Colorado Regulation: A View from the Top

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Colorado RegulationA View from the Top

• Doug Dean, Director
• Colorado Public Utilities Commission

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Introduction

• General overview of regulation of
  telecommunications in Colorado
• New Director, effective March 2005

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History of the Telecommunications Industry

• Monopoly, competition, monopoly again,
  competition again
• Technological change
• Expansion of service, geographic, demographic
• Antitrust suits

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Evolution of Telecommunications Regulation

• No regulation, some regulation, traditional
  regulation, alternatives to traditional
  regulation
• Industry specific legislation, state and federal
• Creation of regulatory institutions, increasing
  role thereof
• Universal service and other goals
• Regulatory reform, goal Improved utility
  performance using less government resources
• Regulatory reform, means More market, less
  government where feasible

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Traditional Regulatory Scheme

• Rate of return restriction
• Entry/exit restrictions
• Prices, terms, conditions, tariffs, pre-approval
• Service quality standards
• Cost recovery with ability to earn up to a
  maximum
• Depreciation prescription
• Cost-based rates with deviation based on
  universal service considerations

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Traditional Regulatory Scheme (cont.)

• Cost allocation between regulated and unregulated
  business
• Implicit subsidy schemes through pricing,
  separations, access
• Natural monopoly assumptions, end-to-end

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Changes to Traditional Regulation in Colorado

• A. Divestiture, 1984
• Culmination of industry changes since 1956
• Structural and institutional change in providers
  and governmental agencies

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Changes to Traditional Regulation in Colorado

• B. Article 15 enactment and revision
• Conformance with the modification of final
  judgment (MFJ)
• First major change to traditional regulatory
  scheme (refrain, competitive purposes,
  competitive need)
• 1987 RRE, parts 1-4 created expansion of
  regulatory flexibility possibilities
• 1993 CRS 40-15-203.5
• 1995 addition of Part 5, similar to Telecom Act
  of 1996

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Changes to Traditional Regulation in Colorado

• C. Qwest Alternative Regulatory Formats
• 1987 Qwest receives flexibility for private
  line within and outside local exchange service
  territories
• 1992 AFOR, an overall incentive scheme based on
  rate-of-return
• 1999 NFOR, aka 540T allows banded pricing,
  unbanded pricing and virtual deregulation of some
  services

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Changes to Traditional Regulation in Colorado

• D. Rule-based Alternative Regulatory Format
• 1987 4 CCR 723-24 for Part 3 services
• 1995 4 CCR 723-38, part 2 and part 3 services
• 2003 4 CCR 723-52, similar to provisions for
  CLECs

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Qwests Newest Alternative Regulatory Format

• A. Philosophy, Basis, Policy and Overview
• File and use vs. pre-approval
• Competitive need and competitive purposes
• Reduce oversight, allow market forces more
  influence
• Differentiation of regulatory treatment based on
  perceived level of competition, geographic and
  service characteristics
• Impacts all of Qwests regulated services
• Impacts all of CLECs services

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Qwests Newest Alternative Regulatory Format

• A. Philosophy, Basis, Policy and Overview
  (cont.)
• Possible, but limited impact on small LEC but not
  necessarily CLEC services
• Switched access service not affected
• Procedurals twists created by CRS 40-15-305 306
• Other procedural twists created relative to 4 CCR
  723-38.3.2.1
• Supplants and replaces the 540T NFOR scheme
• Two main types of regulation market based and
  modified existing

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Qwests Newest Alternative Regulatory Format

• B. Structure
• Rate of return restriction doesnt apply
• Entry/Exit restrictions requires Commission
  approval with respect to CPCN and POLR
  obligations
• Prices, terms, conditions, tariffs, pre-approval
  reduced tariff requirements for many services,
  eliminate for others
• Service Quality Standards 540T no longer
  applies, other retail metrics applicable, doesnt
  affect wholesale service quality program
• Cost recovery with ability to earn up to a maximum

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Qwests Newest Alternative Regulatory Format

• B. Structure (cont.)
• Depreciation prescription
• Cost-based rates with deviations based on
  universal service considerations
• Cost allocation between regulated and unregulated
  business unchanged
• Implicit subsidy, schemes though pricing,
  separations, access
• Natural monopoly assumption, end-to-end notion
  has been challenged for some time

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Docket 04A-411T and Non-Qwest Providers

• A. Impact on CLECs
• May have default or provider-specific schemes
  that are more stringent than Qwests new scheme
• Commission will create a docket to offer this new
  scheme to CLECs who wish to adopt Qwest scheme
• Commission may create a new default regulatory
  scheme for CLECs in 4 CCR 723-38
• Intrastate toll is deregulated

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Docket 04A-411T and Non-Qwest Providers

• B. Impact on small LECs
• Small LECs should monitor and perhaps participate
  in follow-up dockets, but
• Little or no change directly on small LECs,
  opt-in provisions of 411T likely do not apply to
  small LECs, thus
• Small LECs main path to alternative regulation
  remains through 4 CCR 723-52 provisions, changes
  to which may be implied through the Commission
  rulemaking regarding 4 CCR 723-38

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Docket 04A-411T and Non-Qwest Providers

• B. Impact on small LECs (cont.)
• Other considerations, Telecom Act of 1996, 251(f)
  rural exemption, may limit scope of regulatory
  reform within small LEC service territories
• May apply to small LECs if they wish to serve in
  Qwest territory
• Toll deregulation for small LEC retail toll
  service, if applicable
• High cost fund review to occur soon

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Summary and Questions