20070817Brenner direct.pdf

Molly O'Leary (ISB No. 4996)
RICHARDSON & O'LEARY PLLC
515 North 27th Street
O. Box 7218
Boise, Idaho 83707
Telephone: [phone]
Fax: [phone]
Mail: molly(~,richardsonandoleary.com
Theodore A. Livingston
Dennis G. Friedman
MAYER, BROWN, ROWE & MAW LLP
71 South Wacker Drive
Chicago, IL 60606-4637
Telephone: [phone]
Fax: [phone]
Mail: dfriedman~mayerbrown.com
Dan Foley
General Attorney & Assistant General Counsel
AT&T WEST
P. O. Box 11010; 645 E. Plumb Lane, B132
Reno, Nevada 89520
Telephone: [phone]
Fax: [phone]
Mail: df6929~att.com
RECEIVED
mnl f\UG I b 5: 02
Attorneys for Complainant AT&T Communications of the Mountain States, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
AT&T COMMUNICATIONS OF THE MOUNTAIN )
STATES , INC.
Complainant
vs.
QWEST CORPORATION
Respondent.
August 16, 2007
CASE NO. QWE-06-
DIRECT TESTIMONY OF
ELL YCE BRENNER ON
BEHALF OF AT&T
COMMUNICATIONS OF THE
MOUNTAIN STATES, INc.
INTRODUCTION
Please state your name for the record.
My name is Ellyce Brenner.
By whom are you employed and what is you current position?
I am employed by AT&T Operations, Inc. as the Vice President - Strategic
Marketing Enablement.
Please briefly describe your educational background.
I have a Bachelors of Science degree from the University of Illinois, graduating in
1976, and a Masters of Management from the Kellogg School of Business
Northwestern University, earned in 1981.
Please briefly describe your work experience.
I have held a wide variety of positions over the last 24 years with AT&T
including positions in direct sales, sales support, public policy, product
management and marketing.
During the 2000 to 2003 time frame, which is the time pertinent to this
complaint proceeding, what were your job responsibilities at AT&T?
During that timeframe, I held the position of AT&T Business Local Services Vice
President. My position included responsibility for managing AT&T's Business
Local Services product family inclusive ofthe establishment and delivery of
financial targets, market planning and execution, establishment of development
priorities, achievement of operational metrics and delivery of customer
satisfaction to company targets and industry benchmarks.
What is the purpose of your testimony?
Brenner, Di-
AT&T Communications of
the Mountain States, Inc.
II.
My testimony is offered to demonstrate that if AT&T Communications of the
Mountain States, Inc. had been provided the opportunity to receive the same
discounts offered to Eschelon and McLeodUSA in their interconnection
agreements with Qwest Corporation ("Qwest") during the time period from
November 1 2000, through December 31 2005 , AT&T would have availed itself
ofthe opportunity. For ease of reference, I will refer to AT&T Communications
ofthe Mountains States, Inc., and its affiliated competitive local exchange carriers
CLECs ) providing service in the Qwest 14-state territory as "AT&T.
THE ESCHELON AND MCLEODUSA SECRET AGREEMENTS
What documents have you reviewed to prepare for your testimony with
regard to Eschelon and McLeodUSA agreements?
I have reviewed the following materials:
Amendment No.8 to the Interconnection Agreement Between Eschelon
Telecom of Minnesota, Inc. and Qwest Corporation in Minnesota (dated
November 15 2000, and December 4 2000), a/kJa Confidential Purchase
Agreement
Confidential Amendment to Confidential/Trade Secret Stipulation (dated
November 15 2000, executed by Eschelon Telecom, Inc. and Qwest
Corporation)
Brenner, Di-
AT&T Communications of
the Mountain States, Inc.
Affidavits of Blake Fisher and Lori Deutmeyer of McLeodUSA filed in the
Minnesota PUC Proceeding (provided with Mr. Deanhardt's direct
testimony)
Deposition of Blake Fisher of McLeodUSA taken in the Minnesota PUC
Proceeding on June 27, 2002 (provided with Mr. Deanhardt's direct
testimony)
An "Outline of Major Terms" dated September 19 2000 related to what I
discuss below as "McLeodUSA Agreement III"and produced by Blake Fisher
in the Minnesota PUC Proceeding (provided with Mr. Deanhardt's direct
testimony)
Minnesota Administrative Law Judge s Findings of Fact, Conclusions
Recommendations and Memorandum dated September 20, 2002, in the
Minnesota PUC Proceeding ("Minn. ALl's Report"
Minnesota PUC Order in the Minnesota PUC Proceeding dated November 1
2002, adopting Minn. ALl's Report
What is your understanding of the Eschelon secret agreement?
In what has been referred to as "Eschelon Agreement IV " Qwest agreed to give
Eschelon a 10% discount that applied to all Eschelon purchases of Qwest
unbundled network elements or services for a five-year period. While Qwest
claimed the discount was in exchange for "consulting services" to be provided by
Eschelon to Qwest, the Administrative Law Judge in the Minnesota proceeding
1 The "Minnesota PUC Proceeding" refers to In the Matter of the Complaint of the Minnesota Department
of Commerce Against Qwest Corporation Regarding Unfiled Agreements Docket Nos. 6-2500-14782-2 &
421/C-020197, Minnesota Public Utilities Commission.
. Brenner, Di-
AT&T Communications of
the Mountain States, Inc.
specifically found that the consulting agreement was in fact a "sham" designed to
conceal the discount.Qwest also agreed to give Eschelon monthly credits that
lowered the cost to Eschelon for various services it ordered from Qwest.
What is you understanding the McLeodUSA secret agreement?
The McLeodUSA secret agreement with Qwest was an oral agreement where
Qwest agreed to give McLeodUSA a 6.5% to 10% discount on all purchases from
Qwest as long as McLeodUSA met certain minimum purchase volume
commitments, regardless of the type of products or services purchased or whether
the purchases were made inside or outside Qwest's 14-state territory. This
discount was to remain in place until the end of 2003. When McLeodUSA
executives expressed concern that the oral agreement may not be enforceable
Qwest refused to memorialize the discount in writing, and instead entered into a
written take-or-pay agreement to purchase products from McLeodUSA as the
mechanism for providing the promised discount to McLeod USA.
Was AT&T offered the same secret agreement or discount arrangement that
Qwest gave to Eschelon?
No.
Was AT&T offered the same secret agreement or discount arrangement that
Qwest offered to McLeodUSA?
No.
If Qwest had offered these secret agreements to AT&T, would you have been
aware of them?
Brenner, Di-
AT&T Communications of
the Mountain States, Inc.
Yes. Part of my job is to evaluate new opportunities available to AT&T to enter
into new markets, expand or contract existing markets, and reduce costs of
providing services. The underlying cost of service is key factor in the economic
evaluation of an opportunity.
If AT&T had been provided the opportunity to enter into a discount
agreement with Qwest similar to that entered by Eschelon and McLeodUSA
would it have done so?
Yes. In my opinion, AT&T would have elected to enter either the Eschelon or
McLeodUSA agreement in order to receive the same discounts provided to the
two competing carriers if it had been provided the opportunity to do so.
What is the basis for your opinion that AT&T would have opted into either
the Eschelon or McLeodUSA discount agreements?
First, AT&T would have saved a substantial sum of money if it had been allowed
to enter into either agreement - not explicitly in Idaho, but over the entire Qwest
territory. In his testimony, Greg Nagrosst identifies the actual amounts that would
have been saved based on various time period assumptions.
Second, it is my understanding that Qwest may argue that there were
certain conditions attached to the discounts it provided to Eschelon and
McLeodUSA, possible in Amendment 8 to the Qwest-Eschelon interconnection
agreement or through other sources. Various of these alleged conditions would
have no relevance to AT&T, and it is unclear whether any of the conditions were
actually enforced.. Even if they were actually enforced, however, the alleged
conditions stated in the agreements to qualify for the discounts were not so
Brenner, Di-
AT&T Communications of
the Mountain States, Inc.
onerous as to deter AT&T from entering the agreements. Some of the purported
conditions, such as the obligation by Eschelon to provide Qwest with "consulting
services " appear to have been sham agreements used to artificially distinguish the
agreement from interconnection agreements that Qwest entered with the other
CLECs. Also, as I noted, it is not clear from the record developed in Minnesota
proceeding that Qwest even insisted on satisfaction of the conditions before it
provided the discounts to the two CLECs.
Third, the revenue threshold provided in the agreements would have been
easily satisfied by AT&T. In the McLeodUSA agreement, McLeodUSA had to
spend $220 million in 2001 and $250 million thereafter with Qwest to be entitled
to the maximum 10% discount. As discussed in Mr. Nagrosst's testimony, AT&T
spent AT&T CONFIDENTIAL INFORMATION () END OF
CONFIDENTIAL INFORMATION with Qwest between November of 2000
and December of 2005 - this represents an annual monthly spend of over AT&T
CONFIDENTIAL INFORMATION ()END OF CONFIDENTIAL
INFORMATION or an annual spend of over AT&T CONFIDENTIAL
INFORMATION (
END OF CONFIDENTIAL INFORMATION. Obviously, the spend threshold
in the McLeod agreement could have been easily met by AT&T. Likewise in the
Eschelon agreement, the spend commitment was even lower, $150 million over
five years. AT&T spent well in excess of that amount.
Fourth, the alleged access line and new market entry thresholds would
have been satisfied by AT&T. As far as entering new markets, in Qwest'
Brenner, Di-
AT&T Communications of
the Mountain States, Inc.
III.
territory during the time period in question (2000 to 2005), AT&T was planning
to provide, starting to provide or was providing local service to every major
market in the Qwest region. Other alleged requirements such as the 50 000 access
lines and AT&T ordering 1 000 business lines from Qwest in 8 of 11 named
markets would not have been obstacles to AT&T entering the agreements.
Fifth, even if there were conditions that AT&T arguably may not have
met, and assuming that the conditions were enforced by Qwest and were not just
sham provisions, that does not mean AT&T could not have met such conditions.
If presented the opportunity to achieve a 10% savings on all its purchases from
Qwest for a multi-year period beginning in late 2000, AT&T certainly could have
modified it business plans and resource deployment to achieve such a substantial
savings. The fact that AT&T was unaware of the agreements because Qwest
decided not to honor its contract commitments to AT&T (such as most favored
nations provision) should not be used to deny AT&T of the benefit that it could
have obtained if Qwest had complied with its contractual obligations.
In summary, if presented the opportunity to obtain a 10% discount from
Qwest under terms similar to those offered by Qwest in it secret agreements
with Eschelon and McLeodUSA in 2000, would AT&T have opted into the
agreements?
Yes.
CONCLUSION
Does this conclude your direct testimony?
Yes.
Brenner, Di- 7
AT&T Communications of
the Mountain States, Inc.