______ / *
*
*
* / BEFORE THE
PUBLIC SERVICE COMMISSION
OF MARYLAND
______
CASE NO. 9022
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Reply Memorandum on Appeal of the Staff of the
Maryland Public Service Commission
The Staff of the Maryland Public Service Commission hereby submits this reply to the Memorandum on Appeal filed by Verizon Maryland Inc. (VMD) on January 3, 2006 in the above-referenced case.
Statement of the Case
The VMD Appeal Memorandum accurately recites the procedural history of this case, which will not be repeated here. Staff does not agree with the VMD Appeal Memorandum’s assertion that Cavalier’s winback tariff charges VMD for service that Cavalier does not perform.[1] Nor does Staff agree that VMD does not charge Cavalier for similar services.[2] As Staff will explain below, Cavalier’s “winback” tariff imposes charges for services that it performs to return a customer to VMD. Cavalier’s “truck roll” tariff compensates Cavalier for missed appointments and maintenance calls related to VMD’s unbundled loop service. With regard to the truck roll tariff, Staff does not agree that the Cavalier tariff violates the Commission’s Performance Assurance Plan or the parties’ interconnection agreement.[3]
Summary of Argument
Staff urges the Commission to affirm the Proposed Order of Hearing Examiner in this case. The Proposed Order is supported by the record and contains no reversible error. The Hearing Examiner concluded that Cavalier’s tariffs are just and reasonable and that they mirror VMD charges for the same or similar services. VMD’s allegations that the Hearing Examiner incorrectly interpreted the FCC’s arbitration order in a similar case in Virginia and ignored relevant evidence and supporting law are without merit.
Argument
I. The Proposed Order Correctly Concluded that Cavalier’s Winback Tariff Is Just and Reasonable
A. The Cavalier Winback Tariff Collects Cavalier’s Costs for Service It Performs on Verizon’s Behalf
VMD argues that the Hearing Examiner erroneously concluded that Cavalier’s winback activities are similar to VMD’s hot cut process.[4] VMD argues that VMD’s hot cut process is different from Cavalier’s winback in three key respects. First, the hot cut involves the physical removal of the loop from the VMD network and the reconnection of that loop to the CLEC’s network.[5] Second, the hot cut charge compensates VMD for the physical loop work and for establishing the UNE loop account.[6] Finally, VMD’s hot cut charge is charged to all CLECs and not just Cavalier.[7] All parties agree that Cavalier does not perform the physical removal of the loop, however, as the Hearing Examiner recognized, the hot cut process includes more activities than the physical removal of the loop. These processes are largely office/clerical and charges for those additional activities are included in the hot cut charge to CLECs. All of the processes were set out in a chart originally included in Cavalier’s pre-filed testimony and copied in the Proposed Order.[8] VMD objects to the Hearing Examiner’s reliance on this chart charging that an alternate chart that VMD put into evidence as a rebuttal was “ignored.”[9] The VMD chart recasts the Cavalier comparison from a comparison between the Cavalier Winback and the VMD Hot Cut to a comparison between the Cavalier Winback and the VMD “disconnect and port out.”[10] “Disconnect and port out” is the term VMD uses to describe the process of releasing a customer to a fully facilities-based carrier.[11] Since VMD is a fully facilities-based carrier, VMD argues that the Commission should compare VMD’s charge to release a loop to a fully facilities-based carrier with Cavalier’s winback charge and not compare its hot cut charge to Cavalier’s winback charge.[12] VMD did not provide information that would have allowed the Hearing Examiner to compare its hot cut charge to Cavalier’s winback charge.
Cavalier’s witnesses argue that VMD's costs for the disconnect and port out functions associated with disconnecting a customer to a fully facilities-based carrier are recovered from end-user customers at the time the customer is connected.[13] The disconnect and port out functions include service order initiation and processing, deleting switch translations, and updating the local number portability interface to change the number to the new carrier. When Cavalier pays a hot cut charge to VMD, that charge is intended to recover VMD’s costs for these same functions. The hot cut fee is charged at the time Cavalier purchases the loop. The hot cut cost studies that are in the record demonstrate that VMD considers these functions to be part of the hot cut and that VMD seeks to be compensated for these functions. While VMD claims that these are “classic retail functions which Cavalier must perform whenever it loses a customer, regardless of the carrier that the customer has chosen or whether the customer leaves the wireline network altogether”,[14] Cavalier must pay VMD to perform these functions at the time Cavalier connects to the network.
The VMD Pennsylvania hot cut cost study was introduced into the record in this proceeding along with a redacted version of the hot cut cost study that was filed in Maryland’s hot cut case.[15] The functions listed in the two cost studies are identical.[16] Costs for connecting and disconnecting the unbundled loop are included and the connection and disconnection charges include service order initiation and processing charges, charges for deleting the switch translations and charges for updating the local number portability interface. In its Appeal Memorandum, VMD claims that its witnesses “testified without contradiction that Verizon does not charge Cavalier for performing these activities [i.e. providing customer service records, confirming service orders, deleting switch translations and other tasks]-which simply encompass releasing a customer from their service with their prior provider-when a Verizon customer chooses Cavalier as its service provider.”[17] The VMD witnesses also were clear that charges for these activities are assessed upfront, as part of the hot cut. On questioning from Staff counsel, VMD witness Meacham stated:
Q. So isn’t it true that Verizon seeks to collect in its hot cut charge items relating to disconnecting their customer from a switch, other than the simple cost of the cross-connect?
A. Yes, that’s true. These costs associated with receiving the ultimate removal request from the CLEC that they no longer are going to serve that customer that we had hot cut over to them, and there would be received a service order so the disconnect columns recover the cost in the national market center for processing that service order.
Tr. at 115-116.
VMD witness Van Inwegen repeated this same fact upon questioning from the VMD counsel:
Q. The question I’m saying is what are we charging them for? Mr. Van Inwegen, you may know this also since you are very involved in the provision.
A. The charges for the disconnect of the UNE loop are essentially picked up when Cavalier initially orders them. At the time that Cavalier is moving that, however they disconnect the customer, those costs have already been picked up in the non-recurring costs initially.
Tr. at 144.
VMD states “Verizon should not have to pay Cavalier to stop billing its former customers or to remove its former customers from its directories and systems. This is particularly true when Verizon does not charge Cavalier for these activities and Cavalier does not charge any other carrier besides Verizon for these activities.” VMD Appeal Memorandum at 8. Cavalier is not charging Verizon for any activities for which Verizon does not charge because Cavalier’s winback tariff seeks to mirror VMD’s hot cut charge.
Staff believes that there cannot be a level playing field at the wholesale level if VMD is permitted to charge CLECs for disconnect activities associated with the service order, switch translations and number porting if the CLEC is unable to charge for these activities. Staff witness Mosier stated that as a matter of policy, there should be parity between carriers. Staff Exh. 4 at 5. Mr. Mosier argues that if the VMD hot cut fee had consisted only of the charge for a cross connect then Staff would have agreed with VMD because each of the carriers would be responsible for their own costs. The Hearing Examiner correctly found that Cavalier does perform some necessary tasks when VMD wins back a Cavalier customer and that these tasks have a cost to Cavalier.[18] The essential difference between the tasks VMD performs and the tasks Cavalier performs are that VMD has control of the loop while Cavalier does not.[19] As the Hearing Examiner notes, “th[e] fact that VMD has control of the loop does not provide any reason why Cavalier should not recover for necessary work that it actually does perform for Verizon’s benefit.”[20]
B. The Proposed Order Correctly Permitted Cavalier To Mirror VMD’s Hot Cut Charge
VMD urges the Commission to reverse the Hearing Examiner’s finding that Cavalier’s winback tariff may be approved without detailed cost support. VMD complains that the Hearing Examiner relied on Verizon’s Pennsylvania hot cut study to justify the $35 winback charge. Staff believes VMD has misstated the finding. The Hearing Examiner’s finding was that Cavalier’s winback tariff “falls into the category of [a] tariff that the Commission would normally find just and reasonable without detailed cost support. Therefore Cavalier’s winback tariff is one that would normally pass without need for cost study.”[21] The Pennsylvania hot cut cost study “provided some cost support” by showing “that in a winback situation, Cavalier does many of the same tasks as Verizon, thus lending additional support to Cavalier’s proposed winback tariff.”[22] The $35 rate that was approved by the Hearing Examiner was not directly based on the Pennsylvania cost study. VMD urges that “it was plain legal error for the Proposed Order to find that Cavalier could support its winback charge by using a Verizon Pennsylvania cost study that was based on revenue factors which Cavalier could not incur and which dealt solely with rates for services that Cavalier does not provide.”[23] Having incorrectly stated that the Hearing Examiner erred in using the Pennsylanvia cost study as cost support, VMD’s circles back to its main proposition, i.e., that Cavalier’s winback services are not the same as VMD’s hot cut services. In fact, the Hearing Examiner used the Pennsylvania hot cut study to show that Cavalier “does many of the same tasks as Verizon.” The Proposed Order clearly finds that the Hearing Examiner was not persuaded by VMD’s primary complaint, i.e., that Cavalier does not perform services similar to hot cut services (for which VMD charges Cavalier) when Cavalier performs a winback.
As VMD and the Commission are aware, the $35.00 hot cut charge in Maryland was not derived from any detailed cost study but rather was adopted as an interim rate by the Commission in its unbundled network element rate case, Case 8879. When it adopted the $35.00 rate, the Commission stated “this rate is a sensible determination based upon the level of comparable rates in other Verizon jurisdictions.”[24] Staff witness Mosier’s testimony recognized that Cavalier does not perform all of the functions that VMD performs when it completes a hot cut. However, VMD did not provide information that would have allowed a disaggregation of these costs. Staff witness Moiser testified that “Staff has attempted to get Verizon to compare the work function and associated rates for a hot cut with the work functions and associated rates for a disconnect and port out (i.e., “winback” functions). Verizon’s responses state that it believes there are no similarities between the Cavalier winback and the hot cut because one is a ‘retail function’ and the other is a ‘wholesale function’.”[25] As a result, Staff determined that Cavalier’s tariffed $35.00 winback rate should be kept in place.
The FCC Wireline Service Bureau, acting in place of the Virginia Commission, had the same difficulty as Staff stating that “Verizon should have produced a witness who was familiar with its costs studies and could testify as to exactly what functions and associated costs are recovered in Verizon’s $10.81 Service Order Connect and $2.68 Installation charges.”[26] The FCC Wireline Service Bureau ultimately permitted Cavalier to mirror Verizon’s $13.49 rate for Service Order Connect and Installation charges.[27]
Staff did proffer an alternate rate based on the relative costs of the central office wiring, service order and provisioning functions as stated in a VMD cost study submitted in the Commission’s batch hot cut case, Case No. 8988, which would result in a winback rate of $20.18.[28] The Hearing Examiner did not adopt this alternative position.
VMD’s analysis of the MFS Intelenet decisions also loop back to VMD’s same argument, namely, that Cavalier’s services are not the same as VMD’s because Cavalier does not provide wholesale service.[29] As VMD states, MFS holds that CLEC rates for bottleneck facilities must be fully cost supported with the exception that when the services are the same as Verizon’s no cost support is required if they are capped at Verizon’s rates. [30] VMD argues that “[s]ince there is no Cavalier Maryland-specific cost data available, the rates must be capped at what Verizon charges Cavalier for those same activities. That amount is zero because Verizon does not charge Cavalier (or any other CLEC) for the winback activities for which Cavalier seeks to charge Verizon.”[31] The Hearing Examiner’s finding was that “Cavalier does many of the same tasks as Verizon”, thus allowing Cavalier to cap its rate at Verizon’s is appropriate.[32]