20030422Souba Rebuttal.pdf

Mary S. Hobson, ISB #2142
Stoel Rives LLP
101 S. Capitol Blvd., Suite 1900
Boise, ID 83702-5958Telephone: [phone]Facsimile: [phone]
Adam L. Sherr , WSBA #25291
Qwe s t
1600 7 th Avenue, Room 3206Seattle, WA 98191Telephone: [phone]Facsimile: [phone]
RECEIVED mFILED
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Attorneys Representing Qwest Corporation
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF QWEST CORPORATION FOR PRICE
DEREGULATION OF BASIC LOCAL
EXCHANGE SERVICES
CASE NO. QWE-T- 02 -
REBUTTAL TESTIMONY OF
John F. Souba
on behal f 0
QWEST CORPORATION
April 21, 2003
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TABLE OF CONTENTS
SUBJECT
II.
III.
IV.
VI.
INTRODUCTION
STATUTORY DISCUSSION
Local Service vs Basic Local Exchange
Service
Possibili ty of Increased Prices
Relief Under Section 62 - 622 (1)Staff's Focus on Remaining Exchanges
PAGE
PRICING FLEXIBILITY IN A COMPETITIVE MARKET 26
LOSS OF ACCESS LINES
WRITTEN CONSUMER INPUT
CONCLUSION
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I. INTRODUCTION
PLEASE STATE YOUR NAME, ADDRESS AND POSITION WITH
QWEST .
name John Souba.office located
999 Main Street,Boise Idaho.the lead Idaho
regulatory manager in the Policy and Law department.
DID YOU PREVIOUSLY SUBMIT DIRECT TESTIMONY IN THIS
CASE?
Yes,did.
WHAT WITNESSES ARE SUBMITTING REBUTTAL TESTIMONY
ON BEHALF OF QWEST?
addition me,Qwest wi tnesses Lincoln
Teitzel and Shooshan are filing rebuttal testimony.Also,
Idaho rebuttalPresidentQwestJimSchmitfiling
testimony.Dr.LincolnDr.responds andMr.Hart'
Johnson competition does notcontentions that effective
exist within the seven exchanges.He explains how today
effective competition places reasonable constraints on the
pricing of basic local exchange service.He also responds
Staff'customerunfounded criticism of LincolnDr.
survey and highlights how the "data Staff relies upon
neither valid nor Mr.Tei tzelstatistically meaningful.
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demonstrates that Idaho statutory requirements for economic
deregulation of Qwest' s basic service havelocalexchange
been Specifically,met.responds the Staff and
intervenors testimony by demonstrating that wireless service
Qwest'functionally equi valent local exchange
wireline service.He also rebuts Staff's contentions about
competi ti ve pricing and presents counterpart Mr.
Hart'Exhibi t consistentthatis based on data more101
with , and relevant to,the statutory criteria than the data
on which Mr. Hart chose to reply.
Shooshan respondsMr.assertions that wireless
service is a complement to - not a substitute for - basic
local exchange service.further demonstrates why
competition thefrom wireless service providers satisfies
standard localfor pricestatutory deregulation basic
exchange Mr.Schmitservicein Qwest' s seven exchanges.
discusses associated with the three publicconsumer input
workshops held by the Commission.He also describes certain
commi tments publicis willingQwest to make that address
interest customersissuesraised and,previously,
Commission Staff in the Burley case.
HOW HAVE YOU STRUCTURED YOUR REBUTTAL TESTIMONY?
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have divided testimony into five primary
sections.I contrast my opinion andIn the first section,
interpretation of statutory sections withcertain central
that of In the secondStaff witnesses Hart and Johnson.
section respond to Mr.Hart's discussion about Qwest' s
loss of access The third sectionlinesin recent years.
deals with the issue of pricing flexibility in a competitive
market.
In the fourth section discuss consumer input and
reaction to Qwest' s application as evidenced by the comments
filed with the Commission in this case.in theFinally,
last section I provide my conclusion and recommendation to
the Commission.
II. STATUTORY DISCUSSION
PLEASE IDENTIFY THE STATUTORY OPINIONS AND
INTERPRETATIONS OF STAFF YOU BELIEVE REQUIRE REBUTTAL.
In its testimony,statutoryStaff offers several
opinlons and interpretations that Qwest
untenable.First,Staff suggests that
equivalent"means virtually identical.
believes are
functionally
Staff witness
Johnson essentially takes the position that two services can
not be functionally equivalent unless they are identical in
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every way.Qwest witnesses Teitzel will offer rebuttal
Staff'opinlon.Second,Staff takes the position that
local services Idaho Code section 62-622 (3) (b)means
something broader than "basic local exchange services.
Third,Staff reasons that relief is never appropriate
under section 62-622 (3)if such relief may or will lead to
increased rates for some ratepayers.Staff arguesFourth,
that inappropriatereliefundersection62-622 (3) (b)
because Idahocouldinstead seek flexibility underQwe s t
Code section 62-622 (1),i. e., the so-called "maximum rates
Lastly,Staff suggests that the Commission muststatute.
deeply explore the impact on other exchanges that are not
the subj ect of Qwest' s appl ication for price deregulation in
the seven exchanges.
A. "Local services" v. "basic local exchange services
MR. HART CONTENDS THAT THE USE OF THE TERM "LOCAL
62-622 (3) (b)MEANSERVICES"SECTION INTENDED
SOMETHING BROADER THAN "BASIC LOCAL EXCHANGE SERVICE" AS
DEFINED THE STATUTE.YOU AGREE WITH HIS
INTERPRETATION?
I do not.section 62-622 (3)As background,
provides that the Commission shall cease regulating basic
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local exchange rates in a local exchange calling area upon a
showing by an incumbent that effective competition exists
for localbasiclocalexchangeservicethroughoutthe
exchange calling area.That section then sets out the two
ways in which "effective competition " can be proven - either
showing facilities-basedactualcompetitionfrom
competitors (under section 62-622 (3) (a)) 1 or by showing that
there are functionally equivalent,competitively priced
local services reasonably available both residential and
small business customers.Mr.Hart compares the two bolded
sect ions suggestsand that the legislature used the
different terms intentionally to require incumbents to show
effecti ve morecompetitionfor services than just basic
local exchange service, "defined by section 62-603 (1) .
This distinction cri tical Staff'position because
basic doeslocalexchangeserviceas defined by statute,
include data uses of the phone line it only includesnot
voice communications.Staff thus needs to convince the
It should be noted that section 62-622 (3) (a) does not specifythat the "actual competition from a facilities based carrier" be for
"basic local exchange service that is obvious from the context.Staff's interpretation of section 62-622 (3) (b) would result in the
absurd proposition that the "effective competition " standard is met
under subsection (a) by actual competition for basic local exchange
service but that subsection (b) requires competition for additional
services to meet the identical "effective competition" standard.
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Commission that local services " means something different
and broader than "basic local exchange services " in order to
use its various data-related concerns against Qwest in this
case.
Hart'interpretation 62-622(3)sectionMr.
strained in the for several First,andextremereasons.
perhaps the most obvious reason is that it makes no sense
that the intended requirelegislatureassume
incumbent to prove the existence of functionally equivalent,
competitively priced and reasonably available voice and data
al ternati ves order prove the existence effective
competition for voice service.Second,the statute offers
definition local services and Mr.Hart'
interpretation appears to be pure Third,conj ecture.
section 62-622 (2) ,the statutory language equates the two
local service basic exchange service.and localterms
It reads,The commission shall not regulate the prices for
basic exchange services corporationslocalfortelephone
that providing on or beforelocalservicewerenotsuch
February (emphasis added)believe the1996.
legislature did not intend to create a second,undefined,
class of service as Mr.suggests.Instead,local Hart
believe the only logical interpretation of the term "local
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service," as used in section 62-622(3) (b),a short-is as
hand reference to "basic local exchange service , defined as
two-way interactive switched voice communications services
provided non- incumbent service providers.Idaho Code
section 62-603 (1) .
MR.HART'LOCAL SERVICES"INTERPRETATION
CONSISTENT WITH PRIOR STAFF POSITIONS REGARDING THE MEANING
OF "FUNCTIONALLY EQUIVALENT?"
In Qwest' s Burley deregulation applicationNo.
(Case No. USW-99-15) , Qwest witness James Wozniak set out
in his supplemental direct testimony (page 14, line 18)the
requirements for a service to meet the test of functional
equivalence.He said,
The end-user of such a service should be ableto place and receive voice calls (but notnecessarily have data transmission capability)
using a dedicated message path for the length of
a user particular transmission. As part ofthis functional equivalency, the service shouldalso have access to emergency services whereavailable, access to operator services, accessto interexchange carriers and access to
directory assistance
Staff witness Joseph Cusick offered anIn response,
interpretation at odds with Staff's current interpretation.
line 20 of Mr. Cusick's direct testimony, he isOn page 11,
asked if he has looked at wireless services to determine if
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they are functionally equivalent.Cusick respondedMr.
that,requirementsfor the most part,agreed wi th the
listed by Mr.answer quotedWozniakmentionedin his
above.The one exception that Mr. Cusick indicated he would
add to Mr. Wozniak's 1 ist for wireless services to meet the
functional wasequi valency the availabili tytest E911
service for wireless telephones.Mr. Cusick, the Supervisor
nottheTelecommunicationsSection,did testify that
wireless services need to provide access to the Internet,
data and fax services in-home extension phones or any of
the other additional features Mr. Hart and Dr.Johnson now
the theCommission must consider when evaluatingsuggest
test of functional equivalence under section 62-622 (3) (b) .
HAS THE COMMISSION INDICATED WHAT ATTRIBUTES OR
FEATURES IT BELIEVES A SERVICE MUST HAVE IN ORDER TO BE
CONSIDERED FUNCTIONALLY EQUIVALENT TO BASIC LOCAL EXCHANGE
SERVICE?
specifically.However,al though we are allNot
bound the definition ba sic local exchange service
found the statutes,believe nevertheless
instructive see the attributes and services the
Commission included in its definition of universal services.
This definition viewed basic local exchangemay
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service plus associated services that the Commission would
require provider offer qualify for
financial universal service support.
HOW HAS THE COMMISSION DEFINED UNIVERSAL SERVICES?
In Case No. GNR-T- 98 - 7 the Commission designated
certain telecommunications services being uni versal
services " which must be made available by providers that are
allowed statuseligible telecommunications carrier (ETC)
by the Commission.In developing this list, the Commission
found,The Commission finds that universal services are not
necessarily likeallthoseservicestheCommission would
customers throughout Idaho to have.(Order No.2 7715, page
6 )
WHICH SERVICES DID THE COMMISSION DETERMINE TO BE
PART OF UNIVERSAL SERVICES?
The Commission included the following services in
the list of universal services on page 9 of the Order:
Voice grade access to the public swi tched network.
This is defined as a functionality which enables a user to
transmit voice not data communications.(emphasis added)
2. Local usage.
Dual itsmul ti -frequency signalingtone
functional equivalent i. e. touch tone signaling.
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, 9
Single-party service or its functional equivalent.
(emphasis part yadded)The Order "' Singlethat,states
service ' is telecommunications service that permits users to
have loop or accessexclusive use of wireline subscriber
line case of wirelessforeachcallplacedthe
telecommunications carriers which use spectrum shared among
users to provide service,a dedicated message path for the
length user particular transmission. "(emphasis
added)This language clearly suggests that wireless service
is a functionally equivalent service to single-party voice
service provided over a wireline subscriber loop.
services where available.Access emergency
(emphasis added)The Commission indicates on page 2 of the
Order that this service does not include provision of the
underlying emergency services themselves such as the 911 or
public areserviceansweringpoints(PSAPs) ,whichE911
controlled and operated by local governments.Instead, this
uni versal emergencyserviceonlyincl udes access
services where available.
6. Access to operator services.
7. Access to interexchange service.
8. Access to directory assistance.
9. Toll Limitation.
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HOW DOES THIS LIST OF "SERVICES" COMPARE TO THE
CHARACTERISTICS FUNCTIONALLY EQUIVALENT SERVICE
DESCRIBED IN MR. WOZNIAK'S TESTIMONY IN THE BURLEY CASE ON
BEHALF OF QWEST?
It is virtually the same.Aside from stating that
the service must be a "single party" service, as opposed to
mul ti -party service manywhich was eliminated by Qwest
years ago, the only other differences are that the universal
services definition provides a signaling technique and that
it should include toll limitation.
HAVE ANY WIRELESS SERVICE PROVIDERS IDAHO
APPLIED FOR ETC STATUS BY COMMITTING TO PROVIDE ALL THE
UNIVERSAL SERVICES IDENTIFIED BY THE COMMISSION?
IAT Communications , Inc., d. b. a. Clear TalkYes.
filed eligibleitspetitionfordesignation
telecommunications carrier with the Commission in February
this year.In its petition Clear Talk indicates
provides all of the services and functionali ties required
by the Commission for E. T. C. designation (as enumerated in
the pageCommissionOrder27715) .No.its
application,Clear Talk indicates it offers,for example,
unlimited local usage in its monthly service plan - at no
addi tional charge.it would appearFrom its application,
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that believesClearTalk
equivalent, wireless service
DOES THE COMMISSION INCLUDE INTERNET ACCESS,
offers functionally
NUMBER PORTABILITY, DATA TRANSMISSION, EXTENSION PHONES,
ACCESS TO PBXs OR EXTENSION HANDSETS AS PART OF ITS
DEFINTION OF UNIVERSAL SERVICES?
A. No.
ISN'THE DEFINITION OF UNIVERSAL ONESERVICES
WHICH IS CONSIDERED TO EVOLVE OVER TIME RATHER THAN A STATIC
DEFINITION?
The Commission hasYes.the responsibility to
examine the development of telecommunications services and
has optionthe review and
appropriate.
IS IT APPROPRIATE IN THIS CASE TO CHANGE OR EXPAND
THE DEFINTITIONS UNIVERSAL
EXCHANGE SERVICE?
First,only the legislature can change theNo.
definition basicstatutory
Second,any effort review,
revise the definition
SERVICE BASIC LOCAL
local exchange service
" .
and possibly change,the
definition of universal service must be carefully weighed in
light many factors after
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telecommunications providers.It should not be done in a
casual manner in this case.
IN ATTEMPTING TO CONTRAST WIRELESS "LOCAL SERVICE"
TO LANDLINE BASIC LOCAL EXCHANGE SERVICE,MR.HART POINTS
OUT THERE ARE POCKETS WITHIN MOST OF THE SEVEN EXCHANGES
WHERE WIRELESS SERVICE NOT AVAILABLE,INCLUDING ROBIE
CREEK (PAGE 27, LINE 10).HOW DO YOU RESPOND?
The Commission has already provided guidance
thi s area.page 12In the Burley case order,No.28369,
the Commission states,Nor is the Commission convinced that
the requires competitor actuallystatute construct
facilities to all parts of Thethe local calling area.
Commission foreseeindicatedwoulddifficul t
circumstances where deemed effectivecompetition could be
and throughout the local calling area where less than half
the have choice provider.Therecustomers
question in this case that the vast majority of customers in
these access wirelessexchangeshavereadyseven
telephone service as evidenced in Dr.Lincoln s survey and
the coverage maps of the wireless providers themselves.The
availability of wireless service to Robie Creek is not
prerequisi te Qwest'the Commission approval
application.in discoveryIt should be noted as well that,
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(Interrogatory No.2 -12 Request for Production 2 -17), Qwest
asked Staff to identify all pockets in the seven exchanges
where Staff'wireless service unavailable.Given
insistence that price deregulation is inappropriate due,
to the existence of such pockets,Qwest believes part,
was appropriate to put Staff to the test of specifically
identifying each such pocket so that the Commission and the
parties could appreciate the magnitude of this concern.
response,Staff admitted that it "did not at tempt to locate
all sevenpocketswi thin the exchanges where wireless
service is not available.Instead , Staff argues that it is
Qwest's burden to demonstrate reasonable availability in the
exchanges.survey dataThroughLincolnDr.seven
testimony and Mr. Teitzel's exhibits regarding the number of
carriers and plans available in the seven exchanges,there
can be no doubt Staff'that Qwest has met its burden.
conj ecture that there may be other pockets and its anecdotal
evidence Staff mentions that citizen at the pocatello
workshop indicated a lack of service in pocatello Creek) do
not adequately rebut Qwest' s overwhelming evidence.
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B. The possibility of increased prices
STAFF SEEMS TO ARGUE THAT QWEST'S APPLICATION, IS
CONTRARY TO THE PUBLIC INTEREST BECAUSE STAFF BELIEVES
QWEST INTENDS TO INCREASE RATES FOR BASIC LOCAL EXCHANGE
SERVICE.DOES THE STATUTORY SECTION UNDER WHICH QWEST SEEKS
RELIEF PROHIBIT PRICE INCREASES?
No, section 62-622 (3) (b) allows Qwest full pricing
freedom to raise and lower its rates.concern thatStaff'
its ratesregulatoryQwe s t freedom increasemayuse
underscores the fact that Staff apparently does not agree
wi th the effecti velegislaturedetermination that where
competition is present,Theregulation is not necessary.
test here is whether or not the conditions of the statute
have been met - not whether prices will either decrease or
forever remain the same.Consumers in Idaho participate in
all kinds of competitive markets today in which the prices
evengoodsandservices,vi tal goods and services,
increase as well as decrease.
WHAT EFFECT DOES THE STAFF'S OPPOSITION BASED ON
POSSIBLE PRICE INCREASES HAVE THE STATUTE WHICH ALLOWS
FOR FULL PRICING FLEXIBILITY?
By opposing Qwest' s application on the basis that
it might raise prices,the Staff is effectively rendering
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section 62-622 (3)application under thismoot.
section can be denied because an applicant could raise a
price , then this section of the law may as well be stricken
from the books.the Staff would leave sectionIn effect
62-622 (1),the only optionthe maximum rates section
available for relief from full rate regulation, even in the
face of effective competition.Staff's position, when seen
is wholly inconsistent with the plainits true light,
anguage statutethe withand the intent the
legislature, which enacted two forms of pricing flexibility
allow theincumbentsappropriatefreedomsbased
effectivelycompetition.Staff'advocacypresence
writes 62-622 (3) out of the statute.
Relief under section 62 - 622 (1)
BOTH MR HART AND DR.JOHNSON ARGUE THAT QWEST
SHOULD HAVE SOUGHT PRICING FLEXIBILITY UNDER SECTION 62-
622(1)AND(PAGESTHEMAXIMUMRATES"STATUTE
RESPECTIVELY) .WHY DIDN'T QWEST FOLLOW THAT ADVICE?
Staff implies that it is inappropriate for Qwest
seek price deregulation under sect ion 62-622 (3)because
sect ion 62-622 (1)can provide Qwest another form
flexibility,l. e.the ability lower rates without
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Commission insist that sect ion 62-622 (1)approval.
offers Qwest the only appropriate form flexibility
view the effective competition faces from wireless
providers inapproprlate and odds with the
legislature statutoryintentenactingdifferentthe
provisions.
Sect ions two entirely62-622 (1)(3 )and address
different situations the telecommunications marketplace.
Section 62-622 (1)does not requlre any showing
competition,but requires incumbent such Qwest
either accept the rates established by the Commission in its
last rate case , or undergo regulatory reVlew akin to a rate
establish (1 )Subsectionrates.case new
continuation of rate regulation by the Commission, based on
the assumption that the only effecti ve constraint
incumbent's rates is regulation.
section 62-622(3)does not address rateBy contrast,
levels but focuses on whether effective competition
effecti ve statutecompetitionshown,thepresent.
eliminates regulation the assumption thatrate
competition, and not regulation, will control prices.
For Staff to claim that section 62 - 622 (1)offers all
the price flexibility that Qwest needs is to argue that the
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legislature was wrong to eliminate rate regulation even when
effective competition is demonstrated.Obviously,if this
must summarilypositionStaff'its argument
rej ected.
the extentotherhand,the that Staff'
testimony Qwe s tconvincetheCommissionthatattempts
does not Staff must overcomefaceeffective competition
Qwest's evidence that it has met the statutory standard by
showing that functionally equivalent"and competi ti vely
priced"local services are available from number
unaffiliated wireless providers.Staff cannot use section
62-622 (1)additional requirement thatcreate Qwest
also prove that the "flexibility " offered under section 62-
622 (1)meetadequate the threat effectivenot
compet it ion.
ISN'WHY THE FLEXIBILITY REDUCE PRICES
SUFFICIENT TO MEET A COMPETITIVE CHALLENGE?
What andthelegislatureapparentlyunderstood,
what Staff fails recogni ze,that where there
competition more flexibility than is provided under section
62 - 622 (1) may be required.
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I can think of no other competitive market where one
provider is restricted to price reductions only.It is not
unusual both upward "andfor competitors to adj ust prices,
downward,means of promotion or producton products
introduction or development.as vendorsPrices may rise
services productaddingvaluethroughaugment
enhancements or by offering packaged services at a discount
stand-alone product may bepricing.Likewise prices
lowered for variety of reasons such as inventory reduction
reflection stimulatelowerproductioncosts
revenues.
Furthermore, it is not clear to Qwest that the maXlmum
section 62-622 (1) ,eliminates rate-of -returnrates statute,
regulation.as hereThis is of particular concern where,
someseekingreliefforonly itsQwest exchanges.
Under the rate-of-return scenario, Qwest may be required to
track"any price account forreductionsimplementedand
these "lost" revenues in any subsequent rate proceeding for
either maximum ratethe exchanges for the remaining
Qwest exchanges.Qwest would be forced to incurAs such
the additional expense of tracking any price reductions and
would be subj ect to "second guessing " as to the necessity of
any prior price reductions
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Staff's focus on other exchanges
ASIDE FROM THE POSSIBILITY THAT QWEST MAY RAISE
PRICES IN THE SEVEN EXCHANGES,DOES MR. HART EXPRESS OTHER
REASONS FOR OPPOSING QWEST'S APPLICATION?
He also expresses a concern that grant ingYes.
application could leadQwest'significant rate
increase customersfor in the remaining exchanges.(page
35, line 19)
WHAT DO YOU BELIEVE IS THE BASIS FOR HIS CONCERN?
Hart understands that Qwest' s current pricesMr.
have been regulated environment using statewideset
pricing.essence pointing out thataverage
revenues from the seven exchanges2 subsidize and support the
operations in the remaining smaller exchanges.Should the
from seventhese exchanges removed from therevenues
equation, Mr. Hart postulates it is likely that an earnings
review thefortheremainingexchangesjustifywould
Commission regulatedsettinghigherpricesthese
exchanges.
2 In response to Qwest Interrogatory No.2 -27, Staff stated, "The
residential and small business customers of the more populous, urban
regions of the state currently subsidize and support the cost of basic
local exchange service for Qwest' s residential and small business
customers in the less populous, rural regions under current averaged
prices of Qwest' s basic local exchange service.
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I don t disagree that,all other things being equal,
the Commission could order price increases in the remaining
rural exchanges under such an earnings review.But, for two
I do not believe Mr. Hart is raising a valid basisreasons,
for rej ecting Qwest' s application.First, his concern again
has the effect of adding requirements to section 62-622 (3)
that notthelegislaturedid itself impose.While the
legislature provethattelephonesetoutcompany must
effecti ve wayscompetition(in the two set outone
respecti vely 62 - 622 (3) (a)and (b))in order to obtain
price deregulation Hart apparently believes thatMr.the
telephone company must also prove that it meets an unwritten
requirement are not price deregulatedthatexchangesthat
will subj ected conditions that could justifynot
regulated rates in those exchanges being increased by the
Commission.
Second, the Commission has already found an affordable
monthly residential flat rate to be $24.10 for customers in
thatindependen t 1 Idaho operated exchange smany
resemble Qwest' s higher-cost exchanges for which it is not
seeking price deregulation in this case.These rates have
been in place for years and to my knowledge, there has been
serious negati ve impact subscribership those
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exchanges.sevenSinceresidentialtheQwest'rate
exchanges increase byis only $17.50,even a significant
Qwest would not seem to implicate unreasonable rates given
the $24.rateresidential charged,order the
Commission , by rural phone companies.
WOULDN'T THE COMMISSION HAVE TO APPROVE ANY PRICE
INCREASES FOR THESE OTHER EXCHANGES FOLLOWING A FULL REVIEW
OF THE CASE AND AFTER HAVING CONSIDERED THE PUBLIC INTEREST?
Yes.difficul t understand,therefore,
why the Staff appears believe that the Commlssion
shoul d,upon appropriate record,rai se rates rural
Qwest exchanges the public interest would not be served.
IF QWEST WERE TO ACCEPT MR. HART'S SUGGESTION AND
BRING ITS APPLICATION FOR THE SEVEN EXCHANGES UNDER THE
MAXIMUM RATES"STATUTE,WOULD THAT BETTER PROTECT"
RATEPAYERS IN THE OTHER EXCHANGES?
No, his suggestion does not really seem to fit the
concern offers basis for opposing Qwest' s
application.Qwest were have the Commlssion set
maximum rates under section 62-622 (1)and then reduce
those rates in the seven exchanges, in a subsequent earnings
review following those price reductions, there would be (all
other revenue cover Qwest' sthingsbeingequal)less
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Qwest Corporation
total Ratesoperationswi thin southern Idaho.the
uncapped exchanges would thus have to increase to cover the
reduced revenue stream.
DO THE STATUTORY SCENARIOS BEING ADVOCATED BY THE
STAFF QWESTLEAVE WITH ANY SUBSTANTIVE FLEXIBILITY
COMPETE IN TODAY'S COMPETITIVE MARKET?
The Staff seems to meet itself coming andNo.
going.It opposes granting Qwest pricing freedom under 62-
622(3) (b)because might"raise prices action
permissible under that law.And al though the Staff
suggests Qwe s t has other options under the maximum rates
statute (62-622 (1))for priclng flexibility,also
concerned that reduced financial support,possibly from
price reductions permissible under that statute,will lead
to higher rates in Qwest' s other exchanges.Staff seems to
want both ends of the argument leaving Qwest to face growing
competition necessarywithoutthe tools effecti vely
compete in a market where wireless service is exploding and
landline service is declining.
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Qwest Corporation
III. LOSS OF ACCESS LINES
REGARDING QWEST'S LOSS OF ACCESS LINES, MR. HART
28,THATINDICATESPAGELINE QWEST' CLAIMS
COMPETITIVE IMPACTS ARE "OVERBLOWN.HOW DO YOU RESPOND TO
HIS STATEMENT?
First (and Mr.let me say that there is no doubt
Hart does not deny)that Qwe s t losing access lines.
Qwe s t never attempted prove precise loss lines
attributable wireless competition.Such proof would
obviously be difficult and expensive to establish.Instead,
offered that fact point comparison to theQwe s t
explosi ve evengrowthwireless during theseusage,
difficul t times in the telecommunications industry.Having
said that,believe it'both reasonable and obvious
ight Dr.Lincoln survey well numerous other
articles and intervlews from var i ous media that many
customers are choosing wireless service over traditional
landline service.Wireless service is effectively competing
with Qwest' s customers basiclandlineservicefulfill
local service hasexchangeneeds.Wireless competition
drawn customers away from Qwest.
Having said that,let also add that the Idaho
statutes do not require that Qwest prove a specific loss of
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Qwest Corporation
market share in order to meet the requirements of section
62-622 (3) (b).In the Commission order from the Burley
Order page the Commission stated,No.28369,case,
Given the language of the statute, we conclude it would be
inappropriate specificfortheCommissiondeclare
penetration level or loss of a specific market share as a
bright line test for application of Section 62-622 (3) "
Today,based information provided Alyson
Anderson on April 2003 there were well over 577 000
cell phones being used in Idaho as of December 2002.This
is an increase of 37 000 cell phones over(6.8% increase)
the June 2002, value shown in my Exhibit No.I t seems
clear to me that,Qwest wouldabsent wireless competition,
likely manyservingtheneeds thousands those
and would probably not be experiencing loss ofcustomers
access lines.
ACCORDING TO MR.HART,IT IS VERY LIKELY"THE
MAJORITY QWEST'ACCESS LINE LOSS DUE DSL
(PAGE 28, LINES 6-25)HAVE YOU EXAMINED THESUBSCRIBERSHIP.
IMPACT OF DSL ON QWEST'S LINE LOSS?
Residences account for the vast majority ofYes.
DSL subscriptions.While it is true that some residential
customers will disconnect an additional line once they have
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Qwest Corporation
subscribed can accountthis for theDSL,way
reduction of approximately 14,000 Title 61 lines referenced
had employee review numbertheMr.Hart.
residential additional lines in service in Idaho as of June
2000 and June 2002 associated with customers who added DSL
service thatduringperiod.that This review indicated
slightly wereadditionallines removed after400over
residential added during period.thatcustomersDSL
other words,only 10% of the 14,000 access line reduction
can be attributed to displacement of additional residential
lines by DSL.
IV. PRICING FLEXIBILITY IN A COMPETITIVE MARKET
MR. HART INDICATES THE ONLY FLEXIBILITY QWEST WILL
GAIN IF ITS APPLICATION IS APPROVED IS THE ABILITY TO RAISE
ITS RATES (PAGE 37, LINE 12).DO YOU AGREE?
Al though Mr.Hart attempts to minimize theNo.
operating efficiencies Qwest seeks through this application,
these savings are nevertheless an important part of Qwest' s
need to be competitive.As pointed out by Mr. Hart, current
regulations require that Qwest report special promotions to
the theCommissionpriorofferingandreport
accounting revenuestheregulated following the
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Qwest Corporation
promotion.Qwest must track and account forIn addition,
foregone revenues and prepared impute them any
subsequent rate proceeding though they had been
collected.Addi tionally,regulations require Qwest
separately itemize billing for regulated"and optional"
services its customer bills
None Qwest' s wireless competitors are bound
these rules.Adhering to these regulations carries a burden
of expense which Qwest could eliminate if its application is
approved.Competing effecti vely much about
operational efficiency as it is about competitive pricing.
DOES THE COMPANY HAVE THE ABILITY TO OFFER PRICING
PROMOTIONS FOR REGULATED BASIC LOCAL EXCHANGE SERVICE TODAY?
Not completely.Again, this is part of what Qwest
is seeking in this case.Mr.Hart points out on page 34
line 22 , that Qwest is allowed to discount or waive the one-
time installation charge for basic local exchange service.
What Mr.Hart doesn t mention is that Qwest has not been
allowed ratediscountthemonthly for basic local
exchange promotions.service its packagesany
has accountalwaysbeenrequi redQwest for the full
tariffed rate for basic local exchange service as part of
packaged any monthlyserviceoffering.effect,any
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Qwest Corporation
discounts tied to the package must be derived from other,
non-regulated Qwest'services included in the package.
competitors are not bound by this limitation and are free to
discount or promote all their services in accordance with
normal business pricing practices.
MR.HART INDICATES QWEST HAS HAD THE ABILITY TO
BOTH RAISE AND LOWER PRICES FOR BASIC LOCAL EXCHANGE SERVICE
PROVIDED TO LARGE BUSINESS CUSTOMERS SINCE 1989 (page 33,
ine 2 3) .IN THE FOURTEEN YEARS SINCE QWEST HAS HAD THIS
FREEDOM IN IDAHO,HAS THE COMPANY ENGAGED IN THE TYPE OF
PRICING ACTIVITY ENVISIONED BY DR. JOHNSON TO THE DETRIMENT
OF UNIVERSAL SERVICE? (PAGE 41, LINE 23; PAGE 42, LINE 1-
In fact , during the last fourteen years sinceNo.
Qwest gained pricing freedom for large business customers,
it has maintained parity for pricing of basic local exchange
service between unregulated prices for large businesses and
regulated prices for small business customers.
It would be counter-productive for Qwest to behave as
Johnson Qwest'should the Commission grantDr.suggests
application in this case.Qwest values its relationship
with its customers and needs to maintain a good relationship
going forward.Moreover , Qwest has played an important role
in helping develop Idaho s telecommunications infrastructure
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Qwest Corporation
being one has beenthebestin the nation.This
accomplished through partnership Idaho with the
Commisslon business leaders and the state legislature.
Qwest cannot afford to j eopardi ze these valued relationships
by setting prices for basic local exchange service that are
considered the public exorbitant and that would
drive away the very base customers Qwest needs order
surVlve.
IS THE CURRENT COMPETITIVE MARKET SUFFICIENT TO
CONSTRAIN QWEST FROM RAISING PRICES WITHOUT RISK OF LOSING
CUSTOMERS?
The populari ty growthandtremendousYes.
wireless service usage underscores the fact that customers
have accepted this service as a good alternative to Qwest'
basic local exchange service.In addition , the FCC and the
Idaho Commission Qwe s thave has opened itsruledthat
markets to competition in Idaho.In view of the current
availability otherretailwirelessservicealong wi
options available for wholesale customers (including resale,
the purchase of unbundled network elements and the purchase
of UNE-P) ,increase in Qwest' s prices forany significant
landline service would both drive away customers and attract
providers competeacti vely the Idahoevenmore
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Qwest Corporation
market.The market has developed to the point that Qwest
is constrained as to pricing and should be given a chance to
compete on an equal basis.
UNDER THE CURRENT FORM REGULATION,CAN THE
COMMISSION GUARANTEE CUSTOMERS THAT PRICES FOR QWEST'S BASIC
LOCAL EXCHANGE SERVICE WILL NOT INCREASE IN THE FUTURE?
As with many other products,prices tend toNo.
increase over time if for no other reason than to keep pace
with inflation.
By September of 2002,Qwest's access lines in service
dropped to a level that was around 14,000 fewer than Qwest
had in December 2000.equates to a revenue loss ofThis
several revenue per year formillion dollars Title
Under today s form of regulation Qwest could seekQwe st.
recovery of these lost revenues by filing a rate case and
asking the Commlssion for increased rates for its remainlng
customers.Rate cases are complex time consuming and
expensive procedures and there guarantee the
This is not to imply that CLECs are not already actively competing
with Qwest in Idaho. Qwest's public website (see
www.qwest. comjwholesalejresultsjchecklist. html) indicates that, as of
February 2003, Idaho CLECs had 9, III UNE-P lines in service (p. 91 of
March 2002 -February 2003 PID report), 5,347 residential resold lines inservice (p. 223) and 487 business resold lines in service (p. 234). Since
these forms of competition exclusively utilize Qwest's facilities, CLECs
can quickly increase their level of competition without significant
capital expenditures. Should Qwest sharply increase its basic local
exchange service rates , CLECs will invariably take advantage of such an
event to expand their presence in Idaho.
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Qwest Corporation
Commission revenuewouldallthe reliefgrant Qwe s t
requested.was granted,assuming reliefHoweversome
Qwest's remaining customers would experience an increase in
their basic local exchange service rates.I don t bel ieve
the statusCommission has the opt ion of maintaining the
quo " while watching the forces of competition and technology
change the landscape of telecommunications in Idaho.As it
has done in the past, the Commission must continue to change
with the times and allow Qwest an opportunity to compete in
the market.It's the only viable approach if Qwest is to
continue its tradition of service and investment in Idaho.
V. WRITTEN CONSUMER INPUT
HAS THE COMMISSION SOUGHT INPUT FROM CONSUMERS
REGARDING THEIR OPINIONS AND REACTION QWEST'
APPLICATION FOR PRICING FLEXIBILITY?
The Commission issued press releases thatYes.
overview Qwest'application and providedgave
consumers with information about how to write or e-mail
the Commission with their Vlews.I understand the press
releases were carried by the Idaho Boise,Statesman
Idaho State Journal in Pocatello and the Twin Falls Times
in Twin Falls.Some radio stations in those areasNews
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Qwest Corporation
also pressprovidedusingtheCommissioncoverage
release.
DIDN'T THE COMMISSION ALSO HOLD PUBLIC WORKSHOPS
THREE MAJOR IDAHO COMMUNITIES ANSWER CUSTOMERS'
QUESTIONS AND SOLICIT INPUT FROM CONSUMERS?
Schmit was attendance theseYes.Mr.
workshops,andwhich were held in pocatello,Twin Falls
Boi se .I will provide a review of the customer comments
filed letters e-mail the Commission and Mr.vla
Schmi t will cover consumer input from the workshops in his
testimony.
(LETTERS)DID THEHOW MANY LETTERS OR E-MAILS
COMMISSION RECEIVE FROM CONSUMERS?
Because of timing differences,my count of the
letters varies slightly from Mr.My countHart's count.
indicates comments from only the Commission recei ved
and from customerorganizations.Of the customers
comments,eight customers live exchanges that are not
included the seven exchanges identified Qwest' s
application,leaving customer letters from people
1 i ving in one of the seven exchanges.
submi t tedthethreeorganizationsthatTwo
supported application.thosecommentsQwest'For
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Qwest Corporation
customers living
supported Qwest' s
application.
the exchanges,one seven
application while opposed the
FOR THOSE CUSTOMERS OPPOSING QWEST'
APPLICATION, HOW WOULD YOU CATEGORIZE THEIR CONCERNS?
I believe they essentially fell into three
categories.First,some people were simply opposed
deregulation of any kind citing what they believe to be
bad experiences in other areas such as the airline,
banking or trucking industries.Several people indicated
a concern that Qwest would stop offering stand-alone dial
tone service and would instead require people to buy
packaged" services including features they may not need
Finally, customers, especially those on low oror want.
fixed incomes, expressed concerns about higher prices.
DO YOU AGREE WITH THE CONCLUSIONS MR. HART DREW
FROM THE WRITTEN CONSUMER COMMENTS FILED IN THIS CASE?
only his concl usions regardingagree
customers ' concerns for higher pricing and the elimination
of stand-alone dial tone service.
see dial-that those commentingnotagree
service. "basic landlineInternetpartaccess
(Hart, page 33, line 11)Of the 37 customers writing from
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Qwest Corporation
the affected exchanges,I counted only two who indicated
their concern over access to the Internet.Both of these
opposed any form deregulation,ci ting otherpersons
industry examples.
WHAT ABOUT MR. HART'S OTHER CONCLUSIONS?
disagree seewithhisviewthatpeople
landline service as a "necessity" and see wireless service
complementary page 33,line 11 )service.(Hart
Instead,commentsbelievethewhocustomerssent
opposing Qwest' s application were expressing the view that
maintaining veryaffordablecommunicationsservicewas
important to them.The necessity they expressed had more
with their need communicate with others for
personal,social business reasons rather than
expression the value they place one type
technology over another.
WHAT YOUR ASSESSMENT VOLUMETHE
CONSUMER LETTERS RECEIVED BY THE COMMISSION?
I consider the volume of letters to be very low
when viewed against the number of customers we have in the
seven maj or exchanges.This low volume is consistent with
the low attendance Mr.Schmit describes in his testimony
regarding the workshops.We have received 28 letters from
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Qwest Corporation
opposed to Qwest' s application from a basecustomers
the seven exchanges nearly customers.This292,000
amounts to about one one-hundredth of one percent of the
affected customers.I believe this is a strong indication
that aregenerally comfortable with Qwest'consumers
request to compete on an equal basis against its wireless
competitors.
MR. SCHMIT RESPONDS TO CONSUMERS' CONCERNS ABOUT
PRICING AND THE FEAR THAT QWEST WILL OFFER ONLY PACKAGED
SERVICES.WILL YOU PLEASE COMMENT ON THE THIRD ISSUE YOU
MENTIONED,E.,GENERAL FEELING OF OPPOSITION TO ANY
FORM OF DEREGULATION?
Certainly.This case is not about deregulation
Qwestoperations.seeking pricingonlyQwest' s
flexibility this case for seven southern Idaho
exchanges.mentioned direct testimony,this
Commisslon will retain j urlsdiction over the quality and
availability services,well credi t and collection
policies and practices.The Commission will continue to
handle dispute resolution at both the wholesale and retail
level.has had pricing flexibility for TitleQwe s t
basic local exchange service for fourteen years and there
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Qwest Corporation
has been negative impact serviceuni versal that
could be remotely described as drawback of sucheven
pricing freedom.
VI. CONCLUSION
PLEASE CONCLUDE YOUR TESTIMONY AND PROVIDE THE
COMMISSION WITH YOUR RECOMMENDATION.
application for economicQwest'current
deregulation in seven exchanges is the second attempt by
to achieve pricing flexibility.Qwest appreciatesQwe s t
the guidance provided by the Staff and the Commission in
the caseBurley and has attempted respond that
guidance in this case.
Since wastheBurley filed the growthcase
cellular service has been no less than phenomenal.Today,
we see that over half a million Idahoans have chosen to
purchase wireless service all theirto meet some
communications needs,as over 577 000 wireless lines are
sameservice.the time that this form
competi ti ve service continues to rise in popularity, Qwest
has accessexperienceddeclineits lines for the
first aretimein memory.There no doubt customers
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Qwest Corporation
disconnecting Qwest' s landlines in favor of using wireless
services.
has statutorythe requi remen t forQwestmet
achieving basiceconomicderegulationitsTitle
local exchange services.Wireless service is functionally
equivalent,competitively priced and reasonably available
the seven southern Idaho exchanges.Throug h Mr.
Schmit'testimony,Qwest has also gone above and beyond
any obligation and made time-bound commitmentsspecific,
for pricing stability in response to Staff'suggestions
in the concernsBurley case and raised by customers
this case.
What Qwe s t asking for not new.Qwest achieved
this same prlcing freedom 1989 for large business
customers,for data services,for exchange access and for
vertical features time when wireless phones were
their infancy in Idaho.one can hardly go out inToday,
public without seeing people using wireless phones.
the approve Qwest' sCommissionencourage
application on the basis that the statutory requirements
have been met.Through this approval , the Commission will
competi ti ve providingclimate,whilesupportnew
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Qwest Corporation
with pricecustomers
application,the
stability.
Commission will
approving Qwest'
continue Idaho
tradition of network modernization through the addition of
high-speed broadband
continued leadership in thestate
regulatory oversight.
DOES THIS CONCLUDE YOUR TESTIMONY?
Yes, it does.
QWE - T - 02 - 2 5
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Boise-155924.1 0029164 -00087
services and maintaining the
area progressi ve
SOUBA , J. (REB) -38-
Qwest Corporation
CERTIFICATE OF SERVICE
I hereby certify that on this 21 st day of April, 2003, I served the foregoing REBUTTAL
TESTIMONY OF JOHN F. SOUBA ON BEHALF OF QWEST CORPORATION upon all
parties of record 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]
W stutzm~puc.state.id. us
Marlin D. 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]
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i oe~mcdevitt -miller. com
Attorneys for WorldCom, Inc.
Attorneysfor AT&T
Attorneys for Time Warner Telecom
Executed protective agreement
Dean Randall
Verizon Northwest Inc.
17933 NW Evergreen Parkway
Beaverton, OR 97006-7438
dean. rand all ~verizon. 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~qwest.com
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Clay R. Sturgis
Moss Adams LLP
601 West Riverside - Suite 1800
Spokane, W A 99201-0663
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Brian Thomas
TimeWarner Telecom
223 Taylor Avenue North
Seattle, W A 98109
Brian. Thomas~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(l3), gi v enspursl ey. com
Attorneys for Idaho Telephone Association
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~?tt/
Brandi L. Gearhart, PLS
Legal Secretary to Mary S. Hobson
Stoel Rives LLP