џWPCЖ ћџ2BPV`ЖCourier 10cpi|xџџ‰?xxx,лkєxў6X@Щ“8Ч;X@ўўўўўўўџџџџџўџџўџџџџџџџџџџџџџџџџџўџџааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааб#XdX ц €‚PМg9QDЃєP#ба Х3и' 3и' 3и' 3и' Х аа Х3и' 3и' 3и' 3и' Х аа Х3и' 3и' 3и' 3и' Х аа „„„„ аа „„„„ аа АА аб#XdX ц €‚PМg9QDЃєP#бгUSUSгеееееэб#XdX ц €‚PМg9QDЃєP#блєheaderлллС`СУ Уб#XdX ц €‚PМg9QDЃєP#бPublic Utilities Commission of Ohio ƒС`СSeptember 5, 1996 ƒС`С ƒС`С ƒФ ФлєheaderлллааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџаа эее@лѓfooterлааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџАРа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааллСрСб#XdX ц €‚PМg9QDЃєP#б ƒлѓfooterлллааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџаа @еСрСУ УBefore the ƒСрСFEDERAL COMMUNICATIONS COMMISSION ƒСрСWashington, DC 20554 ƒФ Ф ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџАDpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааIn the Matter of СС) СС) ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџАDШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааImplementation of the NonЉAccountingСС)ССCC Docket No. 96Љ149 ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџАDpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааSafeguards of Sections 271 and 272 of theСС) Communications Act of 1934, as AmendedСС) СС) andСС) СС) Regulatory Treatment of LEC Provision СС) of Interexchange Services originating in theСС) LEC's Local Exchange AreaСС) ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџаа ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА(#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааггУУСС ФФ СрСааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааУ УEXECUTIVE SUMMARY OF THE ƒСрСREPLY COMMENTS OF ƒСрСTHE PUBLIC UTILITIES COMMISSION OF OHIO ƒааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА(#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааФ ФггУУСС ааааааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааФФССIn these reply comments, the Public Utilities Commission of Ohio (PUCO) respectfully maintains that the FCC should provide the greatest deference possible to states on matters essentially intrastate in nature. As a result, the FCC should permit individual states to require additional nonЉaccounting safeguards pertaining to the relationships of BOCs and their affiliates in order to establish and maintain a viable competitive marketplace for local exchange and other intrastate services. As indicated in our initial comments and reaffirmed based on the comments of other parties, there are unique issues associated with the particular regulatory plan under which LECs operate at the state level and additional safeguards need to be devised by state, to reflect the unique circumstances of each company and plan. In fact, in Ohio alone, we have three LECs operating under alternative regulatory plans, each of which is different from the other. A "one size fits all" federal policy which straitjackets states in implementing additional safeguards will, by definition, fail to recognize this level of uniqueness and innovation at the state level. ССThe PUCO submits that an overallocation of joint and common costs to the local exchange operations could result in inflated prices for costЉbased interconnection, since rules promulgated by the FCC in CC Docket No. 96Љ98 establish that an appropriate allocation of joint and common costs is to be recognized in total element long run incremental cost studies (TELRIC) studies establishing interconnection rates. Moreover, if the FCC were to conclude that manufacturing, information services, and interLATA services were appropriately located within an affiliate which also provides local exchange service, the PUCO's concerns regarding the shifting of common costs to the BOC from the affiliate in the absence of structural safeguards would be compounded. ССThe PUCO generally endorses the FCC's proposals for implementing Section 272(b)(1) and Section 272(b)(3) as necessary to prevent anticompetitive behavior. The PUCO supports the positions taken by those commenters in this docket that the more rigorous standards established in the Computer II inquiry regarding structural separation and nonЉdiscrimination, rather than standards consistent with Computer III, be imposed by the FCC. ССIf the FCC were to interpret the language of Section 272 to permit administrative sharing, the misallocation of common costs could result in anticompetitive behavior not only in the interLATA market but also in the local exchange market. Countervailing regulatory considerations do require stringent separation of BOCs and their subsidiaries under these circumstances, and the FCC should remain steadfast in insisting on imbuing the concept of independent operation established in Section 272(b)(1) with tangible meaning. ССThe PUCO asserts that the underlying quality of service provided by the LEC to nonЉaffiliates must be of the same quality as is provided to the affiliate. The PUCO has observed that entities seeking interconnection with incumbent LECs are handicapped in their knowledge of the latter's network design, and thus are not assured of obtaining the same quality of underlying service through their interconnection requests. ССThe PUCO reiterates its position that the FCC must assure that BOCs do not circumvent requirements intended to permit sustainable competitive entry by transferring existing network capabilities to an affiliate. The PUCO endorses the observations of AT&T Corporation that permitting BOCs to plan, engineer, and construct inЉregion interexchange facilities and services on an integrated basis with their local exchange business would subvert the 1996 Act's purposes. аааа еееееšлєheaderлааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџАРа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааллС`СУ Уб#XdX ц €‚PМg9QDЃєP#бPublic Utilities Commission of Ohio ƒС`СSeptember 4, 1996 ƒС`С ƒС`С ƒФ ФлєheaderлллааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџаа šее@лѓfooterлааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџАРа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааллСрСб#XdX ц €‚PМg9QDЃєP#б ƒлѓfooterлллааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџаа @е СрСУ УBefore the ƒСрСFEDERAL COMMUNICATIONS COMMISSION ƒСрС ƒаа ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџАьpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааФ ФIn the Matter of СС) Implementation of the NonЉСС) Accounting Safeguards of SectionsСС) 271 and 272 of the СС)ССССCC 96Љ149 Communications Act of 1934, СС) as amended;СС) СС) andСС) СС) Regulatory Treatment of LEC ProvisionСС) of Interexchange Services OriginatingСС) in the LEC's Local Exchange AreaСС) ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА(#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааггУУСJ(#KСƒ ааСрСУ УФФREPLY COMMENTS OF ƒСрСTHE PUBLIC UTILITIES COMMISSION OF OHIO ƒааФ ФггУУСJ(#KСƒ У УФФ ааааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааINTRODUCTION ааааФ ФССThe Public Utilities Commission of Ohio (PUCO) hereby submits its reply comments pursuant to the Federal Communications Commission's (FCC's) Notice of Proposed Rulemaking (NPRM) in CC Docket No. 96Љ149 (In the Matter of Implementation of the NonЉAccounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as amended; and Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC's Local Exchange Area). ССIn these reply comments, the PUCO responds to issues raised in comments filed in CC Docket No. 96Љ149 regarding the need for and degree of separation required between BOCs and their affiliates. The PUCO respectfully maintains, as it previously articulated in comments filed in this docket, that the FCC should provide the greatest deference possible to states on matters essentially intrastate in nature. Irrespective of whether Congress intended in the Communications Act of 1934, as amended (the Act) to consign a broader scope of authority to the FCC than has historically been deemed lawful, the FCC should permit individual states to require additional nonЉaccounting safeguards pertaining to the relationships of BOCs and their affiliates in order to establish and maintain a viable competitive marketplace for local exchange and other intrastate services. As indicated in our initial comments and reaffirmed based on the comments of other parties, there are unique issues associated with the particular regulatory plan under which LECs operate at the state level and additional safeguards need to be devised by state, to reflect the unique circumstances of each company and plan. In fact, in Ohio alone, we have three LECs operating under alternative regulatory plans, each of which is different from the other. A "one size fits all" federal policy which straitjackets states in implementing additional safeguards will, by definition, fail to recognize this level of uniqueness and innovation at the state level. аааа У УDISCUSSION ааааФ ФССAt page 6 of Ameritech's comments, the RBOC argues that BOC maintenance of bottleneck control of local exchange and access facilities would not enable cost misallocation or other anticompetitive conduct that would confer market power on the affiliate via the restriction of output. Assuming, arguendo, this to be the case, the PUCO submits that an overallocation of joint and common costs to the BOC could still result in inflated prices for costЉbased interconnection, since rules promulgated by the FCC in CC Docket No. 96Љ98 establish that an appropriate allocation of joint and common costs is to be recognized in TELRIC studies establishing interconnection rates. Thus, Ameritech's observation at page 16 of its comments that "it is difficult to see how a BOC could sustain monopoly access prices or discriminatory access service, even if it wanted to,"is unfounded. Furthermore, if the FCC were to conclude that manufacturing, information services, and interLATA services were appropriately located within an affiliate which also provided local exchange service, the PUCO's concerns regarding the shifting of common costs to the BOC from the affiliate in the absence of structural safeguards would be multiplied. ССAmeritech states at page 19 of its reply comments that the incentives and opportunity for crossЉsubsidization have diminished with the efficacy of price cap regulation. While Ameritech operates in Ohio under a priceЉcap regime, that regime does not constrain interconnection access prices. Accordingly, the RBOC sets forth a spurious argument. ССSection 272 mandates the structural separation of a BOC subject to the requirements of Section 251(c) of the Act and its affiliate(s) engaged in manufacturing activities, origination of interLATA telecommunications services, incidental interLATA services, outЉofЉregion services, and activities previously authorized as described in Section 271(f). To the extent that the structural separation required by Section 272(b) succeeds in preventing the misallocation of costs as well as the ability to discriminate against unaffiliated interLATA carriers, the PUCO's concerns in this regard will be alleviated. However, even Ameritech acknowledges at footnote 39, page 26 of its comments that there may be forms of discrimination that are imperceptible to end users, hence would not necessarily be discernible by regulators. Ameritech's position that such discrimination would not lead to the acquisition of market power is beside the point: the PUCO's concern is rather that in providing such discriminatory treatment to unaffiliated interLATA carriers, BOCs could compromise the successful entry of competitors into the local exchange market. Contrary to Ameritech's statement at page 28 of its comments, discrimination is not only theoretically possible but is also a significant risk in the real world that is the locus of state regulatory concerns. Once interLATA relief is obtained by a BOC, and joint marketing restrictions are lifted from competitors offering local and interLATA services, BOC exercise of "imperceptible" discriminatory tactics must not be countenanced. ССAt page 31 of its comments, Ameritech alleges that BOC affiliate retail rates will be readily discernible, and that belowЉcost pricing would provide a red flag to regulators. While this allegation is offered in the context of a discussion of the ability of the BOC to raise access prices for all interLATA providers (including its affiliate) and hence maximize BOC access revenues, the PUCO remains unconvinced of the ability of regulators to recognize inappropriate pricing, particularly in a situation in which the BOC affiliate is marketing and selling local as well as interLATA services. As set forth in the PUCO's previous comments in this docket, Ameritech Communications of Ohio (ACI) has filed two applications for operating authority throughout Ohio, to provide basic local exchange service and to provide interexchange service. Assuming arguendo that such authority were granted by the PUCO, ACI could conceivably bundle service offerings so as to obfuscate cost/price comparisons. ССFor these reasons, and subject to our principal concern regarding retention of state jurisdiction over intrastate matters, the PUCO generally endorses the FCC's proposals for implementing Section 272(b)(1) and Section 272(b)(3) as necessary to prevent anticompetitive behavior. The PUCO takes issue with Ameritech's position at page 37 of its comments that Section 272(b)(1) merely establishes a general, qualitative standard to guide the Commission in its application of the more specific requirements in Sections 272(b)(2)Љ(5), and supports the positions taken by those commenters in this docket that the more rigorous standards established in the Computer II inquiry regarding structural separation and nonЉdiscrimination, rather than standards consistent with Computer III, be imposed by the FCC. The FCC need look no further than the joint audit it undertook with the Ohio and Wisconsin Commissions, to conclude that more reliance on accounting safeguards is inadequate. Despite such safeguards being ordered by the FCC in УУComputer IIIФФ, the staff of the FCC, Ohio and Wisconsin Commissions essentially found Ameritech Service Inc.'s, books to be unauditable. ССIf the FCC were to interpret the language of Section 272 to permit administrative sharing, the misallocation of common costs could, as articulated above, result in anticompetitive behavior not only in the interLATA market but also in the local exchange market. Countervailing regulatory considerations do require stringent separation of BOCs and their subsidiaries under these circumstances, and the FCC should remain steadfast in insisting on imbuing the concept of independent operation established in Section 272(b)(1) with tangible meaning. ССAt page 56 of its comments, Ameritech argues that while Section 272 is not a vehicle by which customers may force a BOC to provide goods, facilities, services or information that are actually different from what the BOC is already providing to itself, customers are provided with other options by means of the Section 251 requirement that incumbent LECs provide interconnection and network element access on request at any feasible point. Consistent with its comments in this docket, the PUCO asserts that the underlying quality of service provided by the LEC to nonЉaffiliates must be of the same quality as is provided to the affiliate. Contrary to Ameritech's view of alternative options provided by Section 251, the PUCO has observed that entities seeking interconnection with incumbent LECs are handicapped in their knowledge of the latter's network design, and thus are not assured of obtaining the same quality of underlying service through their interconnection requests. ССFinally, with respect to the transfer of network capabilities, the PUCO reiterates its position that, contrary to the assertions of Ameritech at page 59 of its comments, the FCC must assure that BOCs do not circumvent requirements intended to permit sustainable competitive entry by transfering existing network capabilities to an affiliate. In proposing the meaning of "successor or assign" in the context of the Act as consistent only with the spinning off of an entire business, which business thereupon operates intact, Ameritech mounts a specious argument that, if accepted, would render Sections 271 and 272 superfluous. By the same token, the PUCO endorses the observations of AT&T Corporation at page 41 of its comments that permitting BOCs to plan, engineer and construct inЉregion interexchange facilities and services on an integrated basis with their local exchange business would subvert the Act's purposes. аааа У УCONCLUSION ааааФ ФССThe PUCO urges the FCC to take no action which would preclude states from exercising an appropriate level of regulation of BOC affiliates to preclude the potential for antiЉcompetitive behavior. This section of the Act clearly allows states to impose additional safeguards to promote competition. There are many state issues unique to Ameritech's ACI filing for instance and its interelationship with Ameritech's Ohio specific alternative regulation plan while the Ohio PUC will be considering in the next few months. The FCC should continue to permit the states to craft solutions to these uniquely local service issues so long as the goals of the Telecommunications Act of fostering competition are advanced. We thank the FCC for the opportunity to file reply comments in this docket. аааа ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА.(#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааТТRespectfully submitted, ТТ ТТУ УBETTY D. MONTGOMERY ТТФ ФAttorney General of Ohio ТТ ТТ ТТ ТТггУУСС ТТУ УФФANN E. HENKENER ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааФ ФССAssistant Attorney General ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА.pШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџааССPublic Utilities Section СС180 East Broad Street ССColumbus, OH 43215Љ3793 СС(614) 466Љ4396 ССFAX: (614) 644Љ8764 ааџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџА` И hРpШ xа (#џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџаа