20030422Shooshan Rebuttal.pdf

Mary S. Hobson, 1SB #2142
Stoel Rives LLP
101 S. Capitol Blvd., Suite 1900
Boise, 1D 83702-5958Telephone: [phone]Facsimile: [phone]
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Adam L. Sherr , WSBA #25291
Qwest
1600 7 th Avenue , Room 3206Seattle, WA 98191Telephone: [phone]Facsimile: [phone]
Attorneys Representing Qwest Corporation
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF QWEST
CORPORATION FOR PRICE
DEREGULATION OF BASIC
EXCHANGE SERVICES
Case. No. QWE-02-
LOCAL
REBUTTAL TESTIMONY OF
Harry M. Shooshan III
On Behalf of
QWEST CORPORATION
APRIL 21, 2003
II.
III.
IV.
VI.
VII.
TABLE OF CONTENTS
SUBJECT PAGE
IDENTIFICATION OF WITNESS....
. . . . . . . . . . . . . . . . . . . . ..
PURPOSE OF TESTIMONY............................... 1
SUMMARY OF REBUTTAL TESTIMONY...................... 2
DR. JOHNSON'S ECONOMIC ANALYSIS IS FLAWED.......... 3
WIRELESS SERVICES ARE REASONABLY AVAILABLE..
. . . . . ..
WIRELESS SERVICES ARE FUNCTIONALLY EQUIVALENT...... 7
THE WIRELESS SERVICE OFFERINGS IN QUESTION ARE
COMPETITIVELY PRICED.............................. 23
VIII. QWEST'S APPLICATION IS IN THE PUBLIC INTEREST..... 26
IDENTIFICATION OF WITNESS
PLEASE STATE YOUR NAME,BUSINESS ADDRESS,AND
CURRENT POSITION.
principal
Inc.
Shoo shanHarry III.name
and co- founder Strategic Policy Research
SPR"
) ,
public policy and economics consultancy
located at 7979 Old Georgetown Road, Suite 700, Bethesda,
Maryland 20814.
PROCEEDING?
HAVE YOU PREVIOUSLY PROVIDED TESTIMONY IN THIS
Yes. I filed direct testimony in this proceeding
on December 17 , 2002.
II.PURPOSE OF TESTIMONY
WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY?
My testimony rebuts portions of the testimony of
Wayne Hart and Ben Johnson filed on behalf of the Staff of
the Commission.In particular, I offer rebut tal on claims
made
services
andMr.Johnson that the wirelessHartDr.
available throughout the exchangesseven
QWE-02-
APRIL 21, 2003
Shooshan , H. (REB) -
Qwest Corporation
Boise,Nampa,PocatelloCaldwellIdaho Falls Meridian
and Twin Falls do not provide the functional equivalent of
basic local exchange service, that these wireless services
are not competitively priced and that these offerings will
constrain the rates that Qwest fornotelectsto charge
basic relieflocalexchangeservice,thereby making the
be ing sought this proceedingQwest thenot
public interest.
III. SUMMARY OF REBUTTAL TESTIMONY
WILL YOU PLEASE PROVIDE OVERVIEW YOUR
REBUTTAL TESTIMONY?
My rebuttal testimony demonstratesYes.that,
contrary to Staff's assertions competition from wireless
services seventhe exchanges satisfies the statutory
standard Qwest'for price deregulation basic local
exchange whileservicethoseexchanges.Further
wireless and wireline services offer variety
different funct ionalfeaturesand capabilities,they are
equivalents when comes to making and receiving voice
telephone Dr.Johnson misappliescalls.discuss how
certain economic concepts in his analysis or offers only
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Shooshan, H. (REB) -
Qwest Corporation
interpretations arethesethatconcept sverynarrow
largely unsupported any authority.then rebu t Dr.
Johnson s unsupported assertions that wireless service is
a complement to--not a substitute for--basic local exchange
service.along with Mr. Teitzel and Dr. LincolnNext
respond to the arguments of Staff that wireless services
competitively exchangepricedwithbasiclocalarenot
service.Finally,re spond Staff'view that the
public interest should construed form
basis for rej ecting this application by Qwest that clearly
satisfies the statutory requirements.I conclude that the
level of wireless competition now present in these seven
I daho exchange s sufficient to support a determination
Qwest'the Commission that basic local exchange
service should be deregulated.
IV.DR. JOHNSON'S ECONOMIC ANALYSIS IS FLAWED
WHAT YOUR VIEW DR.JOHNSON'ECONOMIC
ANALYSIS OF THE ISSUES IN THIS PROCEEDING?
While Dr.Johnson invokes relevant economic
offersmisappliesoftenthoseconceptsconcepts
only very narrow Forinterpretations.example his
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Shooshan, H. (REB) -
Qwest Corporation
discussion Dr.substi tute and complementary goods,
Johnson offers no support for the conclusions he reaches.
Contrary to Dr.Johnson two goods may be substi -Vlew,
thoughtutes,good preferred over theevenonemay
other consumers because certain featuressome
possesses. areIndeed,different features expected
satisfy preferences.Dr.different discuss below
Johnson differences between wirelessenumeration of the
and wireline services simply ill ustrati the
different they possess that may cause a customerfeatures
to choose one over the other depending on that customer
personal preferences.
1 Michael L. Katz and Harvey S. Rosen Microeconomics, Second Edition(Boston: Richard Irwin Inc., 1994) at 32-33, 63, where the concepts of
substitutes and complements , including "perfect" substitutes and
complements, are discussed. Unlike Dr. Johnson, these well-known
economists broadly consider substitute pairs such as Toyota and Honda
vehicles; coffee and tea; and air conditioners and fans (at 63).(hereinafter , Katz and Rosen.
2 Many producers engage in product differentiation, meaning that their
products are placed in the market space according to their features,and different features would appeal to different consumers. In "ver-
tical differentiation," producers ' goods are unanimously perceived as
distinguished by their quality differences , reflected in price differ-ences. For example, a Mercedes Benz and a Hyundai would be examples
of two products that are vertically differentiated. In "horizontaldifferentiation" producers place their products along a continuum
based on differences in features that the relevant set of goods mighthave. Prices will likely vary among horizontally differentiated goods
as well. A pickup truck and a passenger car would fit this model ofdifferentiation, as would wireless and wireline services. See, for
example, a brief explanation in Stephen Martin, Advanced Industrial
Economics (Blackwell: 1993) at 261.
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Shooshan, H. (REB) -
Qwest Corporation
Further contrary Dr.Johnson,good may
broadly conce i ved include wide range
products that could considered substitutes.Katz
and aresimply:Intuitively,Rosen substi tutesstate
goods onethatsatisfy about the that,want,same
becomes more consumer turnsexpens i ve ,the to the other
(emphasis added).They also point out that goods need not
com-perfect substitutes (i.e.,where goodone
pletely abandoned for the other good). Dr.JohnsonYet,
acknowledges discussion ofthispossibilityin hisnever
economic principles.
Johnson concepts thatalsointroducesDr.economic
have little or no bearing on the in thi s proceed-issues
ing.conceptexample,offersFor economist'
effecti ve competition (Johnson 21-22)for which
provides no support in the economic literature 4 and which
3 Katz and Rosen at 63.
4 Indeed, his "economist's concept of effective competition" is not
widely shared. See, for example , F.M. Scherer and David Ross
, "
The
Welfare Economics of Competition and Monopoly,Industrial Market
Structure and Economic Performance (Houghton Mifflin Company, Boston:
1990) at 52', for an enumeration of the characteristics of "workablecompetition(as "effective competition" is often called in economicliterature). Dr. Johnson asserts that effective competition requires
that no one firm have a dominant market share. Scherer-Ross, a widely
used text in graduate economics courses, says nothing about this.
Addi tionally, Dr. Johnson believes that it is important that theproducts are "reasonably uniform," whereas Scherer~Ross, as well as
(footnote continued)
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Shooshan , H. (REB) - 5-
Qwest Corporation
introduces a number of factors that are not referenced in
the statute being applied in this proceeding.
The Commission must carefully consider Dr.Johnson
use economic concepts.sometimes misapplies the
concepts raises and also introduces concepts that have
relation whatsoever the finding the Commlssion
directed by the statute to make this proceeding.
WIRELESS SERVICES ARE REASONABLY AVAILABLE
MR.HART AND DR.JOHNSON DISPUTE THE FACT
THAT WIRELESS SERVICES ARE REASONABLY AVAILABLE THE
SEVEN QWEST EXCHANGES THAT ARE THE SUBJECT THIS
PROCEEDING?
No.Mr. Hart effectively concedes that wireless
is reasonably available in the seven exchanges except for
some unspecified minori customers who may not be
able to receive wireless signals.(Hart at 27.Even if
Staff'concerns about few randomly-located pockets of
(con tinued)
Martin , cited above, anticipate some product differentiation.
Workable competition provides a more realistic description of most
markets today, as the theoretical model of perfect competition is so
rare. See M. Clark, "Toward a Concept of Workable Competition The
American Economic Review Vol. XXX, No., June 1940.
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Shooshan , H. (REB) -
Qwest Corporation
poor wireless reception are well-founded,no witness
this thatcase has challenged the incontrovertible fact
wireless service from carriers offeringnumerous
multitude of is available in nearly everyservlce plans
location sevenwi thin the exchanges.the Burley
deregulation case (Docket No. USW-99-15j Order No. 28369),
the not findCommissionopinedthatcouldprobably
competi tion localeffecti ve and throughout
exchange area if fewer than hal f of the customers in the
exchange even Staffhadchoiceproviders.Here
admits that nearly every customer in the seven exchanges
has access mul tiple wireless providers services.
Assuming the Commission intended to establish a floor of
50%availability by 28369,its discussion in Order No.
that standard is clearly met in this case.
VI.WIRELESS SERVICES ARE FUNCTIONALLY EQUIVALENT
WOULD YOU RESPOND TO THE CLAIMS BY MR. HART AND
DR.JOHNSON THAT WIRELESS SERVICES ARE NOT "FUNCTIONALLY
EQUIVALENT" TO BASIC LOCAL EXCHANGE SERVICE?
the firstYes.place,andMr.Hart Dr.
Johnson appear to be fundamentally at odds with each other
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Shooshan, H. (REB) - 7-
Qwest Corporation
on this point.Mr.Hart correctly reads the statute as
providing that services that are not technically the same
might nevertheless be substitutes for each other.(Hart
5. )Dr.close reading Johnson testimony
that twobelievessuggeststherequiresstatute
services sameto have precisely the at tributes in order
for them to be substitutes--that is,they must do all
the same things in the same way.For(Johnson at 13.
example,any support--tha t ,Johnson suggests--wi thoutDr.
because the handsets used make receiveand wireless
calls are "ergonomically different" than the handsets used
with wireline phone the services cannottwo
functionally equivalent.(Johnson at 27.
both Dr.Moreover and JohnsonMr.confuseHart
applications,arefeaturesand consumer preferences that
unrelated to the functionality of the service at issue in
this Idahocase--basic local exchange service.The
Idaho localCode~62-603 (1),statute,defines basic
exchange accessservicetheprovision lines
residential customersandsmallbusiness with the
associated two-waytransmission interacti ve switched
voice communication wi thin a local exchange. It does not
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Shooshan , H. (REB) -
Qwest Corporation
incorporate Internetconnect ions Service Providers
ISPs or include data services such as the transmission
faxes.correct In assertingThus,even if they were
that wireless service does not support Internet access or
f ac s i mi 1 e--whi ch not ----Mr.Dr.they andHart'are
Johnson s assertions woul d(Hart at 23-24j Johnson at 30)
irrelevant to the finding the Commission must make
this proceeding.
The fallacy In their reasoning is illustrated by Dr.
Johnson accessthat connectionsstatement andInternet
fax occurtransmissionstakeplaceusingsoundsthat
wi thin the frequency the human VOlce. . .same range
(Johnson at 32.Johnson states asLike much of what Dr.
fact"not exactlyhistestimony,this statement
5 Indeed, this commission lacks jurisdiction over both calls to ISPs
and data communications. See, FCC Order on Remand and Report and
Order, In the Matter of Implementation of the Local Competition Pro-
visions in the Telecommunications Act of 1996; Intercarrier Compensa-
tion for ISP-Bound Traffic, Docket Nos. 96-98 and 99-68 (reI. April
, 2001), in which the FCC determined that traffic to ISPs was inter-
state traffic subject to its jurisdiction. See also, Peter W. Huber,Michael K. Kellogg, and John Thorne, Federal Telecommunications Law
(Gaithersburg, MD: Aspen Law and Business, 1999) at 1093 , where the
authors discuss that the courts upheld the FCC'Computer Inquiry II
decision in which the FCC preempted state commissions on the
regulation of data communications.
See Shoo shan Direct at 8-9. Although it is not relevant to the
finding required in this proceeding, I note that, contrary to theStaff's assertions, wireless services do support fax communications.
Mr. Tei tzel explains this in greater detail in his rebuttal testimony.
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Shooshan, H. (REB) -
Qwest Corporation
Fax and Internettrue.transmissions are not sounds,
al though telephonethey can be heard presented to
handset.These are electrical signals that traverse the
telephone network--all within the same frequency band--but
which anydifferentinformation.Whattypescarry
particular user does with those signals depends on his or
her needs sheand preferences,and the equipment
chooses thatattachtheendthephoneline
carries those signals (much the same way that one
personal preferences about what options are most important
determines onewhatandmodeltype choosescar
purchase) .The fact that the same phone line can be used
both to carry voice calls--which are the subj ect of this
proceeding--and dial-provide fax connection
Internet access is irrelevant to a finding that wireline
and wireless are in the provisionfunctionalequi valents
of local two-way switched voice calling.
Similarly,somethefactthat households choose
use extension phones--as opposed,say,to having multiple
phone notlines(Johnson 26)--also relevant
determining whether the wireless services available
subscribers in each of the seven exchanges can be used for
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Shooshan , H. (REB) -10-
Qwest Corporation
two-way switched voice communications and,therefore
considered the functional equi valents Qwest' s
basic local exchange service.
DR.JOHNSON CLAIMS THAT YOU AND OTHER QWEST
WITNESSES MISAPPLY THE CONCEPTS SUBSTITUTABILITY AND
FUNCTIONAL EQUIVALENCY.(JOHNSON 11.HOW YOU
RESPOND TO HIS CRITICISMS?
Dr.Johnson discussion these concepts
muddl ed,mi s taken and misleading.Consider the first
analogy uses comparing automoti ve vehicles.Dr.
Johnson says sports cars and pickup trucks may
substi tutes sometimes, but for product
functionally equivalent II must precisely the same
product.In other words,to use Dr.Johnson example,
the only functional equivalent of a dark blue Honda Accord
lS a light blue Honda Accord.The test Dr. Johnson would
have the Commission apply is one that would find services
functionally equivalent"only they were the same
7 As an aside, Mr. Teitzel details in his rebuttal testimony thatStaff's and the Intervenors ' concern about extension phones isfactually incorrect (besides being legally irrelevant to this case),
as wireless phones can be used in one s home or business withextensions.
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Shooshan, H. (REB) -11-
Qwest Corporation
service or werein every virtually identical. respect
(Johnson at 11.
Ironically,testunderJohnson the onlyDr.
functional Qwest'equi valent basic local exchange
service would be that same service repackaged under some
other narrowlabel.Johnson def ini tionDr.
functionally ~62 -equi val en t effect eliminates
622(3) (b)as a method of demonstrating "effective competi-
tion and would require Qwest in every case to prove (at a
minimum)facilitiesthat Qwest faces competition from a
based competitor lI as required by ~62-622(3) (a).This is
one of several instances in which Staff's advocacy seeks
rewrite supporttheIdaho its position.statute
Obviously,subpart sif the legislature had intended that
( a)(b)and both refer competition from competitors
using samethe tradi tional landline technology used
they notwouldQwe s t ,have enacted subpart (b) .
Similarly,onlyhadthelegislatureintendedthatthe
funct ionally sameequi valent service woul d the
service used theresold by a competitor,would have
more familiar and explicit term "resale to describe the
type of competition intended.
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Shoo shan , H. (REB) -12-
Qwest Corporation
Common sense--as well as economic theory--illuminates
Dr. Johnson s flawed reasoning.In terms of their ability
to transport a person from point A to point B (their basic
function) ,sports cars and pickup trucks are functionally
equi valent.use theirThefactthatpeoplealsosome
vehicles to transport potatoes or feed grain while others
their vehicles the weekends for recreationaluse
dri ving preference,matter customer not
at tribute of the basic function being provided.
The most Johnson isstunning assertion made by Dr.
that,onenearlyallstoppedusingevenconsumers
service completely when they purchase another one might
conclude that the two services were close substitutes but
still not functionally equivalent.Dr.(Johnson at 12.
Johnson uses satellite television and cable as examples of
two products that are "close substitutes,lI but which still
do not functional equi valents despi tecount the fact
that cablevirtually all television consumers disconnect
when con-they purchase satellite television.Yet,
sumers substitute one service for another--or even if they
know they could substitute but choose not to--i t shows that
the in theservicesare both substitutes and equivalent
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Shooshan , H. (REB) -13-
Qwest Corporation
basic function they provide (in Dr. Johnson s example, the
delivery maymul tichannel video)though theyeven
differ other at tributes (e.
g.,
some one requlres
antenna while the other does not) .
Johnson werethat,servicesDr.states two
functionally equivalent they would be redundant and that
paywould for both.waste money
concludes users also maintainthat,since wirelessmost
wireline cannot functionallyservice,the two
equivalent.To adapt one(Johnson at 13.He is wrong.
each mayhis many analogies,an apple and an orange
satisfy part of my minimum daily requirement for fruits,
but I may choose to keep both on hand because I sometimes
like to make apple pie.while both wirelessSimilarly,
and wireline services allow me to make and receive local
voice calls I may subscribe to both for other reasons,
g., redundancy.I may have two vehicles in part so that
spousetheshopor wi th my still haveone
access to transportation.
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Shooshan, H. (REB) -14-
Qwest Corporation
DO YOU HAVE ANY OTHER COMMENTS ON DR. JOHNSON'
OBSERVATIONS THAT WIRELINE AND WIRELESS SERVICES ARE
COMPLEMENTS AND NOT SUBSTITUTES?
In reaching his conclusion that wirelineYes.
and wireless areservices complements rather than
substitutes,cross-Johnson considers the concept ofDr.
elastici ty the price/demand responsiveness be-that
tween the two services.in the case ofHe explains that,
two goods that are complements, demand for both goods move
in the same direct ion (i. e ., both increase or decrease)
response to a change in the price of one of the goods.
the one goodsubsti tutes,when the pricecase
changes,demand for the other good moves in the opposite
direction.In other words, when goods are substitutes and
the price of one lncreases, demand for that good decreases
while demand for the substitute increases.
Applying these price/demand observations to wireline
and wireless services would mean that Johnson isif Dr.
that are comple-wireless and wireline servicescorrect
when increases,the price wirelinefor servicements
demand Likewise,wirelessfor service will decrease.
under Dr.Johnson theory,the price for wireless
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Shooshan, H. (REB) -15-
Qwest Corporation
service decreases,and wirelinedemand for both wireless
services andwillincrease.These scenarios logicdefy
are contrary to what we observe as industry trends e. ,
wireless usage continues to increase while wireline voice
usage continues to decrease.
doesOne need conductnot formal empirical
study of cross-elasticity of demand when experience tells
us that Dr.Johnson is wrong.With all due respect,
talking buns.about hamburgersnot and hamburgerare
(Johnson at 18.the customer survey introducedFurther
by Dr.Lincoln in this proceeding provides ample evidence
that Idaho wireline consumers in the seven exchanges view
wireless service as a substitute for basic local exchange
service.(Lincoln Direct at 32.
MR.HART SAYS THAT THE COMMISSION MUST CONSIDER
THE EXTENT TO WHICH WIRELINE AND WIRELESS SERVICES DIFFER
See for example, Christine Nuzum, "Fourth Quarter Another Difficult
One for Telecom Carriers," Dow Jones Business News (January 29, 2003);Tim Schooley, "More People are Hanging Up Land-Line Phones in Favor of
Cell Phones Pittsburgh Business Times (July 5 , 2002); and "Wireless
to Capture 25% of US Telecom Traffic by 2004 as The Low Mobility Miser
Segment Ramps Up,Strategy Analytics Insight, Strategy Analytics
(September 11 , 2002).
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Shooshan, H. (REB) -16-
Qwest Corporation
WELL THEIR (HARTSIMILARITIES.5. )YOU
AGREE?
I suppose that is something to be considered in
order Butdetermineoverallfunctionalequivalency.
again,appears to beMr.Hart attempting to divertonce
the Commission s attention from the central issue in this
proceeding.ob-While wireline and wireless services
viously differ over which(for example in the "platform
they are delivered and the ergonomics of the handset),the
question answertheCommission whether themust
wireless sevenservicesavailablethenumerous
exchanges permit subscribers to perform the same function
as basic local exchange service.That function is to make
and receive local voice calls (as defined in the statute
) ,
have emergency services,directory andaccess
operator assistance and to beand long-distance calling,
able wanted.Theobtaindirectorylisting,
9 Idaho Code ~62-603 (1) .
10 See Mr. Souba s Rebuttal Testimony where he cites the testimony from
the Burley case in which Staff witness Cusick agreed with a similar
definition of local exchange service proposed by Qwest in that
proceeding.
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Shooshan , H. (REB) -17-
Qwest Corporation
evidence Qwe s tpresented overwhelmingly demonstrates
tha t they do.
MR. HART AND DR. JOHNSON CLAIM THAT WIRELESS AND
WIRELINE SERVICES CANNOT CONSIDERED FUNCTIONALLY
EQUIVALENT FOR A NUMBER OF REASONS INCLUDING DIFFERENCES
IN SERVICE QUALITY AND ACCESS TO 911.HOW DO YOU RESPOND?
I think the Commission should look critically at
what Mr. Hart and Dr. Johnson say.Mr. Teitzel's rebuttal
testimony tenre sponds each the key attributes
that Dr. Johnson claims distinguish wireless from wireline
service.responselimit Johnson and Hart'
claims about As toservice quality and access to 911.
service Hart'quality, would point thatout Mr.
resulted in only one of fifty calls beingtest (or 2%)
dropped.squares(Hart 18-19) .that thisHe notes
wi th the HoweverConsumer Reports nationwide figures.
the most common reason for dropped wireless calls is the
failure of a cell site to "hand off II the call to another
cell site.canThisfunctionmobilityand
11 william Schaff, "Taking Stock: Superconductors May Become More
Important with 3G Wireless,Information Week (November 26, 2001).
(footnote continued)
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Qwest Corporation
happen for example , when either a calling or called party
is on a mobile phone and moves from a digital to an analog
When the call is placed from or receivedcoverage area.
at a fixed location (home or business)--which is the proper
basis for comparison this proceeding--there
funct ional wirelessdifferencebetweenwirelineand
call in this respect.the one dropped call out ofIndeed
fifty histhatexperiencedMr.when dialingHart from
wireless phone while in his office could have been placed
to a wireless subscriber who was moving between coverage
areas or cells at the time.In response to a data request
anythisproceeding,unable provideMr.Hart
documentation surrounding that one dropped call which
attaches much weight in his analysis.
access 911 Mr.Hart concedes that the Consumer
findings areReports inapt here since the calls in that
(continued)
From http:/ /www. informationweek. com/story/IWK20011120S0015.
12 Staff Response to Qwest Request for Production No.9 and Staff
Response to Qwest Interrogatory No.8. On the issue of service
quality, the FCC recently rejected the contention that wireline andwireless "cannot be considered economically meaningful substitutes if
there are substantial quality differences between the services.See
Memorandum Opinion and Order, In the Matter of Application by Qwest
Communications International , Inc. for Authorization To Provide In-
Region, InterLATA Services in New Mexico, Oregon and South Dakota,
(footnote continued)
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Shooshan , H. (REB) -19-
Qwest Corporation
study were placed from remote locations outside the home
business.(Hart 20.Mr.Hart and Dr.Johnson
concede that wireless services provide access 911.
Ibi d . )anyasserts--wi thoutHoweverMr.Hart
support--that access to 911 from the home or business may
weather-relatedcompromisednetworkcongestion
signal bothblockage.Network congestion can occur
wireline areandwirelessnetworksbasedhowthey
engineered.I am not clear what weather-related problems
Hart is referring to and(he produces no references),Mr.
problems withtherebeingwidespreadunaware
service at those frequencies.in response to dataIndeed
in this wastheStaff unable identifyrequestscase,
any such problems in Idaho wi thinspecifically occurring
the months.maytwel ve therepastcourse,
comparable problems with wireline access to 911 e. g. ,the
deterioration loop time line duecutover
(continued)
Docket No. 03-11 (reI. April 15 , 2003)
at fn. 46.
13 In response to Qwest Request for Production No. 11 , Staff responds
that it "is not aware of any Idaho-specific evidence of Consumer
(sic) having difficulty in reaching E-911 PSAPs via wireless
telephones in the past 12 months.
(hereinafter Qwest 271 Order)
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Shooshan , H. (REB) -20-
Qwest Corporation
construction or a natural disaster (problems one does not
encounter with a wireless connection) .
ARE THERE OTHER DEVELOPMENTS THE
TELECOMMUNICATIONS INDUSTRY THAT SUPPORT YOUR OPINION THAT
WIRELESS SERVICE PROVIDES THE FUNCTIONAL EQUIVALENT
BASIC LOCAL EXCHANGE SERVICE AND UNDERCUT DR.JOHNSON'
AND MR. HART'S VIEWS TO THE CONTRARY?
The FCC very recently granted petitionsYes.
filed by Qwest seeking reliefand by SBC Communications
under Section 271 of the Telecommunications Act of 1996 in
order servlcesprovidein-region InterLATA New
Mexico respectively. cases,theandNevada,both
showings made by the companies under "Track rested on
the existence of wireless competition for local exchange
service.case,the Mexico the found thatNewFCC
wireless service " is commercial al ternati ve Qwe s t
customers. had recognized inTheFCC noted that
14 See FCC Memorandum Opinion and Order, In the Matter of Application
by SBC Communications Inc., Nevada Bell Telephone Company, and South-
western Bell Communications Services, Inc., for Authorization ToProvide In-Region, InterLATA Services in Nevada, WC Docket No. 03-
(reI. April 14 , 2003) and Qwest 271 Order.
15 Qwest 271 Order at ~ 20.
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Qwest Corporation
other contexts increased
mobile telephony and local
added) .
The FCC also concluded
technical anddifferences
wireless providedofferings
telephone serviceexchange
substi tution between wireless
telephony service_(emphasis
that,while there were
the
the
differences features
The key
alternative
evidence of wireless competition presented by both Qwest
and uponSBC--and relied
proceedings the(as
customer survey.
offered by Qwest.
FCC--the these 271
wascaseproceeding)
I should emphasize that the FCC based its decision on
the singleexistence
Cricket offeredservice
this
wireless al ternati ve (the
the
numerous cellular and broadband PCS offerings available in
Wireless) ,Leap not
the seven exchanges in this proceeding.
16 Qwest 271 Order at fn.53.
17 Qwest 271 Order at ~ 18.
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Shooshan , H. (REB) -22-
Qwest Corporation
VII. THE WIRELESS SERVICE OFFERINGS IN QUESTION ARE
COMPETITIVELY PRICED
MR.HART AND DR.JOHNSON CLAIM THAT QWEST HAS
FAILED TO DEMONSTRATE THAT THE WIRELESS SERVICES OFFERED
THE SEVEN EXCHANGES ARE COMPETITIVEL Y PRICED.
MOREOVER,THEY ASSERT THAT CURRENT WIRELESS PRICES ARE
(HARTNOTSUSTAINABLE"16)AND THAT SOME WIRELESS
PROVIDERS ARE NOT VIABLE.(HART AT 12 (CITING JOHNSON);
JOHNSON AT 38-39.HOW DO YOU RESPOND?
and JohnsonMr.Hart Dr.allarewrong
counts.Mr. Tei tzel and Dr. Lincoln respond to Mr. Hart'
analysis ratethevariouswireless plans.They
demonstrate competi ti vely pricedthattheseplansoffer
alternatives to Qwest's basic local exchange service.
I respond to Staff's contention that current wireless
prices is the case with theirsustainable.are not
testimonies generally, they offer sweeping assertions with
little or no evidence them.In making hissupport
claim about the non-sustainability of wireless prices , Mr.
pointsHart single article from The Wall Street
Journal to noteOnl ine for support.interesting
that this same article goes on to quote "experts " to the
QWE-T- 02 -
APRIL 21 , 2003
Shooshan , H. (REB) -23-
Qwest Corporation
effect that price cuts are expected return and that
many plans still offer more minutes than before the
promotions. (Hart Exhibit 103.A report by the INSIGHT
Research Corporation in January 2003 noted that prices of
some wireless plans have dropped dramatically. This lS
behavior that apparently eludes Mr. Hart that is, prices
rising and falling over time in a competitive market.
report by UBS Warburg,found thatci ting industry trends,
the acrosseffecti ve minute theprlceperwas same
wireline networks.the problem ofand mobile This
relying on a "snap-shot" view of the market as opposed to
looking at the market over time.
Johnson off -hand dismissalDr.Leap
Wireless an unlimited(which he acknowledges does offer
local withcallingplanthatcompetitivelypriced
Qwest's basic local exchange service)as being financially
troubled (Johnson at 38 - 3 9), I think he misses the point.
granting 271 authori ty in New Mexico (asQwe s t
discussed above),the FCC specifically rej ected arguments
18 "The 2003 Telecom Industry Review: An Anthology of Market Facts andForecasts," The INSIGHT Research Corporation (January 2003) .
19 See Mobile Communications Report, Warren Publishing, Inc. (November
, 2002).
QWE-T- 02 -
APRIL 21 , 2003
Shooshan, H. (REB) -24-
Qwest Corporation
that actualCricketshouldconsiderednot
provider due Leap financial difficul ties (incl uding
its recent filing for protection under Chapter 11 of the
Bankruptcy Code) .The noted that thereFCC
evidence that Cricket has ceased adding customers and that
has continueLeapstatedthatdailyoperationswill
normally,stores will remain open and network service will
not be lnterrupte is every reason toIn fact,there
that emergeLeap--and its Cricketexpect subsidiary--will
from Chapter 11 a stronger and even more viable competitor
exchangetheprovisionQwe s t basic local
service.
thereMoreover,other wireless carriersaremany
providing service in the seven exchanges.Among them
Clear the MobileTalk which advertises its offering
Local calls.Phone which includes all your local
20 Qwest 271 Order at fn. 94.
21 See Leap Moves to Reorganize Capital Structure," CBS MarketWatch(4/14/03) at http: / / cbs. market watch. com/tools/quotes/newsarticle. asp?
s i teid=mktw&sid= 11 7 3 2 &quid=%7B9BB4 521C%2D9ECE%2D4 7BB%2DA 7BB%2DA3CF%2D4
1ECB4B3910E%7D.
22 See Clear Talk web site at www.cleartalk.net/T7fxc98/ and www.clear-talk. net/T7fxc98/ coverage. html. I note further that Clear Talk hasapplied for "ETC status " in Idaho and has promised to provide
unlimited local calling which is one of the Commission s requirements.
Idaho Public Utilities Commission Order No. 27715, Case No. GNR-98-
USF.
QWE-02-
APRIL 21 , 2003
Shooshan , H. (REB) -25-
Qwest Corporation
Second,many other wireless providers have plans that
provide generous distance calling.amounts any
Third ci ted Leap Wireless as an example of a company
that has targeted its service at those who primarily make
local rangecallsorderdemonstratethewide
options numerousprovidedthe wireless providers
serving seventhecustomers exchange s and did not
that Leap was the only such option availablesuggest
consumers.
VIII. QWEST'S APPLICATION IS IN THE PUBLIC INTEREST
BOTH MR. HART AND DR. JOHNSON ARGUE THAT QWEST'
APPLICATION SHOULD BE REJECTED BECAUSE IT IS NOT "IN THE
(HART AT 40;PUBLIC INTEREST.JOHNSON AT 47.HOW DO
YOU RESPOND TO THEIR ARGUMENTS?
In the first place,I would distinguish the two
lines believe,simplyargument.Mr.Hart,
mistaken do not--andin his vlew that wireless services
more importantly would not in the future--constrain Qwest'
23 Indeed, as I pointed out, at least one other wireless operator
Nextel, proposes that its phone can do everything a customer needs.
(Shooshan Direct at 6-
QWE-T- 02 -2 5
APRIL 21 , 2003
Shooshan, H. (REB) -26-
Qwest Corporation
pricing moredecisions.Johnson logic muchDr.
dangerous since would resul t the public interest
finding "swallowing the rest of the statute and thereby
frustrate the clear intent of the legislature.
To his credit , Mr. Hart concedes that Qwest has lost
some lines to wireless providers and says that it may be
about 3-5%----consistent with the national estimates that
cited in my Direct Testimony.(Shooshan Direct at 9.
then goes narrowthisthatsuggestrepresents
niche charac -market without specifically defining the
teristics of that market.The fact that Qwest subscribers
have dropped Qwest' s basic for alocalexchangeservice
wireless alternative and that they are aware that they can
substi tute wireless service (Lincoln Directfor wireline
28)demonstrates,in my opinion that the prices
wireless services will adequately constrain the prices of
basic localQwest'exchange service the absence
regulation.
In fact,Mr.Hart concedes that Qwest' s decision to
increase the "cost II of wireline service by tightening its
credi t somepolicyhasdri ven subscribers find
al ternati ves (Hart 29. )While he doesn specify
QWE-02-
APRIL 21 , 2003
Shooshan , H. (REB) -27-
Qwest Corporation
precisely what be,thinks those al ternati ves might
presumably they are chiefly wireless options.If so, his
observation appears to be at odds with Staff's contention
that wireless is a complement to--rather than a substitute
for--basic local exchange service
Dr. Johnson would go even further.He maintains that
" (e) ven if the maj ority of customers were willing to 'cut
the cord'II there would be some customers who would not be
willing to do so due to personal preferences (they prefer
cars to pickup trucks even though both can provide them
basic transportation)therefore , Qwest "will continueand
to have substantial monopoly power. (Johnson at 42.
is wrong.it must beFor a firm to exercise market power
able to raise prices profi tably. If a substantial number
of customers would substitute wireless service for basic
local exchange service should Qwest increase the price of
the latter, Qwest cannot profi tably raise its prices.
Al though relyingQwest the existencenot
CLECs to make the showing required by the statute in this
proceeding,oneleast CLEC has already collocated
24 Katz and Rosen at 420.
QWE-T- 02 -
APRIL 21, 2003
Shooshan, H. (REB) -28-
Qwest Corporation
each of presenttheseven exchanges.wi th CLECs the
market and actively offering service--and others able
rapidly UNEs
" )
us ingenter unbundled network elements
and resale--Qwest risks significant competitive losses to
CLECs as well if it raises prices.
Both Dr.Johnson and Mr. Hart urge the Commission to
deny Qwest' s them thatpet it ion because clear
raiseQwest the price charges for basic localmay
exchange service.(Hart at 39i Johnson at 43-44, 47.
we have seen with wireless providers that compete in an
unregulated,competi ti ve market,prices and down
time.force commi t Qwest advanceover
disclose notwhatwillor will with its pricing
freedom in order to satisfy the Staff's concept of "public
interest II would eviscerate the price deregulation statute.
In essence, Mr. Hart and Dr. Johnson seek a determination
that the exercise of pricing flexibili (the ability to
drop or raise prices and package services in response to
market publicforces)itself inconsistent with the
interest basicandthusprecl udes price deregulation of
local exchange Staff's witnesses appearservice.Again
to favor a reading and application of public interest that
QWE-02-
APRIL 21, 2003
Shooshan , H. (REB) -29-
Qwest Corporation
so broad that
and makesstatute
swallows the plain meaning of the
the legislature for provingtest
effective competition impossible to satisfy.
DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY?
Yes.
QWE-T- 02 -2 5
APRIL 21 , 2003
Shooshan, H. (REB) - 3 0-
Qwest Corporation
CERTIFICATE OF SERVICE
I hereby certify that on this 21 st day of April, 2003 , I served the foregoing REBUTTAL
TESTIMONY OF HARRY M. SHOOSHAN III ON BEHALF OF QWEST
CORPORATION upon all parties ofrecord in this matter as follows:
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, ill 83720-0074
Phone: [phone]
Fax: [phone]
ii ewell~puc.state.id. us
Weldon Stutzman, Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington Street
O. Box 83720
Boise, ill 83702
Telephone: [phone]
Facsimile: [phone]
Wstutzm~lmc.state.id.
MarlinD. Ard
Willard L. Forsyth
Hershner, Hunter, Andrews, Neill & Smith LLP
180 East 11 th Avenue
O. Box 1475
Eugene, OR 97440-1475
Attorneys for Verizon
Executed protective agreement
John Gannon, Esq.
1101 West River - Suite 110
Boise, ill 83702
Telephone: [phone]
Attorney for Meierotto, Padget, Herrick Neal
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Dean J. Miller
McDevitt & Miller LLP
420 West Bannock Street
O. Box 2565
Boise, ill 83701
Telephone: [phone]
Facsimile: [phone]
i oe~mcdevitt -miller. com
Attorneys for WorldCom, Inc.
Attorneys for AT&T
Attorneys for Time Warner Telecom
Executed protective agreement
Dean Randall
Verizon Northwest Inc.
17933 NW Evergreen Parkway
Beaverton, OR 97006-7438
dean. randall ~v erizon. com
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Mary Jane Rasher
10005 South Gwendelyn Lane
Highlands Ranch, CO 80129-6217
Telephone: [phone]
mirasher~msn.com
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Adam Sherr
Qwest
1600 ih Avenue - Room 3206
Seattle, W A 98191
Telephone: [phone]
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asherr(tp,q west com
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Clay R. Sturgis
Moss Adams LLP
601 West Riverside - Suite 1800
Spokane, WA 99201-0663
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Brian Thomas
TimeWarner Telecom
223 Taylor Avenue North
Seattle, W A 98109
Brian. Thomas(tp,twtelecom.com
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Susan Travis
WorldCom, Inc.
707 1 ih Street - Suite 4200
Denver, CO 80202
Telephone: [phone]
Susan.a. Travis~worldcom.com
Conley E. Ward, Jr.
Givens Pursley LLP
277 North 6th Street - Suite 200
O. Box 2720
Boise, ill 83701-2720
Telephone: [phone]
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cew~givenspursley.com
Attorneys for Idaho Telephone Association
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~(JI
Brandi L. Gearhart, PLS
Legal Secretary to Mary S. Hobson
Stoel Rives LLP