California Public Utilities Commission Approves CALTEL UNE Rate Settlement Agreements with AT&T and Verizon

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On February 20, 2009, the California PUC unanimously approved a decision adopting settlement agreements between CALTEL (the California Association of Competitive Telecommunications Companies), and AT&T and Verizon. The CPUC's order adopts mechanisms for updating the rates that competitive providers pay to AT&T and Verizon for unbundled network elements (UNEs) for the next 6-7 years, and extends the benefits of this rate stability to all competitive carriers in California.

On February 20, 2009, the California PUC (CPUC) unanimously approved a decision adopting settlement agreements between CALTEL, the California Association of Competitive Telecommunications Companies, and AT&T and Verizon. The CPUC's order adopts mechanisms for updating the rates that competitive providers pay to AT&T or Verizon for unbundled network elements (UNEs) made available under Section 251 of the 1996 Federal Telecommunications Act, and extends the benefits of the settlements to all competitive carriers in California.

For AT&T, California UNE rates will continue to be frozen until December 31, 2010, and will adjusted annually via a price caps mechanism between 2011 and 2015. The price caps mechanism that was adopted indexes rates to inflation, but also caps annual increases and decreases to .75%. As a result of these adjustments, AT&T agrees not to request a UNE rate cost proceeding at the CPUC until January 1, 2016 at the earliest, and has the option of renewing the price cap adjustment mechanism for additional three year terms.

For Verizon, California UNE rates will be frozen until December 31, 2014.

The CPUC's decision provides as follows:
"The parties state that the settlement agreements efficiently resolve the manner of updating UNE rates…for the next several years, a contentious process that in the past has consumed significant time and resources on the part of the Commission and all parties. The parties also collectively represent that none will, directly or indirectly, attempt to challenge the legality of, or seek to overturn, any Commission order incorporating the terms of either voluntary settlement agreement in this proceeding. Thus, the parties assert that the risks of future litigation are negligible, and conclude that, therefore, the settlement agreements are in the public interest."

BACKGROUND
In the proceedings conducted by the California Public Utilities Commission (CPUC) on the mergers of AT&T and SBC, and MCI and Verizon, CALTEL put forth a comprehensive proposal for a wholesale price caps framework for both 271 and 251 UNEs. COMPTEL, a national industry association, joined with us in co-sponsoring a white paper written by consultant Joe Gillan, and included this proposal in its recommendations to the FCC. Offered as a mitigation condition for the adverse impacts arising from those mergers, the price caps proposal was designed to avoid future regulatory ratemaking proceedings, with hearings and evidence and the like, but still permit adjustment of UNE rates.

The CPUC, in approving the mergers, addressed the CALTEL proposal but deferred its consideration in light of FCC merger conditions that capped Verizon and AT&T rates for several years. In March, 2006, the CPUC granted a CALTEL motion to consider the price cap proposal in the UNE rate proceeding, and comments were filed in the summer of 2006. In February, 2008, CALTEL filed a motion urging the CPUC to issue a proposed decision, which it did in June. In July, 2008, the Assigned Commissioner ordered CALTEL to negotiate with AT&T and Verizon in order to explore a possible settlement, and settlement agreements were completed and submitted for CPUC approval in early December.

In the price caps mechanism negotiated with AT&T, instead of a full-blown TELRIC rate case every two or three years AT&T will make an annual compliance filing, which will then be reviewed by interested parties and the PUC. The compliance filing will adjust wholesale UNE rates based on the GDP-PI inflation factor for the previous calendar year, a set productivity factor, and upper and lower adjustment caps, similar to traditional price cap mechanisms that have been used at the state and federal level to set rates in the retail and special access markets.

Advancing the Competitive Telecommunications Industry

CALTEL - the California Association of Competitive Telecommunications Companies - is a non-profit trade association working to advance the interests of fair and open competition and customer-focused service in California telecommunications.

CALTEL members are entrepreneurial companies building and deploying next-generation networks to provide competitive voice, data, and video services. The majority of CALTEL members are small businesses who help to fuel the California economy through technological innovation, new services, affordable prices and customer choice.

Since its inception in 1983, CALTEL has represented the interests of competitive telecommunications companies at the California State legislature, Public Utilities Commission and Governor's Office.

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Sarah DeYoung
CALTEL
925-465-4396
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