20030320Hart Direct.pdf

Please state your name and addressMy name is Wayne Hart My business address is472 West Washington, Boise, Idaho, 83702By whom are you employed, and in what capaci ty?I am employed by the Idaho Public utili tiesCommission (IPUC; Commission) as a TelecommunicationsAnalyst in the Telecommunications Section.What yourreceivedfrom the Uni versi ty educational background?Master s Degree in BacteriologyWisconsin in Madison, Wisconsin,and a Bachelor s Degree in Biological Sciences fromIndiana Uni versi ty in Bloomington, Indiana.Please outline your experience that is relevant
to your testimony.
I have conducted Staff's analysis for telephone
cases involving Qwest' s 271 application, rate cases,
payphones, extended area service, tariffs and price
lists, and Certificates of Public Convenience and
Necessi ty since joining the Telecommunications Section
March of 1997 I served as Staff's representative
some of the recent mul ti-state proceedings regarding
Qwest's 271 application, including the third party test
of the Company s ass systems I served as a Utilities
Compliance Investigator for three years prior to that,
and handled nearly 2500 complaints, comments and
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HART W (Di)Staff
inquiries, wi th over 1500 of those involvingtelecommunications issues I served on Staff's team thatperformed a service quality audit of U S WEST in 1995 and1996 for Case No . USW-S-95-4Have you previously testified before thisCommission?Yes I presented testimony in U S WEST's ratecase, Case No USW-T-96-5, as well as in Idaho Powergeneral rate case, Case No . IPC-E-94-5 I also presentedtestimony in Extended Area Service casesPlease provide a brief description of thiscaseQwest Corporation filed an application for
deregulation of its rates for basic local exchange
service in its Boise, Nampa, Caldwell, Meridian, Twin
Falls, Idaho Falls, and Pocatello exchanges, in
accordance with Title 62-622 (3) (b) Qwest s application
asserts that effective competi tion exists in the seven
identified exchanges from wireless (cellular) telephone
providers Qwest asserts the wireless service is
functionally equivalent and competitively priced local
exchange service reasonably available to both residential
and small business customers
About two-thirds of Qwest' s total residential and
business lines would be impacted if Qwest' s petition were
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granted.What is the purpose of your testimony in thisproceeding?I will present an overview of why Staff cannotsupport the Company s application, plus present thedetails of our analysis in some cri tical areasWhat is Staff's general conclusion based on itsanalysis?Staff believes the Company has failed to meetthe statutory standards required for deregulation,speci fically:The Company has failed to demonstrate thatwireless service is competitively priced.I f a comparable volume of calling minutes
used, most wireless plans are prohibitively
expenSl ve
The Company has failed to demonstrate that
wireless service is functionally equivalent
to Qwest' s wireline service
As a resul t of the statutory requirements
not being met, the Company has failed
demonstrate that wireless competition
sufficient to effectively replace regulation
in protecting the public from Qwest' s
monopoly posi tion in the provision of local
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HART (Di)Staff
servlcesTherefore the approval of the application is not inthe public interest, and the application should denied.Limi tation to Voice Communication is InappropriateWhat are the provisions of the statute underwhich Qwest filed its application?Idaho Code 62- 622 (3) (b) requires theCommission to "cease regulating basic local exchangerates in a local exchange calling area upon a showing byan incumbent telephone corporation that effectivecompetition exists for basic local exchange servicethroughout the local exchange area.Paragraph (b) of
the section provides the standard Qwest must meet
demonstrate that "effective competition " exists
throughout the local exchange calling area.Essentially,
the statute provides that effective competi tion exists if
there are "local services " that are "functionally
equivalent", and are also "competitively priced.
Is it appropriate under this statute for the
Commission to limit its review to a comparison of two-
way, swi tched voice communication services, and not
consider what other features or functions may be a part
of the "local services " claimed to be providing
effective competition?"
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I don t believe it is First, the very idea ofsubparagraph (b)is to make a comparison of two servicesthat are not identical The legislature apparentlycontemplated that services that are not technically thesame as those provided by a facilities based competitornonetheless could be enough like it that it might serveas a reasonable substi tute The term used in the statuteis "functionally equivalent In comparing the differentfunctions of two different services, al though it important to review their similari ties to determine one is a substi tute for the other, it is also necessaryto compare their differences It seems to me comparison to determine whether two different servicesarefunctionally equivalent" would be incomplete and
seriously flawed if all that was compared was their
identical functions and uses
Second, the structure of the statute supports
review of different functions when the Commission
comparing services to determine if they are "functionally
equivalent
. "
The legislature used the term "basic local
exchange services " nine times in Section 62- 622, and once
in paragraph (3) of the section.Yet in subparagraph
(b), the legislature used the term local services " when
defining the services that must be functionally
equivalent and competitively priced.I believe the
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legislature s selection of terms was deliberate anddirects a review of the full functions of the twoservices to determine whether one is "functionallyequivalent" to the other.If the legislature wanted limi t the Commission s comparison to whether they bothprovide two-way, swi tched voice communication services,it could have said that in subparagraph (b)Is there anything else in the statutesapplicable to this case that supports your conclusionthat the Commission should consider all functions andfeatures of the two services in determining whether theyare "functionally equivalent?"Yes, I believe there is Idaho Code 62-
602 (3) requires the Commission, "in its deliberation
deregulation of the incumbent telephone corporations,
(toJ examine the impact such deregulation will have on
the public interest in accordance wi th the general grant
of authori ty given to the commission by the legislature
It seems to me public interest concerns require the
Commission to review the status of the competi ti
telecommunications market, at least in the exchanges
included in the application for deregulation.In this
case, that would include an analysis of whether
competi tion from wireless providers really can be an
effective control on Qwest' s abili ty to raise its rates
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for basic local services Wi thout considering thedifferent features of wireless and wireline services -such as mobility, 911 information, number portability,access to the Internet and data, availabili ty extension handsets, access to PBXs and TTYs, businessfeatures such as rollover - it would not be possible understand purchasing decisions being made by customersWireless Service Is Not Competi ti vely PricedAre wireless services competitively pricedcompared to Qwest' s basic local exchange services?The market has clearly spoken on thislssueAccording to Qwest' s own evidence, it estimated only 3-5% of wireline customers have chosen to
replace their wireline service wi th wireless service
is not competi ti vely priced for the overwhelming maj ori ty
of customers for use as a substi tute for wireline
serVlce Wireless service remains a supplement to,
rather than a replacement for, wireline service for most
wireless customers
Have you compared the prices of the various
carriers wi th the prices of Qwest' s basic local exchange
service and determined that it is not competi ti vely
priced?
Yes, I have prepared an analysis comparing
wireless prices wi th Qwest' s rates However, I must
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point out that such a comparison is very difficul t as theproducts are so different and there are so many differentoptions for each product Wi th that as a caveat, myanalysis reveals that for the maj ori ty of bothresidential and business customers, wireless servicewould be significantly more expensive than the price ofQwest's basic local serviceQwest witness Lincoln claimed wireless planswere competitively priced with Qwest' s service Do yo uagree?Dr. Lincoln s analysis did not accuratelyreflect the actual amount of usage of the maj ori ty Qwest's customers For most wireless plans, when
typical wireline user amount of minutes is included, the
cost becomes significantly more than Qwest' s
Addi tionally, in the only comparison that Dr. Lincoln
made between Qwest's flat rated service and a flat rated
wireless plan, his "premium " group, Dr. Lincoln made the
comparison between two feature laden products that also
do not represent the maj ori ty of Qwest' s customers, and
probably not of the wireless company as well
I f you were to use the examples in Dr.
Lincoln s testimony wi th the appropriate amount of usage
and wi thout features, how would that change the resul ts?
Based upon confidential information provided by
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Qwest, I calculated an amount of peak usage minutes thatwould correspond to low, median and high usage customerfor both residential and business classes of service, andfor both measured and flat rated service I then cho s ethe least cost wireless plan offered by each wirelesscarrier that would provide enough minutes to satisfy theamount of peak or anytime minutes for each customerprofileI then compared the same carriers used in Dr.Lincoln s testimony, but wi th more appropriate amounts ofusageI consider the median amount of usage on a Qwestmeasured service line to be the appropriate usage for comparison using Dr. Lincoln s "economy " plan.Mobile s least expensive plan wi th enough minutes satisfy the peak usage of a median measured residential
user is its Talk and Text plan, at $29 95 per month.
That is more than $13 a month more expensive than Qwest'
measured residential rate of $16 51, which includes the
base rate of $10 51 and the federal subscriber line
charge of $ 6 I don t believe that to be
competitively priced.
What about Dr. Lincoln s "Standard Plan?"
In this case, the wireless carrier is AT&T, and
I believe the appropriate comparison is wi th a median
usage flat rated residential customer.AT&T's least
expensive plan that provides enough peak or anytime
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minutes to satisfy the demands of a median usage flatratedresidentialcustomer duringLocalthisplan would be $114 99,than the peak period is it'1400 plan, wi th extra minutes The monthly cost ofor a whopping $ 91 .49 moreQwest's flat rated service at $23 50, which includesthe base rate of $1 7 .50 plus $ 6 00 for the subscriberine charge This is clearly not cost competitiveAnd what about the "Premium Plan?"For this comparison, the profile of a highusage customer is appropriate, and both plans in Qwest' comparison are flat rated and come wi th unlimi tedminutesCricket's lowest price plan is $32 99 permonth, or nearly $10 a month more than Qwest's flat ratedresidential service at $23 Again, I do not consider
that to be price competitive
Are these the only plans you have analyzed?
My analysis of the myriad of packages
the various wireless carriers shows that for vast
maj ori ty of users, there remains a considerable
difference between Qwest' s rates and those of all of the
available wireless carriers
What are the specific results of your analysis?
Confidential Exhibi t No 1 01 shows the rates
for lowest price plans from each of the nine carriers
serving these seven exchanges for six patterns of local
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usage for both residential and business customers Themethods that I used for determining the usage patternsand other aspects of the analysis are also included Confidential Exhibit No 1 01 In more than threequarters of the cases for residential users, the cost ofthe lowest cost comparable wireless plan is more than $20greater than Qwest' s rates In seven cases, thedifference is more than one hundred dollars There isonly one case where the wireless rates are notsignificantly higher than the corresponding Qwest rates,the case wi th no local usage The resul ts for all thecarriers in that column, however, and the similar columnfor businesses must be qualified.The information upon
which my analysis was based only included originating
local minutes, customers wi th terminating or long
distance minutes would have been categorized as having no
local usage If the customer actually does not have any
local terminating or long distance usage, an unusual
occurrence, the resul ts in the two columns are accurate
However, if they did have terminating or long distance
usage, they would have incurred minutes that would have
increased wireless costs, increasing the difference
between wireless and Qwest' s costs even more
What about business customers?
Eve n wit h Qwe s t' s h i g her bus i n e s s rat e s ,
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wireless rates are higher than the Qwest rates for morethan 80% of the usage categories Wireless carriersrates are less only when the usage is low, or in the caseof the lowest priced flat rated wireless plansWhat are the resul ts for the cases thatrepresent the maj ori ty of residential customers?The calling patterns that represent themaj ori ty of residential customers are the last twoc 0 1 umn s 0 f Con f ide n t i al E x h i bit No 1 0 1 .These aretypically the columns wi th the greatest dispari ties Thesmallest differences, at just under $10 per month, arethose of the wireless plans wi th unlimi ted local minutesthat are available only in the Treasure and Magic
Valleys The smallest difference for customers
Pocatello or Idaho Falls is $16 The plans of the
maj or nationwide carriers are clearly much more
expensive, wi th differences that often exceed one hundred
dollars a month.
Are there other concerns about the service of
the carrier s offering unlimi ted local calling?
Yes As Dr. Johnson points out, the financial
viability of these plans carriers is questionable
addi tion, as I will outline later, we have concerns about
the qua Ii ty of service provided by these carriers
Many wireless plans include bundles of long
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distance minutesbundl e of minutesForsome Wouldn t the availabili ty of suchmake a difference to the analysis?con s um e r s , i t m i g h t , but for theaverage user, wireless is still more expensiveHow can that be the case?The plans chosen for the local usage comparisonwere the cheapest plans available from the wirelesscarriers, and those often don t include long distanceWireless plans wi th long distance are more expensive, the difference between Qwest' s rates and wireless ratesgets even greater.Wi th wireline long distance rates low as they are, the average customer does not spendenough on long distance to make up the difference
Exhibi t No 1 02 shows the comparison in prices using both
Qwest's long distance and local rates wi th the wireless
plans that offer free nationwide long distance As shown
in Exhibi t No 02, wireless rates for every carrier
ex c e e d Qwe s t' s res ide n t i aI r ate s , w h i 1 e on 1 y the f 1 a
rated wireless plans offer a savings for the average
business customer.
What happens when a wireless customer exceeds
the included free long distance minutes?
Wireless carriers charge a relatively high per
minute rate for long distance, typically twenty cents or
more per minute, for all long distance calls in excess of
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any included minutes In addi tion, if a customer exceedstheir bundled wireless minutes, long distance minutes areassessed both long distance and excess minute charges,which are as much as 45 cents per minute, making thetotal cost of such minutes as much as 65 cents a minuteAre there other considerations that diminishthe value of the included long distance minutes?Yes Wireline customers are able to choose thecarrier they wish to use for long distance service, andhave many carriers from which to choose Wirelesscarriers do not offer such a choiceWhat about the value of Caller ID and otherfeatures that typically come wi th wireless service?Such features clearly have some value to some
consumers, but exactly how much is impossible to say.
For its comparison, Qwest' s analysis assumed a value that
was equal to its retail price for such services Qwest'
assumption discounts the price of basic wireless to make
i t look more competi ti ve wi th Qwes t' s rates I don
believe the maj ori ty of wireless or wireline customers
would place such a high value on those features It
important to note that such features can be provided by
Qwest at essentially no incremental cost, and that there
is no regulatory restriction preventing the Company from
doing so
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On what basis do you claim they can be providedat essentially no incremental cost?The FCC basically said as much in its ruling onthe wholesale prices LECs could charge for these serviceswhen provided to a competi tor as an unbundled networkelement in Order No . FCC 96-325Are there times when unexpected charges areincurred by wireless customers?Yes Sometimes a wireless customer s call carried by another company, even though they are locatedin their home area or even in their home Thi s canhappen when the customer s carrier s network is busy, orwhen its signal is blocked by something and anothercarriers signal is stronger.In these cases, the
customer often incurs roaming and/ or long distance
charges that they normally would not have expected.
In its testimony, the Company claimed that the
availabili ty of directory listings could not be used as
reason for not considering wireless service to be
functionally equivalent, as a wireless customer can
purchase a directory listing.Does this impact the
competitively priced analysis?
Yes, Qwest' s price for a directory listing for
wireless customers is $1 50 per month for residential
customers and $ 6 00 a month for business customers
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you can see from Confidential Exhibi t No 01, when youinclude the cost of this directory listing, the dispari between wireless and Qwest is even greater.Wireless prices have come down in recent yearsIsnt it just a matter of time until these differencesare gone?Not necessarily.There are indications thatthe current wireless prices are not sustainable, and thatcarriers are starting to increase rates The articlefrom The Wall street Journal Online from February 18,2003 (Exhibit No . 103) shows that AT&T and T-Mobile haverecently reduced the amount of minutes in their mostpopular plans, effectively raising their rates
What can you conclude from these resul ts?
There is a great enough difference between
current Qwest prices and the current wireless prices that
wireless service is not competitively priced for the vast
maj ori ty of customers and would not be an effective
regulator of Qwest's rates
Wireless Service Is Not Functionally Equivalent
Why is wireless service not functionally
equivalent to the wireline service provided by Qwest?
Dr. Johnson addresses this question in detail
and identifies ten key attributes of wireline service
that distinguishes it from wireless service I will
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expand on a few of those, starting wi th service quali ty.What are the service quali ty concerns?Qwest's wireline network, as do all of thewireline networks in Idaho, provides remarkable quality.Pick up a phone and before it reaches your ear, the dialtone is present and is ready for use Dial a call and essentially always goes through.Once connected, a callstays connected.The wireline network is maintained suchthat 99 99% of calls are completed reliably.Thewireless network cannot even approach that standard.February 2002 Feature Report of ConsumerReports org(Exhibi t No 04) ci ted a study that indicated 2 %chance of failure in completing a two minute call That
is more than two orders of magni tude in difference wi
wireline service On page 12 of the February 2003, issue
of Consumer Reports (Exhibi t No 1 07), a wireless
industry spokesman, Travis Larson, is quoted as saying,
Consumers know when they pick up a wireless phone
they re making a trade-off between mobili ty and service
quality
" .
Dropped calls, dead spots, busy signals and
fading coverage inside buildings are some of the problems
the FCC warned about in a brochure it put out to help
educate consumers (Exhibi t No 05, page 3 and page 5)
Articles warning potential customers about the problems
wi th wireless service quali ty are easy to find (Exhibi t
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. 106)The February 2003 issue of Consumer Reportsincluded the results of a survey of nearly 22,000wireless subscribers, and the article indicated customersatisfaction wi th wireless carriers was lower than wi any other business or services it rates (Exhibit No107, page 15)You mentioned a concern about the servicequali ty of the wireless carriers offering unlimi ted localcalling.Wha t is tha t concern?Conversations wi th students and young adul ts,including my stepson, that subscribe to Cricket service,the flat rated service available in the Treasure Valley,revealed complaints about poor service quali ty, including
delayed dialing, inability to success fully place calls,
dropped calls, and poor voice quali ty.Such problems
occurred most frequently during periods one might
associate wi th high volumes of use, such as Friday
afternoon.
Has Staff done anything to verify the accuracy
of these claims?
Yes, on the afternoon of Monday, March 17
between three and six in the afternoon, Staff placed
total of fifty separate calls using a Cricket phone
Forty of the calls were completed only far enough
verify the ringing of the called wireline phone Ten of
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the calls were answered and followed by a shortconversation.The most serious problem was wi th one ofthe ten conversation calls That call was cut offprematurely in the middle of the conversation and theconnection had to be re-established.There were noproblems wi th the other nine conversation callsThe time between pressing the send button onthe wireless handset and the ringing of the wirelinephone was measured for the other forty calls, and thetypical elapsed time was between seven and twelvesecondsHowever, for three of the forty calls, the timebetween send and ring was over twenty secondsWhat do you conclude from these resul ts?While this sampling is small, I believe it
sufficient to be generally considered statistically
significant These are exactly the types of problems
that you would expect from a congested network.This is
clearly not the quali ty you expect and receive from the
wireline network.As described in Dr. Johnson
testimony, one of the fundamental differences between
these two technologies is the cost of usage While
wireline networks do not incur significant extra costs on
a per minute of use basis, the exact opposi te is the case
for wireless carriers It is very probable that no
wireless carrier can afford to offer the same level of
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quality as a wireline carrier, but it is almost certainty that a carrier that offers unlimi ted usagecannot afford to provide that level of quali ty.Customers of flat rated wireless service must either makea trade-off between the convenience and features offeredby wireless carriers for the difference in quali provided by a wireline carrier, or use both.What is the limi tation regarding 911?Don911 calls from wireless customers get routed to the rightplace?Basic 911, which simply involves the routing ofthe call to the public safety answering point (PSAP) provided by wireless carriers The February 2003 issue
of Consumer Reports (Exhibi t No 07, pages 12-14)
included a study that identified some problems in the
ability of wireless carriers to correctly complete a call
to 911 SAP.In an online survey, more than 10% of
respondents claimed some problems in reaching a PSAP wi
a wireless phone Consumer s Union, the publisher of
Consumer Reports, tested the 911 system in two trials and
confirmed some of the problems reported by users While
the problems identified by the Consumer s Union trials
are primarily associated wi th mobili ty and placing 911
calls away from a home, something that is not possible
wi th a wireline phone, the same problems can occur due to
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network congestion or signal blockage due to weathercondi tions, which can impact use of a wireless phone frominside a homeWhat about E-911?All of the seven exchanges identified in thisapplication are primarily located in areas that haveimplemented Enhanced or E-911 for wireline customers,which also includes the provision of the name andlocation information to the PSAP.Wireless carriers arenot providing this enhanced information to the IdahoPSAPs in these exchangesWhat is the status of wireless E-911 in Idaho?For the most part, the PSAPs in Idaho have not
yet implemented ei ther Phase I, which includes the name
of the subscriber and the location of the tower that
received the signal or Phase I I, which includes the
actual location of the caller, of wireless E-911
According to a representative of the Ada County Sheriff'
Department, Ada County started implementing Phase I wi
T-Mobile and AT&T Wireless, but due to funding concerns,
those efforts have been placed on hold.None of the
other carriers serving Ada County had started
implementing Phase I None of the other counties in the
exchanges in Qwest' s peti tion have implemented Phase I,
al though the Southern Idaho Regional Communications
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Center, which serves four counties, including Twin Falls,is prepared to do so once funding issues are resolved.None of the PSAPs in these seven exchanges has even madea request of a carrier for Phase II implementation.What is number portabili ty and why is itimportant?Number portabili ty is the abili ty to keep thesame telephone number when a customer changes from oneprovider to another.Forcing a customer to changetelephone numbers when they swi tch from one provider another is considered anti-competi ti ve, and the FCCimposed local number portabili ty on both wireline andwireless carriers following enactment of the federal
Telecommunications Act in 1996 All wireline carriers
must implement number portability upon the request of
competitor, and Qwest has completed its implementation
local number portabili ty for wireline service in these
seven exchanges However, wireless carriers have sought
and received numerous delays to the FCC imposed deadlines
for implementing number portabili ty, and have peti tioned
the FCC for a delay in the current deadline of November
2003
How does the lack of number portabili
constrain competition?
Changing a telephone number is not something
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customers do lightly.At best, it is extremelyinconvenient, and at worst, it can involve significantexpenseAll the people that have been provided wi th theold number must be informed of the new number.Anystationary, labels, brochures, advertising, etc. wi th theold number must be replaced.Comments received fromIdahoans in the recent area code case (GNR-T-00-3 indicated these expenses could exceed a thousand dollarsI f a potential customer has to change numbers in order toswi tch carriers, this inconvenience and expense will be barrier to making that swi tch.What about access to the Internet?Donwirelessphone s provide access the Internet?Yes,with the proper equipment,you can access
the Internet with any wireless However,thatcarrler.
access will be at significantly lower speeds, involve
lower quality connections, and involve significantly
higher prices A voice grade line usually allows users
to connect a t speeds between 28, 000 and 53, 000 baud, wi
typical connection speeds in the low 40' s General
wireless Internet connections are much slower, typically
between 9600 and 14,400 Such connections are also prone
to quali ty problems, such as inabili ty to complete the
sign-on protocols and frequent disconnections
addi tion, unless a customer has a special data plan,
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every minute they are connected to the Internet countsagainst their monthly minutes of wireless use, whichcould make such connections not only slow, but extremelyexpensl ve What about the wireless plans that offerunlimi ted minutes, like those of Cricket and ClearTalk?Would they provide reasonable access to the Internet an affordable price?While it is technically possible to connect the Internet wi th these carriers ' service, their plansare promoted as voice plans, and usage for dataapplications could lead to a cancellation of the serviceWhat about special data plans offered by somewireless carriers?
Some carriers offer special plans for
connection to the Internet or data.However, except for
some very expensive plans, all these plans limit what is
available, ei ther by limi ting what a user can access, or
by charging fee based upon the amount of data that is
accessed.
What about the new high speed wireless data
service?Is it being deployed now, and will that make
difference?
Carriers are now implementing higher speed
service that provides connections that are similar
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wireline dial up speeds However, implementation Idaho is limi ted, and what is available is defini telymore expenSl veWhat do you mean by expensive?As an example, AT&T Wireless provides digitaldata service in the Boise area.It's Mobile Internetplans start at $19 99 for 8 megabytes, and range up to$ 99 99 for 100 megabytesAs a frame of reference, can you explain howmuch one can download wi th 8 megabytes?That depends entirely upon what is beingdownloaded.However, wi th the graphic content of todayweb, it could be very insufficient For example, I
personally downloaded just over 9 megabytes in less than
two hours of searching for a printer on eBay~.I was
connected using a dial-up account at 38,666 baud.
Are other carriers ' data plans similar
price?
Exhibi t No 1 08 shows a comparison of the data
plans available from the carriers offering such plans
Idaho As you can see, the A T & T pIa n i s pre t t Y t yp i c a 1 .
How does inexpensive access to data services
impact the abili ty of wireless service to be effective
competition?
Those customers who use Qwest' s voice lines
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access the Internet will not be able to rely uponwireless service as a reasonable substitute Theavailability of wireless service will provide little orno competi ti ve pressure on Qwest' s voice service forthese customers because it will not be an option forthem.Qwest will continue to have monopoly powerregarding these customersIs the segment of the Qwest customers thatrelies upon dial-up access over a voice line large enoughthat it could influence overall prices for basic localexchange services?Yes, I believe it is The NationalTelecommunications and Information Administration (NTIA)
estimated that approximately 52 7% of Idaho s 496,000
households accessed the Internet in 2001, which
calculates to be more than 260,000 households accessing
the Internet (Exhibit No . 109)The FCC's latest report
on broadband penetration (Table 8, Exhibi t No . 110)
indicates that 37, 631 high-speed lines were provided
small business and residential customers as of June 30,
2002, which leads to a calculation that more than 85% of
Internet users still access the Internet via dial-up over
a voice grade line This indicates that nearly half
Qwest's basic local exchange service customers also use
that service for Internet access As wireless service
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does not provide the full range of services that thesecustomers obtain from basic local exchange service,wireless is not a realistic option for these customersIf wireless is not a realistic option for almost half Qwest's customers, then wireless cannot provide effectivecompetition.Is wireless service reasonably available customers in these seven exchanges?For the most part, yes However, there arepockets within most of these exchanges where wirelessservice is not available The Robie Creek area of theBoise Exchange is a good example of such an area.addi tion, si tuating towers such that every location
wi thin a general area has an adequate signal is
challenging and expensive There are undoubtedly other
areas wi thin these seven exchanges, including those in
relatively urban areas, where wireless signal strength is
far from optimal Wireless signals also do not travel
well through brick or concrete, so a customer located
the interior of a brick building, or in a basement,
the shadow of a brick building, may not be able to get
strong enough signal to communicate effectively.While
this might significantly impact only a minori ty of the
customers in these seven exchanges, for these customers,
wireless is not an option.
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Qwest's Claims of Competi tive Impacts Are OverblownQwest claims to have lost a number of customersto wireless competition.Are these claims supported bythe evidence?Qwest certainly has not shown that wirelesscompeti tion is the primary reason for the reductions thathave occurred.The Company s data does indicate reduction of approximately 14, 000 Title 61 lines hasoccurred from the number that Qwest had at its peak 2000 staff does not dispute this reduction.Could other factors also be contributing to thereduction in the number of lines?Yes During an open meeting of the Commission
on January 30 th of this year, a Qwest manager indicated
that Qwest had approximately 13, 000 DSL lines in service
That number agrees closely wi th other information
provided by Qwest to Staff in this case It is common
for a customer to replace an addi tional line that had
been installed for dial-up Internet access wi th a high
speed DSL line It is very likely that a significant
portion of the 14, 000 lines that Qwest no longer serves
have been replaced by some of those 13,000 DSL lines
is important to note that Qwest' s revenues from a DSL
line are considerably higher than from a voice grade
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ine In addi tion, the Idaho economy is far from robustSales of many products are declining as consumers pareback their spending to the bare essentials Wi th so muchof the Company s recent growth being second lines, itwould not be surprising that some of these are eliminatedwhen budgets get tightIs it Staff's position that Qwest has not lostany lines to wireless competi tion?m sure it has lost some lines wireless competition.We do not dispute that for narrow niche market, wireless may substi tute for wirelineserVlceThe 3 to 5% penetration identified by the FCC
in FCC 02-1 79, Section I I .A. 1 (e) (i) may be reasonably
accurate
Have any of Qwest' s policies contributed
this substitution?
I believe so Qwest has tightened its credit
policies and improved its abili ty to identify outstanding
bills, especially from out of state This is resul ting
in higher upfront costs for establishing service for
those wi th less than perfect credi t, and driving some of
those to find al ternati ves
Weren t line reductions by incumbent carriers
expected under the Telecommunications Act?
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Certainly.And it is also important remember that Qwest was granted access to the interstatelong distance market as one of the trade-offs included the ActConsumer InputHas the Commission received comments fromparties interested in this case?Yes As of March 17, 2003, the Commission hadreceived comments from 38 customers and twoorgani za tions In determining the number of comments,mul tiple comments filed by a customer were combined andcounted as a single comment Thirty-one customers wereopposed to Qwest' s request for deregulation.Three
customers expressed support for Qwest' s proposal The
Twin Falls Area Chamber of Commerce, and the Boise Metro
Chamber of Commerce also expressed support Four
customers provided information or made comments but did
not c 1 ear 1 y art i cuI ate a po sit ion wit h res p e c t 0 Qwe s t' s
request
What points were made by those who supported
Qwest's proposal?
The few supporters generally expressed the view
that for Qwe s havewasnecessary prlclng
flexibili ty order compete with wireless serVlce
providers One customer stated that would support
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deregulation on service line quanti ties 2 and above... am sure you will discover that their (sic)lS a maJ amount of land line and wireless competi tion on 2 lineand above, but not on the basic first line In i letter, the Twin Falls Area Chamber of Commerce opinedthat "Government policy that levels the playing field andfosters competition will benefit the state becausecompeti tors will work harder to win us over as customerswith lower prices and better customer service However,the letter also recognizes that "deregulation may or maynot bring the local service charges by Qwest down.What concerns were raised by those who opposedthe proposal?
Of the customers expressing opposition, two-
thirds believed that rates would increase as a resul t of
deregulation.Several customers emphasized the need
provide basic telephone service at affordable rates,
especially for the benefi t of senior ci tizens on fixed
incomes and low-income customers One customer
comments summarize those concerns I expect that the
deregulation of local phone svc., will enhance Qwest' s
bottom line, but that it will adversely affect my phone
bills Qwest claims that 'packages, that include basic
svc. and e-mail would be competi ti ve wi th prices cell
phone companies charge I am not at all interested
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packages ' 0 f any kind... I just want to keep my localphone bill as low as possible - especially in view of thefact that my wife and I are retired, and living on fixedlncomesI am afraid that deregulating local svcs . willresult in higher rates for that serviceCustomers also commented on the comparabili of landline and wireless telephone services Onecustomer stated that "comparing local land lines withcell phones is like comparing ci ty water service wi rain. "Several expressed concern that, wi thout landline competi tor, Qwest would be an unregulatedmonopo 1 Y .Customers noted that wireless service usuallyincludes local exchange service bundled wi th a variety of
other services, such as voice mail and free long distance
serVlce Those commenting observed that wireless service
is more expensive than basic landline service, does not
provide internet access, TTY services for the hearing-
impaired, telephone directory listings, or reliable,
ubiquitous service Customers were particularly
concerned wi th maintaining affordable landline service
for dial-up internet access One customer wi th both
landline and wireless service indicated she uses her
Qwest line for dial-up internet access and the wireless
phone in her car for emergency purposes
What conclusions would you draw from the public
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comments filed in this case?Even supporters of Qwest' s proposal do notappear confident that Qwest will lower prices for basiclocal exchange service as a resul t of deregulation.Manyof those opposed to deregulation envisioned rates forbasic service increasing and thought that Qwest wouldfocus on offering packaged services to its customers the detriment of customers who just want plain oldvanilla telephone service Interestingly, it appearsthat those commenting see dial-up internet access as partof "basic " landline service Customers clearly see distinction between landline and wireless service, wi landline service regarded as a necessity for the most
part Wireless service is seen a complimentary service
rather than an equivalent substi tute for landline
serVlce
Qwest Has Al ternatives For Responding To Competi tion
Does Qwest already have options for responding
to wireless competition?
Yes, the maj ori ty of Qwest' s services are
already price deregulated and have been since 1989, when
Qwest elected for these services to be regulated under
Ti tIe 62 instead of Ti tIe 61, Idaho Code Since then i t
has had essentially unlimi ted abili ty to respond
market pressure by raising and lowering the prices for
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these services as it saw fitWhat about packaging or bundling of services?Can Qwest package regulated and price deregulatedproducts together wi thout further deregulation?Yes Qwest can and has packaged regulated andunregulated services and priced them to respond to marketforcesThe Custom Choice, Value Choice and PopularChoice packages are examples of just such packaging.Qwest is currently promoting a package that includes thewireline Preferred Choice package plus a Qwest Wirelesspackage wi th 1500 anytime minutes for $ 7 4 98 per month.(Exhibit No . 111)Are there restrictions on such packaging?
Only on accounting for the regulated revenues
The Company must impute the revenue that would have been
collected from the sales of regulated products in its
regulatory accounts as if it had been collected
accordance wi th the tariff.
Can the Company offer promotions for regulated
products?
Yes,and does common promotion can
the one-time installation charges for a productwal ve
What are the regulatory requirements of such
promotions?
The Commission is to be notified of the
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promotion in advance, as well as on accounting for theregulated revenues The Company must impute the revenuethat would have been collected from the sales ofregulated products in its regulatory accounts as if had been collected in accordance wi th the tariff.Public Interest ConsiderationsAre there other concerns that Staff has aboutthis application?Yes, Staff is very concerned about thepotential impacts of price deregulation in these sevenexchanges upon the rates of customers in the remainingexchangesWhat is the possible impact to the other
exchanges?
The remaining exchanges are more expensive to
serve, on a per customer basis, than the seven exchanges
in this case Depending upon deci s ions made regarding
rate base and other factors, it is entirely possible that
approval of this application could lead to a significant
rate increase for customers in the remaining exchanges
Al though an accurate calculation of the
potential rate impacts in the remaining exchanges
requires the in-depth analysis that is only available
through a rate case, information from the case
investigating a non-rural high cost fund, Case No
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GNR-T-00-2, may provide some idea of the magni tude of thedifferent costs of service between the exchanges in thiscase and the remaining exchanges In the high cost fundcase, the Commission accepted the provisions of tip u 1 a t ion t hat ide n t i fie d 2 7 ire c en t e r s in Qwe t' sservice area in Southern Idaho as high cost areas Notone of those 27 wire centers are part of the sevenexchanges in this case The modeling studies used identify those wire centers, conducted by Dr. Johnson,also identified a potential amount of support for each those high cost areas The total amount of supportrequired under the amounts identified in the Stipulationfor these 27 wire centers was almost $4 million dollars
per year.Al though the Commission deferred a decision on
support levels and the modeling in that case looked at
costs in a manner differently than would be done in
rate case, this study does indicate the potential
magni tude of the differences in costs between the
exchanges for which Qwest is requesting price
deregulation and the remaining exchanges There is
question that the potential rate increases for the
remaining exchanges might be very significant and that
the public interest requires a consideration of this
impact
Does Qwest have other al ternati ves for seeking
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more flexibili ty in its pricing?Yes It could have filed an application underSection 62-622 (1) instead of 62-622 (3) (b) This couldhave set the current rates as the maximum, and allow theCompany to reduce rates without Commission approvalDoes Qwest gain any flexibili ty, besides theabili ty to raise rates, if this peti tion is approved,that it does not already have?Not really.There are some bookkeepingrequirements that go along wi th regulated rates that mayno longer apply, but this case is really all aboutQwest's ability to raise ratesWhat do you think is the most likely resul t
Qwest's application is approved?
The only logical conclusion is that Qwest would
take advantage of the lack of effective competi tion and
increase its rates for basic local exchange service
may do this by requiring the purchase of addi tional, high
margin features, such as Caller ID or other CLASS
features Such bundling or packaging of its services,
while denying customers access to basic service wi thout
the package, would enhance revenues at virtually no cost
to Qwest In the alternative, it may simply raise its
rates
Has Qwest given any indication that it
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facing pressure to lower its rates for basic localexchange service?Not once in the testimony did any of theCompanys wi tnesses claim that the Company needs theabili ty to respond to competi ti ve pressure on pricesThe Company cannot make such a claim because it is notAs Dr. Johnson so effectively demonstrates, wirelineand wireless products are complementary, and do notdirectly compete wi th each other.The Company applying for price deregulation because it believes that,by defining effective competition in a narrow, self-serving manner, it can rid itself of all regulatorycontrols over pricing.Price deregulation may be in theinterest of the Company s shareholders, but it is clearly
not in the interest of the Company s customers
Has Qwest given any indication that it would
lower rates to respond to competi tion?
Not really.Al though Qwest wi tness Souba
indicated there is an equal likelihood that prices will
be decreased as that there will be price increases, none
of the specific actions identified by the Company
likely responses should this application be approved
include price decreases
Has the Company ever approached Staff about the
possibili ty of lowering local exchange rates in response
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to competi ti ve pressure?Not to my knowledgeWhat has the Company indicated it would do torespond to competi ti ve pressure?The Company has provided very few specifics to how it would respond to competi ti ve pressures, otherthan to be innova ti ve in developing new products and thepackaging of existing products and to improve customerserVlceOf course, these are all things the Companycurrently has the regulatory flexibili ty to doHow has Qwest responded to the pricing freedomprovided to it in 1989 for products other than basiclocal exchange services?
Wi th the exception of long distance rates,
which have seen the most significant market pressure, and
access rates, which have been lowered in response
poli tical pressure, rates have tended to increase
Are price increases the only outcome that can
be expected from approval of the Company s peti tion?
In my opinion, yes The Company s testimony
and public pronouncements are full of sound bi tes and
catch phrases extolling the virtues of competi tion and
the flexibili ty provided by deregulation, but provide
Ii ttle in the way of specific guidance as to how the
Company intends to really respond to deregulation or why
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it cannot take those same steps today.I find it veryinstructive that about the only customer benefi t fromapproval of this application that the Company identifiesis that the Company will be able to attract the financingnecessary to provide new and better services I doubtthat Qwest intends to attract that financing by reducingratesIt seems clear that the Company fully intends raise its rates to take advantage of its captive customerbase before it faces truly effective competi tion, and itscustomers actually have a choiceWould this be in the public interest?Absolutely not, nor do I think it was what theLegislature had in mind when it provided for a transi tion
to deregulation.
Would you please summarize your testimony?
Staff opposes the Company application because
Staff does not believe the condi tions Section
622 (3) (b)have been satisfied.Wireless notserVlce
price competi ti ve wi th Qwest' s wireline service for the
maj ori ty of residential customers In addi tion, wireless
service does not provide a number of important features
that are included wi th wireline service, such as E-911
information, number portability, comparable access to the
Internet, and the use of PBXs, TTYs, and other business
features Staff does not believe approval of Qwest' s
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application to be in the public interest as the mostlogical resul t is an increase in Qwest' s rates for basiclocal exchange service in these seven exchanges, as wellas the exchanges not included in this caseDoes this conclude your direct testimony this proceeding?Yes, it does
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