DT 99-003
                         BELL ATLANTIC
           Special Contract with Vitts Networks, Inc.
     Order Denying the Special Contract Without Prejudice 
                    O R D E R   N O.  23,138
                        February 8, 1999
       On January 7, 1999, New England Telephone and Telegraph
     Company d/b/a Bell Atlantic (Bell Atlantic or the Company) filed
     with the New Hampshire Public Utilities Commission (Commission) a
     petition for approval of a Special Contract Frame Relay Service
     (FRS) and Digital Data Service (DDSII) with Vitts Networks,
     Inc.,pursuant to RSA 378:18.  In support of the petition, Bell
     Atlantic filed a contract overview and cost study details.
       Concurrently, Bell Atlantic filed a Motion for
     Protective Order, seeking to exempt portions of the Special
     Contract and supporting materials from public disclosure.  The
     Commission issued Order No. 23,110 on January 25, 1999 granting
     in part the motion.
       Bell Atlantic's cost study avers that the special
     contract's proposed rates exceed the incremental costs of the
     services being provided, pursuant to the requirements of RSA
     378:18-b.  RSA 378:18 applies to special contracts in general and
     RSA 378:18-b applies specifically to special contracts offered by
     telephone utilities.  Those statutes state:
       378:18  Special Contracts for Service.
         Nothing herein shall prevent a public utility from
       making a contract for service at rates other than those
       fixed by its schedules of general application, if
       special circumstances exist which render such departure
       from the general schedules just and consistent with the
       public interest and, except as provided in RSA
       378:18-b, the commission shall by order allow such
       contract to take effect.
         378:18-b Special Contracts; Telephone Utilities
         Any special contracts for telephone utilities providing
       telephone services shall be filed with the commission
       and shall become effective 30 days after filing,
       provided the rates are set not less than:
            I.  The incremental cost of the relevant service; 
            II.  Where the telephone utilities competitors 
                 must purchase access from the telephone 
                 utility to offer a competing service, the 
                 price of the lowest cost form of access that 
                 competitors could purchase to compete for 
                 customers with comparable volumes of usage, 
                 plus the incremental cost of related    
       Commission Staff's review of the proposed special
     contract raises a strong question as to whether the proposed
     rates meet the requirement of RSA 378:18-b, a question which we
     believe must be fully argued before us by Bell Atlantic and
     Staff.  The question arises in the context of the current
     evolution of the telecommunications industry to a competitive
     industry after passage of the Telecommunications Act of 1996
     (TAct).  Bell Atlantic's filing follows the incremental cost
     calculation methodology which we heretofore accepted as adequate,
     that is, a minimum amount of costs incurred in order to serve the
     specific special contract customer at a specific location. 
     However, as required by the FCC in implementing the TAct, the
     Commission must employ a Total Element Long Run Incremental Cost
     (TELRIC) methodology for calculating the costs of unbundled
     network elements (UNEs) that Bell Atlantic offers for sale to
     Competitive Local Exchange Carriers (CLECs).  
       It is Staff's concern that relying upon an incremental
     cost methodology other than TELRIC may create unacceptable market
     barriers, in violation of the TAct, for CLECs attempting to
     compete against Bell Atlantic and, in this case, other CLECs. 
     Specifically, the TELRIC rates of certain underlying network
     elements that make up FRS and DDS II services which Bell Atlantic
     proposes to offer other CLECs are higher than the rates at which
     Bell Atlantic proposes to offer Vitts.  In addition, this
     contract essentially constitutes a resale agreement.  The level
     of proposed discounts range from 22% to 32% and are in excess of
     the discount levels (18.78%) currently being provided under the
     Company's Statement of Generally Available Terms and Conditions
     (SGAT).  Staff is concerned that wide differences in the level of
     discounts offered between Vitts and other CLECs reselling
     services out of the SGAT will create a business environment where
     resellers are treated differently for no apparent reason.  While
     it is true that CLECs can, as a result of the Supreme Court's
     recent decision in AT&T v. Iowa Utilities Board, No. 97-826 (Jan.
     1998) "pick and choose" individual provisions of a Bell Atlantic
     agreement with any other CLEC, it is not entirely clear at this
     point in time whether or not a CLEC can obtain the same level of
     discounts as Vitts.  
       The threshold question of which incremental cost
     methodology should be used when applying RSA 378:18-b must be
     resolved before this and future special contracts can be become
     effective.  We issued an Order of Notice on February 3, 1999, in
     Docket 99-018, scheduling a full but expeditious proceeding in
     order to properly consider this question.  The scope of the
     proceeding will consider, inter alia, whether the public interest
     would be served by permitting Bell Atlantic to continue pricing
     special contracts based upon non-TELRIC costing principles, and
     whether and how residential and small business ratepayers may be
     protected from subsidizing special contracts customers.
       The language of RSA 378:18-b would have this Special
     Contract go into effect 30 days from filing if the conditions set
     forth therein are present.  Because we are unable to determine at
     this juncture the appropriate "incremental cost" as that term is
     used in RSA 378:18-b, we will deny the Petition without
     prejudice.  Bell Atlantic may refile the petition after
     resolution of the question outlined above.  In the alternative,
     Bell Atlantic may refile the petition after it discloses the
     number of units purchased for each type of service contained in
     the proposed agreement.  In addition, Bell Atlantic may refile
     after supplementing its cost study indicating the proposed rates
     exceed TELRIC costs as stipulated in DE 97-171.  We grant this
     alternative because this proposed contract is between Bell
     Atlantic and Vitts, a CLEC, and we are concerned that postponing
     a decision until after a generic investigation into Bell Atlantic
     special contracts will unnecessarily impede the development of
     competition.  If the outcome of the separate investigation
     supports Bell Atlantic's position, we will consider making this
     Special Contract, refiled after such resolution, effective 30
     days from December 22, 1998, the date of the original filing.
       Based upon the foregoing, it is hereby
       ORDERED, that Bell Atlantic's petition for approval of
     the Special Contract is hereby denied without prejudice.
       By order of the Public Utilities Commission of New
     Hampshire this eighth day of February, 1999.
               Douglas L. Patch        Susan S. Geiger     Nancy Brockway
                   Chairman            Commissioner        Commissioner
     Attested by:
     Thomas B. Getz
     Executive Director and Secretary