[:()('J(ET FILE COpy ORIGINAL
Before the
Federal Communications Commission
Washington, D.C. 20554
RECEIVED
MAR 5 2001
In the Matter of
Numbering Resource Optimization
Petition for Declaratory Ruling and Request
for Expedited Action on the July 15, 1997
Order ofthe Pennsylvania Public Utility
Commission Regarding Area Codes 412, 610,
215, and 717
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CC Docket No. 99-200
CC Docket No. 96-98
REPLY COMMENTS ON SECOND REPORT AND ORDER,
ORDER ON RECONSIDERATION IN CC DOCKET NO. 96-98 AND
CC DOCKET NO. 99-200, AND SECOND FURTHER NOTICE
OF PROPOSED RULEMAKING IN CC DOCKET NO. 99-200
1. Introduction and Summary.
Global NAPS, Inc. ("Global NAPs") respectfully submits these reply comments in
response to the December 7, 2000 Numbering Resource Optimization Second Report and Order
and Second Further Notice of Proposed Rulemaking ("2d R&D"), pursuant to ordering
paragraph 202 of the 2d R&D. Global NAPs, including its affiliates, is a competitive local
exchange carrier ("CLEC") certified to provide services in approximately twenty states and
actively providing service in Florida, Massachusetts, Maryland, New Hampshire, New York,
Rhode Island, and Virginia.
There is widespread support III the comments for the effectiveness of rate center
consolidation as a number conservation tool. The main objection to its use comes from
commenters who assume that any loss in intraLATA toll revenues caused by rate center
consolidation would be made up, dollar-for-dollar, in local rate increases by incumbent local
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5, 2001
exchange carriers ("ILECs"). As discussed below, there is no reason to think that this is actually
a serious concern. Rate-regulated ILECs have no legal entitlement to any particular level of
revenues; instead, they have an entitlement to a non-confiscatory level of earnings. In the
absence of evidence that any particular ILEC is in financial extremis, there is no reason to think
that some or all of the revenue declines attributable to rate center consolidation could not be
absorbed without local rate increases. Moreover, the evidence relied on most heavily by the
commenters on this point assumed that rate center consolidation would result in a complete
elimination of intraLATA toll charges. In fact, less thoroughgoing efforts at rate center
consolidation could still make substantial contributions to number conservation, but with less
impact on ILEC revenues - ifsuch revenues need to be preserved.
2. Global Naps Supports A Mandatory Federal Program Of Rate Center
Consolidation As The Only True Solution To The Numbering Crisis
A. Rate Center Consolidation Has Widespread Support in the Industry
and From Regulators
Many commenting parties support the use of rate center consolidation. For example,
WorldCom, like Global NAPs, understands that addressing the inefficiencies associated with the
current organization of rate centers and their role in determining rates is the fundamental
problem the Commission should address.
l
Allegiance Telecom called consolidation a "vital yet
underused number conservation too1.,,2
See Comments of WorldCom, Inc., CC Docket No. 99-200 (rec'd Feb. 14, 2001). In fact,
WorldCom proposes actually divorcing all rating intelligence from the NPA-NXX structure in favor
ofa "transparent" numbering system. Id. at 5-8.
2 Comments ofAllegiance Telecom, Inc., CC Docket No. 99-200 at 13 (Feb. 14,2001).
2
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5, 2001
The Personal Communications Industry Association
3
correctly points out that rate center
consolidation is "superior to virtually all other optimization measures" for four reasons. First,
consolidation frees vast amounts stranded numbers for little cost. Second, it can be immediately
implemented with little impact on industry. Third, it allows for more efficient use ofnumbering
resources by all classes of carriers, because consolidation is not dependent on local number
portability ("LNP") and thus can be implemented more broadly than other measures such as
pooling (which is LNP-dependent).4 Fourth, consolidating rate centers increases the
effectiveness of other optimization programs such as number pooling because its lessens carrier
need for numbers on the front-end. Pooling, on the other hand, reassigns numbers after they
have already been inefficiently distributed--eonsolidation, thus, would reduce the number of
codes to be pooled.
BellSouth also recognizes the value of rate center consolidation and has supported such
efforts in its nine-state region. It supports consolidation even though it finds that certain classes
of carriers are discouraged from participating in consolidation by the way in which Months-To-
Exhaust ("MTE") is calculated. 5 Despite is opposition to the MTE rule, BellSouth still supports
consolidation as a conservation devise because it recognizes that reducing the number of rate
centers lowers carriers' demand for NXX codes.
6
Qwest Corporation also supports rate center
See Comments ofthe Personal Communications Industry Association, CC Docket No. 99-200
(Feb. 14,2001).
See id. at 14.
4
5
See Comments ofAllegiance Telecom, Inc., at 14.
See BellSouth Corporation Comments, CC Docket No. 99-200 at 11-12 (Feb. 14, 2001).
BeIlSouth opposes requiring a carrier to calculate Months-To-Exhaust at the rate center level when a
carrier has multiple switches in a rate center. See id.
6
3
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5, 2001
consolidation as a number conservation tool notwithstanding its disagreement with the specifics
ofthe MTE and utilization calculations.
7
Finally, several state public utilities commissions also support rate center consolidation.
Indeed, the California Public Utilities Commission ("CPUC") is under a state statutory duty to
evaluate rate center consolidation,
8
and the CPUC recognized consolidation as an "opportunity to
build upon the progress California has made via number pooling in extending the life of
California area codes, and thus the entire NANP.,,9 The CPUC noted that several states have
already implemented successful consolidation programs including Colorado, Missouri and
Washington.
lO
It asked that the state, industry and the FCC work together through an FCC-
sponsored workshop. I I Indeed, the Michigan PSC encouraged the FCC to develop a nationwide
I
'd . 12
conso 1 atton program.
B. The Principle Objection to Rate Center Consolidation is Misguided.
Several parties opposing rate center consolidation have suggested that the inevitable
impact ofsuch an action is an increase in local calling rates. The basis for this suggestion seems
to be an assumption that ILECs have some sort of legal entitlement to their current level of
revenues. While relevant regulatory legislation varies from state to state, as a general
7 See Comments ofQwest Corporation to Second Further Notice ofProposed Rulemaking, CC
Docket No. 99-200 at 3-4 (Feb. 14, 2001). Like BellSouth, Qwest also argues that changes in the
MTE calculations, as well as utilization thresholds, are necessary corollaries to a consolidation
program.
8 See Further Comments ofthe California Public Utilities Commission and ofthe People ofthe
State ofCalifornia, CC Docket No. 99-200 at 7 (Feb. 14, 2001) (citing California Public Utilities
Code § 7935(a)).
9 Id., at 7.
10
II
See id., at 8.
See id.
12
See Michigan Public Service Commission Further Comments on Numbering Resource
Optimization, CC Docket No. 99-200 at 5 (Feb. 14,2001).
4
13
14
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5. 2001
ratemaking proposition, regulated firms such as the ILECs are entitled not to any particular level
of revenues, but rather to a level of earnings that is non-confiscatory when viewed in light of
prudently incurred expenses and investments. See generally Duquesne Light Co. v. Barasch, 488
u.s. 299 (1988). It follows that unless an ILEC's earnings today are at the bare minimum level
needed to avoid "confiscation" in the constitutional sense, it is simply not the case that a
decrease in toll revenues in any sense "needs" to be made up with an increase in local revenues.
In this regard, many ofthose who express reservations about rate center consolidation do
so based on a misunderstanding of a study published by Economics and Technology Inc.
("ETI").l3 Many states cited this study for the proposition that rate center consolidation would
lead to inevitable and, in some cases, significant increases in local rates.
l4
Other states, such as
Florida and New York, raise the same concern without expressly citing the study. See NY PSC
Comments at 3; FL PSC Comments at 7.
In fact, however, that is not what the study says or even implies. The reason is that the
ETI Study's analysis of potential rate increases resulting from rate center consolidation was
made on the basis of three conservative "worst case" assumptions, none of which is likely to be
true in the real world. First, this aspect ofthe study assumes that rate center consolidation would
eliminate "all intraLATA toll [...], i.e., where the entire LATA was recast as a single LATA-
wide center." ETI Study at 32 (emphasis added). Second, it assumes that ILECs are entitled to
recover all revenues lost to consolidation. See id. As discussed above, this is unlikely to be true
See Where Have All the Numbers Gone? (Second Edition) Rescuing the North American
Numbering Plan from Mismanagement and Premature Exhaust, Economics and Technology Inc.
(June 2000) ("ETI Study").
This study was expressly cited in the comments ofthe California PUC (see CPUC Comments
at 7), the Michigan PSC (see Michigan PSC Comments at 4) and the New Hampshire PUC (see NH
PUC Comments, section II). In fact, the ETI Study is specifically cited in the "State Coordination
5
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5, 2001
in most cases. Third, it assumes that whatever ILECs recover, they would recover these
revenues by adding those costs to local rates. See id. Any veteran of a rate case knows,
however, that once a "revenue requirement" (i.e., an earnings shortfall of constitutional
dimension) has been proven to exist, the entire issue of "rate design," (i.e., what specific rate
adjustments will produce the needed revenue) still remains. It is far from obvious that increases
in residential basic rates are the only logical place for any necessary rate increases.
Other commenters, on the other hand, recognize that the telecommunications industry is
moving toward cost-based pricing and that the current rating structure is no longer appropriate
because the distance-sensitive portion of interoffice transport of calls is truly insignificant. As
the National Association of State Utility Consumer Advocates noted in its comments, "the
industry is moving toward a pricing model that reduces.. .the reliance on rate centers for pricing
purposes in a competitive environment." Comments ofthe National Association ofState Utility
Consumer Advocates to the Second Further Notice ofProposed Rulemaking in CC Docket No.
99-200 at 16 (Feb. 14,2001).
But the key point remains that even if rate center consolidation might affect ILEC
revenues, it may still be perfectly lawful to impose that revenue loss on an ILEC that is earning
above the constitutionally protected floor. Global NAPs recognizes that it has not been
fashionable in recent years to focus on this constitutional principle ofratemaking - i.e., that it is
perfectly lawful to decrease the revenues ofa regulated carrier ifdoing so would serve the public
interest and would not be confiscatory. Even so, the extraordinarily severe consequences that
would follow from the exhaustion of the numbering resources in the NANP indicate that this
issue must be directly and responsibly addressed and considered. Putting the matter in (blunt)
Group" template attached to a number ofstate commission filings. See SCG template, discussion of
6
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5, 2001
ratemaking terms, if a regulated ILEC could absorb the loss of toll revenues that would result
from (e.g.) elimination of all intraLATA toll in a state without depressing earnings below a
confiscatory level, there is no general legal bar to imposing such a revenue decrease. 15
But even if an ILEC could not absorb the requisite revenue decrease without depressing
earnings below a confiscatory level, that hardly means that there is no alternative but to allow the
perpetuation of anachronistic, non-cost-based, and anti-competitively small rate centers. First,
other than a company in some sort of financial extremis (and none of the major ILECs seems to
be remotely in such a condition), ILECs could certainly absorb some of the impact of lost toll
revenues attendant upon rate center consolidation. So perhaps consolidation that does not
amount to LATA-wide local calling could be implemented in various states without an impact on
residential rates subject to the protections embodied in Section 254's universal service policies.
Second, however, this concern about local rates highlights an issue that affects not only
the immediate problem of numbering resources, but indeed local competition more generally.
That is the difficulty most (if not all) states have had in actually implementing the portable,
competitively neutral, explicit and sufficient subsidies to basic services that Section 254
enVISIOns. If the local service rates that would result from rate center consolidation in a
particular state would be so dramatic as to render the resulting telephone service "unaffordable,"
then the service should be explicitly subsidized by a competitively neutral, portable universal
service payment. The difficult problem of subsidized local rates - and how to make those
subsidies explicit, predictable, and competitively neutral - has been simmering in the industry
~~146, 148 ofthe notice in this matter.
15 Again, particular states may have legislation that gives ILECs more protection against non
confiscatory revenue decreases than are mandated by established constitutional ratemaking
principles; to the extent that this is a state-level rate issue, each state would need to assess its own
statutory framework on this point.
7
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5, 2001
since the passage ofthe 1996 Act, and it was only a matter oftime before something brought it to
a head. If the exhaustion of the NANP is not a sufficiently serious issue to do so, it is hard to
imagine what would be.
For these reasons, Global NAPs urges the Commission to adopt requirements for rate
center consolidation for implementation by individual states. In doing so the Commission should
make clear that there is no federal requirement that reductions in ILEC toll revenues be offset in
a revenue neutral manner by increases in other rates, and should urge states to require real proof
of confiscatorily-Iow earnings from affected ILECs before shying away from undertaking
substantial efforts to free up numbers by consolidating rate centers.
8
Global NAPs Reply Comments in CC Docket Nos. 99-200, 96-98
March 5, 2001
3. Conclusion.
For the reasons stated above and in Global NAPs' opening comments, Global NAPs
urges the Commission to establish a mandatory federal standards for states to apply in
implementing rate center consolidation. States should be encouraged to engage in the maximum
level of rate center consolidation that is permissible without imposing confiscatory earnings
levels on the affected ILECs. Otherwise, the enormous cost and disruption associated with the
exhaust of the North American Numbering Plan will be incurred for no better reason that
allowing ILECs to retain their current level of revenues, irrespective of whether they are in fact
legally or constitutionally entitled to such revenues.
zm_i_tt-ed-,--------
William J. Rooney, Esq.
General Counsel, Global NAPs, Inc.
Ten Merrymount Road
Quincy, Massachusetts 02169
Tel. (617) 507-5111
Dated: March 5, 2001
Christopher W. Savage, Esq.
Karlyn D. Stanley, Esq.
Danielle Frappier, Esq.
COLE, RAYWID & BRAVERMAN, L.L.P.
1919 Pennsylvania Avenue N.W.
Washington, D.C. 20006
(202) 659-9750 (tel.)
(202) 452-0067 (fax)
Attorneys for
Global NAPs, Inc.
9
CERTIFICATE OF SERVICE
I, Lena Mosley, do hereby certify that on this 5th day ofMarch, 2001 a true and correct
copy ofthe foregoing "Reply Comments on Second Report and Order, Order On
Reconsideration In CC Docket No. 96-98 and CC Docket No. 99-200, and Second Further
Notice ofProposed Rulemaking in CC Docket No. 99-200" has been sent to the following via
Courier:
Carmel Weathers (w/encl. diskette)
Network Services Division
Common Carrier Bureau
445 Twelfth Street, SW
Room 6-B153
Washington, D.C. 20554
International Transcription Services, Inc.
1231 20
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Street, N.W.
Washington, D.C. 20554
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