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HomeMy WebLinkAbout20031016Tade Direct.pdfRECEIVED 0FILED 2nn3 OCT I 5 FH 4: I g IDlJ;O PUBliC UTIUTiES COMMISSION BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE PETITION OF IAT COMMUNICATIONS, INC., d. NTCH-IDAHO, INe. OR CLEAR TALK FOR DESIGNATION AS AN ELIGIBLE TELECOMMUNICATIONS CARRIER Case No. GNR-O3- IN THE MATTER OF THE APPLICATION OF NPCR, INC. d.a. NEXTEL PARTNERS SEEKING DESIGNATION AS AN ELIGIBLE TELECOMMUNICATIONS CARRIER Case No. GNR-O3- DIRECT TESTIMONY OF LANCE A. T ADE ON BEHALF OF CITIZENS TELECOMMUNICATIONS COMPANY OF IDAHO BOI MT2:526399. Please state your name, business address, and position with Citizens Telecommunications Company of Idaho ("CTC-Idaho My name is Lance A. Tade. My business address is 4 Triad Center, Suite 200, Salt Lake City, Utah, 84180. Please describe your current duties and responsibilities. My responsibilities include the management of regulatory and government affairs for CTC-Idaho. I am responsible for the implementation of all regulatory policies oversight of all regulatory activities including CTC- Idaho s intrastate rates and tariffs and the management of state regulatory and legislative proceedings and relations. have similar responsibilities for Citizens' affiliates operating in Montana , North Dakota and Washington. Please describe your educational background. I have a bachelors of science degree in Business Administration from San Diego State University. I also hold a certificate as a Certified Public Accountant in the State of Washington. Please describe your work experience in the telecommunications industry. Prior to my current position, I served as Staff Manager - Regulatory Accounting with GTE from 1991 to 1994 in Irving, Texas. In that capacity, I was responsible for the coordination, development and analysis of financial justification of revenue requirement, minimum filing requirements and testimony associated with state regulatory commission filings. Other telecommunications experience includes various Page 2 Tade, DI CTC- Idaho BOI MT2:526399. positions held with Contel, including: Customer Services Supervisor in Lynden Washington (1989-1991); Finance Manager in Bellevue, Washington (1988-1989); and Supervisor - Budgets in Bellevue, Washington (1982-1988). What is the purpose of your testimony? The purpose of my testimony is to express concerns about both Clear Talk's and Nextel's request for designation as an Eligible Telecommunications Carrier ("ETC" Please summarize your concerns. Clear Talk and Nextel are individually requesting the Commission designate them as eligible to receive all available support from the federal Universal Service Fund USF"). Before designating Clear Talk, Nextel or any other company as a competitive ETC ("CETC") in the service territories of rural incumbent local exchange carriers such as CTC-Idaho, the Commission must find that (a) requesting company will provide the basic services as described by the Federal Communications Commission ("FCC") throughout the area for which it will be designated as an ETC and (b) granting the requesting company ETC status is in the public interest. R. 954.201(c)-(d). As the Commission considers Clear Talk's and Nextel's request to be designated as ETCs, there are at least three important points it should consider: Whether to modify CTC-Idaho s study area to accommodate requests of Clear Talk and Nextel.Neither company is requesting ETC designation throughout CTC-Idaho s service territory in Idaho. Clear Talk is only seeking to serve a portion on one of CTC- Idaho s exchanges. CTC- Idaho is concerned that granting Page 3 Tade, DI CTC- Idaho BOI MT2:526399. secondary ETC status only over a portion of its study area fosters asymmetric regulation. Asymmetric regulation is harmful because it distorts the competitive process. This Commission should endorse the principle of competitive parity and require both Clear Talk and Nextel to undertake the obligations of an ETC throughout the whole ofCTC-Idaho s study area. Whether Clear Talk's and Nextel's intended use of federal funding is consistent with the purpose ofUSF support. In compliance with the principle of competitive parity, this Commission should ensure that both Clear Talk and Nextel are subject to the same minimum requirements for unlimited free local usage that it has applied to CTC-Idaho and other rural LECs in Idaho. Whether Clear Talk and/or Nextel have demonstrated that it is in the public interest for it to be designated as an ETe.Granting multiple carriers ETC designation in the same geographic area imposes costs in addition to producing benefits. The public interest is not served unless the benefits from supporting multiple ETCs outweigh the costs of supporting multiple networks. STUDY AREA CONCERNS Why must the commission consider whether to modify CTC-Idaho s study area? Neither applicant is seeking ETC designation throughout CTC-Idaho s entire study area. Clear Talk is seeking ETC designation for only a portion of the Aberdeen exchange, which is one of eighteen exchanges that comprise CTC-Idaho s study area. Nextel, on the other hand, is not proposing to assume the obligations of an ETC on those portions ofCTC-Idaho s study area consisting of the following exchanges: Cascade (382) Horseshoe Bend (793) Riggins (628) Fairfield (764) Whitebird (839) Elk City (983) Page 4 Tade, DI CTC- Idaho BOI MT2:526399. What is meant by the term "study area A study area is a geographic segment of an incumbent local exchange carrier ILEC") telephone operations. Generally, a study area corresponds to an ILEC' entire service territory within a state. Thus, ILECs operating in more than one state typically have one study area for each state, and ILECs operating in a single state typically have a single study area. Study area boundaries are important because ILECs perform jurisdictional separations, determine high cost loop support amounts and generally tarifftheir rates at the study area level. Please describe CTC-Idaho s study area. CTC- Idaho s study area consists of eighteen exchanges defined in CTC- Idaho General Exchange Tariff on file with the Idaho Public Utilities Commission Commission ). The eighteen exchanges in CTC-Idaho s study area are the following: Aberdeen, Carey, Cascade, Donnelly, Elk City, Fairfield, Garden Valley, Homeda1e, Horseshoe Bend, McCall, Marsing, New Meadows, Parma, Riggins Springfield, Sweet, White Bird and Wilder. What is the significance of CTC-Idaho s service area insofar as this proceeding is concerned? In the context ofETC issues, the term "service area" describes the geographic area which a state commission assigns to an ETC for purposes of determining universal service obligations and support mechanisms. 47 e.F.R. 954.207(a). An ETC must provide the elements of basic service, as defined by the FCC, throughout that "service Page 5 Tade, DI CTC- Idaho BOI MT2:526399. area." By Order No. 27273, dated December 1997, the Idaho Public Utilities Commission designated CTC-Idaho an ETC in Case No. CTC-97- The Telecommunications Act of 1996 specifies that for rural LECs the ETC "service area" means that company s "study area" unless and until the FCC and the state regulatory commission establish a different "service area." Section 214(e)(5) states explicitly: "In the case of an area served by a rural telephone company, 'service area means such company ' study area ' unless and until the (FCC) and the States , after taking into account recommendations from a Federal-State Joint Board instituted under section 41 O( c), establish a different definition of service area for such company." Thus, for most rural LECs including CTC- Idaho , the ETC "service area" and "study area" are identical. If a competitive carrier like Clear Talk or Nextel seeks to be an ETC in the territory served by a rural LEC, the competitive carrier s ETC "service area" must be the same as the rural LEe's; that is , the competitive ETC's service must coincide with the rural LEC's study area, unless the rural LEe's study area is redefined by the FCC and a state Commission. What obligations does the Telecommunications Act of 1996 impose upon an ETC within its service area? Pursuant to section 214(e)(1) of the Telecommunications Act of 1996, a common carrier designated as an ETC must offer and advertise the services supported by the federal universal service mechanisms throughout its designated service area. The FCC has defined the services that are to be supported by the federal universal service Page 6 Tade, DI CTC- Idaho BOI MT2:526399. support mechanisms to include: (1) voice grade access to the public switched network; (2) local usage; (3) Dual Tone Multifrequency (DTMF) signaling or its functional equivalent; (4) single-party service or its functional equivalent; (5) access to emergency services, including 911 and enhanced 911; (6) access to operator services; (7) access to interexchange services; (8) access to directory assistance; and (9) toll limitation for qualifying low-income customers. 47 C.R. 954.101(a). What are your concerns regarding the geographic extent to which Clear Talk and Nextel propose to assume the service obligations of an ETC? Granting Clear Talk or Nextel ETC status over only a portion of a rural LEC's study area fosters asymmetric regulation. Asymmetric regulation may be defined as the practice of imposing market constraints on the incumbent firm not likewise borne by its competitors. If the Commission designates secondary ETC over only a portion of a rural LEC's service territory, it will be imposing asymmetric regulation on the rural LEe. Specifically, designating Clear Talk or Nextel as an ETC with respect to only parts of a rural LEe's service area will allow them to pick and choose the geographic extent of its ETC obligations while at the same time requiring the rural LEC to maintain its obligations over a wider geographic area. Is asymmetric regulation harmful? Yes. Asymmetric regulation is harmful because it distorts the competitive process. Truly effective competition can only emerge when all sellers in an industry enjoy the same freedoms, bear the same responsibilities and endure the same constraints. Page 7 Tade, DI CTC- Idaho BOI MT2:526399. What role should regulation play in the presence of competition? The role of economic regulation is to substitute for competition, where competition is absent. In some cases, certain public service obligations are regulatorily imposed on firms (e., universal service and carrier-of-last-resort obligations) as an instrument to effect certain social policies that may not otherwise be addressed in a competitive marketplace. In any event, the pursuit of these social policies should be largely transparent to the competitive process. The primary objective of regulation in a competitive environment should be to foster an equal opportunity to compete among market providers without pre-ordaining marketplace outcomes. In other words, this Commission should endorse the principle of competitive parity. Competition can be a means by which to enhance social welfare and economic efficiency in telecommunications markets. Competition is not, however, an end unto itself. Maximizing economic welfare is not synonymous with maximizing the absolute number of competitors in telecommunications markets. What is the best way for regulators to promote an equal opportunity to compete among market providers? The most effective way to promote economic efficiency in competitive markets is to allow competitive market forces to entice and discipline the behavior of firms. Effective competition requires that all firms must compete on the merits of their respective efficiencies. By contrast, imposing artificial restrictions on one competitor but not another, such as asymmetric rules and responsibilities, can mask the relative efficiencies of firms and thereby allow inefficient firms to displace efficient firms. Page 8 Tade, DI CTC- Idaho BOI MT2:526399. While such a circumstance may give appearances of competition, this form of rivalry does not constitute effective competition. A level competitive playing field should be encouraged and maintained, not by handicapping the efficient players, but by allowing fair and equitable competition to sort the efficient firms from the inefficient firms. How might this commission put the principle of competitive parity into practice in this docket? One way in which the Commission could put the principle of competitive parity into operation is to require all carriers to undertake the obligations of an ETC throughout the whole of each targeted rural LEe's study area. The Commission should require each carrier to submit a plan for building out its network once it receives ETC designation and to demonstrate progress toward achieving its build-out plan in order to retain ETC designation. Are there any other concerns about these applications to become an ETC over less than the entirety of a study area? Yes. Absent service area redefinition by the FCC and this Commission, neither Clear Talk or Nextel can be designated as an ETC in the respective rural LEe's study area. Nextel has asked this Commission to grant conditional approval of its request for ETC designation pending FCC redefinition of CTC- Idaho s service area from a study area to individual exchanges. Clear Talk, on the other hand, appears to be proposing that CTC- Idaho s study area be disaggregated, for ETC service area purposes, to the sub- exchange level. In other words, both Clear Talk and Nextel are seeking to have Page 9 Tade, DI CTC- Idaho BOI MT2:526399. certain of CTC- Idaho s study area disaggregated and established as separate ETC service areas. Such an action will require both Commission and FCC review and approval pursuant to 47 C.R. Section 54.207(c). What is CTC-Idaho s reaction to Clear Talk's apparent proposal to disaggregate the Aberdeen exchange to the sub-exchange level? CTC- Idaho is very much opposed to the sub-exchange disaggregation. Sub-exchange disaggregation, would allow a competitive carrier to unfairly arbitrage the federal universal support system and choose to serve only the least expensive section of an exchange but to receive federal support based on exchange-wide costs. CTC-Idaho is also concerned about the ongoing customer confusion and administrative burdens associated with the sub-exchange disaggregation. At some point, another CMRS provider may seek to be designated as an ETC in different portions of the Aberdeen exchange to match its unique territory. Ultimately this will result in disaggregation down to the customer specific level, which would be unworkable from a cost calculation and universal service funding perspective. CONCERNS ABOUT USE OF USF SUPPORT What are your concerns with respect to applicants' intended use of federal USF support? CTC-Idaho supports the goal of fostering competition. However, this Commission has the responsibility to ensure that all ETCs uphold specified minimum standards of service in order to further the public interest and comport with the FCC's universal Page 10 Tade, DI CTC-Idaho BOI MT2:526399. service principles. In particular, as required by the Telecommunications Act of 1996 and FCC's rules, CTC-Idaho urges the Commission to ensure that both applicants provide all supported services, including local usage, as a condition of any grant of ETC status. In compliance with the principle of competitive parity, this Commission should ensure that Clear Talk and Nextel are subject to the same minimum requirement for free local usage that the Commission has applied to CTC- Idaho and other rural LECs in Idaho. Please explain your concern about the amount of local usage the applicants intend to provide. It's unclear how much local usage either applicant intends to provide as part of a universal service offering. They both cite lack of definition provided by the FCC and are apparently waiting to be told how much local usage must be included in their universal service offerings. Clear Talk provides no details on its current or proposed rate plans. Nextel provided its current service plans and standard customer service agreement. Exhibit No. 102 of Mr. Scott Peabody s Direct Testimony sets out the maximum amount of usage included in Nextel's current rate plans. According to this exhibit, a National Value 300 subscriber will receive 300 "Anytime Minutes " 3200 Night & Weekend Minutes" and 100 "Direct Connect" for a $35.99 monthly subscription charge. 300 "Anytime Minutes" is at best only 10 minutes per day. In contrast, CTC-Idaho provides its Lifeline subscribers, unlimited local usage at a monthly recurring charge of$10.70. Page 11 Tade, DI CTC- Idaho BOI MT2:526399. How should this commission approach the issue of minimum local usage? The Commission should require the applicants to disclose the details of their proposed universal service offerings, including the monthly amount of free local usage included in each service plan. Without any commitment to provide a minimum level of local usage, the applicants may be able to maximize universal service support payments by winning many customers with nearly free monthly access, while minimizing the cost of service by discouraging its use through extremely high per-minute usage charges. Before granting ETC status to a secondary applicant in a rural LEC service area, the Commission should consider whether related offerings of the applicants satisfy the definition of "local usage" within the meaning and spirit of the Telecommunications Act of 1996. PUBLIC INTEREST CONCERNS What are your public interest concerns regarding the designation of Clear Talk and Nextel as ETCs within the service territories proposed in this docket? Granting multiple carriers ETC designation in the same geographic area imposes costs in addition to producing benefits. The public interest is not served unless the benefits from supporting multiple ETCs outweigh the costs of supporting multiple networks. The costs of having multiple ETCs include (a) the growth in the size of the federal USF needed to support multiple ETCs and (b) the consequent increase in the interstate contribution factor required to finance that growth. This Commission should carefully Page 12 Tade, DI CTC- Idaho BOI MT2:526399. balance the expected costs against the potential benefits before designating Clear Talk or Nextel as ETCs in CTC-Idaho s study area. Why is growth in the size of the federal USF a concern? As second and subsequent ETCs enter rural LEC service territories, additional demands will be placed on the federal USF causing it to grow. First, to the extent that rural telephone subscribers substitute wireless for wireline services, the rural LEe's costs of supplying local exchange service will rise. Customer density is the most important factor in providing wireline local service, and as rural LEC access line growth slows, or even reverses, the cost per line of providing wire line service will increase. This increase in rural LEC cost per line will put upward pressure on the high cost portion of the USF. Second, to the extent that wireline and wireless services are complementary, many rural customers may subscribe to both services, again placing upward pressure on the USF. CTC- Idaho s primary concern is that as the size of the federal USF gets larger, the interstate contribution factor needed to fund it will, everything else remaining the same increase also. The FCC has already announced that the contribution factor for the third quarter of2003 will be 9.5%. As public resistance to this surcharge escalates, political pressure will mount to cap the fund. Consequently, rural LECs like CTC- Idaho may see their annual USF draw decline. Such a decline may well endanger the existence of affordable basic local exchange service in rural areas. Have the concerns you have discussed been presented to the FCC? Page 13 Tade, DI CTC- Idaho BOI MT2:526399. Yes. Citizens Communications and its affiliates along with various trade organizations have voiced similar concerns before the FCC. The other organizations voicing similar concerns include the Idaho Telephone Association ("ITA"), the Independent Telephone and Telecommunications Alliance ("ITTA"), the United States Telecom Association ("USTA"), the National Telecommunications Cooperative Association ("NTCA"), and the Organization for the Promotion and Advancement of Small Telecommunications Companies ("OP ASTCO"). All have commented in CC Docket No. 96-45. USTA, NTCA and OPASTCO commented in May and June of this year on the FCC's rules relating to high-cost universal service support and the ETC designation process. All three organizations ' comments stressed the importance of applying public interest principles when considering ETC applications for rural servIce areas. Do you have any other concerns regarding how approval of these pending applications may adversely impact rural Idaho? Yes. I would like to address two other areas of concern associated with these applications: inter-carrier compensation and accountability. Many wireless carriers, including Clear Talk and Nextel, do not properly compensate rural ILECs for wireless calls terminated on ILECs' local networks. Thus , both Clear Talk and Nextel enjoy the benefit of the ILECs' networks without paying for the use of those networks. If designated ETCs, the applicants will actually receive Federal monies Page 14 Tade, DI CTC-Idaho BOI MT2:526399. to use for free the networks that were constructed and paid for by the ILECs. Such a result defies all reason, and is certainly contrary to the intent of the federal USF. There is little or no accountability to ensure possible monies received by the applicants from the federal USF would be used to construct infrastructure in rural Idaho. For example, what would prevent Nextel from receiving distributions from the Federal fund based on service provided to rural Idaho and using those distributions to construct infrastructure in metropolitan Boise, or worse, in other states? To allow Nextel to obtain Federal universal service funds without an accompanying requirement that the funding be used dollar-for-dollar to construct infrastructure in rural Idaho could result in the siphoning of limited resources that were designated for rural areas. If the Commission agrees with the concerns expressed by CTC-Idaho in this case is the Commission nevertheless required to wait until the FCC acts to change ETC procedures and rules before it takes its own action to protect the public interest in Idaho? No. This Commission may deny applications of Clear Talk and Nextel on public interest grounds or condition its approval as other state commissions have done. For example, the Commission might attach the following conditions to its grant of ETC status: Require the applicants to publish and adhere to a tariff approved by the Commission. Applicants must file service area maps for the areas it is granted ETC status by the Commission. Page 15 Tade, DI CTC-Idaho BOI MT2:526399. Applicants must provide service quality data within thirty (30) days of a request by the Commission. Applicants must respond to consumer complaints that may arise from its offering as an ETC to the Consumer Assistance Section, provide a regulatory contact and comply with the provisions of the IPUC's Customer Relations Rules. Have other state commissions determined that it was not in the public interest to designate a competitive ETC for an area already served by an incumbent carrier designated as an ETC? Yes. The Utah Public Service Commission decided it was not in the public interest to add a second ETC in the service territories of Utah's rural carriers by an order issued on July 21 2000, in Docket No. 98-2216-01. This order was subsequently upheld the Utah Supreme Court in WWC Holding Co v. Public Service Commission (March 5 2002). CONCLUSION Should Clear Talk's or Nextel's requests for ETC designation be granted? No. Clearly, Congress had questions about whether it was wise to have competing ETCs in rural areas. In fact, the Act presumes that a single ETC will be the norm for areas served by rural carriers. Only in instances where the state commission is convinced that the public interest is served are competing ETCs allowed. CTC-Idaho believes it is not in the public interest to continue to increase the size of the federal USF and corresponding contribution factor so that customers in rural, high cost areas may have both a wireline and a wireless telephone in their homes and businesses. Page 16 Tade, DI CTC- Idaho BOI MT2:526399. Neither Clear Talk nor Nextel have affirmatively established that their ETC designation is in the public interest; therefore the Commission should deny both requests. Does this conclude your testimony? Yes. Page 17 Tade, DI CTC- Idaho BOI MT2:526399. CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this l5!: day of October, 2003 , I caused a true and correct copy of the foregoing DIRECT TESTIMONY OF LANCE A. TADE ON BEHALF OF CITIZENS TELECOMMUNICATIONS COMPANY OF IDAHO to be served by the method indicated below, and addressed to the following: Jean Jewell IDAHO PUBLIC UTILITIES COMMISSION 472 West Washington Street Post Office Box 83720 Boise, Idaho 83720-0074 ( ) US. Mail, Postage Prepaid~and Delivered ( ) Overnight Mail ( ) Facsimile Sean P. Farrell IA T COMMUNICATIONS, INC. NTCH-rnAHO INC., DBA CLEAR TALK 703 Pier Avenue, Suite B, PMB 813 Hermosa Beach, California 90254 NUS. Mail, Postage Prepaid ( )' Hand Delivered ( ) Overnight Mail ( ) Facsimile ~ U.S. Mail, Postage Prepaid ( ) Hand Delivered ( ) Overnight Mail ( ) Facsimile Molly O'Leary RICHARDSON & O'LEARY, PLLC 99 East State Street, Suite 200 Eagle, Idaho 83616 Philip R. Schenkenberg, Esq. 2200 First National Bank Building 332 Minnesota Street St. Paul, Minnesota 55101 pg US. Mail, Postage Prepaid ( ) Hand Delivered ( ) Overnight Mail ( ) Facsimile 1A US. Mail, Postage Prepaid ( )' Hand Delivered ( ) Overnight Mail ( ) Facsimile Dean J. Miller 420 West Bannock Post Office Box 2564-83701 Boise, Idaho 83702 Conley Ward GIVENS PURSLEY LLP 277 North 6th Street, Suite 200 Post Office Box 2720 Boise, Idaho 83701 M U.S. Mail, Postage Prepaid ( )Hand Delivered ( ) Overnight Mail ( ) Facsimile Page 18 Tade, DI CTC- Idaho BOI MT2:526399. Lance A. Tade, Manager State Government Affairs CITIZENS TELECOMMUNICATIONS COMPANY OF rnAHO 4 Triad Center, Suite 200 Salt Lake City, Utah 84180 Robert M. Nielsen 548 E Street Post Office Box 706 Rupert, Idaho 83350 Charles H. Creason, Jr. President and General Manager PROJECT MUTUAL TELEPHONE COOPERATIVE ASSOCIATION, INC. 507 G Street Post Office Box 366 Rupert, Idaho 83350 US. Mail, Postage Prepaid ( ) Hand Delivered ( ) Overnight Mail ( ) Facsimile M US. Mail, Postage Prepaid ( ) Hand Delivered ( ) Overnight Mail ( ) Facsimile M US. Mail, Postage Prepaid ( rHand Delivered ( ) Overnight Mail ( ) Facsimile Page 19 Tade, DI CTC- Idaho BOI MT2:526399.