05I-431T

BEFORE THE PUBLIC UTILITIES COMMISSIONOF THE STATE OF COLORADO

IN THE MATTER OF THE INVESTIGATION OF THE COLORADO HIGH COST SUPPORT MECHANISM.

)))

DOCKET NO. 05I-431T

REPLY COMMENTS OF THE COLORADO OFFICE OF CONSUMER COUNSEL REGARDING WORKSHOP NO. 4: CONTRIBUTIONS

Pursuant to Decision No. C06-0018, Procedural Order, issued on January 24, 2006, by

the Colorado Public Utilities Commission (“Commission” or “PUC”), the Colorado Office of

Consumer Counsel (“OCC”), by and through its undersigned counsel, hereby files its Reply

Comments Regarding Workshop No. 4: Contributions, and in Reply to Comments filed herein

by Qwest Corporation (“Qwest”), Cricket Communications (“Cricket”), Verizon Wireless

(“Verizon”), the Colorado Telecommunications Association (“CTA”), and N. E. Colorado

Cellular, Inc. dba Viaero Wireless (“Viaero”).

Workshop #4: Contributions

1. What is the appropriate basis for determining the providers' contribution to the

CHCSM fund (for example, revenues, connections, some other method)? Is the current

method working properly? What changes, if any, are necessary?

Summary of the OCC’s Initial Comments

The most equitable and appropriate basis for determining the providers’ contribution to

the CHCSM fund is a revenue-based approach to contributions.

Reply to Other Parties’ Comments

Qwest, CTA, Viaero and Cricket all concur with the OCC’s position that a provider’s

contribution to the CHCSM fund should be a revenue based approach and each supports the

current methodology basing assessments on a percentage of revenue. Additionally, Qwest

advocates a competitively neutral contribution methodology requiring equitable contribution

from all providers utilizing North American Numbering Plan (“NANP”) numbers, regardless of

type of technology, and requiring CHCSM contributions from Voice over Internet Protocol

(“VoIP”), Wireless, Paging, Wireline and Satellite providers if utilizing NANP numbers. Qwest

also highlights various situations requiring or exempted from contribution. Further, and to the

extent the Commission moves to a connection-based system, Cricket urges discounts via a

reduced assessment rate for consumers of various plans. CTA appears to agree with the current

revenue based assessment method for contributions to the CHCSM, advocates CHCSM

assessment collection from as broad a base as possible, and specifically challenges Verizon (and

CMRS providers generally) by commenting on this Commission’s clear authority under both

State and Federal law to impose a CHCSM contribution assessment on all Colorado carriers,

including wireless carriers.

In contrast, Verizon espouses the theory, as it previously argued in Workshop No. 2, that

the “Commission should exempt wireless carriers from contribution to the CHCSM” [Verizon

Comments, p. 1], due to a 2005 FCC Declaratory Order comment “that states lack the authority

to require wireless carriers to place line items on their bills because such regulation seeks to

govern a wireless carrier’s rate structure and is therefore preempted by 47 U.S.C. § 332(c)(3).”

[Verizon Comments, p. 2]. The OCC disputes Verizon’s interpretation of the effect of the FCC’s

decision and believes that Verizon’s conclusion – that Federal Law preempts Colorado statutes

and Commission Rules authorizing CHCSM contributions from wireless providers – is

2

incorrect.1

Verizon, at Page 2, cites to the FCC’s 2005 Truth-in-Billing Order2 for the proposition

that this Commission is preempted from requiring wireless providers to place line items on their

end-users’ bills because such is rate regulation and is preempted by 47 U.S.C. § 332(c)(3). From

this, Verizon stretches for the legal conclusion that the Commission should exempt wireless

providers from contributing to the CHCSM.

Notably, the legality of the portion of the Truth-in-Billing Order dealing with the

declaratory order aspect (and the above holding) is being challenged by NASUCA in the 11th

Circuit of the United States Court of Appeal, and was set for oral arguments on May 17, 2006.3

In addition, the FCC’s Truth-in-Billing Order issued a Second Further Notice of Proposed

Rulemaking (Second FNRPM) seeking comments related to state jurisdiction over

telecommunications carriers’ billing practices and the FCC’s Truth-in-Billing rules.4 Thus, the

FCC’s Truth-in-Billing Order is not settled law, the status quo may change, and it is premature

and disingenuous to suggest that this Commission is legally precluded from requiring wireless

1 The OCC previously disputed Verizon’s exemption from CHCSM contribution for wireless provider’s arguments in Workshop No. 2 regarding Types of Providers. Linked at: http://www.dora.state.co.us/puc/docket_activity/filings/05I-431T/05I-431T_OCC04-11-06Workshop2ReplyComments%20.doc2 In the Matter of Truth-in-Billing and Billing Formant, National Association of State Utility Consumer Advocates’ Petition for Declaratory Ruling Regarding Truth-in-Billing, Second Report and Order, Declaratory Ruling, and Second Further Notice of Proposed Rulemaking, CC Docket No. 98-170, CG Docket No. 04-208, FCC 05-55 (rel. March 18, 2005). (“Truth-in-Billing Order”) Linked at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-05-55A1.pdf3 National Association of State Utility Consumer Advocates, No. 05-11682-DD (11th Cir., filed March 28,2005). This action was consolidated with a similar petition for review filed in the United StatesCourt of Appeals for the Second Circuit. Vermont Public Service Board v. FCC, No. 05-12601-DD (2ndCir., filed March 28, 2005). NASUCA Comments on the wireless carriers’ circular reasoning as to “line item” charges and rates. See for example, NASUCA’s Reply Comments, filed on January 30, 2006 at p. 6. and linked here: http://www.nasuca.org/filings/nasuca%20reply%20brief%20-nasuca%20v%20fcc-1-30-06.pdf4 Many parties have filed comments in response to the Second FNPRM including NASUCA (http://www.nasuca.org/filings/Initial%20TIB%20Comments%206-24-05.pdf) and the National Association of Attorneys General (http://www.naag.org/news/pdf/20050812-FinalComments-FCC-TIB.pdf). (“NAAG”)

3

providers from contributing to the CHCSM due to the FCC’s Truth-in-Billing Order.

Toward the bottom of Page 2, Verizon states, “This Commission has no basis under § 40-

15-208(2)(a), C.R.S., to require carriers to contribute to the CHCSM except via a rate element.”

While this may be a true statement, it should not be used in support of Verizon’s argument that it

be exempted from paying into the CHCSM. A full reading of that particular statutory sentence

states, “The high cost support mechanism shall be supported and distributed equitably and on a

nondiscriminatory, competitively neutral basis through a rate element assessed on all

telecommunications service providers in Colorado.” [Emphasis added]. Again, this statutory

language has nothing to do with Verizon’s argument that Colorado lacks the authority to require

wireless carriers to place line items on their bills due to 47 U.S.C. § 332(c)(3). Stated

differently, the statute is based on the CHCSM assessment as to providers and Verizon’s

argument is based on cost recovery as to its customers.

The OCC strongly disagrees with Verizon’s summation on Page 3, which states:

“Because the statute provides the Commission no other authority to support the CHCSM except

through a rate element …” Again, Verizon is attempting to rope the Colorado statute mandating

carriers’ contributions into this arena of rates elements, and thus rate regulation, and it is simply

inapplicable. Ironically, Verizon concedes this point at Page 2 when it states, “Although the

FCC stated that its ruling did not disturb the states’ ability to require wireless carriers to

contribute to state universal service mechanisms …” In the same passage Verizon cites to

Footnote 88 in the FCC’s Truth-in-Billing Order, but Footnote 88 references a requirement under

the former Rule 723-41.2.3, “which requires carriers to segregate a particular cost and collect it

through ‘a line item on the monthly bill of each … end user.’”5 Thus, it should be plain that the 5 In the Matter of Truth-in-Billing and Billing Formant, National Association of State Utility Consumer Advocates’ Petition for Declaratory Ruling Regarding Truth-in-Billing, Second Report and Order, Declaratory Ruling, and Second Further Notice of Proposed Rulemaking, CC Docket No. 98-170, CG Docket No. 04-208, FCC 05-55 (rel. March 18, 2005) at p. 18, footnote 88. (“Truth-in-Billing Order”) Linked at:

4

FCC’s Truth-in-Billing Order references the Colorado Commission’s Rules and not Colorado

statutes, or specifically C.R.S. § 40-15-208(2)(a).

Additionally, Verizon argues, at Page 2, that because “the Commission’s rules [in 4 CCR

723-2-2846(c)] require wireless carriers to place a charge on the bill to support the CHCSM,”

and because that rate element is purportedly preempted by the FCC’s Truth-in-Billing Order

accordingly to Verizon, all wireless carriers should be exempted from contributing to the

CHCSM. This Verizon argument is wrong for two reasons, (and as previously discussed by the

OCC in Workshop No. 2 Reply Comments [at Pages 11-13] and addressing this same Verizon

argument).

First, Verizon incorrectly conflates two mandates in the Commission’s Rules in order to

reach the proposition that wireless carriers should be exempted. On the providers’ contribution

side of the CHCSM equation, Rule 2846(a) states “Every provider of intrastate

telecommunications service … must contribute to the HCSM.” (Emphasis added) On the

providers’ “reimbursement” side of the equation, Rule 2846 (c) states “The HCSM rate element

shall … appear as a line item on the monthly bill of each end user.” (Emphasis added.) Verizon

would have the Commission believe that because the reimbursement side potentially runs afoul

of an FCC Order, it and all wireless providers should be exempted from the contribution side of

the Rule.6 The OCC disagrees with this legal conclusion. Further, and with regard to the Federal

universal service contribution issues, less than two (2) weeks ago (i.e., June 27, 2006) the FCC

http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-05-55A1.pdf6 Verizon does not address the inequitable scenario under its situation where a wireless carrier does not pay into the CHCSM but receives subsidies from it. The OCC would think this to be an issue for further exploration at Workshop No. 2.

5

reaffirmed that wireless providers are required to contribute to the Federal USF,7 and this further

undercuts Verizon’s wireless contribution exemption argument.

Second, Verizon’s argument as to its exemption from CHCSM contributions based upon

a putatively preempted Commission rule mandating a line item CHCSM surcharge is

disingenuous. The FCC’s Truth-in-Billing Order that Verizon cites also contains a discussion

about a 32-state (including Colorado) settlement agreement that Verizon and other wireless

carriers entered into with such states’ Attorneys General.8 In this settlement agreement, Verizon

and other wireless carriers

… agreed to separate “taxes, fees, and other charges that [they are] required to collect directly from Consumers and remit to federal, state, or local governments, or to third parties authorized by such governments, for the administration of government programs” from monthly charges and all other discretionary charges, except when the taxes, fees and other charges are bundled into a single rate with monthly charges for service and all other discretionary charges. The carriers also agreed to not represent, expressly or by implication, that the discretionary cost recovery fees are taxes.

Thus, Verizon is attempting to exempt itself from CHCSM contributions by using a

Commission Rule that is putatively subject to preemption argument, but which Verizon has

essentially agreed to adhere to in a voluntary settlement agreement with the National Association

of Attorneys General (“NAAG”). Accordingly, the OCC urges the Commission to reject

Verizon’s legal arguments and conclusion to exempt itself and other wireless providers from

contributing to the CHCSM.

2. What is the appropriate basis for collecting CHCSM fees from customers? Is the

current method working properly? What changes, if any, are necessary?

7 In the Matter of Universal Service Contribution Methodology, etc., FCC Report and Order and Notice of Proposed Rulemaking, WC Docket No. 06-122, FCC Order No. 06-94, issued June 27, 2006. See generally, ¶’s 2-3 and 23-33 regarding wireless providers obligation to contribute to the USF; and also note, VoIP providers are also required to contribute to the USF per ¶’s 34-49.8 Truth-in-Billing Order at ¶ 12. The settlement agreement was the outcome of allegations of Verizon Wireless’ (and others) misleading advertisements and unclear disclosures as to service agreement terms and wireless coverage areas. See more information at NAAG’s website: http://www.naag.org/issues/20040722-settlement-wireless.php

6

Summary of the OCC’s Initial Comments

Commission Telecommunications Rule 4 CCR 723-2-2846(c) states, inter alia: “The

HCSM rate element shall be applied to the retail revenues of each provider’s end user” and

C.R.S. § 40-15-502(5) requires that universal service support mechanisms “shall be funded

equitably.” The current method for collecting CHCSM fees from customers is more equitable

and is the appropriate basis for collecting CHCSM fees. The OCC opposes a flat-fee approach,

whether based on numbers or connections, because it would have an inequitable effect and

would regressively shift the cost of CHCSM funding from high-usage customers to low-usage

and low-income customers.

Reply to Other Parties’ Comments

Qwest and Cricket each concur with the OCC’s position that the current method for

collecting CHCSM fees from customers is the appropriate basis for collecting CHCSM fees.

CTA does specifically address the first two subparts of this Issue, (i.e., the appropriate basis for

collecting CHCSM fees from customers and whether the current method is working properly),

but does, once again, state the need to collect CHCSM fees from as broad a base as possible.

Viaero opted not to respond to this Issue.

Verizon renews its contribution preemption argument discussed in Issue No. 1, supra, and

in keeping with the theme of that argument, Verizon concludes that: “Because the FCC has

preempted state regulations requiring wireless carriers to place items on wireless bills, the

Commission has no authority to require wireless carriers to collect CHCSM fees from wireless

customers.” [Verizon Comments, p. 3]. Again, and incorporating the OCC’s discussion in Reply

to Verizon’s Comments for Issue No. 1, supra, the OCC disagrees with Verizon’s analysis of the

law and Verizon’s conclusion that it and other wireless carriers are not required to contribute to

7

the CHCSM.

3. Should the current rule stating that the CHCSM rate element "shall be applied" to

an end-user's retail revenues be changed to "may be applied" so as to allow pricing

flexibility and to allow the mandatory surcharge to be subjected to competitive forces? See

Rule 4 CCR 723-41-7.3 (effective through March 31, 2006) and Rule 2846(c) (effective on

April 1, 2006). Would such a change be contrary to the requirements of Rule 4 CCR 723-2-

10.1 (effective through March 31, 2006) and Rule 2304(a) (effective on April 1, 2006) and

the federal rules which are incorporated by reference? What would be the effect of such a

change on the following: (a) total payments into the CHCSM fund; (b) each provider's

payments into the CHCSM fund; (c) rate for any specific retail service to which the

CHCSM rate element is applied. Assume a provider applied the CHCSM rate element only

to retail revenues from residential basic service subject to the residential rate cap (see § 40-

15-502(3)(b), C.R.S.), would that application violate the rate cap? Why or why not?

NOTE: Each provider is responsible for paying its assessment into the CHCSM

irrespective of whether it collects the monies from its customers. Failure to collect monies

for the CHCSM from customers does not relieve a provider of its responsibility.

Summary of the OCC’s Initial Comments

The OCC endorses a change to the current Commission Rule’s mandatory language

“shall” to permissive language “may” in Rule 2846(c), and thus, allow a provider to choose

whether to pass on, or not, the cost of the CHCSM surcharge currently set at 2.9% to its

customers, but only so long as the treatment of the CHCSM contribution is noted in a line item

on the bill and not shifted from customer class to another. In other words, in either event the

customer receives line item notice, i.e., a line item notation as to the billed CHCSM surcharge

8

for that customer, or a line item notification that the carrier has chosen not to pass on the

CHCSM surcharge to the customer and that the carrier will pay the CHCSM surcharge rather

than the customer.

This is not a departure from the OCC’s usual advocacy for billing disclosure through the

use of separate line items since the customer receives notice on his/her/its bill regarding whether

the customer or the carrier is paying the CHCSM surcharge and this creates a competitive pricing

issue beneficial to customers. Additionally, drafting a change to the Rule’s language to change

the mandatory language to permissive language counters Verizon’s argument that the CHCSM

end-user surcharge is in violation of the FCC’s Truth-in-Billing Order,9 and such a language

revision would not be contrary to Commission Rule 2304(a). Presenting the CHCSM

contribution cost as a line item or allowing a carrier to note that it has decided not to pass

through the cost would conform to the customer’s understanding of what they are paying for.

The OCC fails to see the linkage of payments into the CHCSM fund by a provider versus

a provider’s recovery from its customers, i.e., two separate issues which can be, but are not

necessarily linked. The significant factor is that carrier’s continue to make the required

payments to the CHCSM and are allowed to make a business decision regarding whether the

customer pays the surcharge or the carrier pays the surcharge on its customer’s behalf. However,

9 In the Matter of Truth-in-Billing and Billing Formant, National Association of State Utility Consumer Advocates’ Petition for Declaratory Ruling Regarding Truth-in-Billing, Second Report and Order, Declaratory Ruling, and Second Further Notice of Proposed Rulemaking, CC Docket No. 98-170, CG Docket No. 04-208, FCC 05-55 (rel. March 18, 2005). (“Truth-in-Billing Order”) Linked at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-05-55A1.pdf. Also see, OCC’s Reply Comments for Workshop No. 2, filed April 11, 2006, at pages 9 – 13, which discussed this issue.

9

any change to the existing rule should guard against the provider shifting recovery from one

service (i.e., from business) to another (i.e., to residential service) through a higher surcharge.

Changing the CHCSM rate element or surcharge from a mandatory surcharge levied on

customers to a permissive surcharge does not affect or violate the statutory residential rate cap

because the surcharge remains the same, i.e., “a provider applied the CHCSM rate element only

to retail revenues from residential basic service subject to the residential rate cap” [See, C.R.S

§ 40-15-502(3)(b)], and only the party paying the surcharge changes (i.e., the customer or the

carrier on behalf of its customer).

Reply to Other Parties’ Comments

Qwest, CTA and Viaero all support the position endorsed by the OCC that a change to

the current Commission Rule’s mandatory language “shall” to permissive language “may” in

Rule 2846(c) such that the CHCSM rate element “may be applied” to an end user’s retail

revenues and each of these three (3) parties suggest that a revision to permissive language in the

Rule would not conflict with the FCC’s Truth-in-Billing Order. Cricket opted not to respond to

this Issue. Verizon agrees that the language in Rule 2846(c) should be changed from a

mandatory “shall” to a permissive “may;” but again, reiterates that such a fix does resolve the

contribution issue due to Verizon’s wireless contribution preemption argument as discussed in

Issue Nos. 1 and 2, above. As discussed by the OCC, supra, Verizon’s wireless contribution

preemption argument lacks merit and is an erroneous conclusion not supported by the law.

4. How can the Commission ensure that all competitive carriers are treated fairly?

Are there contribution or assessment approaches which would be more equitable, efficient,

and sustainable in Colorado? How is "equitable" defined? How is "efficient" defined?

How is "sustainable" defined? What are those contribution or assessment approaches?

10

Summary of the OCC’s Initial Comments

All competitive telecommunications carriers are treated equitably under the current

approach for contribution assessments.

Reply to Other Parties’ Comments

In response to Issue No. 4, Qwest directs the reader to its comments on Issue No. 1

wherein Qwest advocated that this Commission should use the same contribution methodology

as used by the FCC. The OCC is unclear as to the rationale for this position or why

synchronization of contribution methodologies is important.

CTA notes the FCC is currently examining the issue of contributions to the Federal USF

and recommends monitoring of the FCC’s actions, along with utilizing as broad of a contribution

base as possible. Generally, the OCC concurs with CTA’s advocacy toward utilization of a

broad a contribution base as possible, but only when combined with the OCC’s position of

limiting CHCSM support to only the primary residential or business line.

Viaero opted not to respond to this Issue.

Cricket supports basing the CHCSM assessment as a percentage of monthly service

revenue, but urges consideration of lowering the current assessment rate. The OCC agrees with

Cricket’s position that a flat-fee approach is regressive. Regarding Cricket’s rhetorical query of

“Why should customers with four lines for the family have to pay four assessments?” The OCC

recognizes that Cricket’s comments are most likely in the context of a family in a low-cost area

not subsidized by the CHCSM and there would indeed be inequities in that context should this

Commission transition to a number-based flat fee assessment. However, in areas of Colorado

that are subsidized by the CHCSM, a family with four lines (presumably wireless) will have all

four lines subsidized and its wireline phones as well. Thus, until and unless the current

11

mechanism is changed to funding only one primary line, it would be inequitable for that

particular family of four to only pay one assessment while having all four wireless lines (plus

wireline phones) subsidized.

Cricket’s comment that 69% of its customers report less than $35,000 in annual

household income is a good illustration of a point previously made by the OCC in these

Workshops; that low-income or poor telephone customers in urban areas are subsidizing

customers in rural areas regardless of any means testing. For example, Cricket provides a basic

offer for unlimited minutes in a local calling area in Denver for $30 plus taxes and fees.10

Presumably, this is a reasonable and affordable offering for a low-income customer. However,

that affordability is threatened as taxes and fees increase the total cost of the offering above $30,

and thus, the very subscribership is accordingly threatened. Ironically, a fund, such as the

CHCSM, created to increase and maintain universal service in the rural areas, might have the

opposite effect in urban areas, if it and other government mandated fees and taxes are not held in

reasonable check.

Verizon, however, departs from the other parties recommendation regarding continuation

of a revenue assessment methodology and instead, supports a per-line contribution methodology

assessing telephone numbers “in use,” rather than numbers “assigned,” and with “in use”

described by Verizon as meaning those numbers that are assigned to customers and provide end

users the ability to make and receive calls. Further, and without reference to its contribution

preemption argument, Verizon contends that a numbers-based contribution methodology should

ensure carriers have the ability to recover contributions from end users. The OCC opposes a

numbers-based contribution methodology because it would have an inequitable effect and would

regressively shift the cost of the CHCSM funding from high-usage customers to low-usage and

10 See details from Cricket’s website at: http://www.mycricket.com/plans/plan.php?id=128

12

low-income customers.

Verizon also claims that: “it has become more difficult for carriers to report, and [for]

states to assess, only intrastate telecommunications revenues for purposes of universal service

contributions.” [Verizon Comments, p. 5]. The OCC does not understand the difficulty that

Verizon refers to and would appreciate input from Verizon regarding this issue. Also, the OCC

does not understand why it is difficult for states to assess intrastate revenues. The OCC’s

understanding is that in Colorado the surcharge is simply applied to the intrastate revenue

amount. The OCC invites Verizon and Staff to further explain any purported difficulty at the

Workshop. Finally, with the FCC’s recent Order that wireless companies will pay Federal USF

fees based upon 37.1 percent of their interstate revenues (a significant increase in the FCC’s

“safe harbor”), it is the OCC’s assumption that wireless companies will be motivated to opt into

using traffic studies and pay into the Federal fund based on those traffic studies.11 The OCC

would be interested in learning at the upcoming Workshop whether Verizon uses traffic studies

currently for its Colorado assessment and from Staff how many wireless carriers use traffic

studies.

5. Should loop allocation be an explicit component of CHCSM calculations? Why or

why not?

Summary of the OCC’s Initial Comments

No. This concept has been dispositively dealt with by and rejected by the Commission in

Docket No. 02A-538T, Decision No. C03-0114.

Reply to Other Parties’ Comments

11 Some industry analysts believe that one unforeseen consequence of the FCC’s recent Order will be an increase in traffic studies. The assumption is that wireless minutes will migrate from the interstate bucket with its high federal USF surcharge to intrastate minutes where the state funds are either nonexistent or significantly lower. See for example: http://www.convergedigest.com/Bandwidth/newnetworksarticle.asp?ID=18600

13

Issue No. 5 was met either with silence or confusion by the other commenting parties.

Qwest did state that loop allocation should be consistent with the FCC’s separation rules as well

as the FCC’s Part 64 Rules, but without further elaboration. CTA was unsure of the context of

this Issue and was unable to respond to the questions raised in this Issue. Verizon, Viaero and

Cricket all opted not to respond to this Issue.

Given the response by other parties, the OCC revisits and further explains its initial

position, which was: “The OCC believes that this concept has been dispositively dealt with by

the Commission and rejected.12” The OCC cited a Commission decision in a 2002 Docket where

a proposal was made to introduce a separate intrastate subscriber line charge (“SLC”) to recover

a portion of loop costs in return for reducing intrastate access charges. 13 Upon further review,

the OCC believes that this decision may not be applicable to the inquiry whether loop allocation

can be an explicit component of the CHCSM.

6. What is the legal authority for the de minimis exemption? Is the Commission

required by law to have a de minimis exemption; and, if so, where is the requirement

found? If the Commission is not required by law to have a de minimis exemption, should

there be such an exemption? Why or why not? If there should be a de minimis exemption,

what is the basis or rationale (legal, factual, and/or policy) for such an exemption? If there

should be a de minimis exemption, what should the appropriate test or criteria for coming

within the exemption be? Is the current de minimis exemption process, including the

criteria for coming within the exemption, working properly? If not, what changes should

be made? Should there be a verification process? If so, what should that process be?

12 In the Matter of the Application for Approval of a Plan to Restructure Regulated Intrastate Switched Access Rates and Petition for Declaratory Order, Docket No. 02A-538T. See link to Decision No. C03-0114, Decision Dismissing Application: http://www.dora.state.co.us/puc/decisions/2003/C03-0114_02A-538T.doc13 In the Matter of the Application for Approval of a Plan to Restructure Regulated Intrastate Switched Access Rates and Petition for Declaratory Order, Docket No. 02A-538T.

14

Summary of the OCC’s Initial Comments

The current $10,000 de minimis exemption, found chiefly in Rule 2846(b)(I)(B), and

allowing carriers to be exempted from paying into the CHCSM, should be reduced to a lower

threshold level since carriers with approximately $345,000 of assessable revenues are currently

exempted due to the current $10,000 de minimis exemption threshold level. Additionally, and

similar to the FCC’s concerns with fraud and non-payment by carriers to the USF, Commission

auditing and enforcement abilities may require strengthening to eliminate CHCSM payment

avoiders.

Reply to Other Parties’ Comments

Qwest provides a good summary and discussion of the de minimus exemption by noting

it is designed to recognize that the costs of contributing to the CHCSM, may at times, outweigh

the carrier’s contribution to the fund and notes that the Colorado version of the de minimus

exemption mirrors the exemption contained in the FCC’s USF Rules at 47 CFR § 54.708. Qwest

also notes that the de minimus exemption appears to be a reasonable exercise of the

Commission’s powers under C.R.S. § 40-15-502(5) which authorizes creation of the CHCSM

and requires Commission support of the fund on an equitable, nondiscriminatory and

competitively neutral basis. Finally, Qwest comments on whether the de minimus exemption

process is working properly and discusses the need for a requirement that all carriers be subject

to the reporting requirements even if they do not contribute to the fund and that this clarification

to Rule 2846(b)(I) could be accomplished by changing the word “exemption” to “exception.”

The OCC generally agrees with Qwest’s discussion of the de minimus exemption and with the

recommendation to revise the language in Rule 2846(b)(I).

CTA also supports the use of a de minimus exemption for purposes of limiting the costs

15

and expenses of administering the CHCSM and notes that the Commission should balance the

costs of requiring collection and remittance of the contribution against the benefits to be derived

from the process. Finally, CTA recommends elimination of the current Rule provision

prohibiting Eligible Providers (“EPs”) from qualifying from for de minimus contribution status

since the CHCSM is to be “supported and distributed equitably and on a nondiscriminatory,

competitively neutral basis.” However, and while agreeing with CTA’s comments which echo

those of Qwest, the OCC does not understand CTA’s comments related to EPs or which Rule

CTA advocates eliminating.

Verizon, Viaero and Cricket all opted not to respond to this Issue.

7. Should all carriers that use the public switched telephone network (“PSTN”) be

required to contribute to the CHCSM? Why or why not?

Summary of the OCC’s Initial Comments

All carriers that “use” the PSTN should contribute to the CHCSM. Recent FCC

Decisions have reaffirmed that VoIP, wireless14 and pay phone providers must contribute to the

Federal USF. Likewise, the Commission Rules promulgated as a result of this Docket should

also require contributions to the CHCSM by all wireline, wireless, VoIP and pay phone

providers.

Reply to Other Parties’ Comments

In comments similar to the OCC’s assertions, Qwest asserts that all telecommunications

carriers that provide intrastate telecommunications services to retail end users should be required

to contribute to the CHCSM, and including, but not limited to, access to the public switched

14 In the Matter of Universal Service Contribution Methodology, etc., FCC Report and Order and Notice of Proposed Rulemaking, WC Docket No. 06-122, FCC Order No. 06-94, issued June 27, 2006. See generally, ¶’s 2-3 and 23-33 regarding wireless providers obligation to contribute to the USF; and also note, VoIP providers are also required to contribute to the USF per ¶’s 34-49.

16

telephone network (“PSTN”), private line and special access services. CTA affirmatively

comments that all carriers that use the PSTN should contribute to the CHCSM and that the

contribution base should be as broad as possible. Cricket expressly states that “all carriers

including VoIP should be required to contribute to the CHCSM” and in comments similar to

those of CTA recommends spreading the contribution burden amongst the widest base of carriers

so as to promote Cricket’s theme discussed in Issues No. 1, supra, reduction of the assessment on

individual consumers to the lowest amount possible. [Cricket Comments, p. 3]. Viaero also

affirmatively comments that all carriers that use the PSTN should contribute to the CHCSM as

the goals of universal service benefits urban and rural consumers’ alike.

While most commenters responded with a generic answer that all carriers should

contribute to the CHCSM as discussed above. The notable exception was Verizon Wireless,

which repeated its position from Workshop No. 2 that wireless carriers do not “use” the network.

The OCC repeats its response to this position from Page 9, Footnote 6 of its Reply Comments in

Workshop No. 2:

Verizon also discusses, at pages 2 –3, its position that wireless carriers do not “use” the PSTN and it is inappropriate to predicate contribution to the CHCSM on usage of the PSTN. Although the OCC disagrees with Verizon’s statement that wireless carriers do not “use” the PSTN, it does not appear that Verizon made this as an argument for exempting wireless carriers from CHCSM contributions. Also, § 40-15-208(2)(a) does not predicate contributions upon “usage” of the PSTN. Finally, Rule 2846(a) pertains to contributors to the CHCSM and encompasses wireless providers when it includes “[e]very provider of intrastate telecommunications service.”

8. Is it appropriate for the price of wholesale services (for example, unbundled

network elements or resale) to be considered as part of any CHCSM method? Why or why

not?

Summary of the OCC’s Initial Comments

The OCC reserved comment until this Reply round and/or Workshop.

17

Reply to Other Parties’ Comments

Both Qwest and CTA assert that wholesale services a facilities based carrier sells to

another carrier (e.g., unbundled network elements or resale) should not be assessed for

contribution to the CHCSM, but rather that such services should be assessed at the retail level so

as to avoid an unfair imposition of a double assessment on such services. The OCC agrees with

both Qwest and CTA regarding their comments on Issue No. 8.

Verizon, Viaero and Cricket all opted not to respond to this Issue.

9. What other changes need to be considered in the level and manner of funding of

supported services in high-cost areas?

Summary of the OCC’s Initial Comments

The OCC reserved comment until this Reply round and/or Workshop.

Reply to Other Parties’ Comments

Qwest, CTA Viaero and Verizon all opted not to respond to this Issue.

Cricket, the only party responding to this Issue asserts comments that echo the OCC’s

Comments in Workshop No. 1 and states that it “believes one of the goals of the Commission

should be to ensure that the size of the fund is a[s] small as possible so that the funding burden

on consumers is as small as possible,” [Cricket Comments, p. 3], and once again, urges the

Commission to reduce the CHCSM assessment on individual consumers such as low income and

underserved customers to the lowest amount possible.

The OCC wholeheartedly endorses Cricket’s position that one of the goals of the

Commission in this Docket should be to “ensure that the size of the fund is a[s] small as possible

so that the funding burden on consumers is as small as possible.” The Commission needs only to

view the explosive growth of the Federal USF as the cautionary tale for allowing the capture of

18

regulatory rents to supplant economic competition. In response to Cricket’s urging that the

Commission explore ways to reduce the financial burden on low income consumers, the OCC

would suggest that a starting point (and perhaps the most effective and efficient method) would

be to lobby the state legislature to broaden the statutory eligibility requirements for low-income

telephone assistance eligibility, which is quite narrow relative to other states, and has the effect

of restricting Federal support for Colorado low-income consumers. See C.R.S. § 40-3.4-105.

CONCLUSION

Based upon the foregoing, and with regard to CHCSM Contributions, the OCC contends,

inter alia, that a revenue-based approach to contributions with the CHCSM rate element being

applied to retail revenues of each provider’s end users is the appropriate method to collect

CHCSM fees. Further, all carriers that “use” the PSTN should contribute to the CHCSM.

19

DATED this 7th of July, 2006.

Respectfully Submitted,

JOHN W. SUTHERSAttorney General

BY: Gregory E. Bunker, No. 24111Assistant Attorney GeneralOffice of the Attorney General1525 Sherman Street, 5th FloorDenver, Colorado 80203(303) 866-5354(303) 866-5342 (Fax)[email protected]

ATTORNEYS FOR THE COLORADOOFFICE OF CONSUMER COUNSEL

20