20021217Application.pdf

ATTORNEYS AT LAW
main20g3893000
fax [phone]
UTILillES COMMlSSION
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MARY S.HOBSON
Direct [phone]
December 17,2002 [e-mail]
VIA HAND DELIVERY
Jean D.Jewell,Secretary NEW CA SEIdahoPublicUtilitiesCommission
472 West Washington
Boise,ID 83702-5983
RE:Docket No.Ög/a ÛJ -
Dear Ms.Jewell:
Enclosed for filing with this Commission is an original and nine (9)copies of the DIRECT
TESTIMONY OF DOUGLAS J.LINCOLN,PH.D.,DIRECT TESTIMONY OF JOHN F.SOUBA,DIRECT TESTIMONY OF HARRY M.SHOOSHAN III,and DIRECTTESTIMONYOFDAVIDL.TEITZEL.Also enclosed is a disc containing electronic
versions of these documents.Please note that one of the enclosed copies is marked for the court
reporter.
Also enclosed is an original and seven copies of the APPLICATION OF QWEST
CORPORATION.
If you have any questions,please contact me.Thank you for your cooperation in this matter.
Very .ly yours,
Mary S.H son
:blg
Enclosures
Oregon
Washington
California
Ut a h
Boise-150840.1 0029164-00087 I d a ho
Mary S.Hobson,ISB #2142
Stoel Rives LLP
101 S.Capitol Blvd.,Suite 1900
Boise,ID 83702-5958
Telephone:[phone]
Facsimile:[phone]
Adam L.Sherr,WSBA #25291
Qwest
1600 7'"Avenue,Room 3206
Seattle,WA 98191
Telephone:[phone]
Facsimile:[phone]
Attorneys Representing Qwest Corporation
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )CASE NO.QWE-T-02
OF QWEST CORPORATION FOR PRICE )DEREGULATION OF BASIC LOCAL )EXCHANGE SERVICES )
CERTIFICATE OF SERVICE
I hereby certify that on this 17th day of December,2002,I served DIRECT
TESTIMONY OF DOUGLAS J.LINCOLN,PH.D.,DIRECT TESTIMONY OF JOHN F.SOUBA,DIRECT TESTIMONY OF HARRY M.SHOOSHAN IH,and DIRECT
TESTIMONY OF DAVID L.TEITZEL upon the followingparties:
Jean Jewell,Secretary [X ]Hand Delivery
Idaho Public Utilities Commission f 1 U.S.Mail
472 West Washington Street [1 Overnight Delivery
Boise,ID 83720-0074 []Facsimile
[e-mail] (1 Email
ar S.son/
Stoel Rives LLP
Boise-150839.1 0029164-00087
Mary S.Hobson (ISB #2142)
Stoel Rives LLP ,1 Ÿ101SouthCapitolBoulevard-Suite 1900 "
Boise,ID 83702
Telephone:[phone] TIL SSION
Facsimile:[phone]
Email:[e-mail]
Adam L.Sherr (WSBA #25291)
Qwest
1600 7th Avenue -Room 3206
Seattle,WA 98191
Telephone:[phone] NEW CA SEFacsimile:[phone]
Email:[e-mail]
Attorneys for Qwest Corporation
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION Case.No.QWE-T-02-À
OF QWEST CORPORATION FOR PRICE
DEREGULATION OF BASIC LOCAL APPLICATION OF QWEST CORPORATIONEXCHANGESERVICES
Qwest Corporation ("Qwest"),pursuant to Idaho Code §62-622(3)(b),files this
Application for Price Deregulation of Basic Local Exchange Services ("Application").This
Application is based on the fact that wireless telephone service is competitivelypriced with and
functionally equivalent to Qwest's basic local exchange service,along with being reasonably
available to customers in the exchanges of the Boise,Caldwell,Idaho Falls,Meridian,Nampa,
Pocatello and Twin Falls (the "seven exchanges").This Application is based orrthe facts stated
herein and the testimony (includingexhibits)of John F.Souba,David L.Teitzel,HarryM.
("Chip")Shooshan III,and Douglas J.Lincoln,Ph.D.,filed herewith.
APPLICATION OF QWEST CORPORATION--1
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OVERVIEW
1.Idaho Code §62-622(3)mandates that the Commission must deregulate basic
local exchange rates if an incumbent telephone corporation demonstrates the existence of
effective competition throughout the local exchange calling area.Under subsection 62-
622(3)(b),effective competition equates to the existence of functionallyequivalent,
competitivelypriced local services reasonably available to both residential and small business
customers from a telephone corporation unaffiliated with the incumbent telephone corporation.
Qwest's testimony and exhibits clearly demonstrate that such effective competition exists from a
multitude of unaffiliated wireless service providers in the seven exchanges.This is consistent
with the exploding growth of wireless subscription in Idaho and with the increase in wireless line
and usage substitution.It is also consistent with the perceptions of Qwest's wireline customers
in the seven exchanges who demonstrablybelieve that wireless service is functionallyequivalent
for voice-based telephony uses,is competitively priced and is reasonablyavailable.Given the
existence of effective competition,Qwest seeks an Order deregulating Qwest's basic local
exchange service rates in the seven exchanges.
2.The Commission's approval of this Application is also consistent with its
obligation to regulate in the public interest.While under Idaho Code §62-602 the Commission
need only determine that the granting of this Application will not adverselyimpact the public
interest,Qwest's testimony makes clear that price deregulation will in fact benefit the public
interest in the seven exchanges.In an already-competitive environment,price deregulation
further facilitates competition,which in turn encourages innovation,investment and excellent
customer service.
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DESIGNATION OF QWEST'SREPRESENTATIVES
3.Pursuant to Rule 41,Qwest names attorneys Mary S.Hobson and Adam L.Sherr
as its representatives for this proceeding.Contact information is provided on page one of this
Application.
BACKGROUND
4.Qwest is an incumbent telephone corporation as defined in Idaho Code §§62-
603(6)and 62-603(14),and is subject to regulation by this Commission under Titles 61 and 62,
Idaho Code.
5.Qwest is the incumbent provider of basic local exchange service in the seven
exchanges.
6.A total of eight (8)wireless service providers unaffiliated with Qwest serve Idaho
customers in the seven exchanges.Those wireless service providers are:AT&T (consisting of
both AT&T Wireless and Edge Wireless),Clear Talk,Cricket (Leap),Nextel,Sprint PCS,T-
Mobile (f/k/a VoiceStream Wireless),U.S.Cellular and Verizon Wireless.Five of these carriers
provide service throughout all seven exchanges.Customers in Boise,Caldwell,Meridian and
Nampa have six wireless providers from which to choose,while customers in Idaho Falls,
Pocatello and Twin Falls have seven wireless providers from which to choose.Each of the eight
wireless service providers offers a varietyof service packages and package permutations from
which to choose.
7.Idaho Code §62-603(1)defines "basic local exchange service"as "the provision
of access lines to residential and small business customers with the associated trasmission of
two-wayinteractive switched voice communication within a local exchange calling area."
(emphasis added)
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8.Idaho Code §62-603(1 l)defines "small business customers"as "a business
entity,whether an individual,partnership,corporation or any other business form,to whom
telecommunication services are furnished for occupational,professional or institutional purposes,
and which business entity does not subscribe to more than five (5)access lines which are billed
to a single billinglocation."
9.Idaho Code §62-622(3)mandates that the Commission must "cease regulating
basic local exchange rates in a local exchange calling area upon a showing by an incumbent
telephonecorporation that effective competition exists for basic local exchange service
throughout the local exchange calling area."The statute further provides that effective
competition exists throughout a local exchange calling area when either:
(a)Actual competition from a facilities-based competitor is present for both
residential and small business basic local exchange customers;or
(b)There are functionallyequivalent,competitivelypriced local services
reasonably available to both residential and small business customers from a telephone
corporation unaffiliated with the incumbent telephonecorporation.
10.This Application is filed under subsection 62-622(3)(b),as Qwest is experiencing
effective competition from a multitude of unaffiliated wireless competitors providing local voice
service to small business and residence customers throughout the seven exchanges.In these
exchanges,wireless service is functionallyequivalent to and competitively priced with Qwest's
basic local exchange service and is reasonably available.
CONCURRENTLY FILED TESTIMONY
l1.Qwest submits the direct testimony of four witnesses in conjunction with this
filing.
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12.John F.Souba introduces the other Qwest witnesses and traces the shift in the
telecommunications industryfrom a monopoly environment to a competitive environment in
Idaho.Mr.Souba also demonstrates that the Commission's approval of the Application will not
adversely impact the public interest.
13.Douglas J.Lincoln,Ph.D.testifies that wireless services is competitively priced.
Dr.Lincoln also testifies regarding his research findings that Qwest customers in the seven
exchanges perceive wireless service to be functionallyequivalent to Qwest wireline service for
voice-based usage,to be competitivelypriced and to be reasonably available.
14.David L.Teitzel testifies to the fact that wireless service is functionallyequivalent
to Qwest's basic local exchange service and in many cases offers additional functionalityand
price options not offered by Qwest's wireline service.Mr.Teitzel also demonstrates the
reasonable availabilityof wireless service in the seven exchanges.
15.HarryM.("Chip")Shooshan III describes the status of telecommunications
competition from a national perspective,includingthe widespread recognition of "wireless
substitution"for traditional landline basic local exchange services.Mr.Shooshan also discusses
the importance of economic deregulation as the shift from local service monopolies to local
service competition continues and describes how the public interest will be served by approval of
this Application.
EFFECTIVE COMPETITION EXISTS IN THE SEVEN EXCHANGES
16.Functional Equivalency.Wireless phone service is functionallyequivalent to
wireline service in the context of providing customers the equivalent of basic local exchange
services.
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17.Qwest's basic local exchange service consists of the followingattributes:(1)the
ability to originate and receive a voice telephone call at a fixed location;(2)the ability to access
operator assistance and directory assistance;(3)the ability to place and receive long distance
voice calls;(4)the ability to contact emergency service providers;and (5)the ability to have the
customer's assigned telephone number and address listed in a printed telephone directory.
Wireless phone service offers all of these attributes.
18.In addition,wireless service offers several additional attributes and pricing
options not offered by Qwest's basic local exchange service.These include:(1)mobility;(2)
large "local"callingareas (typicallymuch larger than Qwest's local calling areas);(3)"same
day"service activation;(4)blocks of minutes that can be used for eitÍier local or toll calling as
part of usage packages as well as usage packages containing discounted long distance minutes;
(5)avoidance of line extension charges;(6)avoidance of incremental charges for inside wiring
and telephonejack installation;(7)the abilityto relocate within the "local"calling area without
the need for service orders or associated charges;(8)operability during most power outages
(unlike cordless landline phones);and (9)the inclusion of popular,value-added calling features
in their basic service offerings at no additional charge.
19.Competitive Pricing.Wireless services are competitively priced with Qwest's
basic local exchange service.For two services to be competitively priced,they need not be
identicallypriced.Instead,customers look at value -a comparison of what one obtains in return
for the costs one expends --in determining which service to purchase.
20.Customers of telecommunications services,justlike customers of other services,
vary in the benefits they seek and the costs they are willing to incur for such benefits.Some,
valuing low cost over sophisticated features,opt for "economy"service plans.Others,valuing
APPLICATION OF QWEST CORPORATION--6
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advanced features and unlimited usage capacity over low cost,opt for "premium"service plans.
Still others,seeking a balance between the two,opt for "standard"service plans.At each of
these points on the spectrum,wireless service packages and package permutations are offered in
the seven exchanges that are competitivelypriced with Qwest's local wireline service equivalent.
21.Reasonable Availability.As noted in paragraph 6 above,there are a total of eight
wireless service providers in the seven exchanges and no less than six carriers in any one
exchange.Not only do the wireless providers'coverage areas encompass each of the seven
exchanges,but this coverage also encompasses locations within these exchanges to which
Qwest's network infrastructure may not extend.Thus,essentially every Qwest basic local
exchange customer in the seven exchanges has a multitude of local service options in addition to
Qwest's basic local exchange service.Wireless service is clearly "reasonably available"
throughoutthe seven exchanges.
22.Wireless Substitution Trends and Local Customer Perception.The existence of
functionallyequivalent,competitivelypriced and reasonably available wireless service in the
seven exchanges is consistent with both Idaho-specific and national trends regardingthe use of
wireless and wireline phones.Across the nation,"wireless substitution"-wherebywireless
customers disconnect or never connect a wireline connection for local services -is increasing.
Studies show that,at minimum,3-5%of wireless phone users nationwide have no wireline
connection whatsoever.The FCC has recognized "growing evidence"of wireless substitution,
and data relied upon by the FCC shows far higher percentages of wireless phone users are
replacing wireline usage with wireless usage.Wireless carriers themselves are touting wireless
substitution.For example,Leap Wireless (whichoffers Cricket service in four of the seven
exchanges)claims 80%of its customers claim that their Leap çihone is their primary phone and
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that 26%of its subscribers have completely disconnected their wireline phones.In addition to
this evidence of growing wireless "line"substitution,customers are generally making more and
more of their calls on their wireless phones.In summary,there is plentiful evidence of both
wireless "line"substitution and wireless usage substitution.
23.In justover three years,the number of active wireless "lines"in Idaho has jumped
223%from approximately 167,000 to nearly 540,000.This has occurred during a period in
which Qwest's southern Idaho Title 61 access line base has decreased.After peaking in 2000,
Qwest's access line base has been in a decline the last two years.
24.Douglas J.Lincoln,Ph.D.designed and supervised the implementation of a
survey of residential and small business local exchange customers in'the seven exchanges.The
results of that survey clearly demonstrate that Qwest wireline customers in the seven exchanges
perceive that wireless service is functionallyequivalent to Qwest's basic local exchange service
for voice-related usage,that wireless service and Qwest's wireline service are competitively
priced and that wireless service is reasonably available in the seven exchanges.
GRANTING THIS APPLICATION WILL NOT
ADVERSELY IMPACT THE PUBLIC INTEREST
25.Qwest's testimony and exhibits demonstrate that this Application is consistent
with the intent of the Idaho Legislature in enacting Idaho Code §62-602.In particular,Qwest's
evidence demonstrates that all Qwest residential and small business local exchange customers in
the seven exchanges have both service provider and service option choices,that competition
from wireless providers is both substantive and meaningful,and that granting the Application
will not adverselyimpact the public interest.
26.If this Application is granted,it will permit Qwest to more efficientlyand
effectivelycompete with the wireless providers operating in the seven exchanges.The ultimate
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beneficiaries of this requested change will be the customers of basic local exchange and
functionallyequivalent services in the seven exchanges who will see innovation in service
offerings and pricing options as all competitors strive to attract and retain customers'
telecommunications business.
27.As the legislature recognized in enacting the Chapter 6,Title 62,Idaho Code,
price deregulation is critical and necessary not only to the inctunbent carrier,but to the
telecommunications industryand the public in general,when effective competition has been
established.Failure to do so has the effect of perpetuating inefficient pricing and market forces,
undermining incentives to invest in new infrastructure,slowing innovation and delaying
efficient,meaningful price competition among all competitors.
PRAYER FOR RELIEF
WHEREFORE,Qwest respectfullyrequests that this Commission enter an order within
90 days if possible deregulating Qwest's basic local exchange service rates for the Boise,
Caldwell,Idaho Falls,Meridian,Nampa,Pocatello and Twin Falls exchanges based upon the
fact that effective competition exists in those seven exchanges.
Submitted this 17th day of December,2002.
Qwest Cor oration
Mary S.obson
Stoel Rives LLP
Adam L.Sherr
Qwest
Attorneys for Qwest Corporation
APPLICATION OF QWEST CORPORATION-9
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CERTIFICATE OF SERVICE
I hereby certify that on this 17"'day of December,2002,I served the APPLICATION OFQWESTCORPORATIONasfollows:
Ms.Jean Jewell,Secretary [_X_]Hand DeliveryIdahoPublicUtilitiesCommission(1 U.S.Mail
472 West Washington Street f 1 Overnight DeliveryP.O.Box 83720 [1 FacsimileBoise,Idaho 83720-0074 (]Email
[e-mail]
Mary S.obson
Stoel Rives LLP
APPLICATION OF QWEST CORPORATION--10
Boise-150850.1 0029164-00087