EXECUTIVE SUMMARY
Following the trend of previous years, local exchange carriers are still transitioning from traditional forms of rate
regulation−i.e. rate-of-return regulation (ROR)−towards alternative forms of regulation, including rate freeze, price caps,
flexible regulation and deregulation. Among these regulatory regimes, price cap regulation is the most commonly adopted
by states to regulate the rates of their incumbent local exchange carriers, particularly of larger incumbents.
The enclosed tables and figures show the status of retail rate regulation of local exchange carriers in the United
States as of September 2004. The information included in this report was obtained from the Supplemental White Papers
on Retail Rate Regulation of Local Exchange Providers, published each year by State Telephone Regulation Report. Staff
members from 32 states and the District of Columbia reviewed this information and provided revisions, improving the
accuracy of the report.
A total of 37 states use some form of price cap regulation (see Table 1 and Figure 1). Of them, only six states (AL,
DE, DC, LA, RI and TX) apply it to all their ILECs, including Regional Bell Operating Companies (RBOCs) and other
competitors. The most common trend is for the states to regulate the rates of their large incumbents under a price cap
plan while maintaining their smaller incumbents under ROR regulation (18 states); other states have granted smaller
incumbents flexible regulation or rate deregulation, either partial or complete, while regulating large ILECs under price
caps (7 states). As it is explained in Table 4, many small incumbents can opt to change to price caps or some other form
of alternative regulation, but many have decided to remain under traditional forms of regulation. Finally, the remaining six
states (AR, KY, MN, NY, ND, and OR) use a mix of regimes, including price caps, to regulate both their large and small
incumbents.
Despite the prevalence of price caps, traditional rate of return regulation (ROR) is still in use in 36 states, mostly to
regulate smaller incumbents, as illustrated in Figure 2. The number of states that use ROR for all their ILECs has
decreased over time; as of September 2004, only Alaska, Hawaii, Montana, New Hampshire and Washington did so.
Arizona and Idaho are special cases; both states use ROR for all their ILECs, but Qwest is under hybrid plans that
combine ROR with price caps in Arizona and with deregulation in Idaho.
An increasing tendency among states is to apply different regulatory regimes to each of their incumbent local
exchange carriers, combining price caps with ROR, price flexibility and deregulation, as shown in Tables 1 and 2, and in
greater detail in Table 4. As of September of 2004 eleven states were using a combination of regimes to regulate the
ILECs providing service in their territories.
Classifying carriers under a specific type of rate regulatory regime has become more difficult in recent years, as
more states implement alternative regulation plans. These plans combine features of different regulatory regimes, such as
rate freeze, price cap regulation or even rate-of-return regulation with pricing flexibility or deregulation, so as to adequately
respond to the increasing level of competition faced by a particular carrier in its different baskets of services.
Massachusetts, New York, Ohio, Pennsylvania and Wyoming are cases in point. As a result of these combinations, a
single label such as price cap plan or deregulation becomes inadequate to appropriately define the characteristics of
these hybrid alternative regulation plans. Finally, complete rate deregulation has been implemented only in Nebraska and
more recently in South Dakota, states where Qwest is the largest ILEC.
With respect to the competitive local exchange carriers (CLECs), the prevalent regulatory trend is rate flexibility (27
states), closely followed by rate deregulation (21 states), as illustrated in Table 1 and Figure 3. This trend is based on the
assumption in most states that the retail rates of CLECs are competitive. Only three states (DE, NJ and VA) impose some
regulations over CLEC rates, either by capping the rates for some services at the incumbent’s level or by stetting costbased
floors. Regardless of the type of rate regulation they operate under, CLECs are required in most states to obtain
state certification by demonstrating technical, financial and managerial competence before beginning operations in the
state. Only Kentucky, Massachusetts, Montana and Washington allow CLECs to operate by simply registering with the
public commission or another appropriate authority; North Dakota requires certification only to facilities-based CLECs. As
for the requirements to file tariffs and notify rate and service changes, Montana, Nevada, North Carolina and Oregon
provide their CLECs the greatest flexibility, even when compared to states that do not review CLECs’ rates. Competitive
carriers in these four states are not required to file tariffs or provide notification of changes and the rate changes are not
normally reviewed by their respective state commission. Table 5 provides greater detail on the state commission
requirements on CLECs regarding certification, rate filings, rate changes, reviews and notifications.
Table 3 presents the major changes in retail rate regulation that occurred since April of 2003. During the 2003-
2004 period, the rate plans of major ILECs in 14 states (AZ, CA, CO, DE, IL, KY, LA, MN, MS, NC, OK, SC, WV and WI)
and the District of Columbia went under review and the majority of these plans were extended with some changes. New
plans were established for major ILECs in Indiana (SBC, VZ, and Sprint), Kentucky (Alltel KY) and Massachusetts (VZ),
while state commissions in Maryland, Vermont, Virginia and North Carolina opened dockets to evaluate existing plans for Verizon (MD, VT) and Sprint (NC) or, as in the case of Virginia, new price cap plans for Verizon VA and Verizon South. In
fact, Verizon’s rate plans and proposals were reviewed or are currently been reviewed in 21 of the 42 states reporting
changes since April of 2003, the highest number among Regional Bell Operating Companies (RBOCs).
Nevertheless, among the RBOCs, Qwest had the most radical changes in its rate regulation during the 2003-2004
period, changes justified by the increased presence of competition in its area of service. This carrier filed proposals for
deregulation or greater price flexibility in eight of its fourteen regional states (AZ, CO, ID, MN, SD, UT, WA and WY).
Although Qwest’s application for full rate deregulation in the seven largest exchanges in Idaho was unsuccessful, it won
statewide retail rate deregulation from the South Dakota PUC in October of 2003, making it the only RBOC having
obtained full retail rate deregulation in two of its regional states (NE and now, SD). Qwest is also requesting full price
flexibility for all retail services in competitive zones in Arizona, and for all but basic services in Colorado; it was granted
deregulation for business rates in three major metropolitan areas in Minnesota and of all analog business telecom
services in all markets in Washington; it increased the number of rate deregulated local residential lines in the most
populated areas of Utah, and moved from a price cap plan to a cost-based pricing flexibility regime in Wyoming, all since
April 2003.
SBC and Verizon are also following this trend, proposing full deregulation of retail rates in Missouri and Maryland,
respectively. In Massachusetts, Verizon’s new alternative regulation plan provides it greater flexibility for pricing nonbasic
residential and all business services, while a plan proposed by the company in Vermont would grant it rate
deregulation for all but basic residential services, if approved. BellSouth has also made inroads towards retail rate
deregulation in North and South Carolina during this period. In North Carolina it proposed a reclassification of services for
its price cap plan that would move most services into the full pricing flexibility category; meanwhile, in South Carolina, the
Legislature enacted rate deregulation for all retail service bundles from price-regulated incumbents (BS, VZ and Sprint),
and the state government has until the end of 2004 to act on the measure.
Among the states reporting changes during this period, Alabama is conducting the most comprehensive review of
regulation. The Public Service Commission opened a comprehensive regulatory review (Case 28950) of all local
exchange providers to determine if the technological, structural and policy changes that occurred since the 1996 Telecom
Act require a corresponding regulatory change. In the proposed plan, carriers would be regulated according to level of
competition they are facing. In sum, the trend among states is towards providing greater price flexibility to incumbent carriers as the level of
competition in local exchange services increases in their regional areas. This flexibility is expressed either by deregulating
certain services, such as non-basic and competitive services, or certain carriers based on their size, such as telephone
cooperatives and other smaller incumbents. Some larger incumbents are also making inroads in achieving full retail rate
deregulation in competitive zones. As for CLECs, rate flexibility is the prevailing trend.
The tables included in this report provide different levels of detail. Table 1 presents a distribution of the states by
type of rate regulation regime applied to their ILECs and CLECs. Figures 1 and 3 illustrate this information. Table 2
provides basic information on the specific type of plan applied to large incumbents, other incumbents and CLECs. Table
3 summarizes major changes in rate regulation that occurred since April 2003. Tables 4 and 5 provide more detailed
information on the specifics of the retail rate regulation plans of ILECs and CLECs, respectively, including earnings
regulation, notice periods, as well as requirements on infrastructure investment and quality of service.
Following the trend of previous years, local exchange carriers are still transitioning from traditional forms of rate
regulation−i.e. rate-of-return regulation (ROR)−towards alternative forms of regulation, including rate freeze, price caps,
flexible regulation and deregulation. Among these regulatory regimes, price cap regulation is the most commonly adopted
by states to regulate the rates of their incumbent local exchange carriers, particularly of larger incumbents.
The enclosed tables and figures show the status of retail rate regulation of local exchange carriers in the United
States as of September 2004. The information included in this report was obtained from the Supplemental White Papers
on Retail Rate Regulation of Local Exchange Providers, published each year by State Telephone Regulation Report. Staff
members from 32 states and the District of Columbia reviewed this information and provided revisions, improving the
accuracy of the report.
A total of 37 states use some form of price cap regulation (see Table 1 and Figure 1). Of them, only six states (AL,
DE, DC, LA, RI and TX) apply it to all their ILECs, including Regional Bell Operating Companies (RBOCs) and other
competitors. The most common trend is for the states to regulate the rates of their large incumbents under a price cap
plan while maintaining their smaller incumbents under ROR regulation (18 states); other states have granted smaller
incumbents flexible regulation or rate deregulation, either partial or complete, while regulating large ILECs under price
caps (7 states). As it is explained in Table 4, many small incumbents can opt to change to price caps or some other form
of alternative regulation, but many have decided to remain under traditional forms of regulation. Finally, the remaining six
states (AR, KY, MN, NY, ND, and OR) use a mix of regimes, including price caps, to regulate both their large and small
incumbents.
Despite the prevalence of price caps, traditional rate of return regulation (ROR) is still in use in 36 states, mostly to
regulate smaller incumbents, as illustrated in Figure 2. The number of states that use ROR for all their ILECs has
decreased over time; as of September 2004, only Alaska, Hawaii, Montana, New Hampshire and Washington did so.
Arizona and Idaho are special cases; both states use ROR for all their ILECs, but Qwest is under hybrid plans that
combine ROR with price caps in Arizona and with deregulation in Idaho.
An increasing tendency among states is to apply different regulatory regimes to each of their incumbent local
exchange carriers, combining price caps with ROR, price flexibility and deregulation, as shown in Tables 1 and 2, and in
greater detail in Table 4. As of September of 2004 eleven states were using a combination of regimes to regulate the
ILECs providing service in their territories.
Classifying carriers under a specific type of rate regulatory regime has become more difficult in recent years, as
more states implement alternative regulation plans. These plans combine features of different regulatory regimes, such as
rate freeze, price cap regulation or even rate-of-return regulation with pricing flexibility or deregulation, so as to adequately
respond to the increasing level of competition faced by a particular carrier in its different baskets of services.
Massachusetts, New York, Ohio, Pennsylvania and Wyoming are cases in point. As a result of these combinations, a
single label such as price cap plan or deregulation becomes inadequate to appropriately define the characteristics of
these hybrid alternative regulation plans. Finally, complete rate deregulation has been implemented only in Nebraska and
more recently in South Dakota, states where Qwest is the largest ILEC.
With respect to the competitive local exchange carriers (CLECs), the prevalent regulatory trend is rate flexibility (27
states), closely followed by rate deregulation (21 states), as illustrated in Table 1 and Figure 3. This trend is based on the
assumption in most states that the retail rates of CLECs are competitive. Only three states (DE, NJ and VA) impose some
regulations over CLEC rates, either by capping the rates for some services at the incumbent’s level or by stetting costbased
floors. Regardless of the type of rate regulation they operate under, CLECs are required in most states to obtain
state certification by demonstrating technical, financial and managerial competence before beginning operations in the
state. Only Kentucky, Massachusetts, Montana and Washington allow CLECs to operate by simply registering with the
public commission or another appropriate authority; North Dakota requires certification only to facilities-based CLECs. As
for the requirements to file tariffs and notify rate and service changes, Montana, Nevada, North Carolina and Oregon
provide their CLECs the greatest flexibility, even when compared to states that do not review CLECs’ rates. Competitive
carriers in these four states are not required to file tariffs or provide notification of changes and the rate changes are not
normally reviewed by their respective state commission. Table 5 provides greater detail on the state commission
requirements on CLECs regarding certification, rate filings, rate changes, reviews and notifications.
Table 3 presents the major changes in retail rate regulation that occurred since April of 2003. During the 2003-
2004 period, the rate plans of major ILECs in 14 states (AZ, CA, CO, DE, IL, KY, LA, MN, MS, NC, OK, SC, WV and WI)
and the District of Columbia went under review and the majority of these plans were extended with some changes. New
plans were established for major ILECs in Indiana (SBC, VZ, and Sprint), Kentucky (Alltel KY) and Massachusetts (VZ),
while state commissions in Maryland, Vermont, Virginia and North Carolina opened dockets to evaluate existing plans for Verizon (MD, VT) and Sprint (NC) or, as in the case of Virginia, new price cap plans for Verizon VA and Verizon South. In
fact, Verizon’s rate plans and proposals were reviewed or are currently been reviewed in 21 of the 42 states reporting
changes since April of 2003, the highest number among Regional Bell Operating Companies (RBOCs).
Nevertheless, among the RBOCs, Qwest had the most radical changes in its rate regulation during the 2003-2004
period, changes justified by the increased presence of competition in its area of service. This carrier filed proposals for
deregulation or greater price flexibility in eight of its fourteen regional states (AZ, CO, ID, MN, SD, UT, WA and WY).
Although Qwest’s application for full rate deregulation in the seven largest exchanges in Idaho was unsuccessful, it won
statewide retail rate deregulation from the South Dakota PUC in October of 2003, making it the only RBOC having
obtained full retail rate deregulation in two of its regional states (NE and now, SD). Qwest is also requesting full price
flexibility for all retail services in competitive zones in Arizona, and for all but basic services in Colorado; it was granted
deregulation for business rates in three major metropolitan areas in Minnesota and of all analog business telecom
services in all markets in Washington; it increased the number of rate deregulated local residential lines in the most
populated areas of Utah, and moved from a price cap plan to a cost-based pricing flexibility regime in Wyoming, all since
April 2003.
SBC and Verizon are also following this trend, proposing full deregulation of retail rates in Missouri and Maryland,
respectively. In Massachusetts, Verizon’s new alternative regulation plan provides it greater flexibility for pricing nonbasic
residential and all business services, while a plan proposed by the company in Vermont would grant it rate
deregulation for all but basic residential services, if approved. BellSouth has also made inroads towards retail rate
deregulation in North and South Carolina during this period. In North Carolina it proposed a reclassification of services for
its price cap plan that would move most services into the full pricing flexibility category; meanwhile, in South Carolina, the
Legislature enacted rate deregulation for all retail service bundles from price-regulated incumbents (BS, VZ and Sprint),
and the state government has until the end of 2004 to act on the measure.
Among the states reporting changes during this period, Alabama is conducting the most comprehensive review of
regulation. The Public Service Commission opened a comprehensive regulatory review (Case 28950) of all local
exchange providers to determine if the technological, structural and policy changes that occurred since the 1996 Telecom
Act require a corresponding regulatory change. In the proposed plan, carriers would be regulated according to level of
competition they are facing. In sum, the trend among states is towards providing greater price flexibility to incumbent carriers as the level of
competition in local exchange services increases in their regional areas. This flexibility is expressed either by deregulating
certain services, such as non-basic and competitive services, or certain carriers based on their size, such as telephone
cooperatives and other smaller incumbents. Some larger incumbents are also making inroads in achieving full retail rate
deregulation in competitive zones. As for CLECs, rate flexibility is the prevailing trend.
The tables included in this report provide different levels of detail. Table 1 presents a distribution of the states by
type of rate regulation regime applied to their ILECs and CLECs. Figures 1 and 3 illustrate this information. Table 2
provides basic information on the specific type of plan applied to large incumbents, other incumbents and CLECs. Table
3 summarizes major changes in rate regulation that occurred since April 2003. Tables 4 and 5 provide more detailed
information on the specifics of the retail rate regulation plans of ILECs and CLECs, respectively, including earnings
regulation, notice periods, as well as requirements on infrastructure investment and quality of service.
No hay comentarios:
Publicar un comentario