State commissions actions bear watching

Aug. 1, 1997

State commissions` actions bear watching

A state regulatory agency`s recent misadventure and lobbying by a carrier in the state legislature rekindle arguments about state regulators` fairness.

By Stephen N. Brown

The most contentious issue in the telecommunications industry today is the entry of regional Bell operating companies into long-distance markets. On April 11, 1997, sbc Communications applied to the Federal Communications Commission (fcc) for authorization to provide statewide long-distance telephone service in Oklahoma, where the company is the dominant provider of local service. sbc also provides local telephone service in Kansas, Arkansas, Missouri, and Texas. By law, the fcc had 90 days to make its decision on sbc`s application, which has rekindled a controversial argument: Will state utility commissioners be objective when assessing regional Bell filings?

For each state where the Bell operating company wants to offer long-distance service, the fcc is required by law "to consult with the State commissions" but is not obligated to take their advice. The Oklahoma Corporation Commission (occ) supported sbc`s application and told the fcc: "It is the opinion of a majority of the occ that [sbc] should be allowed to proceed with its pending application before the fcc and that the Applicants should be allowed to provide in-region interlata [local access and transport area] services in Oklahoma."

By law the fcc also must consult with the U.S. Department of Justice (doj) and "shall give substantial weight to the Attorney General`s evaluation." The doj evaluated sbc`s application and concluded: "The application for interlata authority in Oklahoma does not satisfy the statutory criteria and the [Telecommunications] Act`s underlying objective of ensuring that local markets are open to competition."

Proponents of sbc`s application emphasize the benefits that would accrue to telephone customers in the long-distance market and stress that such benefits are in the public interest. The doj treats the public interest in terms of local markets. The doj prevailed because the occ`s decision was neither unanimous nor well-reasoned.

The occ`s sole Republican, Bob Anthony, issued a humorous and scathing dissent from the majority opinion issued by four Democrats: "The sound of the cannon blast at noon that started the Oklahoma Land Run cannot compare to the noise of a recent advertising campaign waged by [sbc] about the merits of this case while it has been pending before our agency....[sbc] now reports more registered lobbyists than any other entity doing business in Oklahoma." Anthony`s remarks are important because they suggest that the occ`s decision-making was influenced more by the company`s lobbying efforts than by the facts. Anthony says: "I support the Report and Recommendations of the [occ`s] administrative law judge, the position of the commission`s own public utility staff, and the arguments of the Oklahoma attorney general...that [sbc] is not providing access and interconnection to its network facilities for...competing providers of telephone exchange service...consistent with...the Telecommunications Act."

Disinterested commission?

The occ majority ignored the advice of its own staff, the decision of its own administrative law judge, and the advice of the state`s attorney general. Considering these facts along with Anthony`s dissenting opinion and the doj`s assessment of sbc`s application, the occ majority emerges as something other than disinterested, objective decision-makers. Perhaps this image is wrong, but there is little evidence to contradict it.

For example, in its comments to the fcc, the occ majority argued that Brooks Fiber Communications, which has a fiber-optic telecommunications network in Oklahoma, was fulfilling the role of a facilities-based competitor to sbc. The majority also said that problems Brooks allegedly experienced with the availability of necessary facilities and functions were not the result of sbc`s actions. Thus, the occ majority determined that Brooks satisfies Section 271(c)(1)(A) of the Act, which stipulates that sbc face a local competitor before offering long-distance service in the state.

However, Brooks contradicts them: "[Our] experience with deploying collocations illustrates [sbc`s] continuing control over critical bottleneck facil ities...[and] ordering, provisioning, maintenance, and related support systems. Under these circumstances, any contention that [sbc] currently meets the Section 271 standard for entry into the interlata market is wholly untenable and without merit."

Many parties question the judgment of the occ, but it is strongly defended by the economists from the National Economic Research Associates (nera), who provided comments and affidavits in support of sbc`s application. Ken Gordon, vice president of nera and former chairman of the Maine and the Massachusetts utility commissions, suggested that state commissioners will do their jobs fairly: "Regulators have become adept at using price regulation, imputation requirements, audits, competitive price analyses, and other tools to ensure that incumbent telephone companies do not use their monopoly control of essential access facilities to anticompetitive effect in competitive retail markets." The commissioners do not conduct the audits, the price analyses, or the other studies to prevent anticompetitive behavior. The work is carried out by their staff, who then make their findings and recommendations to the commissioners. If they ignore their staff and their judges, then the regulatory tools Gordon describes are worthless.

The economists writing for at&t, mci, and Sprint in opposition to sbc`s application--William J. Baumol, R. Glenn Hubbard, and William H. Lehr on behalf of at&t; Robert E. Hall on behalf of mci; and Carl Shapiro and Marybeth M. Banks on behalf of Sprint--questioned whether state commissions could protect local telecommunications markets from anticompetitive behavior of incumbent telephone companies. This prompted an angry reponse from two nera economists, Timothy Tardiff and Alfred Kahn: "A careful evaluation of [their]...contentions reveals...almost hysterical predictions of the incompetence of regulators to prevent or remedy the abuses of power....What began in the rebuttal testimonies of Hall and Hubbard and Lehr...soon turned into a series of unsupported `opinions` and `judgments` [and]...into a prediction of drooling incompetence on the part of utility commissioners."

Gordon responded to the perceived attacks on state regulators` integrity: "Regulators do have the tools and the ability to protect competition....Attendance at one meeting of the National Association of Utility Commissioners would be enough for anyone to see that." However, Gordon`s opinion is not supported by Dhruv Khanna, a well-known telecommunications lawyer in Palo Alto, CA, who says: "The approach of the Bells these days is to do anything they want...and the attitude of most of the regulators is to let them. This permissive attitude [makes]...local competition...a figment of the imagination of the 1995-96 Congress."

With regard to the occ, Khanna appears more realistic than Gordon about state regulators` attitudes. The following exchange between Anthony and the occ`s majority strongly indicates that the majority did not want to be burdened by evidence:

Anthony: "The fcc will not find where the occ conducted a full evidentiary hearing....[sbc] submitted comments to the record but did not give testimony or make a witness available for cross-examination."

The occ majority: "The occ determined that its investigation is more in the nature of a Notice of Inquiry and that its report to the fcc need not be based on strict rules of evidence."

Oath-taking and cross-examination are fundamental to evidentiary legal procedure. Without them, the written documents used to create a legal record are nothing more than discussions and cannot be elevated to the status of legal evidence. The majority did not want an evidentiary process to tie their hands because evidence would have forced them to rein in their "permissive" attitude. The majority`s support for sbc is strictly a political act and no other face can be put on it.

To understand the political pressures in this case requires knowing a bit of the recent fortunes of the Democratic party in Oklahoma. A decade ago, the Democrats were the dominant party in the state. Today, the governor and the entire congressional delegation are Republicans, but the Democrats retain control the state legislature. Like many political parties at the state level, the Oklahoma Democratic party is in poor financial condition and needs allies to mount campaigns to retake elected offices. It would be no surprise for sbc`s lobbying efforts to affect the occ`s majority in ways not visible to the public.

State commissions` susceptibility to political influence was foreseen in the Telecom Act. This is exactly why the law says the fcc must give more weight to the doj`s assessment than to the occ`s, whose behavior may be an aberration from its normal conduct. The more important question is whether the occ`s behavior is the exception or the norm for state utility commissions across the country. q

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