DEC 05 2fl BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA

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1 F ILET DEC 05 2fl BEFORE THE CORPORATION COMMISSION OF THE STATE OF OKLAHOMA APPLICATION OF LEVEL COURT CLERK'S OFFICE - OKC 3 ) COMMUNICAITONS, LLC TO CORPORATION COMMISSION ) EXPAND LOCAL EXCHANGE OF OKLAHOMA SERVICE TERRITORY AND FOR OF REVISIONS TO ITS ) CAUSE NO. PUD LOCAL EXCHANGE TARIFF REPORT OF THE ADMINISTRATIVE LAW JUDGE On October 30, 2014, Administrative Law Judge Ben Jackson conducted a full evidentiary hearing on the application. The hearing occurred in the Commission's Courtroom B, Jim Thorpe Building, Oklahoma City, Oklahoma. At the hearing, the following attorneys entered appearances: J. David Jacobson represented Level 3 Communications, LLC (Level 3 11 ); Ron Comingdeer represented Cherokee Telephone Company, Cross Telephone Company, McLoud Telephone Company, Oklahoma Western Telephone Company, and Panhandle Telephone Cooperative, Inc.; Kimberly K. Argenbright represented Chouteau Telephone Company d.b.a. FairPoint Communications; and 0CC Deputy General Counsel Elizabeth Cates with Assistant General Counsel Matt. A. Mullins represented the Commission's Public Utility Division (PUD'') Being fully advised of the premises, the Administrative Law Judge finds: FINDINGS 1. Level 3 is a competitive local exchange carrier (CLEC'') providing switched and dedicated, resold and facilities based local exchange and interexchange telecommunications services. Level 3 operates under a certificate of convenience and necessity (Order No as

2 Page 2 of 16 last amended by Order No ). Level 3 asks for an order extending its service territory and approving revisions to its local exchange tariff. Currently, Level 3 is authorized to operate in the service territories of Southwestern Bell Telephone d.b.a AT&T Oklahoma, Valor Telecommunications of Texas, L.P. d.b.a Windstream Communications Southwest, and Pioneer Telephone Cooperative, Inc. Level 3 proposes to extend its service territory into the service territories of Cherokee Telephone Company, Chouteau Telephone Company, Inc. d.b.a. FairPoint Communications, Cross Telephone Company, Elkhart Telephone Company, McLoud Telephone Company, Mid-America Telephone Company, Oklahoma Communications, Inc., Oklahoma Western Telephone Company Pandhandle Telephone Cooperative, Inc., Pottawatomie Telephone Company, and Salina-Spavinaw Telephone Company, Inc. Level 3 proposes to revise its local exchange tariff to reflect the proposed extension of its service territory. 2. Ron Comingdeer and Kimberly K. Argenbright represent Respondents, who are rural incumbent local exchange carriers (RLECs''), protesting the application. 3. The Commission has jurisdiction of the subject matter under Ok. Const. art. IX, 18, 17 O.S. 131, et seq., and OAC 165: However, the Commission lacks jurisdiction of the person, because notice was defective due to a lack of publication notice. 4. After reviewing the record, the ALJ recommends that the Commission deny the application for lack of publication notice.

3 Page 3 of 16 Procedural History 1. On May 7, 2014, Level 3 filed its application. 2. On May 20, 2014, Level 3 filed its motion for a procedural schedule. 3. On May 23, 2014, Cherokee Telephone Company, Cross Telephone Company, McLoud Telephone Company, Oklahoma Western Telephone Company, and Panhandle Telephone Cooperative, Inc. filed entries of appearance. 4. On June 5, 2014, Chouteau Telephone Company d.b.a FairPoint Communications filed its entry of appearance. S. On June 5, 2014, the ALJ heard and recommended the motion for a procedural schedule. 6. On June 20, 2014, Richard E. Thayer filed testimony in support of Level 3's application. 7. On July 2, 2014, Level 3 filed a motion for protective order. 8. On July 3, 2014, the Commission issued Order No , which contains the procedural schedule. 9. On July 31, 2014, the Commission issued Order No , which is the protective order. 10. On September 19, 2014, Chouteau Telephone Company filed its statement of position; Cherokee Telephone Company, et al. filed its statement of position; and Mark Argenbright filed testimony for PUD. 11. On October 17, 2014, PUD filed the Testimony Summary of Mark Argenbright and its Exhibit List.

4 Cause No. PTJD Page 4 of On October 20, 2014, Chouteau Telephone Company filed its Exhibit List. 13. On October 30, 2014, the ALJ conducted the hearing on the merits. At the end of the hearing, the ALJ asked the parties to submit proposed findings within two weeks, and the ALJ took the matter under advisement. 14. On November 13, 2014, Level 3 filed an affidavit of Richard E. Thayer attesting to telephonic testimony at the hearing on the merits held on October 30, On November 14, 2014, the parties filed proposed findings. Issues 1. Is amendment of Level 3's certificate of convenience and necessity a precondition to extending Level 3's service territory? 2. Does 17 O.S. 132 require publication notice for an application to extend the service territory? 3. Has Level 3 proposed to provide a regulated service for which an amendment of Level 3's service territory is required? 4. OAC 165: requires an extension of the service territory to be in the public interest. Is the proposed expansion of the Level 3 service territory in the public interest? 5. How does 47 U.S.C. 253(a) affect the requirements of OAC 165: ?

5 Cause No. PTJD ALT Report Page 5 of Did Level 3 have to prove new business pportunities'' that were not available from the RLECs? 7. What is the impact of territory expansion on universal service? 8. Should the Commission limit relief to interim authority? Summary of the Evidence The ALJ marked the preliminary exhibits as Exhibit Nos. 1-21, based on the order in which each document was filed with the Court Clerk. During the hearing, the ALJ received into evidence Exhibit No The parties presented two witnesses; Richard E. Thayer testified as a regulatory expert for Level 3. PUD Telecom Coordinator Mark Argenbright testified as a regulatory expert for PUD. Both witnesses testified under oath. There was no public comment. Richard E. Thayer 1. Mr. Thayer is a senior attorney for Level 3. He is familiar with how Level 3 will provision services in the proposed extension to Level 3Ts service territory, and Mr. Thayer is an expert in state and federal telecommunications regulation. The ALJ accepted his credentials to testify as a regulatory expert. He submitted pre-filed testimony and testified at the evidentiary hearing as follows:

6 Page 6 of Level 3's fiber backbone is used to send the traffic of Level 3's wholesale customers via Internet protocol. Level 3 provides connectivity for VoIP providers whose traffic is sent by way of Level 3 facilities to the ILECs and/or end users in the ILEC5' territory. Level 3 customers also use Level 3 services for bulk transport such as DISH Network's combination of DSL and V0IP services and Home Health Maintenance's uses for out-health monitoring and television service. 3. Expansion of Level 3's service territory is in the public interest and is consistent with the universal service goals of the Commission. The territory expansion will enable Level 3 to provide its customers with access to Level 3's services, including advanced telecommunications services. The expansion of service territory would provide the public with access to new service opportunities provided not only by Level 3, but also by Level 3's wholesale customers, giving subscribers an alternate provider of quality telecommunications services. 4. Although PUD's Mark Argenbright recommended granting the Level 3 application on an interim basis, Level 3's expanded authority should not be interim in nature and dependent on Level 3's build-out of facilities or the negotiation of interconnection agreements with the ILECs. There is no Commission rule or other requirement that Level 3 must build out its network or enter into interconnection agreements within a set period of time following the grant of authority as a condition to making the authority permanent. The Commission has never made this requirement of any

7 Page 7 of 16 CLEC. Interim authority will result in delays and unnecessary expenses and costs to Level 3 as it will be required to file with the Commission requests for permanent authority for each ILEC exchange into which Level 3 has built out its network or for each ILEC with which Level 3 has negotiated an interconnection agreement. 5. Level 3 will not provide basic local exchange service to residential customers in the expanded service territory. 6. Under a previous extension of its service territory in 2013, Level 3 continues to negotiate an interconnection agreement with Pioneer Telephone Cooperative, Inc., and Level 3 continues to build out its Oklahoma network. 7. Upon questioning from the Administrative Law Judge, Mr. Thayer testified that the local exchange service provided by Level 3 could be via either V0IP or by Time-division Multiplexing ("TDM'), depending on the circumstances, but by neither method exclusively. 8. In response to cross-examination by counsel for Chouteau, Mr. Thayer explained that Level 3 does not provide basic local exchange service directly to residential customers, but that it may provide such service to its enterprise or business customers. Mark Argenbright 1. PUDTs Telecom Coordinator Mark Argenbright testified in support of PTJD's position. He approved his pre-filed testimony. He reviewed the application, exhibits and pre-filed testimony.

8 Cause No. PTJD Page 8 of 16 Argenbright's credentials to testify as an expert in telecommunications regulation were previously accepted in another cause. He presented pre-filed testimony and testified at the evidentiary hearing. His testimony is summarized as follows: 2. Level 3 filed its application seeking to expand its service territory on May 7, Level 3Ts current service territory includes the exchanges served by Southwestern Bell Telephone d.b.a. AT&T Oklahoma, Valor Telecommunications of Texas, L.P. d/b/a Windstream Communications Southwest, and Pioneer Telephone Cooperative, Inc. ( " Pioneer"). Granting Level 3's application would expand its service territory (hereinafter referred to as the 'New Service Territory") to include the exchanges served by the following rural local exchange carriers: Cherokee Telephone Company; Chouteau Telephone Company d.b.a. FairPoint Communications; Cross Telephone Company; Elkhart Telephone Company, Inc.; McLoud Telephone Company; Mid-America Telephone Company; Oklahoma Communications Systems, Inc.; Oklahoma Western Telephone Company; Panhandle Telephone Cooperative, Inc.; Pottawatomie Telephone Company; and Salina- Spavinaw Telephone Company, Inc. (collectively, the 'RLECs") 3. OAC 165: provides the review criteria and specifies that the Commission make a determination as to whether the proposed new service territory is in the public interest. The factors to be considered include, but are not limited to, the existence and location of the competitive local exchange carrier's facilities, the number of potential customers to be

9 Page 9 of 16 served, and the potential impact on universal service. A review of the location of Level 3's facilities indicates that there is a lack of proximity of those facilities to the New Service Territory. Level 3 does not currently have interconnection agreements with any of the RLECs associated with the New Service Territory. In regard to Level 3's expansion into Pioneer's service territory, Level 3 was granted authority to expand into the Pioneer service territory on September 17, 2013, but Level 3 is still negotiating an interconnection agreement and has zero (0) enterprise customers. The lack of proximity of Level 3's facilities to the New Service Territory, combined with the lack of interconnection agreements, both for the New Service Territory as well as the previously granted expansion into Pioneer service territory, creates some concern regarding potential delays in services actually being deployed in the New Service Territory. The pre-filed testimony of Richard E. Thayer indicated that Level 3 estimates that there are twenty-nine thousand (29,000) potential customers in the New Service Territory. Level 3 intends to offer the same regulated telecommunications services in the New Service Territory as it currently offers in its existing service territory. Given the potential to provide subscribers with access to an alternative provider, Level 3's proposed expansion is consistent with universal service goals. 4. When asked about the concerns with a potential delay in the actual provision of service in the New Service Territory, and what protections he would propose, Mr. Argenbright testified that

10 Page 10 of 16 Level 3 should be granted an eighteen (18) month interim authority in those areas into which it requests to expand. If during that eighteen (18) month period, Level 3 either extends its physical network into an exchange or negotiates an interconnection agreement with the RLEC serving that territory, then permanent expansion authority should be granted for that exchange. Alternatively, if, after eighteen (18) months, Level 3 has not expanded its physical network into the requested exchanges or negotiated an interconnection agreement with the RLEC serving that territory, then interim authority should be revoked for each such exchange. Mr. Argenbright further testified that PUD's recommendation is that the Commission find the proposed expansion of Level 3's service territory is in the public interest, and the application for same should be granted on an interim basis for eighteen (18) months with the requirement to report to PUD the status of its network expansion, interconnection agreement progress, and any unfilled requests for service(s) at six (6) month intervals after the order approving the request. Further, Level 3 should amend its Oklahoma tariff accordingly. Other Findings of Fact and Conclusions of Law O.S. 131 requires a certificate of conveniences and necessity (CCN'') to provide a regulated service in any geographic area. Mr. Comingdeer contends that to expand its service territory, Level 3 must first amend Level 3' CON and

11 Page 11 of 16 offer to provide a regulated service in the proposed extended service area. 2. The CCN defines the service territory. Order No. The Order No as last amended by Order No are the CCN, and Order No states: IT IS THEREFORE THE ORDER OF THE CORPORATIO N COMMISSION OF THE STATE OF OKLAHOMA that the Application, Amended Application and Second Amended Application, with al 1 attachments, of Level 3 Communications, LLC for a Certificate of Convenience and Necessity to provide local exchange and inter exchange telecommunication services in the State of Oklahoma within the local exchange areas of Southwestern Bell Telephone Company and General Telephone Company of the Southwest, Inc. is hereby approved. The foregoing provision clearly sets up the service territory for Level 3. To extend the service territory requires an amendment to the CCN. Order No extended the service territory; it states: IT IS FURTHER THE ORDER OF THE COMMISSION, that pursuant to OAC 165: , Level 3 Communications, LLC request to expand its service territory to include the service territory of Pioneer is in the public interest and that the Commission should issue a Final Order approving the requested expansion and approving the proposed revisions to Level 3's tariffs. Order No does not refer to Order No , but Order No changed the service territory and thus amended the provision of Order No , insofar as the service territory. The Commission should view the current Level 3 application as an

12 Page 12 of 16 application to amend the CCN even though the application does not refer to the CCN order. 3. Level 3 gave direct mail notice to each RLEC affected by the application, but Level 3 did not give any publication notice. To amend a CCN order, the applicant must give notice as required for an original application for a CCN. 17 O.S. 132 requires publication notice, namely, once a week for two weeks in a newspaper of general circulation in each service territory affected by the application. Publication notice is notice to the general public. The publication notice requirement is statutory, and neither the parties nor the ALJ can waive it. The record for Order No shows that Level 3 did not give publication notice for extending the service territory under that order. Nevertheless, the Commission should find here that notice of the application was inadequate due to lack of publication. 4. Mr. Comingdeer next argued that Level 3 is only proposing unregulated services in the proposed extension to Level 3's service territory. Level 3 alleged that it would provision a mix of regulated and unregulated services. Mr. Argenbright testified that Level 3 would extend regulated services into the proposed expansion of the service territory. However, Mr. Thayer's testimony at the evidentiary hearing concerned wholesale and broadband services, which are unregulated. As a result, a dispute arose over whether the Commission has jurisdiction to expand Level 3's service territory. In that regard, an order extending the service territory would only confer a right to

13 Page 13 of 16 offer a regulated service. When proposed services are wholesale or otherwise unregulated, the reason to get an order is because the North American Numbering Plan Administration operated by Neustar, Inc. requires the order before issuing telephone numbers. The Commission has issued orders for territory expansion elsewhere in uncontested causes extending wholesale services only. See Order Nos , and As a result, Level 3 is eligible to apply an order. 5, In regard to the merits of the application, OAC 165: sets the criteria for extending a service territory. The rule states: (a) The Commission shall determine whether a competitive LECTs service territory is in the public interest at the time the competitive LEC seeks certification or proposes changes to its service territory. In determining whether the proposed service territory meets the public interest, the Commission shall consider factors, including but not limited to, the existence and location of the competitive LEC's facilities, the number of potential customers to be served and the potential impact on universal service. (b) No service territory shall be changed except by Order of the Commission after such notice and hearing, if any, as directed by the Commission. Applications for change to an existing service territory shall be accompanied by revised tariff pages reflecting the proposed new service territory. The rule provides that the Commission will grant the request to expand the service territory if it is in the public interest. The RLECs contend that expanding the service territory is not in the public interest: Level 3 will take their business customers;

14 Page 14 of 16 Level 3 has not shown that it will provide anything not available from the incumbents; and Level 3 has not provided a cost study on the impact on universal service. The problem with the RLEC arguments stems from the Federal Telecommunications Act of 1996, in particular 47 U.S.C. 253(a), which provides: No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service. That means that the Commission cannot impose factors which are not revenue neutral or bar entry of a CLEC into an RLECs service territory. The testimony showed that granting of the application is in the public interest, because it will provide competition and make available new services to the public. It is also clear from the testimony that the impact on universal service comes from Level 3 offering services to wholesale and business customers in a competitive market. 6. In its testimony, PUD contended that the proposed expansion of Level 3's service territory is in the public interest, but should be authorized on an interim basis for eighteen (18) months. During the eighteen (18) month period, if Level 3 either extends its physical network into an exchange and/or negotiates an interconnection agreement with the RLEC serving that territory, then Level 3 could file a request for permanent expansion authority and provide any relevant supporting documentation for that exchange. An Order could then be issued by

15 Page 15 of 16 the Commission granting permanent authority. Alternatively, if, after the eighteen (18) month interim period, Level 3 has not extended its network or negotiated an interconnection agreement for a specific exchange, then the interim authority could be revoked for each such exchange. The revocation should be without prejudice to allow Level 3 to seek authority at a later date when it is prepared to offer service in the expanded territory. During the eighteen (18) month interim period, Level 3 should report to PUD, at six (6) month intervals, the status of its network expansion, interconnection agreement progress, and any unfilled requests for service(s) 7. Although opposed by Level 3, PUD's proposal for interim authority does not violate 47 TJ.S.C.253(a). However, there is no regulatory reason to coax Level 3 into provisioning wholesale and broadband services, which are unregulated. To the extent that Level 3 will provision a regulated service, an eighteen month interim authority may also be an unrealistic deadline. The RLECs do not have any incentive to quickly enter into ICA5 with their new competitor Level 3. The Commission just finished a ten year arbitration between the RLEC5 and AT&T Mobility. Here, the process of perfecting rights in the proposed extended territory could face road blocks lasting beyond eighteen months. From a procedural standpoint, such delays would generate additional application(s) for services, which appear to be unregulated. The ALJ sees no practical benefit in granting an interim authority to encourage timely deployment of such services. As a

16 Page 16 of 16 result, the ALJ recommends that the Commission reject PUD's requested amendment. Recommendation The ALJ recommends that the Commission deny the application without prejudice for lack of publication notice. Respectfully submitted, 7 1 en Jacks16n, administrative Law Judge Date: Xc: Commissioner Anthony Commissioner Douglas Commissioner Murphy Joseph Briley Bob Vandwater Teryl Williams J. David Jacobson Ron Comingdeer Kimberly K. Argenbright Elizabeth Cates Matt A. Mullins Court Clerk Commission records