Download Access Charges, Reciprocal Compensation and Universal Service

Opening Markets
and Keeping Them Open:
A Contract and Antitrust Model
Ray Gifford, Chairman
Colorado Public Utilities Commission
Opening Markets
• Eliminate entry and exit barriers
• Deregulate retail prices
– Correct price signals imperative to development
of competitive market
• Enforce interconnection and unbundling
requirements of 1996 Telecom Act
• Rationalize wholesale and retail pricing
Contract Rights
• Interconnection Agreement
– subject to traditional contract analysis
– Commission must have full remedial authority
to discourage breach
• Intercarrier compensation must be efficient
– Access Charges--Paid by interexchange carriers to
carriers for originating and terminating calls, 40-15102(25), (28), C.R.S.
– Reciprocal compensation--required by 47 U.S.C.
252(d)(2) for local calls
Getting it Wrong
Access
• Above cost for local loop cost support
– Promotes recovery of fixed cost through usagesensitive charge
• Cross-subsidy from toll users to local users
• Incorrect price signals distorts market
development
– underpayment for fixed costs; overpayment for variable
costs
Getting More Wrong
Recip Comp
•
•
To the extent cost-based, makes
sense following a cost causation
model
Inherent difficulties of pricing
correctly
– Commission can unintentionally
create opportunity for regulatory
arbitrage
ISP Recip Comp
•
•
Distorts business plans
– artificial inducement to acquire
only terminating traffic
– disincentive to enter residential
market
Cross-subsidy
– from ratepayers to ISPs, their
customers and ISP CLECs
• Facsimile of real competition
– not consumer welfare
enhancing
Getting It Right--Model 1
• Truly cost-based pricing
– Three-phase pricing for access and recip comp
• phases: set-up, capacity, usage-sensitive
• BUT
– impossibility of getting the price right
– information cost (metering and billing) is not 0,
and is dead weight loss
– regulatory caprice and temptation
– requires rate rebalancing
Getting It Right--Model 2
•
•
Universal “bill and keep” for access and recip comp
– ease of administration
– forces Commissions toward second best efficiency for retail pricing
Bill and keep assumes
– very small short run and long run costs for traffic termination and
origination on modern network
– information cost of metering traffic is dead weight loss
• Would allow carriers to negotiate other arrangements and rates
• BUT
– systematic undercompensation of carriers in access and recip comp
– forces retail rate rebalancing
Antitrust Monitor
Now
• Commission oriented to regulating monopolies
– certification
– operating areas
– tariffing
– price regulation
– provider of last resort
– universal service
• Absent legislative command, none of these roles is
warranted in a competitive market
State as Mini-FTC
• search and mitigate residual market power
– FCC should go no further on UNEs and pricing
than antitrust “essential facilities” doctrine
would warrant
• Intervention and regulation of telecommunications
market must be warranted based on established
antitrust principles
• Costs of regulatory intervention must exceed
consumer welfare loss from persisting market
power
Carrier Dispute Forum
• Specialized, rapid and expert resolution of
disputes between carriers
– full panoply of contract and antitrust remedies
• Alternatives
– courts, private arbitration
– less fear of capture or systematic bias, but less
expertise and slower
Consumer Ombudsman
• Rapid, decisive and punitive actions against
carriers committing consumer fraud
• Monitor, mediate and aggregate consumer
claims against carrier
• Enforce quality of service standards for
captive customers
The Goals
• Commission’s role recedes to that of referee
instead of prescriptive bully
• Proper price signals for consumer welfare
enhancing--not producer allocating-- competition
• Get Commission out of the pricing business absent
market power problem
• Commission stops saying “maybe,” but gives yes
or no answers so business plans can be made.