BEFORE THE
STATE OF VERMONT
PUBLIC SERVICE BOARD
COMMENTS OF
SPRINT COMMUNICATIONS COMPANY L.P.
ON REGULATION OF NON DOMINANT TELECOMMUNICATIONS CARRIERS
Pursuant to the September 13, 2000 Memorandum from Susan M.
Hudson, Clerk of the Board, Sprint Communications Company L.P. (“Sprint”)
hereby files these comments on the appropriate level of regulation of non
dominant telecommunications carriers in Vermont.
INTRODUCTION
On September 13, 2000, via a Memorandum from Susan M. Hudson,
Clerk of the Board, the Board requested comments on the appropriate level of
regulation of non dominant telecommunications carriers in Vermont. According
to the Memorandum, the Board intends to initiate a rulemaking implementing the
authority granted to it by the Vermont General Assembly to modify, reduce or
suspend requirements imposed under Title 30 as it applies to non dominant
telecommunications carriers. Prior to commencing the formal process, the Board
seeks comments from interested parties.
I.
The Traditional Form of Regulation For New Service Providers In A
Competitive Market Is Not Appropriate Or Necessary
The traditional form of regulation that exists today in Vermont was
developed for a market that was dominated by a single provider that has the
ability to dictate or control the terms and conditions of services being offered.
Accordingly, some form of regulation for the dominant provider has been and
remains appropriate to ensure the provision of an acceptable quality of service.
The traditional form of regulation for new service providers in a
competitive market is not appropriate or necessary, however. In contrast to
traditional regulation, market forces will ensure that new service providers make
services available at an acceptable quality, with reasonable terms and at
competitive prices.
As the telecommunications industry evolves to a more competitive
marketplace, the degree of regulation must be considered. The Board must
consider two important areas when evaluating the degree of regulation needed.
First, the Board must consider the type of company providing the service.
Dominant competitors that have the ability to control the terms and conditions
within the market should continue to have regulatory constraints. New entrants
beginning with no market power should not have the same regulatory
constraints. Regulations that apply to social programs would be an exception.
Second, the Board must consider the type of service being provided.
Telecommunications has moved far beyond the simple voice and data
communications of the recent past. These two simple services take many forms
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today. Each should be viewed independently in order to avoid shackling either
or both services with unnecessary and/or inappropriate regulation.
Sprint strongly urges the Department to begin allowing market conditions
to dictate the terms and conditions under which telecommunications carriers
operate within Vermont. Consumer choice and preference are the ultimate
standards which any firm strives to meet. The Board can best assist this
transition from regulatory standards to market standards by reducing its
regulation of competitive local exchnage carriers (“CLECs”). Unlike incumbent
local exchnage carriers (“ILECs”), CLECs are not dominant players, have no
market power (much less monopoly power), and need as much freedom from
restrictive regulation as possible if they are to compete effectively against the
ILECs and provide real alternatives to consumers. Moreover, regulation of
CLECs by and large is unnecessary because consumers can simply vote with
their wallets and choose the ILEC or another CLEC if they receive inadequate
service from a particular CLEC.
II.
CLECs Are Non Dominant Telecommunications Carriers
CLECs are non dominant telecommunication carriers by Federal
Communications Commission (“FCC”) definition. CLECs start with 0% local
service market share. ILECs are dominant carriers. They start with 100% local
service market share. Non dominant carriers must earn new customers while
dominant carriers must retain existing customers. It is much more difficult to
acquire a customer than it is to retain a customer. Customers must be incented
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to leave an existing relationship. CLECs must provide that incentive. Adhering
to archaic regulations does not lend itself to providing CLEC (and thus customers
indirectly) incentives necessary to gain customers.
Moving from dominant status to non dominant status (or vice versa) is not
necessarily a reflection of a % of customers or a % of revenues. Large scale
carriers (namely ILECs) with significant market share can still successfully
thwart competitive inroads by underpricing competitors until competitors are
forced to bankruptcy. CLECs do not have the scale and scope (access to
capital, etc.) to weather prolonged price decreases by large-scale competitors.
The definition of dominance or non dominance should be a reflection of several
activities including capitalization, number of customers, number of competitors,
market share, revenues, etc. The old adage of "you'll know it when you see it"
truly fits for an ILEC determination of non dominance.
There are also differing degrees of dominance when comparing small
ILECs with large ILECs. Once again capitalization becomes an issue here.
Smaller ILECs should not necessarily be held to the same degree of the
dominance arguments that would apply to large ILECs. In either event, a
regulatory proceeding validating non dominance should always be initiated
before any ILEC receives non dominant status. Non dominant status implies
reduction or elimination of regulations including pricing limitations. However, non
dominance status can be applied to specific services (such as retail directory
assistance) regardless of carrier, pending approval in a regulatory proceeding.
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III.
Non Dominant Carriers Should Be Relieved Of All Regulatory
Conditions Except Those Impacting Social Programs
Non dominant carriers should be relieved of all regulatory conditions
except those impacting social programs such as funding a Universal Service
Fund, Lifeline, etc. Also, provisioning of these types of services should only be
required of those carriers who provide primary voice line service to residential
customers. By definition, CLECs are not dominant local exchange carriers;
indeed, they have virtually no market share or market power. They face
tremendous challenges in attempting to attract and retain customers, and have
incentive to treat their customers well. Furthermore, CLECs reselling ILEC
service or purchasing Unbundled Network Elements from the ILEC are
dependent upon the ILEC to deliver service to the end-user customer.
In passing the Telecom Act of 1996, Congress sought "to promote
competition and reduce regulation in order to secure lower prices and higher
quality services for American telecommunications consumers and encourage the
rapid deployment of new telecommunications technologies." 1 In regulating
quality of service, the Commission should recognize the significant differences
between ILECs and CLECs. These differences described above dictate that the
standards should not apply to CLECs.
The new entrants should routinely be allowed to enter the market. Rather
than imposing the greatest degree of regulation on new entrants by default, the
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lowest degree of regulation would be more appropriate. Reporting and service
requirements should be applied only after it is shown that the competitive
marketplace does not provide sufficient customer protection.
As stated before, by definition, CLECs are not dominant local exchange
carriers; indeed, they have virtually no market share or market power. They face
tremendous challenges in attempting to attract and retain customers, and have
incentive to treat their customers well. With the high cost of acquisition,
competitive companies are incented to do everything in their power to retain
customers.
The marketplace should dictate what, if any, packages carriers provide to
their customers. CLECs must offer “value-added” products with a higher level of
service at competitive prices than the ILEC. Customer satisfaction and loyalty
become indispensable elements of a CLEC’s business.
IV.
CLECs Should Not Be Held To The Same Service Standards As
ILECs
CLECs are not dominant local exchange carriers and, therefore, must not
be held to the same service standard requirements as ILECs. In order to
compete successfully in the marketplace, a CLEC must differentiate itself from
the ILEC. The competitive market provides positive incentives for participants to
provide high quality service. The new service entrant must provide some
economic incentive for the consumer to select the CLEC’s service over the
1
Telecommunications Act of 1996, Pub. L. No. 104-104, purpose statement, 110 Stat.
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incumbent provider. Thus, a CLEC must meet customer desired service
standards to be a viable competitor.
Few states have adopted rules which fit the current competitive local
telecommunications environment. Most intrastate standards, in fact, were written
for application to monopoly ILECs or competitive interexchange carriers (“IXCs”).
With the more recent emergence of competition in the local arena, rules must be
revamped to allow more flexible regulatory service standards and rules for
CLECs as they enter the market. A CLEC must meet customer-desired service
standards to be a viable competitor. Sprint believes that as competitors enter
the market, customers will have the choice of multiple carriers. Customers will
be able to choose among carriers that meet their needs. If they are not satisfied,
they may choose another carrier. To the extent that a carrier is the local primary
voice carrier, requirements such as E-911 and TRS should apply. However,
there is no reason to apply full scale reporting of items such as answer time,
repair time, and other details. In a competitive market customer choice should
and does dictate quality of service not regulations. If a customer is dissatisfied
with the service it receives from one carrier, it will choose another.
It is important that CLECs be allowed the flexibility to choose how they
serve customers. Without the flexibility to listen to customer expectations,
CLECs cannot as easily distinguish themselves from ILECs, and cannot offer a
combination of price and service that many customers may desire to purchase.
In a closed market environment, regulatory oversight is needed to assure that
56, 56 (1996).
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the service provider is operating in a fair and reasonable manner. A competitive
marketplace must be given a chance to work for the benefit and protection of
consumers. In such a competitive marketplace, service quality, features, and bill
presentation must be established through customer demand. Service providers
with inferior service quality and features will be forced to meet the customer
requirements or be eliminated from the market entirely.
As competition evolves and customers have multiple choices for service
providers, the market, and not regulation, should determine the level of quality
and service required to meet the customers’ desires. Customers then grow to
expect this improvement in quality and reward the provider with their loyalty. For
example, the invoice presentation serves as one of many avenues for the CLEC
to differentiate their offerings and attract new customers. Regulatory oversight of
the invoice presentation will limit the CLECs ability to fashion the invoice process
to attract and maintain new customers.
CLECs currently must adapt their procedures to differences created by
non-standard regulatory rules and statutes among the states. The potential for
50 different sets of standards would lead to significant operating inefficiencies for
CLECs.
Many customers of a CLEC tend to be national in scope and would like
consistent policy applied to all their products and services nationwide. Adapting
to different standards creates operating inefficiencies for the customer in the
same way it does for CLECs.
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Local market entry requirements may impose substantial start-up costs
and act as unnecessary entry barriers. A CLEC, as a new market entrant
subject to penalties for non-compliance, must develop and maintain expensive
back-office systems to monitor its compliance of specific regulations. Such
requirements create an unnecessary and substantial expense for CLECs who
already have a powerful incentive to provide excellent service to their customers
because those customers retain the option to cancel their service and opt for
another CLEC or return to the ILEC.
As full-scale competition develops in the local voice market, the level of
regulation applied to ILECs may be reduced. This should occur when multiple
CLECs have entered the market and customers have moved in significant
enough numbers to the CLECs to provide a real check on the market power of
the ILEC. At this point, the ILEC should not see the degree of regulatory relief as
new entrants.
CLECs reselling ILEC service or purchasing Unbundled Network
Elements from the ILEC are dependent upon the ILEC to deliver service to the
end-user customer. If the ILEC fails to meet the service standards on installation
of service for its CLEC wholesale customer, for example, the CLEC still will be
responsible for failing to meet the applicable service standard.
Even if Board recognized the CLEC reliance on ILECs for service
provisioning and allowed exceptions to reflect these reporting measurements,
the CLEC would be required to establish greater administrative tracking
processes than the ILEC because the additional ILEC reporting would have to be
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built into the CLEC process. This certainly does not put the CLEC at parity with
the ILEC and increases costs. Additionally the CLEC would never be positioned
to provide service quicker than an ILEC for if the ILEC can get the service to a
CLEC in three days, it certainly would be able to get the service to the end user
customer in the same amount of time. Thus, a CLEC could never meet end user
turnaround times equal to the ILEC since the CLEC has provisioning windows
after they get the service from the ILEC.
In sum, the ILEC controls and provides many, and in some cases virtually
all, elements of the service provided by CLECs to their end-user customers.
Rules are necessary for the ILEC until they are no longer considered the
dominant service provider. CLECs have few customers and must provide a level
of quality consistent with market demands. Lacking a sufficient level of quality, a
CLEC will not be successful because the end-user has the option of returning to
the ILEC or moving to another CLEC when poor quality performance occurs.
V.
Invoices
End users purchase packages of various components for the sake of
simplicity of getting multiple services from one provider and for the potential
savings they receive when purchasing more from a single provider. The
simplicity of the packaged service is defeated if the invoice does not reflect what
was purchased. The end user is required to add up the individual prices and
compare them to the packaged price they were sold.
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Rules vary considerably between states. Complying with all the rules in all
the states drive up the costs of national service providers which results in higher
rates for end users.
Sprint offers services based on the wants and needs of targeted
customers. The customer invoice is an integral part of the service being
provided. Therefore, customer input regarding the invoice must be taken into
consideration otherwise market success will be impacted.
As a national service provider, Sprint must provide ubiquitous service and
billing across all markets. In fact, Sprint has a strong desire to have a common
invoice appearance. Market research has been utilized to develop a Sprint
invoice that reflects the opinions of Sprint customers.
Services sold as a bundle should be reflected as a bundle on the invoice.
A customer making a decision to purchase multiple Sprint services for a certain
bundled rate will be confused if they receive an invoice that has itemized prices
for each of the components of the bundle. This is consistent with the FCC Truth
In Billing order.
VI.
CLEC Rates Should Not Be Regulated
In a competitive marketplace there is no need to regulate the rates of a
new entrant. A new entrant begins with zero market share and is entirely
dependant on offering a service that meets the wants and needs of potential
customers. This includes the price.
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The best guarantee of high service quality is the existence of a vibrantly
competitive telecommunications marketplace. Indeed, when true competition
exists in the marketplace, the delivery of high service quality will be a
prerequisite for any carrier’s survival.
DISCUSSION OF SPECIFIC REQUIREMENTS
I.
The Service Quality Standards Do Not Apply To IntraLATA Toll And
Interstate Service
On July 2, 1999, the Board issued an Order adopting service quality
standards for the provision of local exchange service in Vermont. 2 In that
decision the Board approved certain service quality standards for local exchange
service and a reporting requirement for those telecommunications carriers
providing local exchange service. 3
The Department of Public Service has taken the position that these
service quality reporting requirements apply to interexchange service.4 The
Department seeks to require Sprint to file a Service Quality Report containing
measurements designed to regulate local exchange service, and to apply a
portion of them to Sprint’s interstate operations. Such a requirement is
2
Investigation into Service Quality Standards, Privacy Protections, and other Consumer Safeguards for
Retail Telecommunications Service, Docket No. 5903, Order entered July 2, 1999.
3
The specifics of these service quality measures are contained in a “Stipulation” which was signed by the
Department and some, but not all, of the parties and submitted in docket 5903.3 Sprint was not a signatory
to this Stipulation.
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inappropriate, however, because, as discussed in its request for a waiver, 1)
reporting of such information is not required under the Board’s decision in Docket
5903; 2) none of the service quality standards apply to intraLATA toll or interstate
service; 3) the Board lacks jurisdiction to regulate interstate service; and 4)
increasing regulation of interexchange carriers (“IXCs”) is contrary to the goals of
the General Assembly to reduce regulation in competitive markets. 5
II.
3.202 Conditions for Taking of Deposits
Sprint does not require deposits to establish any of its services. However,
Sprint believes that a non-dominant telecommunications provider that directly
bills its customers should not be required to accept deposit payments in
installments. In those situations in which a deposit is required from a creditchallenged customer, payment in full is required prior to the customer receiving
service or equipment being installed at the customer premise. In the case of
Sprint’s Integrated On Demand (“ION”) service, Sprint has made a significant
investment in the equipment. The deposit, therefore, is to protect Sprint’s
financial investment as well as offset the risk of customers who are irresponsible
about their bills. Carriers are vulnerable to customers who might incur large bills
and then refuse to pay. A carrier that requires a deposit from a credit-challenged
customer is not unlike an apartment complex requiring a deposit of the first and
last months rent in advance. It is a prudent course of action designed to protect
4
Sprint has requested a waiver from the Board requirement to file a Service Quality Report. The request
for a waiver is still pending. See Petition of Sprint Communications Company L.P. for a waiver of service
quality reporting requirements under Docket 5903 dated March 31, 2000.
5
Id.
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the carrier’s investment until the applicant/customer demonstrates
creditworthiness.
Sprint does not believe that a non-dominant telecommunications provider
should be required to advise the customer that the necessity for a deposit or its
amount may be disputed by making a complaint to the Department. This rule
should apply to dominant carriers since non-payment of a deposit for Sprint
services does not prohibit the customer from seeking service from another
competitive carrier. This rule is unnecessary for non-dominant carriers.
III.
3.302(B) Exceptions
This rule will unnecessarily increase bad debt. Carriers simply cannot
afford to exempt a customer from disconnection if the bill does not exceed $50.
Although the exception cannot be used for more than two billing cycles in one
calendar year, it is simply unreasonable to expect carriers to give $50-$100 in
free calling.
Telecommunication providers are in the business of providing services to
customers. In this regard, customers have the right to expect quality service. In
exchange, carriers have the right to expect payment for services rendered. If
customers have a problem understanding the bill or a problem paying the bill,
Sprint has implemented mechanisms to help customers maintain their service.
In those situations in which the local provider is our billing and collection agent,
we have agreements that authorize the LEC to set up payment plans. Should
the customer contact Sprint directly, our customer service group can also set up
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deferred payment arrangements. If a customer has used and received benefit
from the service, the service provider has a legitimate expectation to receive
payment. Service providers simply cannot extend $50 of free service. Such a
policy will be a disincentive for smaller carriers to enter the Vermont market.
Service providers cannot afford to provide free service.
IV.
3.305 Notice Under Repayment Plan
Delinquent customers receive written notice of disconnection advising
they have the option of entering into a reasonable agreement with the utility to
pay the delinquency by means of a repayment plan. In order to set up such an
agreement, the customer must speak with a Sprint representative. During this
conversation, the terms of the repayment plan are negotiated, and the customer
is advised that default of the repayment plan will result in suspension of service.
The customer is sent a letter confirming the terms and conditions of the
agreement. Therefore, the customer is advised twice, once verbally and again in
writing, that default of the repayment plan will result in suspension of service.
Since the customer is advised of the default penalty on two separate occasions,
It is unnecessary to mail a second disconnect notice. Requiring another
disconnect notice simply increases costs for carriers.
V.
3.306 Time and Notice of Disconnection
Non dominant toll providers should be required to comply with specific
dates and times of day when the utility may disconnect service. Sprint systems
that control service suspension are not capable of unique geographic
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requirements. Enhancements of this magnitude would require significant
financial investment.
VI.
3.404 Time and Notice of Disconnection
For the same reasons stated in 3.306, non dominant toll providers should
be required to comply with specific dates and times of day when the utility may
disconnect service. Sprint systems that control service suspension are not
capable of unique geographic requirements. Enhancements of this magnitude
would require significant financial investment.
CONCLUSION
Sprint appreciates the opportunity to comment on this important issue for
the telecommunications market in Vermont.
Respectfully submitted,
SPRINT COMMUNICATIONS COMPANY L.P.
_____________________________________
Christopher D. Moore
401 9th Street, N.W., Suite 400
Washington, D.C. 20004
(202) 585-1938 (phone)
(202) 585-1894 (fax)
christopher.d.moore@mail.sprint.com
October 20, 2000
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