20030714Post Hearing Reply Brief.pdf

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Mary S. Hobson (ISB #2142)
Stoe1 Rives LLP
101 South Capitol Boulevard - Suite 1900
Boise, ill 83702
Telephone: [phone]
Facsimile: [phone]
mshobson~stoe1.com
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Adam L. Sherr (WSBA #25291)
Qwest
1600 7th Avenue - Room 3206
Seattle, WA 98191
Telephone: [phone]
Facsimile: [phone]
asherr~qwest.com
Attorneys for Qwest Corporation
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF QWEST CORPORATION FOR PRICE
DEREGULATION OF BASIC LOCAL
EXCHANGE SERVtCES
Case. No. QWE-O2-
QWEST CORPORATION'S POST,;HEARINGREPLY BRIEF
Qwest Corporation ("Qwest"), by and through its undersigned counsel, hereby submits its
post-hearing brief in reply to Staff's Post-Hearing Memorandum Staffs Memo ) and
Interveners Post Hearing Memorandum (sic) ("Intervemors' Memo
).
Qwest requests the
Commission to approve its December 17, 2002 application for price deregulation for the Boise
Caldwell, Idaho Falls, Meridian, Nampa, Pocatello and Twin Falls exchanges (the "seven
exchanges
REPLY TO STAFF'S MEMO
Staffs Memo does not attempt to assist the Commission in reviewing and analyzing the
over 800 hundred pages of transcript and the numerous complex and detailed exhibits presented
in the record. Instead, it only attempts to minimize the unrefuted evidence presented by Qwest
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and to steer the Commission toward an erroneous conclusion based on speculation
mischaracterization and avoidance ofthe evidence.
Qwest offers substantial and competent evidence of satisfaction of section 62-622(3)
for each of the seven exchanges.
Among the most flagrant examples of mischaracterization contained in Staff s Memo are
the claims that "Qwest admitted it did not attempt to provide information of the status of
competition in each exchange (Staff's Memo
, p.
2) and "Qwest made no effort to provide
information on the status of competition in each exchange.Id. at 3. In fact, Qwest provided
abundant exchange-specific evidence including evidence identifying competitors active in each
exchange (Tr. 356; Exhibit 12), the areas covered by each competitor (Exhibit 12), the
competitively priced alternatives offered by those competitors (Exhibits 13 and 19) and the
regulated line loss for each exchange (Exhibit 2). Of course, Qwest did not offer an exchange-
specific analysis of the functional equivalence between wireless services and Qwest's basic local
exchange service, since these technologies function in the same manner regardless of the
exchange in which they are offered.
Staff ignored all of the relevant evidence of "the status of competition in each exchange
and instead attempted to discredit Dr. Lincoln s survey, which was designed to reflect the
perceptions of the entire population of Title 61 residence and business customers that would be
affected by price deregulation. While the survey offers evidence about the opinions of customers
in each of the seven exchanges, it was not designed to survey each exchange as a separate
population. Staff appears to take this expedient as an excuse to disregard the competent evidence
of customers' perception status of competition in all of the seven exchanges provided by the
survey.
Staff first attempts to suggest that the survey is faulty because it cannot be used to draw
statistical inferences for the individual exchanges. Staff Memo
, p.
2. In fact, what Dr. Lincoln
testified is that
, "
you could draw some statistical inferences, but you would have a wide range of
margin of error because the sample size would be relatively small to the population of that
particular exchange.Tr. 308. Qwest will show Staff ignores this expert advice when it
attempts to selectively cite the few disaggregated responses that appear to support its views.
Staff did not and could not cite record evidence for this claim since Qwest made no such admission.
The only one of the seven exchanges that did not suffer a loss of regulated lines since 2000 is Meridian
which had a very slight line gain. Tr. 59.
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As Exhibit 113 clearly demonstrates, Qwest did provide exchange-specific information
about the survey responses. Review of that exhibit reveals that with few exceptions, the
individual exchange results are similar to those for the survey population as a whole. For
example Staff seizes on the results for the residence survey for Twin Falls saying, "only 15
residential customers in the Twin Falls exchange answered "yes" when asked if it were possible
for them to rely solely on cell phones for the purpose of making and receiving local calls.,,3
Staff's Memo
, p.
2, However, Exhibit 113 shows that 53.6 percent of the population surveyed in
Twin Falls responded affirmatively to the feasibility of sole reliance on cell phone service.
Exhibit 113
p.
3. This result is completely consistent with the 50 percent affirmative response to
the same question from the entire population of residence customers. !d.
Staff repeatedly attempts to diminish the significance of Dr. Lincoln s survey by calling it
limited" (See, e.g., Staff's Memo
, p.
2). Staff also alleges "in addition to other significant
problems " the survey "did not even attempt to explore the status of competition in each
exchange.Id at 3. These characterizations are, at best, meaningless. Staff offers no evidence
to support its claim of "significant problems" with the survey, and describing it as "limited"
appears to be nothing more than a backhanded assertion that, had it conducted a survey, Staff
would have asked more questions.4 The fact is Staff did not ask any questions. Although it had
three months between Qwest's filing of Dr. Lincoln s survey and the time set for its submission
of its own testimony, Staff made no attempt to survey Idaho customers in any scientific way.
While Staff does not carry any particular burden of proof with regard to Qwest's application , one
would expect Staff to attempt to develop a record that would allow the Commission to properly
This reference to the number of responses from Twin Falls and the chart provided on page six of Staffs
Memo, appear to be offered, not so much as a criticism of Dr. Lincoln s survey, but as an attack on the whole
science of statistical sampling. Dr. Lincoln testified as a duly qualified expert in the field of opinion surveys and
research. Staff offered no evidence to refute his assertion that the survey results were accurate to a 95% confidence
level (Tr, 230), For Staff to then suggest in its Memo that the Commission can ignore the results of the survey
simply because the number of persons responding in each exchange is small compared to the total number of
customers in the exchange reflects a fundamental misunderstanding of statistical methodology.
Dr. Lincoln testified about the notion, offered by Dr. Johnson, that the survey should have gone further as
follows: "There are no problems with the methodologies employed in our surveys. What Dr. Johnson calls for is an
extensive, in-depth survey to address a plethora of what are essentially marketing, (not regulatory) issues.Tr. 253.
Staffs only effort to gather evidence from Idaho customers was Mr. Hart's "conversations with students
and young adults, including my stepson, that subscribe to Cricket service.Tr. 648. Even then, Mr. Hart did not
offer any evidence of the questions asked or the answers received apart from indicating that there were "complaints
about service quality during periods of high volume. Id, Certainly, this effort is more "limited" than Dr. Lincoln
survey,
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assess the issues and make an informed decision. Instead, it seems Staff has chosen to withdraw
to the sidelines and make unfounded criticisms of the evidence that is offered.
It is exceedingly ironic, therefore, that after contending that Dr. Lincoln s survey cannot
be taken seriously, Staff attempts to selectively rely on it where Staff mistakenly believes its
results support Staffs belief that customers are rejecting wireless service because it is not price
competitive with basic local exchange service. At page six of Staffs Memo Staff states
, "
the
survey results for the Meridian exchange provide additional insights of interest, one on the
pricing question." Thus, having just gone to the trouble of pointing out that the number of
responses in Meridian is small compared to the total number of Title 61 lines in the exchange
and having previously selectively quoted Dr. Lincoln to create the impression that nothing can be
learned about individual exchanges from the survey, Staff attempts to argue from the
disaggregated survey numbers that the 33 residence customers surveyed in Meridian are
somehow to be relied upon to the exclusion of the 377 respondents from the other exchanges.
This result-oriented selectivity must be rejected. Dr. Lincoln testified that the results for the
individual exchanges would not yield the same low margin of error that characterizes the entire
survey. Tr. 308. Hence the fact that the Meridianresults, taken by themselves, appear to deviate
from the result for the whole survey is neither surprising, nor probative. Staff s claim that
Meridian is a better indicator of the experiences of those with actual cell phone experience is also
completely erroneous. Dr. Lincoln provided the unrefuted testimony that "respondents in
households where someone used a cell phone more frequently (59.7%) reported cell phone
service prices to be the same or less than (combined) than those in households where no one used
a cell phone (41.7%).Tr. 238. Staffs ostensive reason for singling out Meridian s results as
most representative of those with experience will cell phone service is unfounded.
Furthermore, the whole notion that Dr. Lincoln s survey is faulty because it does not
produce exchange-specific results to the same degree of statistical accuracy as the overall survey
is misguided. Contrary to Staffs Memo, Qwest does not offer Dr. Lincoln s survey as proof of
the "status of competition" in each exchange. Staff's Memo
, p.
3. Rather, Qwest relies on the
testimonies of Messrs. Souba and Teitzel to show where wireless competitors are active, what
prices and services they offer, how many customers they have, how Qwest's line counts are
affected and related topics to demonstrate "the status of competition in each exchange." Qwest
further relies on Mr. Shooshan s testimony to show that this Idaho version of wireless
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competition is consistent with national trends. Dr. Lincoln s survey results are offered to show
the opinions of those Idaho customers who still subscribe to Qwest wireline service on whether
wireless alternatives are, in their views, functionally equivalent and competitively priced with
wireline services. Since the functionalities of wireless and basic local exchange service do not
differ from exchange to exchange, there is no reason to survey each exchange as a separate unit.
Likewise, since the prices of wireless and wireline services do not change from exchange to
exchange there is nothing that suggests anyone exchange would be different from the others if
separately surveyed.
In fact, the entire point of the statistically valid survey is to produce results through
sampling of the population that would be reproduced if the entire population were questioned.
Tr. 230. Dr. Lincoln testified regarding the survey s 95 percent confidence level as follows:
Our 95% confidence level implies that we could go out into the
entire population, repeat our questioning and be confident of these
findings 95 out of 100 times. The 95% confidence level and 5%
margin of error are very common standards in social science
research. Id.
Dr. Lincoln s survey, therefore, provides information about customer perception in each
exchange. It is the only such evidence in the record. Staffs insistence that the Commission
ignore this significant insight as to how actual customers view some of the contested issues in
this case does not appear to serve the interests ofthose customers.
Qwest has offered substantial and competent evidence of "actual effective
competition.
At page three of Staffs Memo, Staff alleges that Qwest has taken a "cavalier approach"
to addressing the Legislature s intent, expressed in Idaho Code g 62-602(2), that "effective
competition" must involve "a significant number of customers having both service provider and
service option choices" and "means more than the mere presence of a competitor." This is
mischaracterization, and a puzzling one at that, given the state ofthe record. Qwest has shown
that customers in each of the seven exchanges have, in addition to Qwest, at least six wireless
providers available to serve their basic local exchange calling needs. Tr. 357. And, Qwest has
shown that these wireless providers offer a variety of service options. Exhibit 13. Indeed, these
facts do not really seem to be disputed. Nor does there appear to be dispute that these
competitors are not merely present, but are serving massive numbers of customers - over
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600 000 of them throughout Idaho. It appears strange, therefore, that Staff seizes on this
language to contend Qwest's application is "cavalier" and somehow misses the mark.
Nor does Staffs contention that "Qwest's interpretation of 62-622(3) enabled it to ignore
the legislature s stated intent" shed any light on Staffs argument. Nowhere in this record does
Qwest argue that the Legislature s intent should be ignored. To the contrary, Qwest has argued
that the Commission should carefully review and give effect to the legislative intent underlying
section 62-622(3). See, e., Qwest s Opening Post Hearing Brief, pp. 8. It is only when Staff
states
, "
Qwest's own witness conceded that the Company 'never attempted to prove a precise
loss of lines attributable to wireless competition
'"
(Staff's Memo
, p.
3) does it become clear
what it is that Staff is complaining about. It is merely this: Staff thinks Qwest has failed to meet
some invisible, undefined market loss standard.
Staffs market loss standard is properly described as "invisible " because it is nowhere
provided for in statute or in the Commission s prior decision construing sections 62-622(3) and
62-602(2). In fact, in the Burley case 6 the Commission rejected the notion that either of the
statutes relied upon by Staff require a showing of market loss. The Commission stated:
US WEST correctly notes that Section 62-602(2) 'does not speak
in terms of market shares, percentage of customers or other
numerical standards.
* * *
Given the language ofthe statute, we conclude it would be
inappropriate for the Commission to declare a specific penetration
level or loss of a specific market share as a bright line test for
application of Section 62-622(3). The concern raised by U S
WEST is valid, and Section 62-622(3) itself does not provide a
benchmark loss of market share for deregulation. Nonetheless
given the expressed intent ofthe legislature, it is difficult to foresee
circumstances where competition could be deemed effective and
throughout the local exchange calling area where less than half the
customers have a choice ofprovider.
Thus, the Commission s prior ruling rejects Staffs market loss standard and correctly
focuses on the language of the legislative intent statute that effective competition will involve a
In the Matter of the Application of U WEST Communications, Inc. for Deregulation of Basic Local
Exchange Service in its Burley, Idaho Exchange Case No. USW-99-, Order No. 28369, (May 3 2000) ("the
Burly Order
Id. at 11-12 (emphasis added).
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significant number of customers having "both service provider and service option choices ,,8
Idaho Code 62-602(2) (emphasis added). There is no question that Qwest has demonstrated
that a "significant number" of customers in the seven exchanges have provider and option
choices. Tr. 58-59.
Staff s market loss standard is also properly characterized as "undefined" because Staff
will not say what showing of market loss would meet its standard:
Q. And do you have a percentage in your mind as to what you
do have to have?A. Nope.
Q. Okay.A. I have percentages in mind that I think are clearly not there
and that is the three to five percent range that we have.
Tr. 726.
Therefore, Staff admits that Qwest has experienced market loss, but is unwilling to accept
this as evidence of competition (Staff's Memo
, p.
the record is thus devoid of any evidence
demonstrating that wireless services provide actual, substantive and meaningful competition
or to articulate an alternative standard. Staffs reluctance to state what would satisfy its
expectations for "effective competition" is understandable in light of the fact that neither the
statutes nor the Commission s ruling in the Burley case support Staffs contention that Qwest
cannot prove effective competition without proving "a precise loss of lines to wireless
competition.Staff's Memo
, p.
Once again, Staffs argument is ironic. Staff couches its criticisms in terms of "Qwest'
interpretation of Section 62-622(3)," when statutory interpretation requires that Staffs market
loss standard be rej ected.
The record evidence on functional equivalency and competitive pricing of wireless
services overwhelmingly supports Qwest's application.
Staff describes Qwest's focus on the statutory standard as a "goal oriented approach to
the case (that) enabled Qwest to disregard the requirement that actual competition exist for its
services.Staff's Memo
, p.
4. This is a most odd criticism since the statute itself sets out that
standard for demonstration of "effective competition." While it is certainly true that Qwest'
Commissioner Smith writing in a dissent in the Burley case also pointed out that
, "
during legislative debate
on this statutory provision, the requirement that specific market share percentages or penetration levels be the test of
competitive entry was rejected,, Dissent
, p.
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goal in presenting its case was to demonstrate it satisfies the statute, focusing on that goal is the
polar opposite of attempting to "disregard' the requirement that competition be shown to exist.
The only conclusion that can be drawn is that Staff believes the "real" requirement for
demonstrating competition is something not contained in statute, i., proof of market loss in
excess of the three to five percent loss conceded by Staff. a. Functional Equivalence.
There is no evidence in this case that contradicts the fact that the wireless services offered
by the numerous providers in each of the seven exchanges provide the "functional equivalent" of
Qwest's basic local exchange service. Even Mr. Hart admits this:Q. Mr. Hart, would you agree that wireless carriers employ
(provide)lo two-way interactive switched voice communications in
the seven exchanges that are the subject of this matter?
I would agree that as (is) part of the function they provide.
Tr. 672.
The debate on "functional equivalence" in this record, therefore, is almost exclusively11 a
debate about whether section 62-622(3) requires that Qwest prove that effective competition
exists for uses of its wirelines that are not basic local exchange service. This is, of course, the
legal debate that was the focus of Staff s petition for declaratory ruling, which was briefed by the
parties prior to hearing.
However, in its effort to minimize Qwest's case , Staffs Memo attempts to characterize
the debate over whether section 62-622(3) requires Qwest to prove effective competition for data
transmission and other non-voice uses as some kind of ploy to "limit" the evidence and avoid the
inconvenience of evidence demonstrating that customers purchase cell phone service as a
supplement and not a substitute for wireline service.Staff's Memo
, p.
5. This is a most tortured
Qwest does not suggest by this reference that there has only been 3-5% line substitution in Idaho. Record
evidence suggests that the level ofline substitution may be much higher. The FCC cites studies showing that 20%
of residential customers have replaced "some" wireline usage with wireless usage, while 11 % have replaced a
significant" percentage of their use. Tr. 160. Meanwhile Leap Wireless reports that more than one-quarter of their
customers have disconnected their wirelines. Tr,161.10 The court reporter was apparently having some difficulty hearing the exchange. Qwest has quoted the
transcript verbatim and inserted in brackets the words in the question and answer that were obviously intended by
the speakers.11 Qwest will respond to the arguments raised by the Intervenors that certain residence and small business
uses of wirelines do not find substitutes in the offerings of wireless companies in the section of this brief responding
to Intervenors,
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restatement of a position that Staff much more fairly characterized in its memorandum in support
of its request for declaratory ruling12 as follows:
Qwest and the Commission Staffhave significantly different
interpretations of Section 62-622(3), and each approached the case
consistent with its own interpretation of the statute. .. The
interpretation of a relevant statute presents a legal issue solely for
the Commission s resolution. 13
Although Staff attempts in its Memo to presumptively foreclose the debate, it cannot be
allowed to do so. Staff was right the first time when it acknowledged Qwest's evidence is
consistent with its legal interpretation of the statutes. Although Staff disagrees with Qwest's
interpretation, settlement of the debate can only come from the Commission, and perhaps
ultimately the Court, applying the legal standards of statutory interpretation.b. Competitive Pricing.
On the subject of competitive pricing, Staffs superficial approach once again glosses
over the substantial and competent evidence presented by Qwest and blurs legal distinctions, that
if ignored by the Commission, could lead to an erroneous result.
Staff contends Qwest has treated "cell phone attributes" (presumably differences
regarding data transmission) as not relevant to the analysis of functional equivalency, while at
the same time including (presumably other) "cell phone attributes" as relevant to the pricing
issue.14 As discussed in the foregoing section, the first contention is nothing more than a
characterization of the fact that Qwest and Staff disagree as to whether Qwest must prove
effective competition for more than basic local exchange service. If Qwest is right, data
transmission and the other non-voice uses of wire lines are irrelevant to the discussion of
functional equivalence. If, on the other hand, Staffs interpretation is upheld, then and only then
do those topics become relevant. The outcome of that debate may very well determine the
outcome of the case, but Qwest's position on functional equivalence and pricing are entirely
consistent with its interpretation of the statutes.
Qwest's inclusion of "cell phone attributes" in the pricing comparison is consistent with
its interpretation of the relevant statutes because, to satisfy section 62-622(3)(b), Qwest must
Staff's Petition for a DeclaratOlY Ruling/ Memorandum in Support of Petition (April 30, 2003),
Id., p, 10.
Staff's Memo , p. 5 to put it plainly: cell phone attributes when considering functional equivalence, NOT
RELEVANT; cell phone attributes when considering competitively priced, RELEVANT
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pricing is some ploy to divert attention from "unhelpful price comparison information.Staff'
Memo
Instead of giving credence to the statistically valid survey showing how paying customers
actually view the competitiveness of wireless prices, Staff prefers to rely on a "side-by-side
comparison" of prices and rest on its own opinions of what differences are "significant.,,17 This
points to one more faulty assumption inherent in Staff s reliance on side-by-side comparisons to
the exclusion of market evidence: the assumption that these comparisons can actually capture all
of the dynamics of the competitive marketplace in which customers exercise their choices. The
fact is, even when the defects in the methodology are corrected, Staff s witnesses admit side-by-
side comparisons of wireless and wireline pricing are nearly impossible:
Wayne Hart: "I have prepared an analysis comparing wireless
prices with Qwest's rates. However, I must point out that such a
comparison is very difficult as the products are so different and
there are so many different options for each product." Tr. 638.
* * *
Q. BY MS. HOBSON: Now, you will agree with me, will you
not, that in order to do a dollars-and-cents comparison between
wireline and wireless service, you have to make some assumptions
in order to do that?
Too many. Tr. 681.
Ben Johnson: "these services typically have different pricing
structures which makes it difficult to make an 'apples to apples
comparison between particular wireline services and particular
wireless offerings.Tr. 779.
Therefore, the Commission should not be misled into thinking that the side-by-side
comparisons present clear-cut evidence upon which the Commission can confidently rely - to the
exclusion of market data - to decide whether wireless services are competitively priced. As Mr.
Hart would say, such comparisons are based on "too many" assumptions. Tr. 681. These
assumptions range from customer usage levels, to the time-of-day customers call, to their
preferences for a plethora of services and features this Commission has not regulated since 1989.
It would be a mistake to place too much confidence in such comparisons because, as Dr. Johnson
would say, "apples to apples" comparisons are difficult between the price structures of wireless
See, e,, Tr, 639 (Mr. Hart concludes that a $3.50 price difference means wireless service is not
competitively priced.)
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products, which are driven by the market, and Qwest's government-regulated rate structure.
And, it would be a mistake because, as Mr. Teitzel would say, too much that customers value is
left out:
(I)t must be emphasized that these differentials (depicted in
Qwest's Exhibit 19) do not include a comparison of toll revenues.
Many wireless plans include toll calling without incremental
charge for calls that would be assessed toll rates if those same calls
were made by a Qwest wireline customer. If toll calling were
included in this assessment, the net rate differential between Qwest
wireline service and many wireless plans would be reduced further.
It must also be emphasized that these differentials do not place any
monetary value on the mobility of wireless service, an attribute
that many customers would consider when comparing the relative
value of wireless and wireline services.
Tr.410-411.
For all of these reasons, and not because it wished to avoid an allegedly unhelpful
comparison, Qwest provided evidence about how customers perceive the comparison of wireless
to wireline prices. In a scientific, statistically valid survey of the customers who will actually be
affected by price deregulation, Dr. Lincoln found that 55.6 percent of residence customers and
55 percent of business customers find that wireless service costs about the same or less than
wireline service. Exhibits and 10.
Staff seeks to ignore this input from the very customers it purports to represent by
speculating that the respondents answered the question from the standpoint of "use of a cell
phone as a supplemental telephone service, which could be minimized to limit the expense.
Staff's Memo
, p.
6. Of course, Staff offers no evidence to support this assessment that Idaho
customers meant to answer a question that was not presented to them. Once again, had Staff
wished, it could have conducted its own survey to determine whether Idaho customers really
share its view, but Staff chose not to do so.
Both Staff and Qwest ask that the Commission look at the market to really understand
what is happening with competition. Staff wants the Commission to look at the market and see
that only three to five percent of customers have so far actually substituted. Tr. 724. But, of
course, the standard is not whether most customers have already moved to a competitor. The
standard is whether there is a competitor for them to move to if, for example, Qwest uses its
pricing freedom to dramatically increase prices. Qwest asks the Commission to look at the
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market because doing so demonstrates not only that there are several competitors to move to , but
that those competitors already have at least part of the customers' business. Further, these
competitors are aggressively seeking the rest ofIdaho customers' business.18 No one disputes
that there are presently over 600 000 wireless services in operation in Idaho. Tr. 721. That is
roughly three wireless services for every four wire lines in service in Idaho. Tr. 58. If Staff is
right that most wireless customers also have wire line service, that means most Idaho customers
are paying for both wireline and wireless services at the same time. Tr. 720. This, Qwest
submits, puts the question of "competitively priced" in a new, and very different light. The
Commission is not assessing a market in which customers are choosing between services based
on price and looking at those "disparities" that have been so heavily relied by Staff. The
Commission is confronted by a market in which the majority of customers already willingly pay
for both services.
If the Commission steps back for a moment and considers section 62-622(3) as a whole
it will be reminded that the language that has been the focus here i., that there must be a
competitively priced" alternative, is only found in subpart (b). Subpart (b) is one of two
possibilities for demonstrating "effective competition." Subpart (a) does not contain any
requirement about the price of the competitive offering of a "facilities-based competitor.Idaho
Code 62-622(3)(a). So why did the Legislature include this pricing standard for one type of
competition, and not for the other? Common sense dictates that once it moved past the familiar
model of a wireline competitor overbuilding the incumbent's network , the Legislature
endeavored to ensure that whatever technology was offered up as a "functional equivalent" to
basic local exchange service was something the customers could actually afford -something that
provided a real choice. Wireless services certainly fit that description. Even Mr. Hart conceded
that Idaho customers have shown that they can afford wireless service. Tr. 722 I'm assuming
they wouldn t buy it if they didn t think they could afford it.
Qwest expects Staff will argue that customers may feel that they can afford wireless
service at this point because they are minimizing their use and spending most of their time on
their wireline phones where usage is, for the most part, flat-rated. See, e., Staff's Memo
, p.
Putting aside for the moment the fact that Staff offers absolutely no evidence that customers are
See, e., Exhibit 15 (containing Idaho-specific advertisements in which wireless competitors tout their
service as an alternative to local service).
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behaving as Staff speculates, this argument overlooks an obvious fact of checkbook economics:
if customers disconnect their wirelines, then they save a minimum19 of$25.2o (if they are
residence customers) or $41.7421 (if they are business customers), which sums could be used to
offset any increase that additional usage adds to their wireless bills. In fact, shifting all of their
voice usage to their cell phones may actually save many Idaho customers money over what they
are already paying. Under these circumstances, Staff s contention that wireless service is not
competitively priced appears out of touch with customers' reality.
Of course, not every customer is already buying both wireless and wire line service. But
as discussed above, Qwest's Exhibit 19 shows that multiple Idaho wireless competitors offer a
calling plan for local calling at a price within $10.00 of the price of Qwest's service for every
customer class and usage level. Tr. 359. These plans include flat-rated options available to
customers in all seven exchanges that cost only $9.00 per month more than Qwest's basic
service. Tr, 359 Exhibit 19. While no one expects that every Idaho customer will prefer
wireless to basic local exchange service, the point is that such wireless options present actual
viable choice to customers because they offer two-way interactive switched voice
communications, and they offer that capability in a mobile form. And, as Staff points out
mobility has proved valuable to Idaho customers. Tr. 721-722. The existence of such choice is
the key because the existence of choice will constrain Qwest's prices.
Qwest urges the Commission to look at the price differences shown on methodologically
sound comparison such as Exhibit 19, in the broader context of actual customer reaction to
wireless services in the marketplace. Doing so points out that the differences in wireless and
wire line prices are not significant and do not dissuade most Idaho customers from buying
wireless service. In fact, the majority of Idaho customers buy both services. While customers
may still choose to keep their wire line phone, it cannot be concluded that customers who buy
both services are doing so because they are trying to save money.
Since many customers subscribe to custom calling features or use toll services, and since many wireless
plans include these services at no additional price, disconnecting wireline services may actually save more than the
line cost.
20 Exhibit 20, p. 1 (assumes Qwest flat rate for residence service plus applicable taxes and surcharges).
ld at p.
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RESPONSE TO INTERVENORS
In contrast to the Staff s efforts, the Intervenors made a straightforward presentation of
concerns from the standpoint of Idaho customers that could be affected by price deregulation.
Qwest welcomes the opportunity to discuss these concerns and to point out that, while Qwest
considers every customer s view important, the points raised by the Intervenors do not support
rejection of the application. More importantly, Qwest will show that rejection of Qwest's
application is not necessary to provide the protections and assurances that the Intervenors seek in
this case.
Wireless services offer a viable choice for residence basic local exchange service
customers.
The positions of Intervenors, like those of Staff, are colored by their belief that Qwest
must demonstrate effective competition for services that are not basic local exchange service.
Hence, the Intervenors argue, that "$26 for a landline buys much more than voice. . . it buys data
transmission, phone system and extension phone operations, and a permanent phone number.
Intervenors ' Memo
, pp.
5. Qwest leaves to the Commission the question of interpretation of
the relevant statutes and with it, the question whether data transmission is an appropriate part of
the analysis. Further, Qwest will address the "phone system" operations below in the context of
business customers. The concerns raised on behalf of residence customers are the operation of
extension phones, number portability and directory listings.
Intervenors are simply incorrect that wireless phones will not operate extension phones.
Mr. Teitzel testified concerning the availability in the Idaho market of "docking station" devices
that allow wireless customers to insert their cell phones in a device "enabling incoming calls to
the wireless phone to be answered by any extension phone in the house or business.Tr.437.
Mr. Teitzel further pointed out that outgoing calls may be made from any extension phone with
this arrangement. Id. Hence Intervenors ' Memo is mistaken when it asserts
, "
cell phone
technology will not operate most home phone extension systems.Intervenors ' Memo
, p.
The docking stations described by Mr. Teitzel do just that. Although not all cell phones will
operate in a docking station at this time, customers concerned about this particular adaptation of
wireless technology can select a wireless provider that offers this technology. Furthermore, as
Mr. Teitzel also testified, wireless providers and business analysts acknowledge that "in-building
coverage" for wireless phones is a strategic focus of wireless providers now and in the
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immediate future. Tr. 447. This means customers will have increasing options for adaptation of
wireless technology to their home and small business needs.
The concern that residence (and small business) customers will not be able to retain their
permanent" telephone number should they decide to switch to wireless is also based on a
mistake of fact. Qwest is fully capable of providing number portability to wireless carriers (Tr.
391), and the FCC has established a November 24 2003 deadline for implementation of number
portability by wireless carriers. !d. While this date is months in the future, Qwest's offer to cap
its line prices for small business and residence customers through the end of 2004 protects
customers from even the theoretical possibility of price increases during the period in which
number portability to wireless carriers is unavailable to them.
Finally, wireless customers who wish to publish their numbers in a directory have the
option of purchasing a listing at modest cost. Tr. 362-363. For business customers who may
rely on directory listings to attract customers, such a purchase may be a necessary cost of doing
business. However, the cost is small, particularly when it is remembered that many multi-line
small business customers wish to publish only o~e of the numbers assigned to their accounts.
addition, many businesses who rely on incoming calls already pay substantial monthly sums for
directory advertising. For example, Illtervenor Gary Neal's law firm has three separate
advertisements in the current Boise QwestDex directory. The addition of another $6.00 charge
to also publish a wireless number in the business white pages would make a small difference to
the law firm s costs for directory services.
Residence customers do not have the same needs or preferences when it comes to
publishing their telephone numbers. Many Qwest customers seek to preserve their privacy by
purchasing premium listing services that prevent their numbers from being published or provided
by directory assistance operators. More seek to limit access to their numbers for commercial
purposes by putting them on "Do Not Call" lists like that offered by the Idaho Attorney General.
The Commission should not assume that simply because a directory listing has long been
bundled with basic local exchange service that customers prefer the continuation of that practice.
To the extent that they do, however, it is an option that wireless service customers can choose.
Wireless service offers a reasonable option for nearly every residence basic local
exchange service customer. However, to the extent that some customers prefer not to use
wireless services, Qwest's basic local exchange service will still be available to them. Further
QWEST CORPORATION'S POST-HEARING REPLY BRIEF - Page 16
Boise-159185.10029164-00087
as will be explained in more detail below, even after the expiration of Qwest's voluntary price
freeze, competition from wireless services will ensure that Qwest offers quality wireline service
at reasonable prices. To do otherwise would be to drive customers to competitors and would be
contrary to Qwest's interests in remaining a viable business.
The concerns expressed by Intervenors for small business customers do not
demonstrate that Qwest has failed to satisfy the "effective competition" standard of
section 62-622(3).
The primary thrust of the Intervenors' objections to Qwest's application is that multi-line
small businesses cannot operate as they do today using wireless technology. See, e.
g.,
Intervenors ' Memo
, p.
6. Although Qwest offered evidence to the contrary, for purposes of this
discussion only, Qwest will assume that wireless technology does not provide a viable
competitive alternative for (i) operation of facsimile machines, (ii) operation of "key" systems or
other small business configurations that utilize "hunting" or "rollover " and (iii) operation of
digital subscriber line service (DSL). Even so, Qwest complies with the requirements of sections
62-602(2) and 62-622(3) in that it has shown that "effective competition" involving "
significant number of customers having both service provider and service options" exists for its
basic local exchange service throughout the seven exchanges. Qwest will explain.
First, it must be noted that two of the three applications relied on by the Intervenors-
operation of facsimile machines and DSL - involve data, not voice, uses of the network. If the
Commission upholds Qwest's interpretation of the statutes, these two issues, although important
from the standpoint of customer relations, become irrelevant to the statutory analysis and cannot
be used as a basis for rejection of Qwest's application.
The remaining issue of small business phone systems must be put into some perspective
in relation to small business customers in general. Although the exact numbers are not well-
established in the record, it does appear that there are approximately 26 000 small business
customers represented in the seven exchanges.22 Intervenors claim that Mr. Hart "did testify
without objection that more than 50% of the business customers subscribe to more than one
line.Intervenors ' Memo
, p.
6. In fact, what Mr. Hart testified was
, "
I would estimate that
In making this statement, Qwest relies, as do the Intervenors, on the testimony of Dr. Lincoln in stating that
the pool for respondents for the small business portion of his survey consisted of"183 small business billing
phone numbers (rollovers and multiple lines eliminated).Tr.231.
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about 50 percent of business customers subscribe to more than one line." 23
Tr. 729. Taking Mr.
Hart's estimate for the sake of argument, this means that 50 percent of small business customers
have only one line. For these customers, the discussion about operation of "business phone
systems" is meaningless. Single line small business customers are in exactly the same position
as residence customers when it comes to wireless options - except that the economics of
disconnecting a business phone line in favor of a wireless service are more favorable because
they can eliminate a larger expense.24 Qwest submits that this 50 percent of small business
customers represents "a significant number of customers having both business service provider
and service option choices" and therefore meets the standard, of "effective competition.Idaho
Code 9962-602(2); 62-622(3).
Qwest's position is supported by precedent. In the Burley case, Commissioner Smith
wrote in the dissent
, "
thirty percent is a significant number of customers, especially when you
consider that no one expects that 100% of customers will have this option.25 The majority
wrote
, "
it is difficult to foresee circumstances where competition could be deemed effective and
throughout the local exchange calling area where less than half the customers have a choice of
provider.26 It is consistent with both of these prior interpretations ofthe statute that where 50
percent of customers have a choice, the standard has been met. However, the record actually
shows that more than 50 percent of small business customers have choice.
Intervenors seem to assume all small businesses with more than one line operate like Mr.
Neal's law firm27 in which all lines come into a "system" and operate in "rollover" so that a
receptionist can answer all calls and forward them to the right recipient. Tr. 548-549. However
the record created by Intervenors' own witnesses contradicts their assumption that all multi-line
small business customers use such a system. For example, Mr. Sales testified that in the small
It is unfortunate that neither Intervenors nor Staff sought discovery on these points so that the Commission
might have better evidence than these estimates, but the point can still be made.
24 See section, A.b. above.
Burley Order, dissent
, p.
Id" p. 12 (emphasis added).
Intervenors also seem to assume that all businesses keep the same hours and place the same priority on
answering the telephone. Hence they argue that since "33% didn't answer the phone " there is something wrong
with Dr. Lincoln s survey. (Intervenors ' Memo
, p.
10). Contrary to Intervenors' understanding, Dr. Lincoln
Exhibit 6 does not show that 33 percent of businesses did not answer "after 3 separate calls.Id. Instead it shows
that 33 percent of call attempts were not answered. Exhibit
, p,
1. The potential explanations for this are numerous
including that the business is open at night and not during the day (restaurants; bars), the business is only open part-
time (galleries; decorator shops), or the business operator was serving a live customer or otherwise too busy to
answer the phone.
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business he operated
, "
I had one land line for the phone, one fax line that operated my internet
and fax machine, and a cell phone.Tr. 599. Similarly, Mr. Chattin testified
, "
I have a land line
a land line that operates my DSL and our fax machine, and a cell phone.Tr. 570. Each of these
customers have more than one wireline, but they do not have "systems" that will not operate with
wireless technology. Nor is there any reason to assume the experience of Messrs. Sales and
Chattin is any less representative of small business customers, than that ofMr. Neal. The record
contains evidence of how many business "systems" are being used in the present market in
the seven exchanges, but the record is clear that the number of small business customers using
them is less than the "majority" that Intervenors ask the Commission to assume.
Furthermore, it is not accurate to assume that even small businesses like Mr. Neal's law
firm are totally without choice of wireless providers. Although Qwest has conceded for purposes
of this discussion only that wireless technology cannot efficiently operate Mr. Neal's current
phone system, it does not follow that the law firm could not exercise its competitive options and
eliminate some of its reliance upon Qwest's wireline service if it wished , for example, to avoid
hypothetical price increases. To illustrate, Mr. Neal testified that the firm purchases four lines
from Qwest that operate in rotation. Tr.547. He also testified that each of the four attorneys in
the office have a cell phone. Tr. 547; 562. Ifthe attorneys simply adopted the practice of
placing their outgoing calls using their wireless services, the law firm could likely eliminate the
need for one or more of its lines. The business system would still operate to take incoming calls
and route them from a single number to the appropriate attorney, but there would be no need to
maintain wirelines for outgoing calls. If the firm wanted to get more aggressive about
eliminating lines, the attorneys could provide their individual cell numbers to clients who call
frequently. If even one line were eliminated, Qwest would have lost 25 percent of the Neal law
firm s business. This pattern, repeated throughout the small business community, would mean
even those customers who at first appear to be "captive" because of their use of small business
systems, could actually have a huge competitive impact on Qwest.
Furthermore, as Qwest pointed out in its Opening Brief 29 even if some customers do not
have wireless options to meet all of their needs, they do not need to rely upon Commission price
regulation to protect them from being harmed by price increases or poor service. Qwest has
Intervenors ' Memo
, p.
the majority of small business customers have multiple lines, which cell phone
technology cannot operate.
29 See, Qwest s Opening Brief, pp. J 8-20.
QWEST CORPORATION'S POST-HEARING REPLY BRIEF- Page
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successfully shown that a "significant number of customers" have options. Idaho Code 9 62-
602(2). The statutes do not require that Qwest show all customers have options for good reason.
A significant number of customers exercising their options is adequate to constrain the
incumbent's price. As Mr. Schmit testified
, "
I can t afford to lose the 30, 45 or 60 percent of our
market" who would move to a competitor if Qwest significantly increased prices. Tr. 540.
These price constraints are even more effective where, as here, Qwest cannot identify those
customers who are using their wirelines in a fashion that does not lend itself to ready substitution
by wireless services. Tr. 726.
This, then, is a much different situation than in the Burley case where the majority found
that a geographically identifiable 70 percent of customers had no choice of service providers.
In that case, the Commission found that "the economic incentive to ignore those areas where no
competition or regulation exists" could jeopardize "the availability of high quality universal
service at just and reasonable rates.31 But here the incentives drive the opposite conclusion.
Since Qwest cannot identify "areas where no competition or regulation exists" it is forced to act
as if every line is vulnerable to competition. Qwest cannot assume that small business customers
will not shift some or all of their usage onto wireless service and eliminate lines. Instead, it must
assume all customers have options and attempt to retain customers with high quality service
innovative service alTangements, and reasonable prices. That is what it means to be in a
competitive market. The Company simply cannot force big price increases or poor service on
the small business customers who are the focus of the Intervenors' concerns because to do so
would be a serious business mistake from which Qwest might not recover.
CONCLUSION
Based upon the foregoing reply, as well as Qwest's previously submitted briefs and the
entire record herein, Qwest respectively requests that the Commission approve its application for
price deregulation.
Burley Order p. 10.
Id,
QWEST CORPORATION'S POST-HEARING REPLY BRIEF - Page 20
Boise-159185.10029164-00087
Respectfully submitted this 11th day of July, 2003.
Qwest Corporation
!::J!i
Stoel Rives LLP
Adam L. Sherr
Qwest Corporation
Attorneys for Qwest Corporation
QWEST CORPORATION'S POST-HEARING REPLY BRIEF - Page 21
Boise-159185.10029164-00087
CERTIFICATE OF SERVICE
I hereby certify that on this 11 th day of July, 2003
, I served the foregoing QWEST
CORPORATION'S POST-HEARING REPLY BRIEF 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((ypuc. state.id. us
Executed protective agreement
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
Hand Delivery
U. S. Mail
Overnight Delivery
Facsimile
Email
Hand Delivery
U. S. Mail
Overnight Delivery
Facsimile
Email
Hand Delivery
~ U.Mail
Overnight Delivery
Facsimile
Email
Hand Delivery
U. S. Mail
Overnight Delivery
Facsimile
Email
QWEST CORPORATION'S POST-HEARING REPLY BRIEF - Page 22
Boise-159185.10029164-00087
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 World Com, Inc.
Attorneys for AT&T
Attorneys for Time Warner Telecom
Executed protective agreement
Hand Delivery
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Dean Randall
Verizon Northwest Inc.
17933 NW Evergreen Parkway
Beaverton, OR 97006-7438
dean. rand all ~v erizon. com
Executed protective agreement
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Mary Jane Rasher
10005 South Gwendelyn Lane
Highlands Ranch, CO 80129-6217
Telephone: [phone]
mirasher~msn.com
Hand Delivery
U. S. Mail
Overnight Delivery
Facsimile
Email
Adam Sherr
Qwest
1600 7th Avenue - Room 3206
Seattle, W A 98191
Telephone: [phone]
Facsimile: [phone]
asherr~qwest.com
Hand Delivery
U. S. Mail
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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~twtelecom.com
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Email
QWEST CORPORATION'S POST-HEARING REPLY BRIEF - Page 23
Boise-159185.10029164-00087
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]
Facsimile: [phone]
cew~gi venspursley .com
Attorneys for Idaho Telephone Association
Executed protective agreement
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Brandi L. Gearhart, PLS
Legal Secretary to Mary S. Hobson
Stoel Rives LLP
QWEST CORPORATION'S POST-HEARING REPLY BRIEF - Page 24
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