without resorting to the use of any disparaging or belittling comments gratuitously directed at its competitor to win the business of the targeted customer.
Paragraph (3) addresses corporate advertising and marketing and is divided into four subparts. Subparagraph (3)(i) prohibits LECs from engaging in ''false or deceptive advertising.'' There were three different comments filed directed at this provision of the regulation. Both Sprint and PTA take the position that this restriction and the rest of the paragraph infringes on the First Amendment right of free speech under the United States Constitution,10 OCA suggests that the state Unfair Trade Practices and Consumer Protection Law (''UTPCPL'') should be referenced in this subparagraph because it deals directly with this issue, and Verizon argues that the restriction should not be limited just to advertising. Sprint Comments at 5-6; PTA Comments at 8-9; OCA Comments at 9-11; Verizon Comments at 16.
We strongly disagree that this provision violates the First Amendment as it parallels existing federal and state laws that prohibit unfair methods of competition, including engaging in false or deceptive advertising--laws that have not been found to be in violation of the First Amendment's right to free speech. 15 U.S.C. § 45; 73 P. S. §§ 201-1--201-9.2. The general rule in commercial speech cases is that only false, deceptive or misleading advertising may be prohibited. Bates v. State Bar, 433 U.S. 350 (1977). Based on the United States Supreme Court holding in Bates and its progeny, it is clear that false or misleading advertising, if engaged in by LECs, would not enjoy any First Amendment protection. Therefore, it is entirely appropriate for the Commission to impose the type of restriction that is contained in Subparagraph 3(i).11
As far as OCA's suggestion to reference the state's UTPCPL as part of the regulation, we must decline for the reasons provided by Sprint and PTA in their respective reply comments. In short, the insertion of this reference into the regulation could be interpreted as an attempt to expand the Commission's statutory authority to include bringing actions under the UTPCPL, which authority is currently within the exclusive jurisdiction of the state Attorney General's Office. We see no reason to insert this type of confusion into our regulatory process without any countervailing benefit created by taking this step.
We also decline to include Verizon's suggested change to add the phrase ''or other false or deceptive statements'' after ''advertising'' in this subparagraph. While we do not disagree with the concept raised by Verizon's language, we believe the word ''advertising'' is sufficiently broad to cover most, if not all, statements that a LEC would make in the context of soliciting existing or potential customers to buy its services; and, for that reason, we do not believe that the additional phrase adds anything of value to the regulation.
Finally, the other major comments to this paragraph are directed at Subparagraph (3)(iv). Verizon, Sprint, and PTA argue that ''other services'' is too vague and overbroad as drafted, and PTA also submits that the provision should apply to all LECs and not just ILECs and should be limited to situations where a competitive service is contingent upon taking a noncompetitive service. Verizon Comments at 16; Sprint Comments at 7; PTA Comments at 11. Verizon suggests adding the phrase, ''except as allowed by the provisions of section 63.144(1)(ii) [section 63.143(1)(ii) as revised in the final regulation] or as required by technical limitations'' at the end of the sentence to correct this problem. PCTA, on the other hand, disagrees with PTA's suggestion that Subparagraph (3)(iv) should be expanded to include application to all LECs as being inconsistent with the purpose and policy behind Chapter 30. PCTA Reply Comments at 2.
While we agree clarifying language would be helpful to avoid the situation where an ILEC is prohibited from telling a customer, for example, that the continuation of Caller ID is contingent upon subscribing to dial tone service, we believe the language suggested by Verizon is itself too vague by its use of the phrase ''technical limitations'' and too confusing in its attempt to refer back to the tie-in provision of Subparagraph (1)(ii). Instead, the final regulation includes language that addresses this problem in a clear and concise manner. As to PTA's arguments, as we have previously discussed, some types of conduct only raise competitive concerns if engaged in by a party with market power. That is the case with the competitive safeguard described in Subparagraph (3)(iv) as the proscribed conduct is akin to a tying arrangement; therefore, its applicability is limited to ILECs only. As to PTA's concern that the safeguard should be limited to situations where a competitive service is contingent upon taking a noncompetitive service, we believe the additional language added in the final regulation addresses PTA's concern and no further changes are necessary.
Paragraph (4) prohibits cross subsidization by prohibiting ILECs from using ''revenues earned or expenses incurred in conjunction with noncompetitive services to subsidize or support any competitive services.'' This language comes right out of section 3005(g)(2) itself. No party quibbles over this first sentence of Paragraph (4). The dispute is over the next two sentences in the regulation. Three parties, Verizon, PTA, and the House Committee, each recommend that these last two sentences should be eliminated as being overbroad or unnecessary with the elimination of structural separation. Verizon Comments at 16-17; PTA Comments at 12; House Committee Comments at 2. In their place, Verizon offers a new sentence that basically states that an ILEC shall comply with all applicable laws relating to the pricing of services and the transfer of assets. Verizon Comments, Exhibit A, at 4.
AT&T and PCTA, on the other hand, support the last two sentences as drafted in the proposed regulation because they allegedly provide clear and concise standards to determine whether an ILEC has violated the cross subsidization prohibition. AT&T Comments at 22-23; PCTA Reply Comments at 4-5. See also XO Comments at 10-11 in support of the regulation as drafted. They both reject Verizon's proposed language as providing no substance to the general rule other than an allegedly ambiguous reference to complying with existing laws.
In weighing our options, the Commission believes the better approach is to adopt the language as originally proposed as it provides a clearer, more easily-applied measure for determining whether an illegal cross subsidization has occurred than simply stating that an ILEC shall comply with all applicable laws, which it must do in any event. To only adopt the first sentence would add nothing to the prohibition contained in the statute as the exact same language already appears in section 3005(g)(2), as noted above. The real value to the regulation is in fact the additional language as it gives meaning to the cross-subsidization standard incorporated into the first sentence of Paragraph (4) by providing a clear standard by which claims of cross subsidization can be evaluated.
At the same time, the further standards in these sentences, which are designed to prohibit cross subsidization of competitive services by noncompetitive services, should not be read as requiring any ILEC to alter its corporate structure to comply with these standards. Whether cross subsidization is actually occurring will be a factual matter to be addressed at a hearing wherein the burden of proof would be on the party alleging cross subsidization.
Paragraph (5) provides competitive safeguards that address information sharing and disclosure. The only major comment offered by the parties was that the regulation needed to incorporate Rule No. 3 of the Global Code of Conduct. IRRC Comments at 3; AT&T Comments at 9; XO Comments at 11; Full Service Comments at 21; MCI Reply Comments at 3; Sen. Fumo Comments; Rep. Tulli Comments. As restated by AT&T for the purposes of this rulemaking, this rule provides that ''[a]n ILEC shall simultaneously make available to any competitor any market information not in the public domain that is supplied to the ILEC's competitive local exchange affiliate, division, or other corporate sub-unit.'' AT&T Comments at 9 of Attached Redlined Version of Code of Conduct. AT&T also suggests that the term ''market information'' be defined in this provision.
After carefully weighing the substantial support for this addition to the regulation, we agree that inclusion will be of benefit and, therefore, will include the language in the final-form regulation. We will also include the definitional language for ''market information'' with certain clarifying changes to ensure that it only covers non-customer specific market information received by the ILEC's wholesale network organization that is then supplied to the ILEC's retail unit.12 The only other comment of note was a suggestion by Verizon to add language to ensure that the provisions in this paragraph be construed consistently with federal law. We do not agree that this change is necessary, however, and believe that such amendments, without referencing the precise laws in question, actually make the provisions more open to interpretation.
New Paragraph (6) entitled, ''Sharing of Employees and Facilities'' is incorporated into the final regulation to address certain loopholes created by the removal of the accounting and audits procedures that were contained in the old section 63.143. This provision, with a few minor modifications, is the same as Rule No. 4 in the Global Code of Conduct that is currently in effect as to Verizon, and its inclusion in the final regulation was advocated by XO, AT&T, Full Service, MCI, Sen. Fumo, and Rep. Tulli in their respectively filed comments. XO Comments at 6; AT&T Comments at 18; Full Service Comments at 18-19; MCI Reply Comments at 3; Sen. Fumo Comments; Rep. Tulli Comments. Old Paragraph (6) will now become Paragraph (7) and there are no changes to this provision.
Old Section 63.145. New Section 63.144. Remedies.
This paragraph addresses remedies available for violations of the Code of Conduct.13 Four parties filed comments relating to the remedies section. IRRC states that Subsection (a) should cite the specific sections of the Public Utility Code that apply, XO states that this section should incorporate remedies already provided by Chapter 30 of the Public Utility Code, AT&T suggests that Subsection (b) should be broadened to make clear that all remedies are available to an aggrieved party, and PTA submits that language should be added to make clear that the ''Code of Conduct may not be construed as giving rise to any civil remedy.'' IRRC Comments at 3; XO Comments at 11; AT&T Comments at 23-24; PTA Comments at 13. Both AT&T and XO also suggest that the Commission will need to take a more active policing role upon the adoption of this regulation and AT&T even recommends that the Commission should reorganize itself to include an enforcement division. AT&T Comments at 24; XO Comments at 11-12.
We will address each of these issues in turn. We agree with IRRC that clarity would be added if we include the specific cite under which a party may file a complaint with the Commission, and the final regulation reflects this change. As for both XO and AT&T advocating the inclusion of language that affirms the Commission will consider all available remedies, including those provided by Chapter 30, to address violations under this regulation, we do not believe that such language is necessary.
As we stated in the Proposed Rulemaking Order, we always have the ability and authority to adopt new safeguards as the need arises, and likewise, we have the authority to impose remedies permitted by the Public Utility Code when appropriate. Proposed Rulemaking Order at 12. Under Chapter 30, for example, the Commission has the authority to reclassify competitive services as noncompetitive services; and, for LECs serving over one million access lines, the Commission may require that a competitive service be provided through a separate subsidiary if its finds a substantial possibility that the provision of the service on a non-separated basis will result in unfair competition. 66 Pa.C.S. §§ 3005(d) & (h). None of these potential remedies are affected by the language in the final regulation, and we see no reason why the regulation needs to be amended to expressly refer to these types of statutory provisions. These remedies exist and are available to the Commission when the right circumstances arise under any complaint filed with us or initiated by our own prosecutory staff.
As to PTA's concern that the Code of Conduct should state that it not be construed as giving rise to any civil remedy, we do not believe this change is necessary. As it now stands, many of the provisions in the Code of Conduct are akin to violations that are enforceable under other state or federal laws. For example, certain tie-in arrangements may be challenged under the federal antitrust laws as well, and misleading advertising claims may be brought under state or federal consumer protection laws. We are reluctant to include language in the Code of Conduct that could have a potential chilling effect on the ability to bring actions under other laws that may be violated by conduct that is also proscribed by the same Code of Conduct.
Finally, we do not believe AT&T's suggestion that the Commission should create an enforcement division to handle complaints under the Code of Conduct is necessary or appropriate in a rulemaking proceeding. Such a decision, if necessary in the future, is more appropriate as an internal operations/management decision and should not be made through a regulation.
Conclusion
Accordingly, under 66 Pa.C.S. §§ 501, 1501 and 3001--3009; sections 201 and 202 of the act of July 31, 1968 (P. L. 769 No. 240) (45 P. S. §§ 1201 and 1202), and the regulations promulgated thereunder at 1 Pa. Code §§ 7.1, 7.2 and 7.5; section 204(b) of the Commonwealth Attorneys Act (71 P. S. § 732.204(b)); section 5 of the Regulatory Review Act (71 P. S. § 745.5); and section 612 of The Administrative Code of 1929 (71 P. S. § 232) we find that the regulations establishing a code of conduct for the telecommunications industry in §§ 63.141--63.144 should be approved as set forth in Annex A; Therefore,
It Is Ordered That:
1. The regulations of the Commission, 52 Pa. Code Chapter 63, are amended by adding §§ 63.141--63.144, to read as set forth in Annex A.
2. The Secretary shall certify this order and Annex A and deposit them with the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.
3. The Secretary shall submit this order and Annex A to the Office of Attorney General for approval as to legality.
4. The Secretary shall submit this order and Annex A to the Governor's Budget Office for review of fiscal impact.
5. The Secretary shall submit this order and Annex A for review by the designated standing Committees of both houses of the General Assembly, and for review and approval by IRRC.
6. A copy of this order and Annex A shall be served upon the PTA, the PCTA, all jurisdictional telecommunications utilities, the Office of Trial Staff, the OCA and the OSBA.
7. The final-form regulations embodied in Annex A shall become effective upon publication in the Pennsylvania Bulletin.
JAMES J. MCNULTY,
Secretary
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1 XO actually also addresses the POLR function but does so in the context of amending section 63.142, the definitions section (as does AT&T), by asking whether the contemplated ''wholesale operating unit'' should encompass any retail services that may be akin to the POLR function. As discussed in the text above, however, with the elimination of the functional separation portion of the regulation, a POLR definition becomes moot.
2 For the same reason, we are withdrawing the definition of ''subscription activities'' from the final-form regulation as that term was only used in the proposed section 63.143, which itself is being withdrawn from the final-form regulation.
3 In our Proposed Rulemaking Order at this docket, we went to great lengths in explaining why we believed full functional separation is unnecessary at this time. Proposed Rulemaking Order at 10-12. No evidence has been presented to the Commission since then that would have us reconsider this decision, and we also note for the record that no other state commission or the FCC has imposed either full functional separation or structural separation to date on any regional Bell operating company as an appropriate market power remedy in any local exchange market.
4 The potential for non-rate discrimination in provision of wholesale services by Verizon is addressed in the Commission's extensive performance metrics and remedies standards. See Joint Petition of NEXTLINK Pennsylvania, Inc., et al., Dkt. No. P-00991643 (Order entered December 31, 1999), and subsequent related orders.
5 The Commission also clearly has the ability and authority to require ILECs serving over one million access lines to provide affected competitive services through a separate corporate affiliate if the instant competitive safeguards are not sufficient in an individual case to protect against unfair competition and to ensure nondiscriminatory access to the ILEC's services and facilities. 66 Pa.C.S. § 3005(h).
6 On our own motion, we are changing the phrase ''local exchange affiliate, division or other corporate subunit'' to read ''local exchange affiliate or division or other corporate subunit that performs that function'' to eliminate any potential ambiguity with the original phrase as to whether it was intending to connote an obligation to create a local exchange affiliate. We want to make clear that the phrase is intended to address the function, not the corporate structure. For consistency purposes, this change will be made throughout this section whenever the original phrase is used.
7 In the Proposed Rulemaking Order, we specifically stated that the regulations in the instant proceeding were being modeled in part from the previously-adopted electric code of conduct provisions. Proposed Rulemaking Order at 15 n.22.
8 We wish to emphasize that in prohibiting an ILEC from giving itself a ''preference or advantage,'' this language is not intended to mandate that an ILEC, for example, must provide an identical form of access to its operations support systems for both its retail operations and for CLECs. However, it may constitute a violation of this subparagraph if the Commission found that the quality of service provided to CLECs was discriminatory when compared to the quality of service an ILEC provides itself.
9 The Commission also assumes that Sen. Fumo and Rep. Tulli support this change since they both advocate returning to the Global Code of Conduct.
10 Another suggestion offered by Sprint in its comments is that the words ''to customers'' should be added after ''advertising'' to make it consistent with the electric industry's code of conduct at 52 Pa. Code § 54.122(3). We decline to accept this suggestion as both too limiting in scope and too ambiguous in meaning. To be effective, the provision needs to cover both actual and potential customers; therefore, the phrase adds nothing to the regulation.
11 Similarly, we do not believe the remaining provisions of this paragraph are in violation of the First Amendment as these provisions do not involve any prior restraints on speech and, further, consistent with Bates, Subparagraphs (ii) and (iii) provide an adequate remedy to the restrictions imposed by not imposing a complete ban on the making of these types of statements, but rather allowing the statement if it can be presented in a way that is not deceptive or is otherwise truthful. In such cases, the preferred remedy is not a complete prohibition but a requirement of disclaimers or explanation to ensure that the consumer is not misled. Bates, 433 U.S. at 384. In the present case, that test is met by the inclusion of language that allows such statements to be made if they ''can be factually substantiated.''
12 If an ILEC, for example, is going to add remote terminals in certain central offices, this information should be supplied to the CLECs at the same time the ILEC's retail organization learns of the change. Order processing information obtained by the ILEC's wholesale organization from its retail organization for a specific customer, on the other hand, should not be covered by this definition.
13 The final regulation states that a party may use the Commission's Interim Guidelines for Abbreviated Dispute Resolution Process or ''any successor Commission alternative dispute resolution process'' to adjudicate violations of the Code of Conduct. While not yet finalized, we believe, for the sake of completeness, we need to state for the record that this Commission approved a Tentative Order at its November 7, 2002 Public Meeting at Docket No. M-00021685 requesting comments on revisions to its Abbreviated Dispute Resolution Process. Any changes to our dispute resolution process arising from this other proceeding would automatically be implemented for purposes of applying the remedies provision of the Code of Conduct.
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