WASHINGTON, D.C. - As the Federal Communications Commission undergoes its first, comprehensive review of wholesale pricing rules for facilities shared by incumbent phone companies with competitors, a former state regulatory chief who had to apply them in practice has filed comments with the agency calling for major reforms.  Calling those rules an "abomination," he maintains the theoretical model - called TELRIC - not only leads to but also requires manipulation and "regulatory gaming."

"TELRIC is a regulatory abomination...because it makes the entire regulatory process dishonest," writes Raymond L. Gifford, former chair of the Colorado Public Utility Commission and current president of The Progress & Freedom Foundation.  "Parties and the regulator are forced into pretending there is methodological rigor when there cannot be. Further, they are forced into pretending there is real, principled pricing going on when secondary, unspoken considerations drive the process."  Gifford made his remarks in official comments filed with the FCC in a current rulemaking proceeding.

"Along with unbundling, Total Element Long Run Incremental Cost (TELRIC) is the problem with implementation of the Telecommunications Act of 1996," he writes.   It introduces an "unacceptable level of analytic indeterminacy into the process of implementing the Act" that "allows illegitimate secondary considerations."  The result is "wide variability in rates" that do not square with the FCC's desire for "a pricing methodology 'conducive to efficient facilities investment'."

Gifford calls for "a rate-setting method that has more methodological, real world integrity."  The FCC should reform TELRIC to be: "forward-looking," "definite," and "capable of consistent principled implementation."  He suggests the FCC should "moor a forward-looking cost methodology to actual costs for the incumbent" and "consider a 'costing cap' rate-setting method."  The agency could also consider "baseball-style arbitration proceedings" to minimize regulatory gaming.  In this case, state commissions would have authority to decide rates,  "without the wide latitude that exists now."

Gifford presided over a TELRIC rate case involving Qwest Communications, Inc.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.