20030522Hart Revised Direct.pdf

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OFFICE OF THE ATTORNEY GENERAL
LAWRENCE G, WASDEN
May 22, 2003
Re: Revised Pages to Staff Testimony, Case No. QWE-O2-
Dear Parties of Record:
Staff discovered an eITor in the Direct Testimony of Staff witness Wayne Hart dated March 19
2003 on pages 9 through 13 and Staff Exhibit Nos. 101 and 102. Enclosed is Staff witness
Wayne Hart's revised pages and exhibits to his Direct Testimony filed March 19, 2003
As a courtesy, a copy of the revised testimony in legislative format is enclosed.
Please note these changes in Mr. Hart's Direct Testimony. Also please note that Exhibit No. 101
is confidential. Thank you.
Sincerely,
Weldon B. Stutzman
Deputy Attorney General
cc: Jean Jewell, Commission Secretary
Enclosures
utestlletter to correct whart direct
Contracts & Administrative Law Division, Idaho Public Utilities Commission
O, Box 83720, Boise, Idaho 83720-0074, Telephone: [phone], FAX: [phone], E-mail: Ipuc(/j)puc,state,id,
Located at 472 West Washington St., Boise, Idaho 83702
F~ECE I\lED
WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
f:'!Lt:D
2003 Hr~Y 22 PH 3:
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
QWEST CORPORATION FOR DEREGULATION OF BASIC LOCAL
EXCHANGE RATES IN ITS BOISE, NAMPA, )
CALDWELL, MERIDIAN, TWIN FALLS,
IDAHO FALLS, AND POCA TELLO EXCHANGES.
CASE NO. QWE-02-
COMMISSION STAFF'
REVISED EXIllBITS 101 AND
102 AND RELATED
TESTIMONY
The Commission Staff, through its attorney of record, files this revised Staff Exhibits
101 and 102 and pages 9 through 13 of Staff witness Wayne Hart dated March 19, 2003. Mr.
Hart discovered an error in his calculation of minutes used in his price comparison in Exhibits
101 and 102. The changes made to his testimony are solely to reflect the correction to his
calculations in Exhibits 101 and 102. The corrections to Staff Exhibits 101 and 102 and related
testimony do not affect Staff s advocacy regarding the price differential between cellular service
and Qwest's wire line service.
DATED at Boise, Idaho this o1d~t day of May 2003.
Weldon Stutzman
Deputy Attorney General
Vld/N:QWET0225 wsIO
COMMISSION STAFF'S REVISED
EXHIBITS 101 AND 102 AND
RELATED TESTIMONY
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 22TH DAY OF MAY 2003
SERVED THE FOREGOING REVISED PAGES AND EXHIBITS TO DIRECT
TESTIMONY OF WAYNE HART, IN CASE NO. QWE-02-, BY MAILING A
COpy THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
MARY S HOBSON
STOEL RIVES LLP
SUITE 1900
101 S CAPITOL BLVD
BOISE, ID 83702
(Confidential Exhibit)
ADAM L SHERR
QWEST
1600 7TH AVE, ROOM 3206
SEATTLE, WA 98191
CONLEY WARD
GIVENS PURSLEY LLP
277 N 6TH ST, SUITE 200
PO BOX 2720
BOISE, ID 83701-2720
(Confidential Exhibit)
CLAY R STURGIS
MOSS ADAMS LLP
601 W RIVERSIDE, SUITE 1800
SPOKANE, WA 99201-0663
DEAN J MILLER
McDEVITT & MILLER LLP
420 W. BANNOCK ST.
PO BOX 2564 (83701)
BOISE, ID 83702
BRIAN THOMAS
TIME WARNER TELECOM
223 TAYLOR AVE. NORTH
SEATTLE, WA 98109
SUSAN TRAVIS
WORLDCOM INc.
707 17TH STREET, SUITE 4200
DENVER, CO 80202
MARY JANE RASHER
AT &T COMMUNICATIONS OF THE
MOUNTAIN STATES INc.
10005 S GWENDELYN LANE
HIGHLANDS RANCH, CO 80129-6217
MARLIN D ARD
WILLARD L FORSYTH
HERSHNER, HUNTER, ET AL
180E 11 TH AVE, POBOX 1475
EUGENE, OR 97440-1475
(Confidential Exhibit)
DEAN RANDALL
VERIZON NORTHWEST INc.
17933 NW EVERGREEN PKWY
BEA VERT ON, OR 97006-7438
(Confidential Exhibit)
JOHN GANNON
ATTORNEY AT LAW
1101 W. RIVER, SUITE 110
BOISE, ID 83702
BEN JOHNSON
BEN JOHNSON ASSOCIATES INC.
2252 KlLLEARN CENTER BLVD
TALLAHASSEE, FL 32308
(Confidential Exhibit)
SECRET Y
Qwest , I calculated an amount of peak usage minutes that
would correspond to a low, median and high usage customer
for both residential and business classes of service, and
for both measured and flat rated service.I then chose
the least cost wireless plan offered by each wireless
carrier that would provide enough minutes to satisfy the
amount of peak or anytime minutes for each customer
profile.I then compared the same carriers used in Dr.
Lincoln s testimony, but with more appropriate amounts of
usage.I consider the median amount of usage on a Qwest
measured service line to be the appropriate usage for a
comparison using Dr. Lincoln s "economy" plan.
Mobile s least expensive plan with enough minutes to
satisfy the peak usage of a median measured residential
user is its Talk and TextNational Basic plan , at $z19.
per month.That is more than QIJ nearly $3.a month
more expensive than Qwest's measured residential rate of
$16.51, which includes the base rate of $10.51 and the
federal subscriber line charge of $ 6.00.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 with a median
usage flat rated residential customer.AT&T's least
expensive plan that provides enough peak or anytime
QWE-T- 02 -
03/19/03
Revised OS/22/03
HART, W (Di)Staff
minutes to satisfy the demands of a median usage flat
rated residential customer during the peak period is it'
Local 14QOO plan , with extra minutes The monthly cost of
this plan would be $7714.99, or a whopping $~21. 49 more
than Qwest' s flat rated service at $23.50, which includes
the base rate of $17.50 plus $6.00 for the subscriber line
charge.This is clearly not cost competitive.
And what about the "Premium Plan?"
For this comparison , the profile of a high
usage customer is appropriate , and both plans in Qwest' s
comparison are flat rated and come with unlimited
minutes.Cricket's lowest price plan is $ 32. 99 per
month , or nearly $10 a month more than Qwest' s flat rated
residential service at $23.50.Again, I do not consider
that to be price competi ti ve.
Are these the only plans you have analyzed?
My analysis of the myriad of packages ofNo.
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 Exhibit No. 101 shows the rates
for lowest price plans from each of the nine carriers
serving these seven exchanges for six patterns of local
QWE-02-
03/19/03
Revised OS/22/03
HART , W (Di)Staff
usage for both residential and business customers.The
methods that I used for determining the usage patterns
and other aspects of the analysis are also included in
Confidential Exhibit No. 101.In more than three
quarters of the cases for residential users, the cost of
the lowest cost comparable wireless plan is more than
$%10 greater than Qwest's rates.In seven three cases,
the difference is more than one hundred dollars.There
is only one case where the wireless rates are not
significantly higher than the corresponding Qwest rates,
the case with no local usage.The results for all the
carriers in that column , however, and the similar column
for businesses must be qualified.The information upon
which my analysis was based only included originating
local minutes, customers with 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 results 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?
Even with Qwest's higher business rates,
QWE-02-03/19/03
Revised OS/22/03
HART, W (Di)Staff
wireless rates are higher than the Qwest rates for moTe
than 1Q% of the usage categories.Wireless carriers
rates are less only when the usage is low or in the case
of the lowest priced flat rated wireless plans.
What are the results for the cases that
represent the maj ori ty of residential customers?
The calling patterns that represent the
maj ori ty of residential customers are the last two
columns of Confidential Exhibit No. 101.These are
typically the columns with the greatest disparities.The
smallest differences, at just under $10 per month , are
those of the wireless plans with unlimited local minutes
that are available only in the Treasure and Magic
Valleys.The smallest difference for customers in
Pocatello or Idaho Falls is $16.45.The plans of the
maj or nationwide carriers are clearly much more
expensive, with differences that often can exceed one
hundred dollars a month.
Are there other concerns about the service of
the carrier s offering unlimited local calling?
As Dr. Johnson points out, the financialYes.
viability of these plans carriers is questionable.
addition, as I will outline later , we have concerns about
the quality of service provided by these carriers.
Many wireless plans include bundles of long
QWE-02-03/19/03
Revised OS/22/03
HART, W (Di)Staff
distance minutes.Wouldn t the availability of such
bundles of minutes make a difference to the analysis?
For some consumers , it might, but for the
average user , wireless is still more expensive.
How can that be the case?
The plans chosen for the local usage comparison
were the cheapest plans available from the wireless
carriers, and those often don t include long distance.
Wireless plans with long distance are more expensive, so
the difference between Qwest' s rates and wireless rates
gets even greater.With wireline long distance rates as
low as they are, the average customer does not spend
enough on long distance to make up the difference.
Exhibit No. 102 shows the comparison in prices using both
Qwest's long distance and local rates with the wireless
plans that offer free nationwide long distance.As shown
in Exhibit No. 102 , wireless rates for every carrier
exceed Qwest's residential rates, while only the flat
rated wireless plans and Nextel 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
QWE-02-03/19/03
Revised OS/22/03
HART , W (Di)Staff
Qwest , I calculated an amount of peak usage minutes that
would correspond to a low , median and high usage customer
for both residential and business classes of service, and
for both measured and flat rated service.I then chose
the least cost wireless plan offered by each wireless
carrier that would provide enough minutes to satisfy the
amount of peak or anytime minutes for each customer
profile.I then compared the same carriers used in Dr.
Lincoln s testimony, but with more appropriate amounts of
usage.I consider the median amount of usage on a Qwest
measured service line to be the appropriate usage for a
comparison using Dr. Lincoln s "economy" plan.
Mobile s least expensive plan with enough minutes to
satisfy the peak usage of a median measured residential
user is its National Basicplan , at $19.95 per month.
That is nearly $3.50 a month more expensive than Qwest' s
measured residential rate of $16.51, which includes the
base rate of $10.51 and the federal subscriber line
charge of $6.00.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 with a median
usage flat rated residential customer.AT&T's least
expensive plan that provides enough peak or anytime
QWE - T - 02 - 2 5
Revised OS/22/03
HART, W (Di)Staff
minutes to satisfy the demands of a median usage flat
rated residential customer during the peak period is it'
Local 1000 plan.The monthly cost of this plan would be
$74.99, or a whopping $51.49 more than Qwest's flat rated
service at $23.50, which includes the base rate of $17.
plus $6.00 for the subscriber line charge.This is
clearly not cost competitive.
And what about the "Premium Plan?"
For this comparison , the profile of a high
usage customer is appropriate, and both plans in Qwest' s
comparison are flat rated and come with unlimited
minutes.Cricket's lowest price plan is $32.99 per
month , or nearly $10 a month more than Qwest's flat rated
residential service at $23.50.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 ofNo.
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 Exhibit No. 101 shows the rates
for lowest price plans from each of the nine carriers
serving these seven exchanges for six patterns of local
QWE-02-
Revised OS/22/03
HART , W (Di)Staff
usage for both residential and business customers.The
methods that I used for determining the usage patterns
and other aspects of the analysis are also included in
Confidential Exhibit No. 101.In more than three
quarters of the cases for residential users, the cost of
the lowest cost comparable wireless plan is more than $10
greater than Qwest' s rates.In three cases, the
difference is more than one hundred dollars.There is
only one case where the wireless rates are not
significantly higher than the corresponding Qwest rates,
the case with no local usage.The results for all the
carriers in that column, however, and the similar column
for businesses must be qualified.The information upon
which my analysis was based only included originating
local minutes, customers with 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 results 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?
Even with Qwest' s higher business rates,
QWE-T- 02 - 2 5
Revised OS/22/03
HART, W (Di)Staff
wireless rates are higher than the Qwest rates for 70% of
the usage categories.Wireless carriers ' rates are less
only when the usage is low , or in the case of the lowest
priced flat rated wireless plans.
What are the results for the cases that
represent the maj ori ty of residential customers?
The calling patterns that represent the
majority of residential customers are the last two
columns of Confidential Exhibit No. 101.These are
typically the columns with the greatest disparities.The
smallest differences, at just under $10 per month, are
those of the wireless plans with unlimited local minutes
that are available only in the Treasure and Magic
Valleys.The smallest difference for customers in
Pocatello or Idaho Falls is $16.45.The plans of the
maj or nationwide carriers are clearly much more
expensive , with differences that can exceed one hundred
dollars a month.
Are there other concerns about the service of
the carrier s offering unlimited local calling?
As Dr. Johnson points out, the financialYes.
viability of these plans carriers is questionable.
addition , as I will outline later , we have concerns about
the quality of service provided by these carriers.
Many wireless plans include bundles of long
QWE-T- 02 -
Revised OS/22/03
HART , W (Di)Staff
distance minutes.Wouldn t the availability of such
bundles of minutes make a difference to the analysis?
For some consumers, it might, but for the
average user , wireless is still more expensive.
How can that be the case?
The plans chosen for the local usage comparison
were the cheapest plans available from the wireless
carriers, and those often don t include long distance.
Wireless plans with long distance are more expensive, so
the difference between Qwest's rates and wireless rates
gets even greater.With wireline long distance rates as
low as they are, the average customer does not spend
enough on long distance to make up the difference.
Exhibit No. 102 shows the comparison in prices using both
Qwest's long distance and local rates with the wireless
plans that offer free nationwide long distance.As shown
in Exhibit No. 102, wireless rates for every carrier
exceed Qwest' s residential rates, while only the flat
rated wireless plans and Nextel 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
QWE-02-
Revised OS/22/03
HART, W (Di)Staff
Difference Between Qwest and Wireless Service
Long Distance Comparison
Average Residential Customer, with 28 Average Business Customer with 117
Intralata and 36 Interstate Minutes Intralata and 151 Interstate minutes
Qwest Wireless Qwest Wireless
Monthly Monthly Monthly Monthly
Charges Charges Difference Charges Charges Difference
Edge Wireless $31.$119.$88.$71.$119.$48.
US Cellular $31.$119.$87.$71.$127.$55.
Sprint PCS $31.$100.$68.$71.$100.$28.
Verizon Wireless $31.$79.$48.$71.$79.$8.
AT&T Wireless $31.$74.$43.$71.$74.$3.
T -Mobile $31.99.$68.$71.$99.$28.
Nextel $31.69.$38.$71.$69.$1 .
Cricket $31.39.$8.$71.$39.$31.
ClearTalk
(Magic Valley)$31.39.$8.$71.$59.$11.
ClearTalk
(Eastern Idaho)$31.$46.$15.$71.$66.$4.41
For the long distance comparison, I used information from Qwest's report to the Administrator of the Idaho
Universal Service Fund (IUSF) and the May 22nd. 2002 Trends in Telephone Usage (Trends) published by the FCC
Industry Analysis and Technology Division. Using the data from Table 10.3 of the Trend's report, I divided the
total number ofintrastate minutes from the IUSF report into residential and business customer classes. I then
divided that by the number of customers in each class to determine an average number of intrastate minutes for an
average residential and business customer. I then used the ratio of intrastate and interstate minutes from Table 11.
of the Trends report to determine an amount of interstate minutes. The intrastate and interstate minutes were added
to the peak local minutes from revised Exhibit 101 of the median flat rate customer for both residential and business
customers.
For the calculation of wireless costs, I used the lowest cost "national" plan, to obtain the "free" long distance. For
Clear Talk, which does not provide a "free" long distance plan, I simply used the per minute long distance rates
published on their web site. The analysis assumes all long distance calls, both intrastate and interstate, are from
locations within the Carriers network, but to locations outside the carrier s home area. However, except in the case
of ClearTalk, the bundled long distance minutes exceeded the average toll usage, so this assumption did not
materially impact the analysis.
For the calculation of Qwest's costs , I used 10 cents a minute for interstate calls and 15 cents a minute for intrastate
calls, and added this to the local costs from Confidential Exhibit 101.
Exhibit No. 102
Case No. QWE-02-
W. Hart, Staff Page 1 of2
Revised 5/22/03
Difference Between Qwest and Wireless Service
Long Distance Comparison with Directory Listing
Average Residential Customer, with 28
Intralata and 36 Interstate Minutes
Average Business Customer with 117
Intralata and 151 Interstate minutes
Owest Wireless Owest Wireless
Monthly Monthly Monthly Monthly
Charges Charges Difference Charges Charges Difference
Edge Wireless $31.$121.49 $90.$71.$125.$54.
US Cellular $31.$120.$89.40 $71.$133.$61.
Sprint PCS $31.$101.$70.$71.$106.$34.
Verizon Wireless $31.$81.49 $50.$71.$85.$14.
AT&T Wireless $31.$76.49 $45.$71.$80.$9.
T -Mobile $31 .$101.49 $70.$71.$105.$34.
Nextel $31.$71.49 $40.$71.$75.$4.
Cricket $31.$41.49 $10.$71.$45.$25.
ClearTalk
(Magic Valley)$31.$40.$9.$71.$65.$5.
ClearTalk
(Eastern Idaho)$31.$47.$16.$71.$72.$1.
For the long distance comparison, I used information from Qwest's report to the Administrator of the Idaho
Universal Service Fund (IUSF) and the May 22od, 2002 Trends in Telephone Usage (Trends) published by the FCC
Industry Analysis and Technology Division. Using the data from Table 10.3 of the Trend's report, I divided the
total number of Intrastate minutes from the IUSF report into residential and business customer classes. I then
divided that by the number of customers in each class to determine an average number of intrastate minutes for an
average residential and business customer. I then used the ratio of intrastate and interstate minutes from Table 11.
of the Trends report to determine an amount of interstate minutes. The intrastate and interstate minutes were added
to the peak local minutes from revised Exhibit 101 of the median flat rate customer for both residential and business
customers.
For the calculation of wireless costs, I used the lowest cost "national" plan, to obtain the "free" long distance. For
Clear Talk, which does not provide a "free" long distance plan, I simply used the per minute long distance rates
published on their web site. The analysis assumes all long distance calls, both intrastate and interstate, are from
locations within the Carriers network, but to locations outside the carrier s home area. However, except in the case
of ClearTalk, the bundled long distance minutes exceeded the average toll usage, so this assumption did not
materially impact the analysis.
For the calculation of Qwest's costs , I used 10 cents a minute for interstate calls and 15 cents a minute for intrastate
calls, and added this to the local costs from Confidential Exhibit 101.
Exhibit No. 102
Case No. QWE-02-
W. Hart, Staff Page 2 of2
Revised 5/22/03