USW326M.docx

1 BOISE, IDAHO, WEDNESDAY, MARCH 26, 1997, 9:30 A. M.
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4 COMMISSIONER SMITH: Good morning, ladies
5 and gentlemen. We'll take up again with our hearing. I
6 believe, Ms. Hobson, we're with your witnesses.
7 MS. HOBSON: Thank you. U S WEST calls
8 Harvey Plummer.
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10 HARVEY A. PLUMMER,
11 produced as a rebuttal witness at the instance of
12 U S WEST Communications, Inc., having been first duly
13 sworn, was examined and testified as follows:
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15 DIRECT EXAMINATION
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17 BY MS. HOBSON:
18 Q Would you please state your name and spell
19 your last name for the record?
20 A My name is Harvey A. Plummer. It's spelled
21 P-l-u-m-m-e-r.
22 Q Where are you employed and in what
23 capacity?
24 A I'm employed by U S WEST Communications at
25 700 West Mineral in Littleton, Colorado, and my title is
3415
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 vice president of capacity provisioning.
2 Q Mr. Plummer, in connection with your duties
3 as being vice president of capacity provisioning, did you
4 prepare and cause to have filed in this case certain
5 written prefiled testimony consisting of 36 pages?
6 A Yes, I did.
7 Q And was that testimony dated January 28,
8 1997?
9 A Yes, it was.
10 Q Do you have any corrections, changes or
11 additions to make to that testimony at this point?
12 A No, I do not.
13 Q In addition to that prefiled testimony, did
14 you also prepare and cause to have filed with this
15 Commission a certain proprietary exhibit which has been
16 marked as 42A?
17 A Yes, I did.
18 Q Do you have any changes to that document?
19 A No, I don't.
20 Q Mr. Plummer, if I were to ask you these
21 same questions that are contained in your prefiled
22 written testimony today, would your answers be the same?
23 A Yes, they would.
24 MS. HOBSON: With that, Madam Chair, we
25 would ask that Mr. Plummer's prefiled rebuttal testimony
3416
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 be spread upon the record as if read and we offer Exhibit
2 No. 42A.
3 COMMISSIONER SMITH: If there's no
4 objection, we will spread the prefiled testimony of
5 Mr. Plummer upon the record as if read and admit
6 Exhibit 42A.
7 (U S WEST Communications, Inc. Exhibit
8 No. 42A was admitted into evidence.)
9 (The following prefiled rebuttal
10 testimony of Mr. Harvey Plummer is spread upon the
11 record.)
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3417
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 Q PLEASE STATE YOUR NAME, PLACE OF
2 EMPLOYMENT, AND POSITION.
3 A My name is Harvey A. Plummer. I am
4 employed by U S WEST Communications, Inc. ("USWC" or
5 "Company"), as Vice President of Capacity Provisioning,
6 Network and Technology Services. My business address is
7 700 West Mineral, Littleton, Colorado.
8 Q WHAT ARE YOUR CURRENT RESPONSIBILITIES?
9 A I am responsible for directing the
10 provisioning of network capacity to meet customers' needs
11 through network planning, resources management,
12 engineering design, and operations planning.
13 Q WHAT IS YOUR EMPLOYMENT BACKGROUND,
14 EDUCATION AND PROFESSIONAL HISTORY?
15 A I have been planning, engineering and
16 operating telecommunications, data, and wireless networks
17 for more than 27 years, with ten years' experience
18 operating, planning and engineering telephone networks in
19 Idaho.
20 For four years, I was responsible for planning and
21 designing the network architecture, topology and software
22 for interconnection of cellular, interexchange and
23 international carriers to the United States public
24 telecommunications network.
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3418
HARVEY A. PLUMMER - REB 1
U S WEST Communications, Inc.
1 Also, my experience includes the extensive
2 development and application of network economic models to
3 design traditional and wireless telecommunications
4 networks.
5 My educational foundation includes two years at
6 the College of Southern Idaho in Twin Falls, Idaho, and
7 more than 3,000 hours of formal telecommunications
8 classroom training.
9 Although I moved from Idaho in 1979, I have
10 maintained a keen interest in Idaho's network
11 development, as well as involvement in many company
12 technology initiatives such as TEC and TEC II.
13 Q HAVE YOU PREVIOUSLY FILED DIRECT TESTIMONY
14 IN THIS PROCEEDING?
15 A No. However, I have reviewed direct
16 testimony filed in this proceeding associated with the
17 issues I intend to address.
18 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY?
19 A My testimony responds to certain technical
20 and attendant economic issues addressed by the
21 participants in this proceeding. I will first respond to
22 Sydney Lansing's (Staff's) assertion that only 10.4% of
23 USWC's fiber cable is "used and useful", and
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3419
HARVEY A. PLUMMER - REB 2
U S WEST Communications, Inc.
1 his subsequent recommendation that approximately 89% of
2 that plant should be disallowed from the rate base,
3 saying that such unlit fiber is an investment made for
4 future growth.
5 I will demonstrate that current fiber facilities
6 were designed and sized to engineering standards that
7 ensure benefit to current as well as future rate payers.
8 Clearly, this technology benefits residence and small
9 business customers, as well as large business and
10 specialized service users.
11 I will next address certain assertions made in
12 Susan M. Baldwin's direct testimony. Ms. Baldwin's
13 testimony relies upon erroneous assumptions which lead
14 her to flawed conclusions. Adopting these conclusions,
15 and attendant recommendations, could lead to development
16 of separate, but unequal telecommunications networks,
17 without the scale and scope benefits of sharing
18 infrastructure efficiencies.
19 Finally, I will offer rebuttal to the testimony of
20 Lee L. Selwyn. Dr. Selwyn's testimony ignores certain
21 realities of the telecommunications industry. Adopting
22 policies based on Dr. Selwyn's testimony would leave USWC
23 with little incentive to invest in its telecommunications
24 network.
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3420
HARVEY A. PLUMMER - REB 3
U S WEST Communications, Inc.
1 Q WHAT IS YOUR VIEW OF STAFF'S ASSERTION
2 REGARDING FIBER THAT IS NOT "LIT", AND THEREFORE REGARDED
3 AS NOT "USED AND USEFUL"?
4 A Staff's position is short-sighted and fails
5 to take into account the economics, engineering,
6 planning, material and construction considerations for
7 sizing and deploying fiber cable. This position
8 similarly ignores significant reliability and other
9 operational benefits of utilizing fiber cable.
10 Q YOU ARE REFERRING TO STAFF MEMBER SYDNEY
11 LANSING'S ASSERTION. IS HE USING THE MOST RECENT AND
12 ACCURATE DATA?
13 A No, he is not. As noted above, Mr. Lansing
14 asserted that only 10.4% of USWC's fiber cable is "used
15 and useful", having relied upon ARMIS data as his basis
16 for this position.
17 Q WHY IS RELIANCE UPON THIS DATA A PROBLEM?
18 A During the past year it came to our
19 attention that an error was made by overstating column
20 "s" of table I.A., "Total Fiber Km Deployed (Lit &
21 Dark)" of the ARMIS Operating Data Report, filed with the
22 FCC on April 1, 1995 for calendar year 1994. Once the
23 error was found and corrected, a new report was filed
24 with the FCC on September 13, 1996.
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3421
HARVEY A. PLUMMER - REB 4
U S WEST Communications, Inc.
1 Q WHAT WAS THE NATURE OF THIS ERROR, AND WHAT
2 WAS ITS IMPACT ON FIBER UTILIZATION DETERMINATION?
3 A The conversion factor used to change "feet"
4 into "miles" for input into the database was faulty. As
5 a result, the total miles reported in this ARMIS table
6 were overstated. Once corrected, the percentage of "lit"
7 fiber (as a percentage of "total" fiber) increased. It
8 is possible that this type of error will be found to have
9 impacted other years as well, which is now being
10 investigated.
11 Q ACCORDING TO YOUR MOST RECENT COMPANY
12 RECORDS AND CALCULATIONS, WHAT IS THE CURRENT FIBER
13 UTILIZATION?
14 A As of January 7, 1997 the percent fill (or
15 amount of "lit" fiber as a percentage of "total" fiber)
16 was 43% for the state of Idaho.
17 Q FROM AN ENGINEERING STANDPOINT, WOULD YOU
18 EVER EXPECT THIS UTILIZATION FIGURE TO REACH 100%?
19 A No. Because certain engineering parameters
20 must be met to ensure service quality, availability, and
21 operational needs, I would never expect this percentage
22 to reach 100%. Fiber cable "binder group integrity", for
23 example, needs to be maintained. Other factors include
24 capacity for future transport needs in rural areas. For
25 example,
3422
HARVEY A. PLUMMER - REB 5
U S WEST Communications, Inc.
1 low cost fiber systems are available and have been
2 applied in joint interoffice and local exchange fibers.
3 Q PLEASE EXPLAIN WHAT IS MEANT BY MAINTAINING
4 BINDER GROUP INTEGRITY.
5 A Fibers within a cable are arranged together
6 in groupings of adjacent fibers called "binder groups."
7 These clusters are encased in a thin plastic shell in
8 order to protect the fibers. In a 72-pair cable, for
9 example, there are six binder groups of twelve fiber
10 strands each.
11 The continuous relationship of fibers within the
12 plastic shell is referred to as "integrity". The
13 integrity of these binder groups must be maintained in
14 order to preserve transport quality, avoid breakage of
15 the fibers, improve reliability during rearrangements,
16 and, in the event of cable failure, to facilitate
17 restoration.
18 Fibers within an individual binder group cannot be
19 split without the risk of damaging or breaking the
20 optical fiber. Maintaining binder group integrity can
21 therefore result in a particular location being served
22 with more fibers than are otherwise required. Using the
23 above example, a particular location requiring only two
24 fibers would be served with the minimum of twelve, in
25 order to maintain binder group integrity.
3423
HARVEY A. PLUMMER - REB 6
U S WEST Communications, Inc.
1 Q PLEASE EXPLAIN HOW FIBER SIZING IS
2 DETERMINED IN THE INITIAL PLANNING PROCESS.
3 A My organization, in consultation with
4 industry experts, has developed "sizing rules" or
5 guidelines which are used to model and deploy buried,
6 underground, and aerial fiber. The intention of these
7 rules is to improve fiber placement accuracy, to size the
8 cable according to specific requirements and therefore
9 increase the utilization factor of the fiber cables.
10 Over time, following such guidelines serves to reduce the
11 average size of fiber placed and therefore increases the
12 fiber utilization fill factor.
13 Q WHAT ARE SOME OF THESE SIZING GUIDELINES?
14 A Current sizing guidelines recommend placing
15 96 fiber cables in interoffice facility routes, in hub to
16 hub metropolitan areas. Metropolitan interoffice
17 facility branch routes or hub to end office route
18 recommendations are for 72 fibers. For outstate
19 interoffice facility applications, current sizing
20 guidelines recommend 24 fiber cables. It should be noted
21 that fiber cable sizing guidelines can be expected to
22 change from time to time, depending on such factors as
23 engineering requirements, vendor negotiations &
24 contracts, and specific location needs.
25 Q WHAT TECHNOLOGY AND ECONOMIC FACTORS
INFLUENCE GUIDELINES FOR SIZING FIBER CABLE?
3424
HARVEY A. PLUMMER - REB 7
U S WEST Communications, Inc.
1 A Initial selection of fiber sizing must
2 consider the future, as well as present, demand for
3 services. Sizing must also consider current and
4 anticipated capacity of fiber optic electronics.
5 Facility planners must consider, among other things, the
6 cost of placing future fiber cables, compared to the
7 incremental cost of fiber in the initial sheath.
8 Further, the planner must think about the future capacity
9 of fiber multiplexing and attendant electronics.
10 Q WHAT ELSE CAN YOU TELL US ABOUT FIBER CABLE
11 SIZING?
12 A Properly sizing fiber cable to optimize
13 utilization, while continuously improving reliability and
14 service quality is an art as much as it is a science. It
15 requires good business planning and service forecasting,
16 for example, to establish local exchange fiber
17 applications, which concurrently take into account the
18 facility sizing requirements described above. It is
19 often the case that both interoffice and exchange fiber
20 are routed through the same cable sheath, thus
21 effectively utilizing the combined fiber facilities and
22 minimizing overall investment in telecommunications
23 plant.
24 Q PLEASE DESCRIBE LOCAL EXCHANGE FIBER
25 SIZING.
3425
HARVEY A. PLUMMER - REB 8
U S WEST Communications, Inc.
1 A Generally speaking, a three-year projection
2 is made for local exchange fiber sizing. Remote terminal
3 (RT) sites presently require a minimum of four fibers to
4 be allocated for each RT site in the route. Buildings
5 requiring a fiber presence, both commercial as well as
6 educational, are currently allocated six fibers.
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HARVEY A. PLUMMER - REB 8A
U S WEST Communications, Inc.
1 Q BASED ON USWC'S MOST RECENT GUIDELINES, IS
2 THE FIBER INVESTMENT IN IDAHO OVERSIZED?
3 A No, not at all. Fiber investments based on
4 previous guidelines were appropriate for the requirements
5 that existed at the time, and are still valid for much of
6 the existing plant. But such requirements and service
7 demands change over time, warranting periodic review of
8 the sizing guidelines. The results of carefully
9 balancing and effectively managing fiber sizing, from
10 both engineering as well as economic standpoints,
11 manifests effective fiber utilization.
12 The average interoffice facility fiber cable size
13 in Idaho is currently nine fibers per sheath. Actual
14 fiber utilization in Idaho is above the company average.
15 Q WHAT WOULD BE THE IMPACT OF UNDERSIZING
16 INTEROFFICE FIBER CABLE?
17 Some customers would not receive service in a
18 timely and cost effective manner. Service blockages and
19 service quality degradation would occur, if undersized
20 cable conditions were allowed to persist in affected
21 routes. The economic penalties of adding incremental
22 capacity would be significantly higher, if not planned
23 according to a predetermined schedule. In addition,
24 since rights of way and permits cannot always be obtained
25 to expeditiously accommodate an undersized situation, the
3427
HARVEY A. PLUMMER - REB 9
U S WEST Communications, Inc.
1 insufficient capacity circumstances would likely persist.
2 Since interoffice facilities traffic has increased over
3 the last few years, it is possible that negative impacts
4 of the undersized situation might be exacerbated.
5 Q WHAT ARE THE TECHNICAL AND OPERATIONAL
6 BENEFITS OF DEPLOYING FIBER WHICH SHOULD BE CONSIDERED,
7 AND HOW DOES THIS ADDITIONAL FIBER INVESTMENT IMPROVE
8 CUSTOMER SERVICE QUALITY?
9 A Fiber cable is generally sought as the
10 preferred medium of choice for new transport facility
11 placements, over copper, for a variety of reasons.
12 Although the fiber medium cannot always be deployed, it
13 is generally preferred for its technical, operational,
14 and, in specific situations, its economic benefits.
15 Hence, fiber placement usually represents an improvement
16 over existing means of transport. The use of fiber
17 greatly increases the quality of transmission, because
18 glass is not susceptible to the same electromagnetic
19 interference that metallic cable is. Copper cable, for
20 example, requires shielding for two-way transmission
21 within the same cable, receives electric interference
22 from power lines, and may require load coils for longer
23 local loops. Thus, the clarity of the transport signal
24 is usually much better with fiber than with copper.
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3428
HARVEY A. PLUMMER - REB 10
U S WEST Communications, Inc.
1 In addition to transmission quality, fiber can be
2 used to transport greater quantities of information at
3 the same time than copper cable. Increased capacity of
4 the transport medium means greater operational efficiency
5 as well as better positioning to meet customer needs.
6 Another way to say this is that since the capacity
7 possible using fiber (at "optical speeds") is much
8 greater than that which can be gained using copper, more
9 customers can be served at a lesser cost.
10 Fiber also facilitates and economizes operational
11 controls of the network. Copper cable air
12 pressurization, for example, is costly and required in
13 some locations -- but is not necessary for fiber cable
14 placements. Another example is that fiber transport
15 facilitates remote management capabilities of the
16 network, resulting in increased and better surveillance
17 and control of remote, "unstaffed" offices.
18 Another factor is that fiber cables take up less
19 underground conduit duct space than copper cables, while
20 concurrently transporting much more information than the
21 cable being replaced, so greater efficiencies can be
22 gained through such replacements. Usually, three fiber
23 cables can be placed in the same space previously
24 occupied by one copper cable, yet serve a much greater
25 number of customers.
3429
HARVEY A. PLUMMER - REB 11
U S WEST Communications, Inc.
1 Fiber can also be used to transport information
2 for longer distances than copper cable, without requiring
3 regeneration of the signal. The better the quality of
4 the
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HARVEY A. PLUMMER - REB 11A
U S WEST Communications, Inc.
1 medium (particularly glass fiber), the wider the interval
2 needed for signal regeneration. Signal regeneration at
3 wider intervals means less expense because fewer
4 regenerators are required. For example, signal
5 regeneration for T1 copper cable is required at about
6 every 1.37 kilometers, compared to every 40 kilometers
7 for fiber.
8 Q DO THE BENEFITS OF USING FIBER ACCRUE
9 PRIMARILY TO UNREGULATED OR TITLE 62 SERVICES?
10 A No, the enhanced reliability and capacity
11 of fiber cable improves telecommunications for all
12 services, including residential telecommunications, small
13 business applications, emergency services (e.g., E911
14 services), as well as for enhanced and large business
15 services. Some of the more significant Title 61 quality
16 improvements in Idaho have been the result of
17 infrastructure investments related to the Tech II
18 project, investments which have aided in providing better
19 service to 1FR and 1FB customers, as well as others. In
20 addition, many of the fiber interoffice facilities
21 improvements which were initially used to provide
22 intraLATA toll are now about to be used in providing
23 local service, as a result of the recent EAS order. The
24 fiber route between Boise and Caldwell, for example, will
25 now be used for local calling.
3431
HARVEY A. PLUMMER - REB 12
U S WEST Communications, Inc.
1 Q ARE THESE BENEFITS IMMEDIATELY REALIZED, OR
2 ARE THEY RESERVED FOR FUTURE USE?
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HARVEY A. PLUMMER - REB 12A
U S WEST Communications, Inc.
1 A These benefits are usually realized
2 immediately, and not simply reserved for future use. How
3 quickly benefits can be realized generally depends on
4 what is deployed in conjunction with the fiber medium,
5 and what makes economic sense at the time. Fiber is
6 placed, where economical, to meet new as well as existing
7 demand, although additional capacity may also be placed
8 to address forecasted or anticipated customer demand.
9 This timing may or may not be concurrent with the
10 associated electronics to render the fiber immediately
11 usable. But the placement of fiber is also intended to
12 take advantage of optimal deployment timing, including
13 installation/operation and related economic efficiencies.
14 Q IS FIBER PLACEMENT THE RESULT OF ADDRESSING
15 REQUIREMENTS FOR LARGE BUSINESS APPLICATIONS?
16 A Not necessarily. The majority of fiber is
17 placed to meet demands for growth in existing services,
18 as well as to address requirements for new services. In
19 many situations, deterioration of existing facilities or
20 systems results in the application of a fiber solution.
21 Repeated failures or diminished availability of
22 replacement parts result in replacement with new systems,
23 including fiber based systems.
24 Q SHOULD FIBER BE DEPLOYED IN ALL
25 APPLICATIONS?
3433
HARVEY A. PLUMMER - REB 13
U S WEST Communications, Inc.
1 A No. Notwithstanding the advantages and
2 benefits of deploying fiber in telecommunications
3 networks, it is currently not economically feasible for
4 many applications.
5 Due to persuasive economic factors, all new
6 interoffice cable additions to the USWC network are
7 accomplished with fiber optic cable. High capacity
8 requirements of the interoffice transport network and the
9 higher cost of copper-based alternatives result in
10 selection of fiber solutions.
11 The decision to place fiber cable in the local
12 loop networks is based on a variety of factors including,
13 but not limited to, distance, density and growth rates.
14 When fiber cable is deployed in the network, the optical
15 signals must be demultiplexed to an electrical signal in
16 order to deliver non-optical services. The combined cost
17 of the fiber cable, fiber loop electronics and ongoing
18 maintenance costs are compared with the comparable cost
19 of other alternatives, predominantly copper cable based
20 solutions. When customer loop lengths exceed a distance
21 of 12.0 kilofeet, for example, the economic benefits of
22 fiber and electronics generally outweigh the cost of
23 placing new copper cable.
24 Q ARE USWC'S CURRENT FIBER UTILIZATION RATES
25 RELATIVELY LOW IN THE FACE OF ALL OF THESE BENEFITS?
3434
HARVEY A. PLUMMER - REB 14
U S WEST Communications, Inc.
1 A No. One of the advantages of deploying
2 fiber is its low unit cost, compared with other
3 alternatives, while also considering its relatively
4 greater transport capacity. It is simply more
5 economically efficient to place more fiber than may be
6 immediately needed, than to place copper or even a
7 smaller-sized fiber cable -- e.g., a 48 vs. 72 strand
8 cable -- only to have to add additional fiber later on
9 the same route. This is true because it is much easier
10 and less expensive to "strip off" excess strands of
11 fiber, than to deploy insufficient planned capacity
12 (copper or fiber) in the first place. It is also true
13 that placing additional fiber (within the same sheath,
14 without increasing sheath or placement costs) is prudent
15 for anticipating capacity demands, rather than soon
16 returning to place another cable. The practice therefore
17 saves the company (and rate payer) money not only now,
18 but in the future. It also helps avoid re-trenching, or
19 "ripping up" a street more often than is really
20 necessary. In short, it is simply a prudent business
21 practice.
22 Q WHAT WOULD BE THE IMPACT OF ADOPTING RULES
23 OR POLICIES NOT ALLOWING THE RECOVERY OF FIBER THAT IS
24 NOT LIT?
25 A The consequence of adopting rules or
3435
HARVEY A. PLUMMER - REB 15
U S WEST Communications, Inc.
1 policies that would not allow recovery of "unlit" fiber
2 would be the placement of smaller fiber cables. This
3 would result in additional cost and delay associated with
4 placing more fiber cables, a major factor in current
5 sizing guidelines.
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HARVEY A. PLUMMER - REB 15A
U S WEST Communications, Inc.
1 Q HOW WOULD PLACEMENT OF SMALLER CABLES
2 ACTUALLY INCREASE THE INVESTMENT IN FIBER CABLE?
3 A The first chart in Exhibit 42A illustrates
4 how the installed costs of dual armored, buried fiber
5 alternatives compare and contrast by size. This table
6 ("Fiber Cable") demonstrates that the expense of placing
7 four separate cables, each with twelve fibers, would have
8 an ultimate cost of more than three times per foot,
9 contrasted with the installed cost of a 48 fiber cable.
10 Q HOW DOES SIZING OF FIBER CABLE COMPARE WITH
11 SIZING FOR COPPER CABLES?
12 A Copper cable costs are more uniform in
13 price per conductor. The second chart in Exhibit 42A
14 ("Copper Cable") illustrates a similar comparison for the
15 installed cost of copper cable. The chart reflects the
16 relative insensitivity to cost for material to size, and,
17 relatively higher placing costs for larger cables.
18 In reviewing these figures, it is important to
19 note that a much greater transport capacity can reside on
20 fiber than on copper for a much smaller cable placement,
21 which isn't reflected here. For underground (i.e.,
22 conduit) applications, fiber also takes up less duct
23 space, and is relatively easier to place. Thus, fiber
24 cable is more economically efficient and desirable to
25 place as well as use, even though its utilization rate
3437
HARVEY A. PLUMMER - REB 16
U S WEST Communications, Inc.
1 may not reflect this. Further, our contract arrangements
2 with
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HARVEY A. PLUMMER - REB 16A
U S WEST Communications, Inc.
1 manufacturers reflect lower manufacturing costs
2 associated with the standardization of cable sizes. Our
3 contracts reflect premium pricing for custom sizes of
4 copper and fiber cables. By reducing the manufacturing
5 costs of custom size cables, the use of standard cable
6 sizes minimizes costs for both parties.
7 Q HOW DOES THE DEPLOYMENT OF FIBER IN RURAL
8 AREAS IMPACT FIBER UTILIZATION RATES?
9 A Some of the rural areas served in Idaho
10 have received the benefits of interoffice fiber facility
11 routes in recent years. These routes, which utilize
12 fiber optic cable and electronics for interoffice
13 transport for the reasons stated, do not require the
14 transmission capacity or number of fibers of major
15 metropolitan facility routes. Nonetheless, the
16 advantages of fiber far outweigh the benefits and costs
17 associated with other available transmission technology,
18 most notably copper T1 technology or radio. Often times,
19 these routes may require no more than four to eight
20 fibers to meet the capacity requirements of these areas.
21 As stated previously, USWC and its suppliers
22 minimize costs by using standard fiber cable sizes. The
23 smallest size fiber cable currently used for interoffice
24 trunking is twenty-four fibers, although significant
25 amounts of smaller cables have been deployed in Idaho.
3439
HARVEY A. PLUMMER - REB 17
U S WEST Communications, Inc.
1 It is also true that USWC incurs a higher cost for
2 trenching in these areas, in some cases over $8.00 per
3 foot. The high cost of
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HARVEY A. PLUMMER - REB 17A
U S WEST Communications, Inc.
1 trenching, in contrast with the relative low incremental
2 cost per strand of fiber, further demonstrates that it is
3 economically prudent for USWC to continue the use of
4 standard fiber cable sizing.
5 The rural areas of Idaho also have been
6 experiencing local access line growth and periodically
7 receive USWC facility augments and upgrades. The local
8 loop networks in rural Idaho are, in many situations,
9 economically provisioned using fiber cable and digital
10 loop carrier electronics. For non-interoffice
11 applications, the twelve fiber cable is the minimum size
12 used.
13 While twelve-strand fiber cables are available, it
14 makes little economic sense to place a twelve fiber
15 cable, given the promised availability of low cost, low
16 density digital loop carrier. For example, we are
17 currently in limited deployment of a fiber optic based
18 digital pair gain system, specifically designed for low
19 density, rural applications. The system is designed for
20 feeder relief, is cost effective to deploy, and promises
21 to have significant value for USWC in serving rural
22 residence and small business customers.
23 Reduced fiber sizing could ultimately preempt the
24 applications of these and similar optical connected local
25 serving arrangements. Implementation of such solutions
will,
3441
HARVEY A. PLUMMER - REB 18
U S WEST Communications, Inc.
1 at the same time, increase utilization in some routes and
2 create lower fill conditions in initial applications for
3 new routes.
4 Q ARE THERE ANY ENGINEERING CAPACITY
5 REQUIREMENT CONCERNS TO BE CONSIDERED REGARDING FIBER
6 DEPLOYMENT?
7 A Yes, there are. The plant USWC deploys,
8 including fiber cable, must be engineered to meet
9 existing as well as anticipated capacity requirements,
10 particularly for basic services. But if all of the
11 capacity deployed were immediately used at the time of
12 deployment, there would be no room to plan for any
13 changes in customer demand. There would be no
14 contingencies for basic service expansion, or even
15 changes/modifications in capacity to meet existing and
16 anticipated customer demands. It would be foolish not to
17 engineer the plant to meet these anticipated customer
18 needs. By doing this the company expends its capital
19 resources wisely, and should therefore not be penalized
20 by not realizing a fair return on the funds expended to
21 deploy what is needed now, as well as what is prudently
22 planned for anticipated needs.
23 Q WHAT CAN YOU TELL US ABOUT MAKING PRUDENT
24 ECONOMIC DECISIONS IN THIS REGARD?
25 A It makes sense for any business, especially
capital-intensive ones, to time their
3442
HARVEY A. PLUMMER - REB 19
U S WEST Communications, Inc.
1 capital expenditures. In the case of fiber plant
2 particularly, it makes most sense for the company to lay
3 the cable once to last for a period of years, instead of
4 going back in several times to meet additional,
5 incremental capacity needs. Continual "re-deployment" is
6 capital as well as labor intensive. USWC thus avoids
7 repetitively placing fiber in the same route
8 unnecessarily, particularly since the majority of the
9 cost is in the placement (labor costs) of the fiber,
10 rather than in the fiber material itself.
11 Perhaps an analogy might help to demonstrate why
12 timing is so important. Suppose one contracted to have a
13 home built, and in the middle of building that house, a
14 change in the home building is requested to meet a new
15 need (e.g., a grown-up child suddenly decides to move
16 in). So, a new bedroom must be added -- yet the house is
17 in the middle of being built. Should the process of
18 building the house simply stop, and the new bedroom
19 constructed? This could be very expensive, disrupting
20 labor contracting as well as capital expenditure flows.
21 Wouldn't it be better to time the change, so that the new
22 addition could be better accommodated? Or better yet,
23 anticipate that such a need is going to exist, and plan
24 for it prior to beginning the home's construction? This
25 is what prudent businesses such as USWC do, taking
3443
HARVEY A. PLUMMER - REB 20
U S WEST Communications, Inc.
1 advantage of timing their capital investments to when
2 these resources can be inexpensively obtained, deployed,
3 and best used, thereby minimizing overall costs of
4 construction and technology deployment. USWC is no
5 exception, and should not be
6
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13
14
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16
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3444
HARVEY A. PLUMMER - REB 20A
U S WEST Communications, Inc.
1 penalized for deploying in advance the capital investment
2 that is required to meet existing and emerging customer
3 needs.
4 Q PLEASE SUMMARIZE YOUR REBUTTAL TESTIMONY
5 WITH REGARD TO FIBER PLACEMENTS.
6 A Fiber that is not "lit" should not be
7 disallowed from the rate base because its placement
8 benefits current as well as future rate payers,
9 residential as well as business. There are several
10 technical and operational benefits in deploying this
11 medium of transport which are outlined above, only some
12 of which are readily apparent to the consumer. These
13 benefits work to enhance customer service quality, now
14 and in the future, for rural as well as urban customers.
15 USWC consistently uses sound economic and engineering
16 principles in sizing fiber to optimize the benefits and
17 minimize the costs (capital as well as expense) of
18 deploying and utilizing this technology. Finally, the
19 actual amount of lit fiber as a percentage of total fiber
20 as reported in the 1994 ARMIS Report was determined to be
21 in error. The use of actual "lit" fiber rates for Idaho
22 tell a much different story than the erroneous
23 information upon which Staff has relied.
24 Q YOU HAVE DISCUSSED IN DETAIL THE
25 UTILIZATION OF FIBER CABLE IN IDAHO. WHAT CAN YOU TELL
US ABOUT THE UTILIZATION RATES
3445
HARVEY A. PLUMMER - REB 21
U S WEST Communications, Inc.
1 OF IDAHO'S OUTSIDE PLANT, LARGELY COMPRISED OF COPPER
2 CABLE?
3 A An analysis of outside plant (OSP)
4 distribution areas (DA's) was completed using November,
5 1996 data, the most recent figures available. This
6 analysis determined the number of OSP DA's in Idaho with
7 "low", "medium", "high", and "saturated" utilization
8 levels. These utilization categories are defined as
9 follows:
10
11 "Low" utilization: Fill factors of less
12 than 60% utilization
13 "Medium" utilization: Fill factors > 60% and
14 < 85%
15 "High" utilization: Fill factors > 85% and
16 < 98%
17 Saturated utilization: Fill factors > 98%
18
19 Results of the evaluation found that 23% of the
20 DA's in Idaho have a "saturated" utilization rate, 27%
21 are at "high" utilization, 27% are considered to be at
22 "medium" utilization, and only 23% of Idaho's DA's were
23 at "low" levels of utilization.
24 Q PLEASE EXPLAIN THE CONCEPT OF A
25 DISTRIBUTION AREA (DA).
3446
HARVEY A. PLUMMER - REB 22
U S WEST Communications, Inc.
1 A A distribution area is a
2 geographically-served area of 200 to 600 homes or living
3 units, each of which is serviced using non-loaded
4 distribution cable. Beyond the interface to a
5 distribution area, one would not expect any cable to be
6 greater than
7
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13
14
15
16
17
18
19
20
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23
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3447
HARVEY A. PLUMMER - REB 22A
U S WEST Communications, Inc.
1 eighteen kilofeet in length. In Idaho, the Tech II
2 program established the distribution area to be less than
3 six kilofeet in length.
4 Q WHAT IS THE SIGNIFICANCE OF THE OSP DA
5 UTILIZATION STUDY RESULTS GIVEN ABOVE?
6 A It is clear from the above study results
7 that in Idaho OSP DA utilization levels are
8 consequential. Since only 23% of the DA's were at "low"
9 levels of utilization, it is irrational to believe that
10 significant "spare capacity" exists. In fact, USWC is
11 most concerned with the "saturated" category, since the
12 possibility of service degradation exists when actual
13 capacity utilization levels are above the "safe" levels
14 for which the plant was originally designed and
15 engineered.
16 Q CONSIDERING THESE UTILIZATION LEVELS,
17 PLEASE EXPLAIN WHY USWC USES DIGITAL LOOP CARRIER (DLC)
18 "PAIR GAIN" SYSTEMS IN THE LOCAL LOOP.
19 A Digital loop carrier is a technology that
20 is used to derive greater functionality out of existing
21 transport facilities, and a means to provide basic
22 exchange services to more customers. Deploying digital
23 loop carrier in the local loop is quite often the most
24 economical way to meet basic exchange growth
25 requirements.
3448
HARVEY A. PLUMMER - REB 23
U S WEST Communications, Inc.
1 Q ARE YOU CONTINUING TO PLACE DIGITAL LOOP
2 CARRIER SYSTEMS TO PROVIDE BASIC EXCHANGE TITLE 61
3 SERVICES?
4 A Yes, we are. The analog carrier technology
5 it is replacing has become relatively inefficient
6 technology that is difficult and expensive to maintain.
7 It has become very cost effective to replace this aging
8 equipment with digital loop carrier, especially to meet
9 the basic service needs of Title 61 customers in Idaho's
10 growth areas. Additionally, analog carrier replacement
11 parts are manufacturer-discontinued, and difficult to
12 find.
13 It also makes sense to replace the aging analog
14 carrier for service quality reasons. Analog carrier is
15 especially susceptible to service quality degradation
16 problems, a situation which can be greatly improved using
17 digital loop carrier systems.
18 Q IS DLC USED PRIMARILY TO DELIVER "ADVANCED"
19 SERVICES, AS MS. BALDWIN ASSERTS IN HER TESTIMONY?
20 A No. DLC is deployed primarily to
21 economically serve basic exchange growth, and to help
22 keep outside plant utilization within manageable levels.
23 Q WHAT PERCENT OF THE DLC DEPLOYED IN IDAHO
24 IS CURRENTLY BEING USED TO MEET BASIC SERVICE TITLE 61
25 NEEDS?
3449
HARVEY A. PLUMMER - REB 24
U S WEST Communications, Inc.
1 A Based on current utilization levels, well
2 over 90% of the DLC presently deployed in Idaho is being
3 used to meet basic service requirements, and Title 61
4 growth needs.
5 Q WHAT ABOUT THE UTILIZATION OF IDAHO'S
6 SWITCHES?
7 A Proper switch utilization, and the planning
8 of Idaho's switching capacities, are heavily dependent on
9 customer growth in the areas each of the switches serve.
10 In serving an area of minimal growth, a higher saturation
11 of a particular switch might be acceptable, while in an
12 area experiencing more aggressive growth, switching
13 capacity would need to be upgraded more frequently.
14 There may also be no significant growth at all, or even
15 negative growth. All of these situations demand
16 continuous observation and evaluation, in order to make
17 intelligent engineering decisions as to when USWC should
18 add capacity. Addressing the needs for basic services is
19 also a factor, which may require the addition of
20 switching functionality that may not already reside on
21 the switch serving the community.
22 In Idaho, there are 85 USWC switches currently
23 serving customers. Utilization rates of these switches
24 range from 69% to 99.6%, as of December 13, 1996. As
25 with outside plant facilities, switching system capacity
3450
HARVEY A. PLUMMER - REB 25
U S WEST Communications, Inc.
1 is planned to meet service needs for a defined period,
2 typically 18 to 24 months. Switching systems with more
3 recent additions will naturally reflect lower numeric
4 utilizations than offices that are at the end of the
5 planning cycle.
6
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12
13
14
15
16
17
18
19
20
21
22
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24
25
3451
HARVEY A. PLUMMER - REB 25A
U S WEST Communications, Inc.
1 In addition, switching system capacity is
2 available in fixed units of capacity, which may exceed
3 the actual requirements for the planning period. This
4 fixed sizing may result in lower utilization for rural
5 offices, where the installed base is relatively small
6 compared to the minimum sizing for incremental or new
7 capacity.
8 Q WERE ANY OF USWC'S SWITCH DEPLOYMENTS IN
9 IDAHO PART OF THE TECH PLUS SWITCH PROGRAM?
10 A Yes. The original Tech Plus switch
11 program, which was approved by the Commission prior to
12 the arbitrary 1989 line of demarcation that is the basis
13 of Ms. Baldwin's and Dr. Selwyn's testimony was actually
14 initiated prior to the Idaho Telecommunications Act of
15 1988. The Tech Plus program helped address growth
16 issues, as well as the replacement of worn out equipment,
17 particularly in rural areas. The program also aided USWC
18 in serving customers at lower cost with the aid of
19 digital switches.
20 Q DO YOU AGREE WITH MS. BALDWIN'S SUGGESTION
21 THAT USWC'S CHIEF MOTIVATION FOR DEPLOYING DIGITAL
22 SWITCHES IN EXCHANGES THAT ARE NOT PART OF THE TECH PLUS
23 PROGRAM WAS TO SELL TITLE 62 SERVICES?
24
25
3452
HARVEY A. PLUMMER - REB 26
U S WEST Communications, Inc.
1 No, not at all. The need to effectively deploy
2 and use switching investment is no less true today than
3 when we built Tech Plus. Even if I assumed that all USWC
4 wanted to accomplish now with its switching technology
5 was to serve 1FR and 1FB customers in the most efficient
6 way, I would still do it with digital switching! Of
7 course, since we have the dual objectives of providing
8 service to basic customers, and providing the more modern
9 services also, digital switching is by far the most
10 effective method.
11 Q SUPPOSE USWC DID NOT CHOOSE TO SELL ANY
12 TITLE 62 SERVICES AT ALL, EXCEPT TOLL AND ACCESS. WOULD
13 IT BE FEASIBLE FOR THE COMPANY TO DEPLOY ANALOG SWITCHES
14 TODAY?
15 A No. Not only is analog switching equipment
16 generally unavailable (even replacement parts for the
17 aging investment is difficult to find,
18 manufacturer-discontinued, and in most cases
19 non-existent), it would be ludicrous to intentionally
20 deploy such technology to address Title 61 essential
21 service needs.
22 Q WITH THESE FACTS IN MIND REGARDING USWC
23 FIBER FACILITIES, OUTSIDE PLANT, AND SWITCHES, WHAT ARE
24 YOUR GREATEST CONCERNS WITH THE TESTIMONY OF SUSAN M.
25 BALDWIN?
3453
HARVEY A. PLUMMER - REB 27
U S WEST Communications, Inc.
1 A Ms. Baldwin makes assumptions in her
2 testimony which are simply not valid, and which lead her
3 to erroneous conclusions. Even if they were true, which
4 they are not,
5
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11
12
13
14
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16
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3454
HARVEY A. PLUMMER - REB 27A
U S WEST Communications, Inc.
1 her proposed recommendations based on these assumptions
2 would lead the Commission to pursue a policy of
3 developing two separate telecommunications networks: one
4 for the "haves" and one for the "have nots".
5 Q PLEASE EXPLAIN.
6 A Ms. Baldwin assumes throughout her
7 testimony that the telecommunications network is
8 characterized by "extensive spare capacity" (i.e., see
9 page 36). As demonstrated above repeatedly, this is
10 simply not the case. In some instances, the plant is
11 nearing exhaust, or even saturation. And since such
12 "spare" usable capacity does not in reality exist, any
13 direct assignment of capital (see pages 52-54, ref
14 Lansing testimony) is also in error. Ms. Baldwin assumes
15 that the need for such "spare" capacity is driven by
16 "discretionary and competitive services rather than by
17 essential, monopoly services". In reality, USWC's
18 telecommunications network is carefully engineered and
19 designed to meet basic service capacity requirements --
20 driven primarily by the necessity of addressing essential
21 telecommunications needs, such as those of Title 61
22 customers. She further errs in her conjecture that
23 "Advanced digital electronic switches are primarily
24 required by U S WEST in order to support the Title 62
25 discretionary and competitive services." In this
3455
HARVEY A. PLUMMER - REB 28
U S WEST Communications, Inc.
1 assertion, Ms. Baldwin grossly underestimates or ignores
2 the network operational value of digital switches --
3 which can greatly impact quality of service for Title 61
4 customers.
5
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7
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9
10 /
11
12
13
14
15
16
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18
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21
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3456
HARVEY A. PLUMMER - REB 28A
U S WEST Communications, Inc.
1 The purported "low fill factor" Ms. Baldwin refers
2 to on page 27 of her testimony does not result in
3 "substantial excess capacity". As demonstrated above,
4 there are valid engineering reasons for maintaining
5 appropriate levels of utilization, a factor which has the
6 unavoidable result of having some investment purchased
7 which may be unusable, or which must be kept in place to
8 ensure service quality. To assume that the need for such
9 "spare" capacity is driven by "discretionary and
10 competitive services" is also in error. Placement of
11 network capacity is simply part of normal business
12 operations, to meet the forecasted demand for
13 telecommunications services -- a reasonable business
14 projection of growth in demand for new lines. It is
15 ludicrous to believe that any of such expenditures
16 constitute "overinvestment".
17 Q WHAT ABOUT MS. BALDWIN'S ASSERTIONS
18 REGARDING DIGITAL ELECTRONIC SWITCHES?
19 A Digital electronic switches are deployed by
20 U S WEST, not primarily to "support the Title 62
21 discretionary and competitive services", rather, such
22 switches are deployed because it makes good business
23 sense to upgrade the network, both operationally as well
24 as to meet service demands. Whether Ms. Baldwin
25 recognizes it or not, all telecommunications services in
3457
HARVEY A. PLUMMER - REB 29
U S WEST Communications, Inc.
1 today's environment are subject, de facto, to
2 competition, whether classified as such or not. The
3 issue of primary concern is to what extent the obligation
4 to serve exists, particularly in those areas which are
5 more expensive to serve. Ms. Baldwin ignores such a
6 perspective, or
7
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13
14
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16
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18
19
20
21
22
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24
25
3458
HARVEY A. PLUMMER - REB 29A
U S WEST Communications, Inc.
1 misunderstands it. If her proposed policies were
2 adopted, the incentive to invest over time would dwindle
3 to the point that such areas would not be served at all.
4 For one who purports to understand economic incentives,
5 this is a particularly grievous error. The economically
6 efficient path is not to assign investment to the
7 competitive services alone, as she proposes; it is to
8 assign or relate such investment to the services
9 generated from the investment used to create such
10 services -- competitive or otherwise. Hence, if two
11 diverging policies are adopted for Idaho, her proposed
12 recommendations would lead the commission to pursue a
13 policy of developing two separate telecommunications
14 networks: one for the "haves" and one for the "have
15 nots".
16 Q IS USWC CONCERNED ABOUT KEEPING THE COST OF
17 TITLE 61 TELEPHONE SERVICE EFFICIENT AS WELL AS
18 AFFORDABLE?
19 A Yes. As Mr. Inouye recognizes in his
20 testimony, a continual focus on streamlining operations
21 serves to keep the cost of Title 61 telephone service
22 reasonable as well as affordable. At the same time,
23 Title 61 investments to meet growth requirements and to
24 replace aging & worn-out equipment in particular are
25 critically important in maintaining effective
3459
HARVEY A. PLUMMER - REB 30
U S WEST Communications, Inc.
1 telecommunications networks. In Idaho, this is
2 especially an issue, since the state has one of the
3 highest growth rates of all of the states USWC serves.
4
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11
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3460
HARVEY A. PLUMMER - REB 30A
U S WEST Communications, Inc.
1 As equipment ages it not only fails to meet
2 increasing growth needs, it simply wears out and becomes
3 less efficient. Replacement parts for the aging
4 investment become difficult to find,
5 manufacturer-discontinued, and non-existent. For
6 example, certain replacement parts for analog switching
7 machines (e.g., 1AESS and 2BESS switches) are impractical
8 to replace, or have been very difficult to obtain for
9 several years. As discussed above, the same is true for
10 other telecommunications technologies. If such equipment
11 is not replaced with new technology as it wears out and
12 deteriorates, meeting even the most basic residential
13 service customer needs becomes an impossible task.
14 Q PLEASE DESCRIBE USWC'S ONGOING EFFORTS TO
15 RESTRUCTURE AND STREAMLINE ITS OPERATIONS, THE CURRENT
16 REENGINEERING PROGRAM, AND ANY FUTURE RESTRUCTURING
17 PLANS.
18 A USWC has a long history of effectively
19 restructuring its business, redesigning work processes,
20 and streamlining its work force to meet business needs.
21 The 1982 Consent Decree dramatically changed the face of
22 this business. The introduction of regional Bell
23 Operating companies, new long distance carriers, and
24 emerging competition in the communications industry
25 placed a growing emphasis on how we would do business in
the future.
3461
HARVEY A. PLUMMER - REB 31
U S WEST Communications, Inc.
1 It is critical to position USWC as a leader in
2 this industry. To do so means streamlining our
3 operations, seeking better ways to serve customers, and
4 offering new products and services.
5 From its beginning in 1984, USWC has continually
6 looked for ways to meet these goals. Improving the level
7 of our service by redesigning and streamlining our
8 service delivery processes and improving our service
9 standards and methods have been a priority. Managing the
10 company's costs effectively and efficiently has also been
11 a priority.
12 We started USWC with three distinct companies with
13 distinct operations and business cultures. Shortly after
14 divestiture, we combined some operations so as to achieve
15 economies of doing things once instead of three times. A
16 reduction of the employee base was one effect of that
17 realignment.
18 We realigned the business between 1986 and 1988 to
19 serve unique markets. At that time we aligned our
20 processes to support residential, small business, and
21 interexchange carrier customers. As emerging markets
22 took hold and the demand for new and better services
23 grew, we continued to improve and change our processes to
24 meet these growing needs.
25
3462
HARVEY A. PLUMMER - REB 32
U S WEST Communications, Inc.
1 The restructuring to serve markets led to the
2 elimination of the three former operating companies and
3 the creation of the company we know today. Consolidation
4 continued between 1988 and 1992 as we sought to become
5 more cost efficient.
6 Q PLEASE DESCRIBE THE PURPOSE OF USWC'S
7 REENGINEERING PROGRAM.
8 A Beginning in 1992, under the name of
9 reengineering, we attacked our processes of providing
10 capacity, service delivery, and service assurance. It
11 was clear that competition, continued growth in our
12 territory, new service offerings, and customer demand for
13 shorter cycle times were challenges that had to be met.
14 We knew we had to streamline the steps in each of these
15 processes, making large changes in our systems to
16 facilitate these new "reengineered" processes. These new
17 processes were specifically embraced to remain
18 competitive and to offer superior customer service.
19 Reengineered processes focused on four specific
20 areas. Mass Market Service delivery where residential
21 and small business customers generate requests for
22 service; Design Services Delivery where strategic and
23 large business customers generate service requests;
24 Capacity Provisioning, the creation and management of
25 available facilities; and Service Assurance, where we
provide facilities and switching monitoring services.
3463
HARVEY A. PLUMMER - REB 33
U S WEST Communications, Inc.
1 The basic thrust of reengineering our processes
2 was to remove time consuming steps to assure more
3 efficient delivery of service to customers. In other
4 words, reengineering has been part of a long standing
5 business effort at USWC to continually improve upon
6 customer service. The other benefit of this effort has
7 been to achieve cost efficiency.
8 Q IS THE REENGINEERING PROGRAM PART OF THE
9 ONGOING RESTRUCTURING OF THE OPERATIONS?
10 A Yes. Reengineering is part of the process
11 of continually looking for ways to provide service
12 excellence to our customers. As new technologies emerge,
13 we have to look for ways to introduce them into our
14 processes to respond to customer expectations and
15 competitive challenges. If we do not do it, our
16 competitors will.
17 Reengineering is also part of the process of
18 continually looking for ways to become more cost
19 effective.
20 Q DOES THE REENGINEERING PROGRAM CONSIST
21 ENTIRELY OF THE REDESIGNING OF WORK PROCESSES?
22 A No. Reengineering costs were associated
23 with an overall restructure program that encompassed
24 several elements. A part of the restructure was the
25 realignment and
3464
HARVEY A. PLUMMER - REB 34
U S WEST Communications, Inc.
1 center consolidation costs initiated by reengineered
2 process changes. That included the reduction of jobs due
3 to center consolidation. Also part of the restructure
4 were the job reductions caused by the normal evolution of
5 technology and streamlining of non-reengineered business
6 processes.
7 Q WHEN THE EXISTING REENGINEERING PROGRAM
8 ENDS, WILL THE COMPANY CEASE TO SPEND MONEY TO REDESIGN
9 WORK PROCESSES AND TO ELIMINATE JOBS?
10 A Absolutely not. The elimination of work
11 functions and the redesigning of work processes will
12 continue due to the nature of the telecommunications
13 industry today. New technologies, computer systems and
14 equipment, plus customer demand, have an impact on our
15 processes as do changes in the regulatory environment.
16 We must continually anticipate and drive changes to
17 remain competitive.
18 Q PLEASE PROVIDE AN EXAMPLE.
19 A The company is currently responding to the
20 provisions outlined in the Telecommunications Act of 1996
21 and the recent ruling by the FCC involving
22 interconnection arrangements. This has already proved to
23 be an enormous effort. Interconnection means that USWC,
24 along with other RBOCs, must make available certain
25 facilities and services to other telecommunications
3465
HARVEY A. PLUMMER - REB 35
U S WEST Communications, Inc.
1 suppliers at wholesale prices. This will have a dramatic
2 impact on the nuances of how we deliver service
3
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3466
HARVEY A. PLUMMER - REB 35A
U S WEST Communications, Inc.
1 and will result in significant changes that could well
2 lead to further realignments of our business. We are
3 currently assessing the full intent of these new rules
4 and how they will impact our processes of delivering
5 service to our retail customer base, and the
6 resellers/interconnectors we are required to serve.
7 Q DOES THIS MEAN THE COMPANY WILL CONTINUE
8 REENGINEERING PROCESSES, AND RESTRUCTURING ITS
9 OPERATIONS?
10 A Yes. The Commission can be sure that the
11 company will continue to do what is necessary to meet
12 customer expectations, comply with regulatory mandates,
13 and meet competitive challenges. This will necessarily
14 require further realignment of the business and
15 redesigning of the company's processes.
16 Q DOES THIS CONCLUDE YOUR TESTIMONY?
17 A Yes, it does.
18
19
20
21
22
23
24
25
3467
HARVEY A. PLUMMER - REB 36
U S WEST Communications, Inc.
1 (The following proceedings were had in
2 open hearing.)
3
4 DIRECT EXAMINATION
5
6 BY MS. HOBSON: (Continued)
7 Q Mr. Plummer, based on your review of the
8 transcripts of the hearing and the surrebuttal testimony
9 of Staff witnesses, are there additional issues that you
10 would like to address this morning?
11 A Yes. I'd like to provide clarification and
12 offer alternative conclusions on matters related to the
13 1995 ARMIS report filing and Mr. Lansing's utilization
14 analysis and deferral recommendations. In addition, I'd
15 also like to address Dr. Selwyn and Ms. Baldwin's
16 characterization of U S WEST's basis for investment in
17 both digital switching and transmission technologies and
18 offer alternative conclusions and recommendations
19 regarding both the suitability and availability of
20 alternatives to those technologies, and, finally, I'd
21 like to discuss Ms. Baldwin's characterization and
22 influence of specific services on the utilization of
23 copper distribution facilities.
24 Q Mr. Plummer, before we get to those
25 concerns, do you have what has previously been marked
3468
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 U S WEST Exhibit 53?
2 A Yes, I do.
3 Q Can you identify that document for the
4 record?
5 A Yes, it's this large stack of yellow and
6 white paper.
7 Q And can you give us a very brief
8 description of what that large stack of yellow paper
9 consists of?
10 A Those documents are responses to
11 information requests submitted by the Staff and other
12 witnesses. They're broken down into a series of
13 documents. One is a table of fiber lines lit and
14 installed out of the ARMIS report, then several
15 engineering assignment records that were provided to
16 Staff that included additional information regarding
17 fiber fills and a variety of other technical documents.
18 I can go through the specifics if you'd like.
19 Q There's a cover sheet on Exhibit 53, is
20 there not, that summarizes the content of that exhibit?
21 A There is.
22 Q Thank you. I'd like to go back, then, to
23 your remarks concerning additional concerns about the
24 ARMIS report. What are those concerns, Mr. Plummer?
25 A Primarily, the ARMIS report, and the one in
3469
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 question is report 43-08, contains basic statistical data
2 that the FCC characterizes as being required to monitor
3 the growth usage and reliability of the public network.
4 In my prefiled testimony, I concluded that after
5 reviewing information in the 1995 ARMIS report that the
6 data that was included was not accurate and appropriate
7 for determination of what facilities were used and
8 useful.
9 Further, my testimony indicated that there
10 were actual errors in the calculation that were
11 subsequently corrected, but I don't believe I did an
12 adequate job in terms of elaborating on limitations of
13 the data and other synchronization flaws in the
14 underlying databases that may have been misleading or
15 could not have -- would have made the data not usable for
16 the purposes of ratemaking.
17 Q Would you do that now, then? Would you
18 tell us what was the nature of the synchronization flaws
19 that you mentioned?
20 A Okay. In past ARMIS reporting, we used a
21 variety of different data sources for fiber sheath
22 kilometers --
23 MR. HOWELL: Madam Chairman.
24 COMMISSIONER SMITH: Mr. Howell.
25 MR. HOWELL: Although I will admit that I
3470
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 don't have the best memory over the last three weeks, but
2 it sounds like Mr. Plummer is embellishing his rebuttal
3 testimony. I do not remember any supplemental
4 surrebuttal testimony discussing the accuracy of the
5 ARMIS report, nor am I sure at this point in time which
6 ARMIS report Mr. Plummer is discussing.
7 COMMISSIONER SMITH: Ms. Hobson.
8 MS. HOBSON: Well, I'm sorry that
9 Mr. Howell's memory is not very clear. I remember
10 Mr. Lansing speaking on the witness stand about the ARMIS
11 report and his reliance on the ARMIS report and his
12 discussion of his inability to look at records that would
13 support the ARMIS report or the changes that Mr. Plummer
14 stated in his testimony needed to be made to the ARMIS
15 report. This is specific rebuttal to Mr. Lansing's
16 objections to the information he has been provided and
17 specific rebuttal to Mr. Lansing's reliance which he very
18 clearly had on the ARMIS report as the basis for his
19 unlit fiber disallowance in this case.
20 COMMISSIONER SMITH: Mr. Howell.
21 MR. HOWELL: I would withdraw my objection
22 from that respect; however, I still need a clarification
23 on which ARMIS report year we're discussing.
24 THE WITNESS: 1995, although my comments,
25 as I indicated in my opening sentence, are related to
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Wilder, Idaho 83676 U S WEST Communications
1 ARMIS reports filed in previous years as well.
2 MR. HOWELL: All right.
3 COMMISSIONER SMITH: Let's go off the
4 record for a minute.
5 (Off the record discussion.)
6 (Documents being distributed.)
7 MS. HOBSON: Madam Chair, what has been
8 distributed to the parties in an effort to help us
9 through the technical aspect of the testimony is a
10 document that outlines the live surrebuttal testimony
11 that Mr. Plummer has prepared in connection with and
12 working with U S WEST's attorneys in this case.
13 We intend to present this information live
14 and I do not necessarily mean to read it verbatim, nor do
15 I expect Mr. Plummer to respond to it verbatim. This is
16 merely offered as a guide.
17 COMMISSIONER SMITH: Thank you, and we'll
18 take it as such.
19 MS. HOBSON: Thank you.
20 Q BY MS. HOBSON: Mr. Plummer, I believe that
21 you were discussing the nature of the synchronization
22 flaws that occurred in the ARMIS report and I wonder if
23 you could begin that discussion again now that everyone
24 is squared away.
25 A Certainly. As I started, in past ARMIS
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Wilder, Idaho 83676 U S WEST Communications
1 reporting, we used different data sources for the basis
2 for fiber sheath kilometers, total fiber kilometers
3 deployed, that's both lit and dark, and then fiber
4 kilometers lit. As an example, in the 1995 ARMIS report
5 column (r), fiber kilometers equipped with electronics,
6 it was extracted from the engineering recordkeeping
7 database TIRKS, which is trunk integrated recordkeeping
8 system, and the statistical data for total kilometers
9 deployed, lit and dark, were taken from the continuous
10 property records database, Report 7A.
11 The difficulty is that while both of these
12 databases included information regarding the total
13 kilometers deployed, the CPR records reflect twice the
14 amount of fiber deployed as compared to TIRKS, and when
15 we take the fibers lit from the TIRKS database and the
16 total kilometers deployed from 7A, with that kind of
17 distortion, it's hard to have an accurate picture. We've
18 had considerable effort to try to synchronize those
19 databases and in future reports we will either
20 synchronize the databases or footnote those errors where
21 problems exist.
22 Q Did you provide information to the Staff
23 that identified these problems and did you offer
24 alternative information to the Staff in preparing its
25 case for Idaho?
3473
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 A Yes, we did and we provided information
2 both that identified the nature of the problem and
3 alternative means of measuring fiber utilization in
4 responses to data requests. In addition, Matt Crusick,
5 an engineer who works for me who is familiar with both
6 the databases and the information sources, met with
7 Mr. Lansing to discuss the information that I used in my
8 prefiled testimony and that was filed in the ARMIS
9 reports and the problems associated with it.
10 Q Do you have other concerns regarding
11 Mr. Lansing's use of the ARMIS data to determine the
12 plant held for future use?
13 A Yes. I do not believe that any of the
14 installed fiber base should be considered as held for
15 future use. In addition, Mr. Lansing's calculations
16 assume a uniform cost of fiber kilometer placed for all
17 fiber that was deployed and lit. Fiber placing and
18 installation costs result in very different unit costs
19 depending on location and situation. For example, fiber
20 installed in existing conduit have installation costs as
21 low as 1-$2.00 per foot, while average fiber costs for
22 placing fiber in a trench are about $4.00, and in some
23 places in Idaho where the fiber placing was in rocky
24 conditions, what I'd consider extreme, the fiber placing
25 costs were as much as $8.00 a foot.
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Wilder, Idaho 83676 U S WEST Communications
1 In addition, fiber placed in conduit
2 doesn't use the same armor protection that buried or
3 trench fiber uses and that fiber has a material cost
4 that's about 10 percent less or 10 percent more if it's
5 placed in a trench or plowed as compared to fiber that's
6 placed in a conduit. Mr. Lansing's calculations ignored
7 those factors and assumed an average cost per fiber
8 kilometer placed and used and then he ignored other
9 factors that I included in my prefiled testimony,
10 including buffer tube integrity and other technical
11 design limitations.
12 Q What would be the impact of adopting
13 Mr. Lansing's recommendations in this case?
14 A By using an average calculation, the value
15 of plant held for future use would be dramatically
16 overstated, and to demonstrate that impact, I pulled ten
17 jobs in the Boise area. Seven of those jobs had adequate
18 information to proceed. I couldn't get all the costing
19 data on the other three, but the impact can be seen by
20 looking at, comparing the costs of those seven fiber
21 installations, all urban exchange fiber cables placed in
22 conduit, with the total fiber deployed in the state. In
23 those seven installations, they represented about 1.4
24 percent of the total fiber sheath miles deployed in this
25 state, but represented 11 percent of the unlit fiber
3475
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 kilometers and, again, they represented less than 1.4
2 percent of the total investment.
3 Using the approach that Mr. Lansing used,
4 we would have allocated around $3.6 million of investment
5 held for future use when the total cost of the seven jobs
6 represented less than $520,000.
7 Q Is there anything unique about those seven
8 installations that you just discussed?
9 A Yes, there is. These deployments are all
10 large urban exchange fiber situations where the majority
11 of the spare capacity exists. The fiber cables were
12 placed along primary feeder routes. They were all placed
13 in existing conduit structures, and while these duct
14 structures may have resulted in larger cable sizing to
15 ensure that we didn't have to go in and use additional
16 fiber tubes, the sizing was consistent with the optical
17 electronics capacity at the time they were deployed,
18 meaning that larger scale systems have been developed
19 since and smaller cables would likely be put in today,
20 but at the time they were installed, these were installed
21 with current capacity considerations in mind, and on
22 balance, the cost profile of these fiber installations is
23 typical with what you'd expect to find in Boise and other
24 urban situations.
25 My concern is that if the Commission were
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Wilder, Idaho 83676 U S WEST Communications
1 to adopt the average costing methodology, it would
2 dramatically and inappropriately shift classification of
3 investment as not used and useful and I recommend that
4 that approach be rejected.
5 Q Now, you indicated that you have additional
6 concerns regarding Dr. Selwyn and Ms. Baldwin's
7 conclusions relating to digital investment. What are
8 those concerns?
9 A Both Dr. Selwyn and Ms. Baldwin asserted
10 that digital investment is being deployed to support
11 primarily Title 62 services. I've reviewed the planning
12 for switching, transmission and loop systems in Idaho and
13 can't reach the same conclusions.
14 Q Dr. Selwyn testified that CLASS services
15 like Caller ID are examples of services that require
16 digital investment. He also testified that Centrex
17 services could not be offered with an analog switch
18 platform. Do you agree with those statements?
19 A No, I don't. The Lucent Technologies 1A
20 ESS, which was the predominant technology in Boise,
21 Pocatello, Boise West, supports both Centrex and CLASS
22 services, including Caller ID. The switch can also be
23 configured to provide limited digital services, like
24 switched net 56 service. I've reviewed the digital
25 switching upgrades in the state and believe that factors
3477
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 other than new Title 62 services provided the impetus for
2 replacement.
3 Q Could you provide some examples of the
4 factors that influenced the digital switch upgrades in
5 Idaho?
6 A Yes, I can. The most common cause of
7 replacement is growth in central office equipment and
8 line additions. Boise Main, for example, exceeded the
9 maximum number of telephone numbers that the 1A ESS could
10 support, which is 128,000. Even after mining a
11 substantial number of telephone numbers out, we still
12 exceeded that capacity.
13 Meridian's requirement for central office
14 line equipment, coupled with building space limitations
15 and requirements for, larger requirements for, analog
16 switching resulted in having a lower cost to replace the
17 2B switching system as opposed to building and adding to
18 the 2B ESS, and just as a general note, in areas that are
19 experiencing high line growth with analog switching
20 systems, it's increasingly becoming more attractive to
21 replace those analog switching systems with digital
22 because of the declining cost of the technology.
23 Q Dr. Selwyn testified at this hearing that
24 an alternative to replacing a switch could be to buy a
25 second small digital switch to meet growth. Do you agree
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CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 with that approach?
2 A Only to a certain degree. In certain
3 situations, we do find it economical to place a second
4 switch in a wire center and we do -- I think there are 20
5 switches being placed across the region. The lower
6 initial cost of these alternatives, however, has to be
7 considered with the added operational and maintenance
8 expenses that go along with placing a new entity.
9 Included in those costs are administration and
10 maintenance of two separate offices and then, in addition
11 to that, there's problems of trunking between the
12 offices, meaning that these offices serve the same
13 community of interest. People tend to call each other
14 and we have to equip what would be the equivalent of
15 interoffice trunks between the two switching entities,
16 increasing the cost for both entities.
17 In addition to that, it's complex for
18 customers as they change services and change locations to
19 be moved between switches that can't support the same
20 telephone numbers, and then, finally, we found that in
21 most instances placing these cap switches has a limited
22 life and generally result in replacement of the older
23 technology within about a five-year period.
24 Q Are there situations where it would be more
25 economical to replace the switching system rather than
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Wilder, Idaho 83676 U S WEST Communications
1 add capacity?
2 A Yes. In fact, Dr. Selwyn recognizes in his
3 testimony that there were situations where it may be more
4 efficient to replace the older switch with a larger and
5 newer switching system. The decision to replace a
6 switching system is really driven by the overall
7 economics of the situation and we typically use a 10-year
8 life to drive that an analysis.
9 In addition, as I mentioned earlier, the
10 continual decline in digital switching technology costs
11 and the increasing cost of maintaining software and
12 hardware with analog systems make replacements continue
13 to be an economic alternative.
14 Q Do analog switching systems wear out in the
15 traditional sense?
16 A Yes, they do. Analog switching systems,
17 contrary to, I think, popular belief, are made up of a
18 variety of solid state and electromechanical devices.
19 The solid state devices are subject to the same aging and
20 deterioration as other consumer electronic products that
21 use equivalent technology. The electromechanical
22 components, which include major components like the
23 switching fabric itself, are subject to use-related wear
24 and as those switching systems age, the components
25 continue to have higher probability of failure and,
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Wilder, Idaho 83676 U S WEST Communications
1 hence, have higher maintenance costs. These higher costs
2 of maintenance are things that we include in our economic
3 analysis.
4 Q What other maintenance-related costs factor
5 into your replacement decisions?
6 A As we maintain switching systems, there are
7 certain infrastructure costs that are required for
8 supporting the technology that also influence our
9 replacement decision. Large complex systems like
10 switching systems require extensive documentation and
11 training for both on-site personnel and remotely-located
12 technical support folks who provide the second and third
13 tier of support when the people in the field can't find
14 the problem.
15 These technical support resources have to
16 be maintained to ensure that when a problem can't be
17 fixed on site that it can have remote repair or in some
18 cases remote assistance in effecting repairs, and as
19 technologies approach the end of its life cycle, it's
20 increasingly difficult both to maintain the training
21 levels and support the cost of a limited number of
22 switching systems.
23 In addition, our suppliers, the
24 manufacturers discontinue the systems, remove their
25 support and warranty for software and hardware which
3481
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 leads to another source of obsolescence. Rexburg and a
2 variety of 2B offices in the state previously had they
3 not been replaced in advance would have been examples
4 where the ongoing cost of maintaining infrastructure
5 provide the basis for replacing all such systems.
6 We were down to a base of 11 2B ESS systems
7 across our entire Company and at that point it became
8 more economical for us to replace all 11 than to maintain
9 software, technical support and the other resources that
10 I mentioned.
11 Q Directing your attention now to the subject
12 of digital transmission equipment, have Title 61 services
13 benefited from the investment in digital transmission
14 systems installed since 1989?
15 A Absolutely. Basic service users have
16 benefited from digital transmission technology in the
17 interoffice applications since the mid '70s. Optical,
18 radio and T-1 digital interoffice facilities have been
19 the predominant and now only currently available
20 technology for connecting Idaho local area and extended
21 area service configurations, and while we did use and
22 still do use some digital radio in Idaho as a matter of
23 technology choice where terrain and other things prevent
24 cables from being placed, new analog radio, if it's
25 available at all, has cost and performance deficiencies
3482
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 that limit its use and existing analog radio that's
2 installed and being upgraded for the most part has very
3 limited availability of spare parts and in most cases is
4 not supported by our suppliers. Digital interoffice
5 transmission equipment is an essential element of the
6 local and interoffice facility network in the state.
7 Q Has digital subscriber loop carrier been
8 used primarily for Title 62 applications?
9 A No, it has not. In my prefiled testimony,
10 I indicated that well over 90 percent of digital
11 subscriber loop carrier terminations are utilized for
12 Title 61 services. Both optical and T-1 span line
13 interconnected digital loop carrier systems are the
14 most often utilized in serving areas that extend beyond
15 12,000 feet from the central office. Transmission
16 performance and cost are the major factors that drive
17 those systems to be placed as opposed to copper cables.
18 What we're seeing is the technology trends that indicate
19 that smaller, less expensive digital loop carriers will
20 result in even broader application of digital loop
21 carrier for Title 61 services in the next few years.
22 Q Ms. Baldwin's surrebuttal testimony implies
23 that U S WEST, in her words, places precisely one access
24 line per household, plus a small amount for maintenance
25 spare. Is that an accurate statement of how U S WEST
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CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 builds its network?
2 A No, it's not. Outside plant for both
3 residential and small business applications are designed
4 into two components, feeder from the central office to a
5 point in the neighborhood and then distribution
6 facilities which are designed from that point to the
7 customer's residence or business. Our engineering
8 standards typically deploy 1.8 access lines per living
9 unit, with some neighborhoods having more and some having
10 less. That distribution includes on average
11 one-and-a-half lines in the feeder and then three lines
12 in the distribution.
13 I think Ms. Baldwin characterized
14 residential service demands as being very stable and
15 predictable, with virtually all of the plant being in
16 service all of the time and that simply isn't the case.
17 With increasing demand for home-based businesses and
18 additional lines, it's caused significant additional
19 churn in residential areas. In 1995, for each Title 61
20 line gained in '95, there were approximately six inward
21 line orders and the percent or the number of inward lines
22 to line gained has been increasing over the last two
23 years.
24 Q Are Title 62 services designed to the same
25 standards?
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CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 A No, not for the most part and particularly
2 for large business applications, like Centrex, they tend
3 to be designed with facilities placed directly to their
4 locations. They typically do not have the distribution
5 facility component. The feeder, as I referred to it, is
6 often called direct feed, which means it goes directly
7 from our central office to their location. They're
8 typically shorter in length and larger in size; hence,
9 they tend to have lower unit costs than residential
10 feeder and distribution applications.
11 Q Do you agree with the statement that was
12 made in the surrebuttal testimony that there is
13 substantial capacity designed and installed to serve
14 Centrex services in the U S WEST network in southern
15 Idaho?
16 A No, I do not. When I reviewed the feeder
17 capacity in the Boise area specifically and looked at it
18 by facility area, there was no evidence that spare
19 capacity had been pre-built to capture potential Centrex
20 customers.
21 Q Does that conclude your live rebuttal
22 testimony?
23 A Yes, it does.
24 MS. HOBSON: Mr. Plummer is ready for
25 cross-examination.
3485
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 COMMISSIONER SMITH: Mr. Howell.
2
3 CROSS-EXAMINATION
4
5 BY MR. HOWELL:
6 Q Good morning, Mr. Plummer.
7 A Good morning.
8 Q I'd like to start on page 25 of your
9 rebuttal. On line 16, you indicate that there are 85
10 switches currently serving customers. Aren't you
11 mistaken in that switch count?
12 A Can I get -- I must have a different copy
13 than he has.
14 (Ms. Hobson approached the witness.)
15 THE WITNESS: I don't believe so.
16 Q BY MR. HOWELL: Isn't it true that your
17 count of 85 switches fails to omit those 18 switches
18 which were just sold as part of the rural exchanges?
19 A Oh, they could have. Those may have been
20 included in the testimony. I don't know when the data
21 was collected if they were in or out.
22 Q But if you were to testify today, there are
23 not 85 U S WEST Communications switches in Idaho, are
24 there?
25 A I would accept that, subject to check.
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CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 Q Would you accept, subject to check, that in
2 fact 18 switches have been sold as part of the rural
3 exchanges?
4 A Yes, I would.
5 Q So the actual number of U S WEST switches
6 is approximately 67?
7 A I would accept that, subject to check.
8 Q Subject to check. On page 31 through 36 of
9 your rebuttal, you discuss re-engineering or
10 restructuring. Hasn't the Company and the Staff settled
11 the re-engineering issue as contained in the second
12 stipulation admitted as Exhibit 48?
13 A I'm not aware of that. They could have.
14 Q Well, let's turn a little bit to fiber.
15 You mentioned in your live surrebuttal that an engineer
16 who was familiar with the information and data sources
17 met with Mr. Lansing. Could you identify that engineer?
18 A His name is Matt Crusick.
19 Q And when did that meeting take place?
20 A I don't know the exact dates. It was in
21 February, I believe.
22 Q And where did that meeting take place?
23 A 700 West Mineral, Littleton, Colorado.
24 Q Do you have personal knowledge that
25 Mr. Lansing met with that individual on that date?
3487
CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 A Mr. Crusick provided that information to me
2 day before yesterday.
3 Q But you don't know of your own personal
4 knowledge whether that meeting ever took place?
5 A I do not. I have no reason not to believe
6 Mr. Crusick, however. He's worked for me for about ten
7 years.
8 Q Is it possible that that meeting had been
9 set up but never took place?
10 A Could have. If Mr. Lansing says it didn't,
11 I would accept that, subject to check, as well.
12 Q All right. You mentioned in your live
13 surrebuttal that the factors other than the demand for
14 new services provided the impetus to replace many of the
15 old analog switches in Idaho and then you, I believe you,
16 mentioned that the most common cause of replacement was
17 growth in the central office line equipment.
18 A Yes, that is what I said.
19 Q Isn't it true that the most common cause of
20 switch replacement over the last ten years has been the
21 Tech Plus project?
22 A I would agree with that. The portion of my
23 testimony that I was dealing with were those switches
24 that Ms. Baldwin identified as being installed subsequent
25 to the Tech Plus program. I think she dealt with those
3488
CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 differently than those that were replaced subsequent to
2 it.
3 Q You also talked about examining or looking
4 at seven fiber installations in the Boise area. Do you
5 know if those fiber installations in the Boise area would
6 have been part of the Tech II project?
7 A At least four of the jobs were part of the
8 Tech II and the remainder because of the time frame they
9 were installed very likely were part of the Tech II
10 program.
11 Q And you were located in Idaho during the
12 Tech Plus and Tech II projects?
13 A No, I was located in Denver. I was
14 involved with the general attorney during the original --
15 our attorney during the original Tech program and then
16 stayed involved with the second one as well.
17 Q Would you agree that a significant portion
18 of digital transmission technology has been deployed in
19 Idaho as a result of the Tech II project?
20 A I don't know what portion has been deployed
21 as a percent as part of the Tech programs. I would
22 acknowledge that substantial upgrades in the
23 infrastructure occurred as a result of those programs.
24 Q You also mentioned about the increasing
25 demand from home-based businesses and additional
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CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 residential lines. What do you think is causing the
2 demand for additional residential lines?
3 A Well, I can give you a lay person's
4 interpretation. I'm not a demographic or market expert,
5 but my belief is that quality of life issues are having a
6 substantial impact in the states of Idaho and Utah where
7 people are choosing to leave large urban areas and move
8 to more rural communities and work at home as opposed to
9 work in conventional work locations. Other factors
10 include teenagers and other life-style issues where the
11 expectation is of children that they have second lines.
12 Those are some of the factors, I believe, that are
13 impacting it.
14 Q Would you agree that some of the demand for
15 additional second lines is providing access to the
16 Internet and other computer usages?
17 A I think Internet and fax machines both are
18 examples where second lines are becoming increasingly
19 popular in residential, yes.
20 Q Is it your understanding that the Staff in
21 this case is advocating that the Company install smaller
22 fiber optic cables in the network?
23 A My understanding is that they are
24 advocating disallowing the investment from being used and
25 useful which has the same impact.
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CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 Q Well, isn't it true that the Staff is
2 advocating that fiber not used and useful be reclassified
3 to plant held for future use?
4 A I believe it has the same impact, although
5 I'm not an accounting witness.
6 Q Let me try one little accounting question
7 on you. Isn't it true that plant held for future use
8 receives a carrying charge?
9 MS. HOBSON: I'm going to object. It's
10 beyond the scope of the witness' testimony and I believe
11 it's also contrary to fact, any fact in evidence.
12 COMMISSIONER SMITH: Actually, I think this
13 has already been testified to, but I would sustain the
14 objection on the basis that it is beyond the scope of his
15 testimony and he's already declared he's not an
16 accounting witness.
17 Q BY MR. HOWELL: What test year has the
18 Company used in this case?
19 A I believe the test year was 1995.
20 Q Why -- well, let me ask you this: Would it
21 be appropriate to use the 1994 ARMIS lit rate for fiber
22 to be calculated in this case?
23 A As I indicated in earlier comments, I
24 believe the same flaws exist in '94, '93 and '92 as exist
25 in '95. I think it's a methodological problem that has
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CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 carried forward through all those years.
2 Q Have you or individuals at your direction
3 recomputed the 1995 ARMIS data for lit fiber?
4 A We provided engineering reports that were
5 the best available information in response to an
6 information request.
7 Q Again keeping in mind that we're attempting
8 to determine the Company's costs and revenues for a '95
9 test year, why would your calculation of fiber contained
10 in your rebuttal testimony as of January 1997 be
11 applicable to the 1995 test year?
12 A I'm not sure that it would be directly
13 applicable. I think what we were trying to do was
14 provide the Commission the best available information of
15 fiber utilization. The reason that we went back and
16 looked through documents that were on hand was to provide
17 insights from '95 and I believe that that was included
18 in -- I can't tell you which information request we
19 supplied that in, but we felt it was the best information
20 available at the time.
21 Q Based on that recalculated engineering
22 report for 1995, do you remember the calculation for lit
23 fiber in that year?
24 A I think it was 44.8 or something in that
25 range, 44.6.
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CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 Q And that calculation was based on strands,
2 was it not?
3 A Yes, same basis as the ARMIS report.
4 Q Isn't the ARMIS report calculated on
5 kilometers from fiber?
6 A It depends on which column.
7 Q Well, at one point in one of your
8 production requests, didn't you offer a different
9 percentage of lit fiber in 1995?
10 A In the ARMIS report, we offered different
11 numbers. I think that there were several different
12 calculations provided.
13 Q Has the Company received approval from the
14 Federal Communications Commission to change the manner of
15 the calculation for the ARMIS reporting data?
16 A Actually, we're not obligated to report it
17 in the manner we've been reporting. As I indicated, we
18 were either going to correct the methodology we used or
19 footnote the deficiencies in the data and the process
20 that we're using. Now, the ARMIS report, because it is
21 statistical data, you're not required to use common data
22 sources or specific methodology. The only thing you're
23 obligated to do is to the extent you change the
24 methodology, you're obligated to provide that information
25 in a footnote.
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CSB REPORTING PLUMMER (X-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 MR. HOWELL: May I approach the witness?
2 COMMISSIONER SMITH: Certainly.
3 (Mr. Howell approached the witness.)
4 MR. HOWELL: For identification purposes,
5 Mr. Plummer, I'm going to hand you what's been identified
6 as Staff Audit Request 160 and ask you if you recognize
7 that audit request and the answer that goes with that.
8 A Yes, I do.
9 Q Could you read that highlighted sentence?
10 And, again, I would caution you that that is probably a
11 confidential or proprietary comment that I'd leave to
12 your discretion.
13 MS. HOBSON: Mr. Howell, in light of that
14 remark, can you show me what sentence you've highlighted
15 so we can make a determination?
16 MR. HOWELL: Sure. Can he read that?
17 MS. HOBSON: Read my own data response,
18 yeah.
19 Q BY MR. HOWELL: Would you read -- do you
20 have the first highlighted sentence marked?
21 A Yes.
22 Q Could you read that sentence?
23 A "By making the appropriate adjustments,
24 Idaho end of 1995 utilization would reflect 23 percent."
25 Q Twenty-three percent; correct?
3494
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1 A That's correct.
2 Q And below at the bottom is the reference to
3 your 44.6 percent utilization; correct?
4 A That's right. At the bottom it says, "If
5 we had the ability to rerun the 1995 data using the
6 updated criteria, the fiber utilization for end of year
7 '95 would reflect 40 to 45 percent."
8 Q Isn't it true that the engineering records
9 we've been speaking about to recalculate the amount of
10 lit fiber have no costs recorded with them?
11 A The engineering records do not have costs
12 associated with them, no.
13 Q And isn't one of the problems that we seem
14 to have in the dispute regarding the amount of lit fiber
15 is the use of financial records and engineering records,
16 and to put it a little more succinctly, financial records
17 have costs attached to them and engineering records do
18 not?
19 MS. HOBSON: I'm going to object. I think
20 the question calls for Mr. Plummer to speculate what
21 Staff's problem has been. I think also there is no
22 identification as to which financial records Mr. Howell
23 might be referring to in his question.
24 COMMISSIONER SMITH: Mr. Howell, would you
25 like to reformulate your question?
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1 MR. HOWELL: Well, I guess I'm asking,
2 Madam Chairman, whether this witness knows the difference
3 between engineering reports and financial reports as they
4 are used to calculate the amount of lit fiber.
5 MS. HOBSON: Well, Madam Chairman, I fear
6 that what Mr. Howell is really asking is whether the
7 ARMIS report and the engineering reports should be
8 compared.
9 COMMISSIONER SMITH: Mr. Howell.
10 MR. HOWELL: I'm asking this witness
11 whether he knows the distinction between engineering
12 reports that are not recorded with costs and financial
13 reports which are recorded with costs in the calculation
14 of lit fiber.
15 MS. HOBSON: Madam Chair, I don't believe
16 any financial reports have been identified.
17 COMMISSIONER SMITH: Mr. Howell.
18 MR. HOWELL: Let me come at it a little
19 differently. May I approach the witness?
20 COMMISSIONER SMITH: Certainly.
21 Q BY MR. HOWELL: Mr. Plummer, I'm going to
22 hand you what's marked for identification as Staff Audit
23 Request 163. Do you recognize this document?
24 A Yes, I do.
25 Q Was it prepared at your direction?
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1 A It was prepared by my staff in my absence.
2 Q So at your direction?
3 A At my direction.
4 MR. HOWELL: Madam Chairman, for the
5 record, I'd like to have this marked and identified as --
6 Q BY MR. HOWELL: Mr. Plummer, what I've
7 handed you which has been identified as Staff Audit
8 Request 163 is a part of the exhibit you sponsored which
9 is Company Exhibit 53, is it not?
10 A Yes, it is.
11 Q And what attachment is it?
12 A The attachment is STF000-163, Attachment A.
13 Q So it is the first proprietary document in
14 this pile?
15 A Yes, it is.
16 Q All right.
17 A No, it's actually the fourth, it's the
18 fourth document, second proprietary, I think.
19 Q Isn't it true that in this response
20 prepared to the Staff interrogatory you discuss two
21 different systems?
22 A Both in this and in my earlier testimony, I
23 discussed these two systems.
24 Q And would plant mileage reports be
25 engineering records? Fourth line down.
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1 A Those would technically be investment
2 records.
3 Q And then isn't the other system that you're
4 comparing the asset accounting system?
5 A I need to verify how these were described.
6 As I said, these were prepared by my staff. One source,
7 as I indicated earlier, column R is the engineering
8 database, so in this case, the plant mileage report would
9 be the engineering database and column S is the
10 investment database.
11 MR. HOWELL: Can we go off the record for a
12 moment?
13 COMMISSIONER SMITH: Certainly.
14 (Off the record discussion.)
15 MR. HOWELL: Thank you, Madam Chairman.
16 COMMISSIONER SMITH: You're welcome.
17 Q BY MR. HOWELL: Mr. Plummer, can you read
18 the first three sentences of that answer?
19 A The first three?
20 Q Yes, sir.
21 A "It is inappropriate to compare the report
22 dated 1-9-97 and the ARMIS report. They're based on two
23 different systems. The 1-9-97 report is taken from the
24 assignment system, whereas the ARMIS report, all columns
25 except R, is based on the plant mileage report from the
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1 asset accounting system. These two systems count or
2 inventory the fiber in different manners."
3 Actually, I misspoke. I read that wrong.
4 The plant mileage report is the continuous property
5 record report 7A that I mentioned in my earlier
6 testimony. The column R is taken from the engineering
7 reports.
8 Q Earlier in your live surrebuttal you were
9 talking about maintenance spare or fill ratios.
10 (Documents being distributed.)
11 Q BY MR. HOWELL: You've been handed what's
12 been marked as Staff Exhibit 185 which purports to be the
13 Company's response to Staff Production Request 455. Do
14 you recognize that document?
15 A Yes, it was included in Exhibit 53, I
16 believe. No, it wasn't. I do recognize it, however.
17 Q All right, and in that document, at about
18 four lines down from the top in the answer on page 2 of
19 that document, it discusses defective pairs. Do you see
20 that line?
21 A Yes, I do.
22 Q Can you tell the Commission whether
23 defective pairs are normally removed from plant in
24 service for ratemaking purposes?
25 MS. HOBSON: I'm going to object to the
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1 question. I think it's outside the scope of not only the
2 witness' testimony but also his expertise. He's not a
3 ratemaking expert.
4 COMMISSIONER SMITH: Mr. Howell.
5 MR. HOWELL: He's appearing in a ratemaking
6 case, he's a vice president of the Company, he's in
7 charge of switches. He's the director whose staff put
8 together this answer. If he doesn't know, he can say he
9 doesn't know.
10 COMMISSIONER SMITH: I'll allow the
11 question.
12 THE WITNESS: I don't know what the
13 accounting treatment of defective pairs would be and I
14 would provide some clarification about what a defective
15 pair is. In many states, including Idaho, we have very
16 stringent objectives on restoring customer service within
17 specific amounts of time, usually within 24 hours. Quite
18 frequently when we have a cable facility fail, rather
19 than fix the defective pair, we move the pair, the
20 customer's service to another facility, and then later go
21 and recover that defective pair and because a pair is
22 defective today, that doesn't mean that if it's required
23 it won't be restored in service for other customers. In
24 fact, on a daily basis we have people going out and
25 recovering defective pairs to meet service demand.
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1 Q BY MR. HOWELL: Is the percentage there
2 discussed in relationship to defective pairs, is that an
3 average line calculation?
4 A The 4.3 percent would reflect the
5 percentage of the total facilities that are defective.
6 It's a percentage. It's total pairs that are held due to
7 defective conditions divided by the total number of
8 feeder pairs.
9 Q And that's at any given time of the year?
10 A At any given time. This is a relatively
11 low number as well. Anything below five percent is
12 probably in the lower quartile in the Company.
13 Q And we have you to thank for it.
14 A You have the local maintenance people to
15 thank for that.
16 Q On page 28 of your rebuttal testimony, you
17 suggest that if the Commission adopt the Staff's spare
18 capacity allocation, it would lead to have and have not
19 networks. What do you mean by that? It's on line 3.
20 A I looked at it and what I'm referring to is
21 a concern that I personally have that if investment isn't
22 both encouraged and recovered that companies will no
23 longer invest in facilities in those situations. In a
24 state like Idaho where facilities for the most part are
25 shared between Title 61 and 62 services, to the extent
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1 recovery isn't granted or allowed, I think you will see
2 investment direction change and because virtually
3 everything we do has an economic analysis with it,
4 investment will be shifted to those services where
5 recovery is afforded.
6 Q Generally speaking, can you give the
7 Commission some kind of overview of the state of the
8 network in Idaho?
9 A I think mainly because of the foresight of
10 the Commission going back a number of years the network
11 is in reasonably good shape. It has, from a switching
12 resource, it has reasonably modern switches, state of the
13 art for our industry. It has fill levels that are
14 reasonable based on the high growth. Idaho is one of the
15 highest growth states in our region as a percent growth.
16 I would express some concern that fill levels are high.
17 We're investing more per forecast access line gained this
18 year than last year because of my concerns over that.
19 I think the interoffice facility network,
20 the fiber network, I think, is congested. It's
21 interesting and ironic for me to sit up here and argue
22 over lit fibers and dark fibers when we have major
23 cross-sections in the state between here and Pocatello
24 that were installed with six fiber cables and have the
25 preponderance of the costs, I think that those
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1 cross-sections are very tight and subject for enlargement
2 and additional investment, particularly between Twin
3 Falls and Pocatello.
4 I think in terms of overall capacity, I
5 think Idaho has fared very well from a service
6 standpoint. We've had some problems, but nowhere near
7 the held order problems that other states have seen,
8 mainly because of investment in support of
9 infrastructure, so, on balance, I think the policies of
10 the Commission have served both its constituents and the
11 Company well.
12 COMMISSIONER SMITH: Let's take about a
13 12-minute break.
14 (Recess.)
15 COMMISSIONER SMITH: Mr. Howell.
16 MR. HOWELL: Thank you.
17 Q BY MR. HOWELL: Mr. Plummer, earlier you
18 and I were discussing about the actual number of U S WEST
19 Communications switches in Idaho and I think we concluded
20 that there were 67 or 68. Is that the right amount?
21 A That's what I recall from our discussion.
22 Q Good. Now, in this case, the Staff has
23 recommended that investments in digital switches since
24 1989, excluding the Tech Plus projects, be assigned to
25 Title 62. Do you have that position in your mind?
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1 A (The witness nodded his head up and down.)
2 Q Now, if we were to exclude the Tech Plus
3 switches, isn't it true that that only leaves 16
4 switches?
5 A I'd have to look at that. I would accept
6 that, subject to check.
7 Q And maybe you remember that in Tech II we
8 upgraded 52 rural switches, some of which have been sold
9 which we've already excluded. Earlier we had received
10 testimony that there are still analog switches in Idaho.
11 Would you agree with me that they are located at
12 Pocatello, Idaho Falls, Roberts, Nampa, Caldwell and
13 Boise West?
14 A I don't know about Roberts, but I can
15 attest to the remainder.
16 Q Roberts is one of those old remotes out in
17 the middle of nowhere, so if we remove those six analog
18 switches, we're down to around ten switches, and isn't it
19 true of the ten switches that we now have left as we do
20 our subtractions that three of those switches were
21 recently upgraded using Title 61 funds and Company funds?
22 A I don't know what the source of funding for
23 those switches was.
24 Q Would you accept, subject to check, that
25 portions of the funding for those switches were Title 61
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1 funds?
2 MS. HOBSON: Madam Chair, I think that
3 Mr. Howell has gone past what this witness' knowledge is
4 demonstrated by the fact that we're now subject to
5 checking one on top of each other. This witness has not
6 testified about individual switches, nor has he attempted
7 to characterize which ones were funded and how they were
8 funded.
9 COMMISSIONER SMITH: Mr. Howell.
10 MR. HOWELL: Madam Chairman, where I'm
11 going is to figure out exactly how many digital switches
12 we're talking about that would be subject to the Staff's
13 recommended allocation of being placed in Title 62 rate
14 base.
15 MS. HOBSON: I don't think this is the
16 subject this witness is talking about. I believe what he
17 has testified to is the analysis that the network
18 organization goes through for replacing switches. It
19 seems to me that that piece of the case if it is
20 necessary to be made should have been made through Staff
21 witnesses.
22 COMMISSIONER SMITH: Mr. Howell.
23 MR. HOWELL: Madam Chairman, this witness
24 on page 28 discusses Ms. Baldwin's switch allocation. In
25 his surrebuttal this morning, he gave additional
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1 criticism of the Staff's position on allocating digital
2 switches to Title 62. I think he's certainly capable of
3 answering where I'm ultimately going with these
4 questions.
5 COMMISSIONER SMITH: Well, Mr. Howell, I'm
6 going to allow you to continue, but you need to focus
7 your questions more precisely and then if it's beyond the
8 scope, he can say so or if he does not know, he can say
9 so, so let's take it in small increments.
10 MR. HOWELL: Small increments? I will cut
11 to the chase.
12 Q BY MR. HOWELL: Mr. Plummer, isn't it true
13 that when we eliminate the analog switches and the
14 switches that have been sold that we're left with seven
15 digital switches that would be placed under the Staff's
16 position in Title 62 rate base?
17 A Again, I would accept that, subject to
18 check.
19 Q Moving on to another area, then, finally,
20 you take issue, don't you, with the Staff's position that
21 spare capacity should be assigned to Title 62?
22 A I do.
23 Q And earlier I've handed you what's been
24 marked as Staff Exhibit 185 and, in fact, in your live
25 surrebuttal, you alluded to some data contained in that
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1 document. Can you tell the Commission what your fill
2 rate is for F2 distribution?
3 A I need to find it.
4 Q It's on the fourth line on page 2 of
5 Exhibit 185.
6 A I'm having a little difficulty getting to
7 185, not to the line is all.
8 Q I take it back, it's on the third line.
9 A The F2 fill is 22.5 percent.
10 Q And earlier today you indicated that the
11 Company's current design criteria places three pair of
12 lines or -- let me ask you this: Is a pair equivalent to
13 a line?
14 A Yes, in most instances.
15 Q Well, in most instances, then, earlier you
16 testified that the Company is currently placing three
17 pair in the F2 distribution. Does that mean that three
18 lines are being supplied to each new residential
19 customer?
20 A In new developments that sizing would be to
21 size three lines per residential living unit, yes.
22 Q And how long has that been the Company's
23 current design criteria for residential service?
24 A I don't know exactly how long it's been.
25 It's been at least two years. I also indicated, I
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1 believe, in my testimony that there were certain
2 neighborhoods where we designed more based on
3 demographics and cost of housing and other factors.
4 Q Do you know the percentage of residential
5 second lines in Idaho?
6 A No, I do not.
7 MR. HOWELL: May I approach the witness?
8 COMMISSIONER SMITH: Certainly.
9 Q BY MR. HOWELL: I'm handing you what's been
10 marked as Response to Staff Production Request 472. Was
11 that response to the best of your knowledge prepared by
12 the Company?
13 A To the best of my knowledge, yes.
14 Q Could you read the response, please?
15 A "As of December 1996, there were 311,000
16 residential access lines in Idaho-South. Of this, 15,567
17 of the access lines carried an additional line USOC,
18 leaving 295,840 access lines carrying primary USOCs,
19 Respondent John Bremmer, manager of markets regulatory."
20 Q And if I did the math on that, would you
21 accept, subject to you doing the math, that that works
22 out to be approximately five percent residential second
23 lines?
24 A The math is correct and that's what would
25 have been reflected on that date.
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1 Q If the most current Company data indicates
2 that residential second lines are less than five percent,
3 is it in your opinion a reasonable business practice that
4 each residence be equipped with three lines?
5 A I think it's a reasonable practice for a
6 variety of reasons, yes. Included in those would be
7 residential customers expect to have service available on
8 demand. They also expect that they would be able to
9 disconnect those services when they choose and so while
10 there may be 15,000 residential second lines, I provided
11 in my live testimony today information regarding the
12 churn where for every residential line gained, there are
13 six inward line activities, suggesting a fair amount of
14 churn or connecting and disconnecting both on primary and
15 second lines.
16 My experience tells me that residential
17 second lines have a much shorter location life, meaning
18 that they're in service at the same place for a shorter
19 time as compared to primary lines and I think
20 specifically from a service standpoint, I think it's
21 reasonable because of the high cost of going back into
22 neighborhoods and placing additional facilities, it's
23 cheaper to do it at the initial installation.
24 Q You're not concerned or -- strike that.
25 Should the Commission be concerned that the Company is
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1 overinvesting in Title 61 plant by putting in three lines
2 to each residence?
3 A I don't believe so. The sizing guidelines
4 are developed using engineering criteria that evaluates
5 different standard provisioning and sizing of cable and
6 three was selected as the optimal number of lines to
7 install in these areas.
8 (Documents being distributed.)
9 Q BY MR. HOWELL: You're being handed what's
10 been marked as Staff Exhibit 180 which portrays a bunch
11 of data provided by the Company. In particular, I'd
12 direct your attention to the growth rate for all Title 61
13 lines and then the growth of the outside plant for either
14 total state or intrastate basis. Do you see the growth
15 rate for Title 61 lines?
16 A The fourth line that says Title 61 business
17 lines or are you referring to the total line?
18 Q The total line.
19 A Okay, I see the total.
20 Q If I were to ask you to compare the 4.3
21 with the 7.17 growth in outside plant accounts, isn't the
22 growth in outside plant accounts greater than 50 percent
23 of the Title 61 line growth?
24 MS. HOBSON: I'm going to object to the
25 question on the grounds that there is no foundation for
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1 any of the numbers that appear below the line rates on
2 this exhibit. This is not an exhibit that's been put
3 into evidence before and there's no one that has
4 sponsored these numbers.
5 COMMISSIONER SMITH: Mr. Howell.
6 MR. HOWELL: Madam Chairman, as indicated
7 in that exhibit in Note 2, the data in outside plant,
8 total state and intrastate, comes from Statement C, the
9 reserves summary of January 1991 and 1996. The
10 separations factors in Note 3 are contained in documents
11 in this case as well.
12 MS. HOBSON: This is the first time that
13 any of us have seen these numbers and I don't know that
14 there's any way to confirm them at this point.
15 COMMISSIONER SMITH: Mr. Howell, I do think
16 you need to lay some more foundation for this document.
17 MR. HOWELL: All right. Might I have a
18 moment?
19 COMMISSIONER SMITH: Certainly. We'll be
20 at ease.
21 (Pause in proceedings.)
22 COMMISSIONER SMITH: Let's go back on the
23 record. Mr. Howell.
24 Q BY MR. HOWELL: Mr. Plummer, I've also
25 handed you two additional documents. Can you identify
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1 what company this is in the upper right-hand corner of
2 those documents?
3 MS. HOBSON: I'm going to object. Until
4 there is a foundation laid for this witness to be expert
5 in these documents, to have produced these documents, I
6 think it's inappropriate for him to be asked to read into
7 the record and attempt to establish Staff's case at this
8 point.
9 COMMISSIONER SMITH: Mr. Howell.
10 MR. HOWELL: I'm attempting to determine
11 whether he is the manager of certain accounts included on
12 these documents which were prepared -- which I believe he
13 could probably state if left to answer whether they've
14 been prepared by the Company or not.
15 MS. HOBSON: We're willing to stipulate
16 they were prepared by the Company. Our objection is that
17 this witness is being shown documents that relate in no
18 way to the testimony that he's given here and being asked
19 to attempt to create a foundation for Staff when Staff
20 needed to prepare its own foundation for this line of
21 questioning.
22 COMMISSIONER SMITH: Mr. Howell.
23 MR. HOWELL: I think the Company has just
24 stipulated that these are Company documents and my
25 understanding is that Mr. Plummer as a vice president and
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1 officer of the Company is familiar with the outside plant
2 accounts, particularly accounts that were identified in
3 Exhibit 180, 2421 through 2424, which are poles, aerials,
4 cables, underground cables and that.
5 MS. HOBSON: Again, I have a continuing
6 objection to Mr. Plummer being the one asked to
7 authenticate Staff's exhibits.
8 COMMISSIONER SMITH: The record will note
9 Ms. Hobson's continuing objection. Mr. Howell, let's see
10 what Mr. Plummer might know.
11 Q BY MR. HOWELL: Mr. Plummer, the two
12 additional sheets that I gave you a moment ago, do they
13 reflect accounts 2411 -- I'm sorry, 2421 through 2424?
14 A Those accounts are listed along the
15 left-hand column under the column labeled "Account."
16 Q And would you accept, subject to check,
17 that if I totaled up those accounts that we just spoke of
18 that for the 1990 figure, they would total on a total
19 state basis 281,710,000?
20 MS. HOBSON: Again, Madam Chairman, we
21 object. There is no foundation that this witness is
22 familiar with these documents and can support any of this
23 line of questioning. He can answer, subject to check,
24 the math is right, but that doesn't prepare a foundation.
25 COMMISSIONER SMITH: Mr. Howell.
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1 MR. HOWELL: Obviously, Madam Chairman,
2 what we're trying to do with Exhibit 180 is to show the
3 increase in outside plant over a five-year period and
4 whether that has a relationship to the growth rate. Now,
5 this is the outside plant or the best outside plant
6 witness that we're going to get in this phase of the
7 case. He has already testified about the switches. He's
8 testified about the spare capacity and this goes to the
9 issue of spare capacity.
10 COMMISSIONER SMITH: Mr. Howell, could you
11 get at the information you need by asking him directly
12 what he knows about the growth in outside plant?
13 Q BY MR. HOWELL: Mr. Plummer, would you
14 accept, subject to check, that the outside plant in those
15 accounts has grown at a rate of 7.12 percent from the
16 years 1990 through 1995?
17 MS. HOBSON: Madam Chairman, we're going to
18 object because our accounting witness who might be
19 appropriate to talk about some of the accounting issues
20 that are being presented to this witness informs me that
21 she is not able to make the math work given the short
22 period of time that we have had to review these
23 documents.
24 COMMISSIONER SMITH: Mr. Howell.
25 MR. HOWELL: Well, I guess if we have a
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1 question about the math, we could give a calculator to
2 the witness and he could total up the six accounts.
3 COMMISSIONER SMITH: Well, what I think I
4 also heard Ms. Hobson saying is they have a better
5 witness to ask about those numbers.
6 MR. HOWELL: If they have a better witness,
7 then I would reserve this exhibit and these questions for
8 that witness.
9 COMMISSIONER SMITH: Am I misinterpreting
10 your statement, Ms. Hobson?
11 MS. HOBSON: My statement is that we have
12 accounting witnesses who are familiar with the accounts
13 and are our numbers people. Mr. Plummer has provided no
14 numerical information relating to these subjects here.
15 It's outside the scope of his examination. I am not
16 stipulating that there is someone that is going to be
17 able to authenticate Staff's Exhibit, whatever it is,
18 180.
19 (Pause in proceedings.)
20 COMMISSIONER SMITH: Well, Mr. Howell, I
21 think the Company has legitimate objections to the manner
22 in which you are proceeding, although I don't know that
23 this may be the right witness for the point you're trying
24 to make, so I'm not sure how to advise you to proceed.
25 MR. HOWELL: Let me try a more
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1 to-the-point, direct question.
2 Q BY MR. HOWELL: Mr. Plummer, of your own
3 personal knowledge, isn't it true that the growth in
4 outside plant is growing faster than the number of
5 Title 61 lines in this state?
6 A I don't know that for a fact.
7 MR. HOWELL: Well, rather than go on, I
8 would -- I guess it's unclear in my mind whether there's
9 an additional witness on the part of the Company who can
10 answer this question.
11 COMMISSIONER SMITH: I think there's
12 probably one you can talk to about these accounts and
13 these numbers.
14 MR. HOWELL: All right, I will conclude my
15 questioning. Thank you, Madam Chairman.
16 COMMISSIONER SMITH: Mr. Harwood, do you
17 have questions?
18 MR. HARWOOD: No questions.
19 COMMISSIONER SMITH: Mr. Donesley?
20 MR. DONESLEY: No questions.
21 COMMISSIONER SMITH: Mr. Fothergill.
22 MR. FOTHERGILL: No questions.
23 COMMISSIONER SMITH: Mr. Phillips.
24 MR. PHILLIPS: No questions.
25 COMMISSIONER SMITH: From the Commission.
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1 COMMISSIONER NELSON: I have a couple of
2 questions.
3
4 EXAMINATION
5
6 BY COMMISSIONER NELSON:
7 Q When we were talking about the lit and
8 unlit fiber, Mr. Plummer, you talked about the example of
9 the Boise area which had these installations and was an
10 example of a high percentage of unlit fiber and you
11 talked about the route from Twin Falls to Pocatello which
12 was an example of a piece of plant that was near
13 capacity. I don't understand why the urban area would
14 have the high percentage of unlit fiber and the decidedly
15 rural area between Twin Falls and Pocatello would be at
16 or near capacity.
17 A That's a very good question and has at the
18 center of it age of the technology. When the Boise to
19 Pocatello route was built, fiber costs were quite high.
20 The electronics that were installed were very low
21 capacity and it was really sized based on what was
22 believed to be the requirements at the time, so this was
23 installed a considerable period ago, I believe in the
24 '70s.
25 If we installed that fiber today, it would
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CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 have a minimum sizing of 24 fibers. Much of it was
2 placed with six-fiber cable and it was just that the
3 cable was expensive at the time and I don't think we or
4 anyone else understood the ramifications of placing a
5 small fiber like that. Across the territory that I take
6 care of, a lot of fiber that was placed in that same time
7 frame was placed with six-fiber cable and we're using
8 techniques to increase the capacity, but that's the
9 reason that's so small.
10 In urban situations, the reason that you
11 place larger cables is the duct structure. If it's the
12 last duct that you're placing, you'll tend to place a
13 larger fiber cable because the cost of conduit would be
14 much greater than the cost of the cable on a per foot
15 placed in the duct.
16 Q Is that right?
17 A Yeah, to go back in and put conduit in, to
18 tear up the street and place an entire conduit structure
19 would be very expensive and in the exhibits to my
20 testimony, I provided a comparison of fiber costs at
21 various sizes and as you get into the larger fiber sizes,
22 the cost per fiber is quite small, about three cents a
23 foot, I believe, in the larger sizes.
24 Q So for projects done at approximately the
25 same time, you would expect the unused capacity to
3518
CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 decrease faster in an urban area?
2 A Well, actually what you'd expect is if it's
3 a direct buried situation, generally it will be in a
4 non-urban situation and we will place 24-, 36- or
5 48-fiber cables, but if you're putting it in a conduit,
6 if it's got multiple ducts that you can use, you'd tend
7 to put in 72 or 96 for most of the urban situations, but
8 I think the real key here is the application probably is
9 more important than the time it's installed, because if
10 it's in a route like from Boise Northwest to Eagle, that
11 likely would be a larger cross-section than something
12 that would connect Weiser and Payette.
13 Q Thank you. In Exhibit 185, you talked
14 about or you were asked about F1 and F2 cable. What is
15 F2 distribution?
16 A The way that our network is designed, it's
17 designed in clusters of typically 4-600 homes. The cable
18 that goes from our central office to that area is called
19 F1 and that's how our database inventories and it's
20 referred to as F1 or feeder. Those are synonymous
21 terms. F2 would be the cable from the point that it
22 comes into that neighborhood and is distributed
23 throughout.
24 In a similar attachment to the fiber, I
25 provided a per installed foot of distribution cable which
3519
CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 would be the F2 and you can look at that, the cost of
2 placing 100 pair cable per foot just as an example. If
3 you put a 300 pair in, it would cost you less than to go
4 back in later and place a subsequent 100 pair cable into
5 the same neighborhood, and so the cost of placing and
6 material really have to be considered when you go back
7 in.
8 We've got experience from a variety of
9 projects, actually going back into neighborhoods where
10 cables are in back yards and trying to trench additional
11 distribution cable in, so that while it may not seem
12 obvious that it's the right thing to do initially, if
13 you've gone back on a project and had to tear up people's
14 back yards and move fences and do all the things you need
15 to do to put distribution into an existing neighborhood,
16 it becomes more reasonable in the analysis.
17 Q Okay, thank you. In my mind when you wire
18 a subdivision, and just put a typical subdivision in your
19 mind, I guess, you go along and you -- in my mind you
20 drop pairs off as you go along, I'm wondering in
21 connection with your statement that for each new
22 subscriber you have six subscribers who churn a line
23 because of moving or second lines or whatever, how far
24 can you go to pick up a pair?
25 A The way that the facilities are designed in
3520
CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 modern plant, and I need to explain just a little bit
2 about the technology, current cable coatings are subject
3 to oxidation, so the designs that we're using today don't
4 distribute all the pairs to every customer terminal and
5 you typically have six to eight at the most, but usually
6 three or four, lots served by one terminal.
7 We typically will bring out of the cable
8 that's sealed and buried anywhere between 12 and 25 cable
9 pairs out of the cable and so the way they're distributed
10 through the neighborhood is in these sealed units that
11 come out of the ground and are completely sealed from the
12 air and they're jelly filled and that's how we actually
13 design the cable.
14 In current designs, we do usually cross
15 street kinds of applications to pick up a reasonable
16 number of homes, so if you had six homes, you could have
17 25 facilities or 18 facilities or 12. They usually come
18 in those increments and that's how you'd lay out a
19 subdivision so that they would actually not have
20 dedicated three pairs to each home, but each cluster of
21 homes would have a configuration of 6 to 18 to 25 pair.
22 Q So the cable that's available for my house
23 depends on the six or eight neighbors that I have that
24 are using that terminal?
25 A Yeah, so if you have someone that has a
3521
CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 home-based business and three children, you can quickly
2 get that terminal filled up and then you have to go back
3 in and do terminal enlargement if you undersized the
4 cable and that happens quite frequently today with
5 home-based businesses and other things that are occurring
6 in residential areas.
7 COMMISSIONER NELSON: Okay, thank you.
8
9 EXAMINATION
10
11 BY COMMISSIONER SMITH:
12 Q Mr. Plummer, in your live rebuttal today,
13 you talked about replacement being caused by growth and I
14 thought in that description I heard you say something
15 like you go out and you do mining. Did you say that?
16 A Yeah, that's probably not a correct term,
17 but I'll describe what I meant there.
18 Q I didn't understand what you meant.
19 A What we try to do is rearrangements, so
20 when we have a situation and I was, I think, describing
21 number groups or telephone numbers and in the switching
22 system at Boise Main that was replaced because it
23 exhausted the number capacity as one of the factors,
24 there were 128 groupings of 1,000 numbers, so what we
25 attempted to do was take those 1,000 numbers and move
3522
CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 them to other switching applications or to other
2 locations if they weren't location dependent, and
3 examples are sometimes cellular radio systems or PBXs or
4 state Centrexes have flexibility in what vehicle you can
5 serve them in and so we attempted to go through and
6 redistribute numbers across the entire system before we
7 replaced, but in the size of this area, we were unable to
8 prevent that from being a basis for replacement, so the
9 mining activity was really going out and finding this
10 1,000 numbers and moving it to a different switching
11 vehicle, using those numbers for base business or
12 residential or Title 62 growth and then as you depleted
13 those numbers, all of a sudden, we had no other numbers
14 that we could move or rearrange off the switch.
15 Q I don't think you were here previously in
16 our hearing, but we had an Exhibit 172 which had a list
17 of locations, all of which were familiar to us except for
18 something called Allen-Waterbury. Have you ever heard of
19 this location?
20 A If I could look at the exhibit, it may be
21 one that I asked a similar question on. It's vaguely
22 familiar.
23 Q It appears almost a dozen times on those
24 few pages there.
25 A Yes, I do remember what that building is.
3523
CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 That building is, as I recall, the interexchange carrier
2 point of presence and the primary building where
3 interexchange carriers are located in the city. I
4 believe that that's the designation, so you would have a
5 number of interoffice facilities designated between that
6 building and our location.
7 Q So this is a building?
8 A That's my recollection.
9 Q In Idaho?
10 A That's what I was told.
11 Q Anywhere in particular in Idaho?
12 A I think it's in Boise.
13 Q You learn something new every day.
14 A I did not recognize it either and had to
15 ask, but that is what I was told. It may not be
16 correct.
17 COMMISSIONER SMITH: Ms. Hobson.
18 MS. HOBSON: Thank you, just briefly.
19
20
21
22
23
24
25
3524
CSB REPORTING PLUMMER (Com-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 REDIRECT EXAMINATION
2
3 BY MS. HOBSON:
4 Q Mr. Plummer, when Mr. Howell was talking to
5 you, he was asking you about Staff Audit Request 160
6 which is a part of Exhibit 53. Can you find that
7 document?
8 A Yes.
9 Q As I recall, you were asked to read a
10 portion of the answer that appears on Attachment A to
11 Staff Audit Request 160 which indicated that Idaho's 1995
12 utilization factor was at 23 percent. Does that
13 percentage reflect the most accurate utilization of fiber
14 for 1995?
15 A No. We also submitted in another data
16 request information as I indicated later in a document
17 that it's in the 40 to 45 percent range. In fact, we
18 attempted to provide all of the records that we could
19 that were responsive to the request. In this particular
20 document, the data is subject to the same kinds of flaws
21 that other databases are and included in those is when
22 the fiber is inventoried, it's assumed to be uniform in
23 length throughout the entire facility route and what
24 happens in many cases is facilities start at 144 fibers
25 in one location and then through the path that they run
3525
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 are tapered because the needs close in are met by the
2 first fibers and as you go out, the fibers taper.
3 In the report that reflected 23 percent, it
4 assumed uniform fiber length across the entire route and
5 so when we provided this information, it wasn't
6 abundantly clear that that data was accurate because of
7 the tapering issue and other factors as well and that's
8 why when we used this other report, we believed that it
9 was the most accurate representation at this time.
10 MS. HOBSON: Thank you. Madam Chairman, I
11 would move the admission of U S WEST Exhibit 53.
12 COMMISSIONER SMITH: If there is no
13 objection, it will be admitted.
14 (U S WEST Communications, Inc. Exhibit
15 No. 53 was admitted into evidence.)
16 COMMISSIONER SMITH: And, Mr. Plummer,
17 thank you for your help.
18 THE WITNESS: Thank you.
19 (The witness left the stand.)
20 MR. HOWELL: Madam Chairman.
21 COMMISSIONER SMITH: Mr. Howell.
22 MR. HOWELL: Staff would move that
23 Exhibit 185 be admitted as well.
24 COMMISSIONER SMITH: Is there any objection
25 to the admission of Exhibit 185?
3526
CSB REPORTING PLUMMER (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 MS. HOBSON: No objection.
2 COMMISSIONER SMITH: Okay, it will be
3 admitted, also.
4 (Staff Exhibit No. 185 was admitted
5 into evidence.)
6 COMMISSIONER SMITH: Are we with you now,
7 Ms. Ford?
8 MS. FORD: We are. We're playing musical
9 chairs again. U S WEST calls Mary Owen -- recalls I
10 should say.
11 Madam Chair, we also have an outlined
12 preparation of Ms. Owen's oral rebuttal testimony and
13 we'd be happy to hand that out at this time and again, as
14 with Mr. Plummer, it's not intended to be read verbatim
15 but only as a guide.
16 COMMISSIONER SMITH: Well, we appreciate
17 having the guide.
18
19
20
21
22
23
24
25
3527
CSB REPORTING COLLOQUY
Wilder, Idaho 83676
1 MARY S. OWEN,
2 produced as a rebuttal witness at the instance of
3 U S WEST Communications, having been previously duly
4 sworn, was further examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MS. FORD:
9 Q Ms. Owen, you've previously testified in
10 this case; is that true?
11 A That's correct.
12 Q And in addition to the direct testimony
13 that you prefiled in this case, did you also cause to
14 have prefiled rebuttal testimony on January 28th, 1997?
15 A I did.
16 Q And that rebuttal testimony consisted of
17 49 pages of testimony?
18 A That's correct.
19 Q And did that testimony also contain three
20 exhibits marked Exhibits 40B, 40C and 40D?
21 A Yes. Did you say three or four?
22 Q Well, you tell me. I think I have three.
23 A Let me just double-check here. I think
24 there's four. The DimeLine exhibit, however, it doesn't
25 appear that I put that down and that should be 40B, so
3528
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 it's really 40A, which is proprietary, 40B, which is
2 three pages of a DimeLine ad, and then 40C and D.
3 Q Okay, and if I were to ask you the same
4 questions as are posed in your prefiled rebuttal
5 testimony today, would your answers be the same?
6 A They would.
7 Q Do you have any corrections you need to
8 make to that testimony?
9 A No, I do not.
10 MS. FORD: Madam Chairman, at this point I
11 would ask that Ms. Owen's rebuttal testimony be spread
12 upon the record as if read and her exhibits 40A, B, C
13 and D be admitted.
14 COMMISSIONER SMITH: If there is no
15 objection, it is so ordered.
16 (U S WEST Communications, Inc. Exhibit
17 Nos. 40A - 40D were admitted into evidence.)
18 (The following prefiled rebuttal
19 testimony of Ms. Mary Owen is spread upon the record.)
20
21
22
23
24
25
3529
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 I. IDENTIFICATION OF WITNESS
2 Q PLEASE STATE YOUR NAME, COMPANY AND
3 POSITION.
4 A My name is Mary S. Owen. I am employed by
5 U S WEST Communications, Inc. as Director of Product and
6 Market Issues.
7 Q HAVE YOU PREVIOUSLY FILED TESTIMONY IN
8 THESE DOCKETS?
9 A Yes, I filed direct testimony on June 28,
10 1996.
11 II. PURPOSE OF TESTIMONY
12 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY?
13 A The purpose of my rebuttal testimony is to
14 address the specific issues of pricing of a retail
15 product in an emergingly competitive environment; to
16 address the inappropriateness of attempting to assign
17 more of the costs of the local loop to Title 62 services,
18 thereby not including them in the pricing of basic
19 exchange local service; and to address specifically
20 issues and concerns raised by Staff
21
22
23
24
25
3530
Mary S. Owen, RE 2
U S WEST Communications, Inc.
1 witness Eastlake dealing with rate design and rule
2 issues. I conclude from this discussion that the rate
3 design proposals as detailed in my initial testimony are
4 still reasonable. I do agree to withdraw the
5 non-recurring restructure change which I originally
6 recommended. I begin, however, with an examination of
7 competition in Idaho and highlight specific areas dealt
8 with by Mr. Wozniak in his testimony.
9 III. COMPETITIVE LANDSCAPE IN IDAHO
10 Q WHY DO YOU FEEL IT IS NECESSARY TO DISCUSS
11 THE COMPETITIVE LANDSCAPE IN IDAHO?
12 A Throughout the testimony of Dr. Selwyn,
13 Mr. Eastlake and Mr. Power a recurring theme questions
14 the validity and impact of competition. It appears that
15 the following myths are being propounded:
16 * Competition does not exist in Idaho.
17 * U S WEST is overstating the risks
18 associated with competition.
19 * Competition is supposed to drive costs
20 down, therefore the residence rates should
21 not increase.
22 To dispel these myths I will discuss the
23 ramifications of the competitive landscape in Idaho as
24 detailed in Mr. Wozniak's rebuttal testimony, the
25 relationship between
3531
Mary S. Owen, RE 3
U S WEST Communications, Inc.
1 retail and unbundled rates and the impacts associated
2 with Title 61 services being supported by Title 62
3 services.
4 Q DOES TELECOMMUNICATIONS COMPETITION EXIST
5 IN IDAHO?
6 A Most definitely. If you look in the Boise
7 Yellow Pages you will find 7 pages of advertisements for
8 varying telecommunications services and products. Based
9 on Idaho data there are currently in excess of 150 long
10 distance providers, 13 companies have applied to become
11 local service providers and AT&T has already been
12 approved to provide local service.
13 Q BESIDES THE SHEER NUMBER OF PROVIDERS DO
14 YOU HAVE ANY SPECIFIC EXAMPLES OF THE COMPETITIVE IMPACTS
15 TO U S WEST IN IDAHO?
16 A Yes, long distance and private lines are
17 highly competitive markets in Idaho. U S WEST has
18 experienced significant intraLATA long distance business
19 losses, and customers seeking private line facilities
20 have many options.
21
22
23
24
25
3532
Mary S. Owen, RE 4
U S WEST Communications, Inc.
1 Q PLEASE EXPLAIN HOW U S WEST COULD BE LOSING
2 INTRALATA LONG DISTANCE USAGE WHEN 1+ PRESUBSCRIPTION HAS
3 NOT TAKEN PLACE IN IDAHO.
4 A Certainly. As mentioned earlier customers
5 currently have alternatives to U S WEST's long distance
6 service. Large businesses have the option of installing
7 private line networks which provide a dedicated link
8 between offices and avoid the intraLATA long distance
9 charges. Additionally, all customers have the option of
10 dialing 10XXX to access a long distance carrier of
11 choice. To do this many use their business PBXs which
12 can be programmed to dial the additional digits. Or
13 customers may use speed calling offered through their
14 local exchange company or through their purchased
15 telephone set.
16 Q PLEASE EXPLAIN THE 10XXX LONG DISTANCE
17 ALTERNATIVE.
18 A All Idaho customers have the ability to
19 access another long distance carrier for intraLATA
20 calling by simply dialing 10XXX, where the XXX is the
21 access code for the selected carrier. This market is
22 very lucrative and highly competitive. In a June meeting
23 before the Sanford Bernstein Strategic Decisions
24 Conference, Mr. Robert Allen, CEO of AT&T, stated that:
25 "We already do
3533
Mary S. Owen, RE 5
U S WEST Communications, Inc.
1 a billion dollars a year in local toll revenue through
2 dial-around and calling card calls."
3 Q ARE IDAHO CUSTOMERS WILLING TO DIAL 10XXX
4 TO BYPASS THE U S WEST INTRALATA LONG DISTANCE NETWORK?
5 A Yes. As Mr. Allen acknowledges, U S WEST's
6 competitors have been very successful in this area. In
7 July of 1996**% (See Exhibit No.40A for proprietary data)
8 of all U S WEST measurable intraLATA long distance
9 traffic was dialed using 10XXX dialing pattern. If one
10 looks only at business usage**% (See Exhibit No.40A for
11 proprietary data) was generated by 10XXX dialing, up
12 from**% (See Exhibit No.40A for proprietary data) in July
13 of 1994.
14 Q WHY WOULD CUSTOMERS BE WILLING TO DIAL THE
15 EXTRA DIGITS?
16 A First, it is important to realize that as I
17 just explained, many customers do not need to dial the
18 extra digits because their equipment does that for them.
19 Even if they do not have the equipment to allow them to
20 not dial the extra digits, based on the 10XXX traffic in
21 Idaho it is apparent that customers are willing to engage
22 in this dialing pattern. Why? The primary
23
24
25
3534
Mary S. Owen, RE 6
U S WEST Communications, Inc.
1 reason is the competitive pricing of long distance. This
2 is especially true where customers can combine their
3 intraLATA calling with their interLATA usage to meet
4 minimum volumes required by some carriers' discount
5 plans.
6 Q HAS U S WEST EXPERIENCED ACTUAL LOSSES DUE
7 TO COMPETITIVE PRICING?
8 A Yes, U S WEST recently lost the state of
9 Idaho's long distance contract. This contract was "won"
10 by AT&T. The average rate per minute proposed by AT&T
11 was less than the U S WEST imputed price floor. U S WEST
12 did not even have the ability to compete from a price
13 perspective for this large contract.
14 Q DO YOU HAVE EXAMPLES OF COMPETITIVE PRICES
15 AVAILABLE TO THE AVERAGE TITLE 61 IDAHO CUSTOMER?
16 A Yes. Exhibit No. 40B is a copy of a
17 DIMELINE advertisement offering Long Distance at $.10 per
18 minute. This is just one example of the current Idaho
19 long distance advertising. This company provides
20 services by utilizing 10XXX dialing, and their $.10 rate
21 per minute applies to all times of day, all days of the
22 week and to all direct dialed calls placed in the
23 continental United States.
24
25
3535
Mary S. Owen, RE 7
U S WEST Communications, Inc.
1 Q IS IT IMPORTANT THAT THE CALLS CAN BE
2 PLACED ANYWHERE IN THE UNITED STATES?
3 A Yes. All long distance competitors, except
4 U S WEST, can provide both intraLATA and interLATA long
5 distance calling. Each competitor, whether it is one of
6 the big three, (AT&T, MCI or Sprint,) or one of the
7 smaller resellers, has the ability to package all long
8 distance services. The competitors can offer packages
9 that provide discounts based on total volume and the
10 volumes are much larger when one combines intraLATA and
11 interLATA calling.
12 Q IS THERE A LARGE DISPARITY IN INTRALATA
13 VERSUS INTERLATA USAGE?
14 A Unquestionably. In Idaho the average
15 residence customer has an intraLATA U S WEST bill of
16 $*.**. (See Proprietary Exhibit No.40A). However, the
17 average carrier bill, based on billing done by U S WEST,
18 is $**.**. (See Proprietary Exhibit No. 40A). Clearly,
19 one can see the leverage that the carriers have in this
20 market. By aggregating all long distance calling the
21 competitors can offer larger discounts. U S WEST does
22 not have that same option.
23
24
25
3536
Mary S. Owen, RE 8
U S WEST Communications, Inc.
1 Q DO YOU HAVE ANY EXAMPLES OF AGGRESSIVE
2 CAMPAIGNS BY THE CARRIERS TO CAPTURE INTRALATA TRAFFIC?
3 A Yes. Based on a Business Week article
4 titled "Ready, Set, Devour?", AT&T has offered Illinois
5 residence customers three months of unlimited free
6 in-state long distance calling. In Connecticut the deal
7 is $.05 per minute for all in state calls for one year.
8 Clearly AT&T has the profit margin to work with and is
9 trying to capture market share. In Washington and
10 Minnesota (prior to 1+ implementation) AT&T extensively
11 advertised 10XXX calling using TV, radio and newspaper
12 advertising.
13 Q IS THE AGGREGATION OF ALL LONG DISTANCE
14 USAGE THE ONLY ADVANTAGE THE COMPETITORS HAVE?
15 A No. The competitors are also positioning
16 for one stop telecommunications shopping. One stop
17 shopping includes the bundling of various types of
18 service such as local, all long distance, features,
19 Internet, cellular and cable or satellite TV services.
20 Q DO COMPETITORS, SUCH AS AT&T, BELIEVE THAT
21 ONE STOP SHOPPING IS IMPORTANT?
22 A Definitely. Robert Allen, CEO of AT&T,
23 certainly believes that the ability to be the sole
24 provider of a
25
3537
Mary S. Owen, RE 9
U S WEST Communications, Inc.
1 service is highly desired by customers and of significant
2 benefit to AT&T. As stated in a speech delivered to the
3 Sanford Bernstein Strategic Decisions Conference in
4 New York on June 11, 1996, Mr. Allen said:
5 "But we've learned from customers that many
6 don't want to buy all these services separately.
7 They want to turn to one company that can make
8 them a bundled offer of the services they want.
9 With one point of contact, seamless customer care,
10 and one monthly bill for end-to-end service that
11 meets their particular needs and interests. And
12 that's exactly what we intend to provide."
13
14 He goes on to say:
15
16 "We will take a basic $25-a-month long
17 distance customer and convert them into a
18 $100-a-month customer for a broader bundle of
19 services."
20
21 Additionally, there have been recent ads for MCI
22 which package long distance, pagers, internet and
23 cellular. The idea of the benefits of packaging is not
24 something made up by U S WEST but is already something
25 that we see evidence of in the competitor's offerings.
3538
Mary S. Owen, RE 10
U S WEST Communications, Inc.
1 Q CAN U S WEST COMPETE WITH THE ONE STOP
2 SHOPPING PHILOSOPHY?
3 A No, not at this time. As stated earlier
4 U S WEST is currently barred from selling interLATA long
5 distance and that in and of itself prevents U S WEST from
6 the ability to meet all the telecommunication needs of
7 its customers. Additionally, U S WEST cannot package
8 services from separate subsidiaries, such as cellular,
9 into one service offering for customers.
10 Q WHAT DO YOU PERCEIVE TO BE THE SIGNIFICANCE
11 OF THESE RESTRICTIONS?
12 A Competition exists in Idaho. The new
13 entrants into the local service arena are not new
14 entrants in the telecommunications industry. They
15 include multi-billion dollar companies with large
16 existing customer bases. The Telecommunications Act of
17 1996 provides them with an opportunity to easily and
18 inexpensively enter the local market. Although long
19 distance is a Title 62 service, it is imperative that the
20 Commission understand the importance of the new entrants
21 using that service as a stepping stone into being a total
22 service provider for their Idaho customers. It is but
23 the first step in the development of active competition
24 in Idaho, but it is a significant one in that it
25 indicates the magnitude of
3539
Mary S. Owen, RE 11
U S WEST Communications, Inc.
1 the potential losses incumbent Local Exchange Companies
2 might incur in revenues from services which have
3 historically supported the cost of the network used to
4 provide local service. This, in turn, will affect
5 U S WEST's ability to invest and meet its mandated
6 responsibility to provide service to everyone.
7 IV. PRICING OF RETAIL SERVICES
8 Q PLEASE PROVIDE THE U S WEST PHILOSOPHY OF
9 PRICING BOTH RETAIL AND WHOLESALE SERVICES.
10 A Certainly. The price of a retail service
11 should recover its relevant costs and provide
12 contribution to the corporate overheads. In addition,
13 the price should also take into consideration competitive
14 alternatives and market conditions which impact the
15 customer's willingness to pay. This is in contrast to a
16 wholesale price which should also cover all relevant
17 costs and provide contribution to corporate overhead, but
18 which takes into account the wholesale alternatives which
19 purchasers may have as well as the volume of the
20 purchases made by the other carriers.
21
22
23
24
25
3540
Mary S. Owen, RE 12
U S WEST Communications, Inc.
1 Q ARE THERE ANY SIGNIFICANT AREAS WHICH
2 IMPACT THESE TYPES OF PRICING POSITIONS FOR U S WEST?
3 A Definitely. Obviously the most significant
4 is the Telecommunications Act of 1996 (Act). This Act
5 allows for the opening of all aspects of the
6 telecommunications market to any provider of service. It
7 made specific recommendations and established the
8 groundwork which will allow this competition to occur.
9 In addition, the FCC has issued orders which provide
10 further specificity in how the Act should be implemented.
11 If both of these major decisions are looked at together,
12 it is evident that it is more imperative that all states
13 examine retail service pricing in light of the
14 complementary pricing which must occur between retail and
15 wholesale services.
16 Q HOW DOES THE ACT FACILITATE THE EASE AND
17 EXPENSE ASSOCIATED WITH ENTERING THE LOCAL EXCHANGE
18 MARKET?
19 A The Act, as it is written, provides the
20 "new" entrants with the ability to quickly enter the
21 local market through the use of either unbundled network
22 elements or the use of resale of an existing incumbent
23 Local Exchange Company's services under the new providers
24 name.
25
3541
Mary S. Owen, RE 13
U S WEST Communications, Inc.
1 Q DOES THIS OPTIONALITY IN THE SELECTIONS OR
2 PRICE ALTERNATIVES BY A NEW ENTRANT HAVE AN IMPACT ON THE
3 RETAIL PRICE OF THE RESIDENTIAL ACCESS LINE?
4 A Definitely. The Act allows for the pricing
5 of unbundled network elements or the resale of a finished
6 service. Unless there is some type of logical
7 relationship between the underlying prices for these two
8 different services, there is the potential for tariff
9 shopping and rate arbitrage.
10 Q IS THE U S WEST PROPOSAL TO RAISE THE RATE
11 FOR THE RESIDENTIAL LINE IN COMPLIANCE WITH THE SPIRIT
12 AND INTENT OF THE LAW?
13 A Yes, it is. By raising the price of the
14 residential line, (in this case to bring it closer into
15 alignment with its embedded costs), it accomplishes
16 moving prices towards cost, makes progress towards
17 removing existing implicit subsidies, and thereby
18 encourages economic competitive entry while
19 simultaneously discouraging tariff shopping.
20 Q IS IT LIKELY CUSTOMERS WILL BE WILLING TO
21 PURCHASE THEIR LOCAL SERVICE FROM A NEW LOCAL EXCHANGE
22 PROVIDER?
23
24
25
3542
Mary S. Owen, RE 14
U S WEST Communications, Inc.
1 A Yes. Resellers and other local exchange
2 providers have the ability to bundle services and provide
3 customers with one stop telecommunications shopping.
4 Q PLEASE SUMMARIZE THE ROLE OF PRICING IN A
5 RETAIL/WHOLESALE ENVIRONMENT SUCH AS THE ONE IDAHO IS NOW
6 ENTERING.
7 A It is imperative that this Commission
8 understand the significant interrelationships which are
9 found between the pricing of wholesale and retail
10 services. The product is the same and the basic
11 underlying costs are the same. Because of that, to avoid
12 inappropriate tariff shopping or arbitraging of services,
13 the retail price of each service must cover its costs but
14 also be priced in a rational relationship to its
15 counterpart wholesale product.
16 IV. ALLOCATION OF COSTS
17 Q VARIOUS PARTIES IN THIS PROCEEDING DEAL
18 WITH THE ALLOCATION OF THE COSTS TO OTHER SERVICES.
19 PLEASE COMMENT.
20 A Mr. Dallas Elder is dealing with this issue
21 in detail. However, it is important to realize that
22 U S WEST is
23
24
25
3543
Mary S. Owen, RE 15
U S WEST Communications, Inc.
1 filing this docket for revenue to recover only a portion
2 of the cost of the residential access line. Due to
3 previous FCC and Commission orders, 25% of the cost is
4 allocated to the interstate jurisdiction and 15% to long
5 distance and switched access services.
6 Q DO YOU BELIEVE THAT FURTHER ALLOCATION OF
7 THE COSTS IS APPROPRIATE?
8 A From the marketing perspective, definitely
9 not.
10 Q WHY DO YOU TAKE THAT POSITION?
11 A It is my belief that additional allocation
12 to Title 62 services will not be sustainable. It is an
13 accepted belief that U S WEST and the other incumbent
14 LECs have lost and will lose many more of their revenues
15 associated with long distance and switched access to the
16 various other companies entering or already in the long
17 distance market. Additionally, the FCC's order mandating
18 that vertical services be included in the local switching
19 element (thus meaning significant losses in the retail
20 revenues for those services) and the FCC's potential for
21 access reform and subsequent losses of revenue there, all
22 must be taken into account. As these losses occur, it
23 will be less feasible to allocate loop costs to our
24 prices for Title 62 services, while the
25
3544
Mary S. Owen, RE 16
U S WEST Communications, Inc.
1 other providers do not carry that same burden of
2 allocation. Therefore, if this Commission does, in fact,
3 want to stimulate or to encourage the entrance of
4 facilities-based competition, it will have to confront
5 the fact that more of the local loop costs must be
6 covered by local service prices.
7 Q IS THE STIMULATION OF FACILITIES-BASED
8 COMPETITION IN THE BEST INTERESTS OF THE IDAHO CONSUMER?
9 A Definitely. While the Federal Act allows
10 resale, facilities-based competition is clearly one of
11 the goals envisioned in the Act of 1996.
12 Facilities-based competition encourages innovative
13 facility alternatives and offers truly different
14 providers who may have unique service offerings, rather
15 than just a repackaging of the incumbents services. It
16 is also one of the prerequisites for the entry of
17 U S WEST into the interLATA long distance market.
18 However, development of facilities-based entry is
19 difficult if other services such as long distance,
20 continue to carry an inappropriate volume of costs that
21 are more equitably assignable to the residential or
22 business access line because resale will remain the most
23 cost effective means of competing.
24
25
3545
Mary S. Owen, RE 17
U S WEST Communications, Inc.
1 Q WHY IS THIS OF CONCERN TO THIS COMMISSION
2 IN THIS DOCKET?
3 A This is of concern in this docket because
4 the data provided by Mr. Elder on the cost of the
5 residential access line is simply a first step in the
6 movement of aligning prices appropriately for an emerging
7 competitive environment. It is imperative that this
8 Commission understand that this is a moderate proposal
9 before them and that it is reasonable, especially when
10 viewed in the longer term perspective of the gradual
11 erosion of the revenues associated with higher margin
12 services such as long distance service.
13 Q U S WEST WAS ACCUSED BY MR. EASTLAKE IN HIS
14 TESTIMONY OF WANTING TITLE 61 (REGULATED) SERVICES TO
15 SUBSIDIZE TITLE 62 (DEREGULATED) SERVICES. IS HIS
16 ASSESSMENT REASONABLE?
17 A No. Not only is it not reasonable, but as
18 already discussed, the exact opposite is what is actually
19 occurring since many of the loop costs are already
20 assigned to deregulated services. Additionally, the
21 Commission established the original rates which are now
22 Title 61 in a fully litigated rate proceeding. For
23 Mr. Eastlake to suggest that those rates have actually
24 subsidized the rates for the Title 62 services all these
25
3546
Mary S. Owen, RE 18
U S WEST Communications, Inc.
1 years is simply not credible. It suggests that when the
2 Commission was setting all rates for services in a
3 monopoly environment, it placed an inequitable burden on
4 local customers to the benefit of long distance and
5 optional service users. It also suggests that Title 62
6 services are today priced below cost...a proposition that
7 lacks any empirical evidentiary support.
8 Q ON PAGE 13 OF HIS TESTIMONY, MR. EASTLAKE
9 IMPLIES THAT U S WEST IS INCONSISTENT IN ITS POSITION ON
10 SUBSIDIES BY QUOTING MR. SOL TRUJILLO, THE CEO OF
11 U S WEST COMMUNICATIONS, INC. IS MR. EASTLAKE'S
12 INTERPRETATION OF THIS CITATION ACCURATE?
13 A No. Mr. Trujillo's remarks recognize the
14 huge ($800 million a year) subsidy flowing to local rates
15 from access charges and urges an orderly transition from
16 that source. His emphasis is on the impact on customers
17 should local service subsidies be reduced suddenly.
18 Q DOES THE U S WEST PROPOSAL IN THIS DOCKET
19 SUPPORT THE PHILOSOPHY ESPOUSED BY MR. TRUJILLO IN THE
20 EASTLAKE QUOTATION?
21 A Yes, it does. It recognizes the need to
22 gradually increase the residential access line to cover
23 its costs. However, this filing only moves partially in
24 that
25
3547
Mary S. Owen, RE 19
U S WEST Communications, Inc.
1 direction since it still allocates embedded loop costs to
2 other services as this Commission has decided in earlier
3 proceedings.
4 V. STAFF WITNESS EASTLAKE
5 Q PLEASE IDENTIFY THE KEY CONCERNS YOU HAVE
6 WITH MR. EASTLAKE'S TESTIMONY, OTHER THAN THOSE ALREADY
7 MENTIONED.
8 A Certainly. The first area I discuss is a
9 simple matter of clarification of the number of access
10 lines. Mr. Eastlake expresses concern or confusion on
11 page 20 of his testimony in that he cites two different
12 access line numbers. The line counts are lower in this
13 case than in the Revenue Sharing case for two reasons.
14 First, the lines associated with the exchanges that were
15 for sale were excluded from the line counts in this case.
16 Second, the spreadsheet represented a test period of
17 January through December 1995 for an average line count
18 for the year, which is less than the December 1995 figure
19 used in the revenue sharing case. It is my understanding
20 that in informal discussions with Mr. Eastlake, he has
21 now agreed that the average line counts are the
22 appropriate ones to use. Any final concerns between
23 Company and Staff line counts can be resolved
24
25
3548
Mary S. Owen, RE 20
U S WEST Communications, Inc.
1 prior to the Staff filing its rebuttal testimony in this
2 case.
3 Q DO YOU FEEL THE LINE COUNT USED BY THE
4 COMPANY IN THIS CASE IS THE APPROPRIATE LINE COUNT?
5 A Yes, it was appropriate to exclude the
6 exchanges that were for sale because the Commission and
7 FCC had approved the sale of the exchanges (except for
8 the sale to Silver Star which is still pending) and the
9 transfers are completed, again with the exception of
10 Silver Star. Also, using an average quantity covering
11 the test period is the normal way of showing the line
12 count for this type of filing and matches expenses to
13 revenues more closely.
14 Q WHAT OTHER AREAS WILL YOU ADDRESS IN
15 MR. EASTLAKE'S TESTIMONY?
16 A I address the following major issues:
17 * An examination of competitive entry based
18 on the new investments entrants will incur as they
19 enter the local exchange market.
20 * An analysis of the support for basic
21 services inherent in the current pricing of Title
22 62 services and that impact on Title 61 services.
23
24
25
3549
Mary S. Owen, RE 21
U S WEST Communications, Inc.
1 * A review of the proposed U S WEST increase
2 and contrasting that to Mr. Eastlake's
3 characterization of it as a "..monumental rate
4 increase." (page 17, line 16.) This section
5 includes highlighting his "oversight" of the
6 Extended Area Service rates that this Commission
7 has already ruled upon.
8 * Address accusations by Mr. Eastlake that
9 U S WEST is trying to hinder competitive entry.
10 In contrast, I will demonstrate that the proposed
11 price increases actually encourage
12 facilities-based competition.
13 * An examination of Mr. Eastlake's concern
14 about the historical ratio of residence to
15 business line rates.
16 * An examination of the measured service
17 changes.
18 * Discuss Mr. Eastlake's concerns regarding
19 the slight price change for the installation
20 charge.
21 * An examination of Mr. Eastlake's proposal
22 to reduce the price of non-published and
23 non-listed service and what impact that will have
24 on prices for other Title 61 services.
25 * An analysis of the Vacation rate service
3550
Mary S. Owen, RE 22
U S WEST Communications, Inc.
1 proposal.
2 * Finally, an examination of Mr. Eastlake's
3 high level pricing recommendations if the
4 Commission were to decide upon a revenue reduction
5 instead of the increase requested by U S WEST.
6 Q MR. EASTLAKE'S FIRST MAJOR AREA OF
7 DISCUSSION CENTERED AROUND THE LACK OF COMPETITION IN
8 IDAHO
9
10 /
11
12 /
13
14 /
15
16
17
18
19
20
21
22
23
24
25
3551
Mary S. Owen, RE 22A
U S WEST Communications, Inc.
1 DUE TO THE SUPPOSED LARGE INVESTMENTS THAT NEW
2 COMPETITIVE ENTRANTS WILL HAVE WHEN THEY ENTER THE IDAHO
3 TELECOMMUNICATIONS MARKET. DO YOU AGREE WITH
4 MR. EASTLAKE'S CHARACTERIZATION?
5 A No, I do not. Mr. Eastlake states on page
6 8, lines 5 - 6, "...potential competitors, who face
7 enormous start-up costs to seek new customers."
8 Interestingly, he provides no documentation to back up
9 this assertion.
10 Q HAS U S WEST'S EXPERIENCES IN OTHER STATES
11 PROVEN MR. EASTLAKE'S STATEMENT TO BE TRUE?
12 A Not to the extent he implies. Most new
13 entrants who are choosing to provide local basic service
14 to residence and business customers who have fewer than 5
15 lines, are almost exclusively using the U S WEST embedded
16 network to provide that service.
17 Q WHAT IS THE METHOD USED BY THESE NEW
18 ENTRANTS TO PROVIDE SERVICE?
19 A Generally, they will use one of three
20 different types of options that have been made available
21 to them in some states:
22 1. Resale of the incumbent LEC's facilities at
23 retail rates less avoided costs.
24
25
3552
Mary S. Owen, RE 23
U S WEST Communications, Inc.
1 2. Purchase of various unbundled elements,
2 especially the network loop, and recombining them
3 with some of their own facilities (e.g. a switch)
4 into a finished element.
5 3. In some states, there has been a third
6 option of what has been termed as "sham"
7 unbundling. This is where a new entrant purchases
8 each of the unbundled elements which are needed to
9 provide a finished retail service and then asks
10 the incumbent to "pretend" to unbundle and
11 rebundle them. It is a means of avoiding the
12 potentially higher resale prices.
13 Q DO ANY OF THESE THREE CONSTITUTE AN
14 ENORMOUS INVESTMENT ON THE PART OF THE NEW ENTRANTS?
15 A Definitely not options 1 and 3. Both of
16 these options rely solely upon the incumbent LEC network.
17 Our experience so far as it relates to Option 2 is that
18 the new entrant may provide the switch, but for
19 residential customers, they have almost exclusively opted
20 to purchase the network loop from the LEC.
21 Q MR. EASTLAKE'S CONCERNS REGARDING THE
22 "ENORMOUS" ENTRY COSTS, ARE, THEREFORE, GREATLY
23 OVERSTATED?
24 A Yes. Not only are they overstated, they
25 are simply not true for the vast majority of new entrants
in the
3553
Mary S. Owen, RE 24
U S WEST Communications, Inc.
1 markets which are termed Title 61 in Idaho. This portion
2 of his testimony, therefore, must be rejected.
3 Q THE NEXT AREA OF DISCUSSION CENTERS AROUND
4 THE TITLE 61 COST SUPPORT WHICH IS INHERENT WITHIN THE
5 CURRENT PRICING STRUCTURE OF TITLE 62 SERVICES. PLEASE
6 COMMENT ON MR. EASTLAKE'S TESTIMONY ASSERTING SUCH A
7 SUPPORT DOES NOT EXIST.
8 A It is very odd that Mr. Eastlake suggests
9 that such support does not exist since he quotes Order
10 No. 18188 from U S WEST's last full rate case for the
11 proposition that "it is appropriate for non-basic
12 services...to be priced at levels that generate the
13 maximum reasonable contribution to joint and common costs
14 in order to minimize local exchange rates..." (Eastlake,
15 pages 15 - 16, lines 22 - line 1.) This clearly shows
16 that at the time current rates were set, the Commission
17 was engaged in a conscious effort to minimize the amount
18 of costs covered by local exchange rates and to shift the
19 burden to other services whose prices it also regulated.
20 Q WHY SHOULDN'T THIS TYPE OF COST ALLOCATION
21 PHILOSOPHY CONTINUE?
22
23
24
25
3554
Mary S. Owen, RE 25
U S WEST Communications, Inc.
1 A This type of support from the Title 62
2 services to the Title 61 services cannot continue because
3 of the opening of all aspects of telecommunications
4 services to competition. First, Title 61 services must
5 cover their actual costs including a fair share of joint
6 and common costs to send appropriate price signals in the
7 competitive market. Second, as noted earlier in my
8 testimony, U S WEST is experiencing significant loss of
9 intraLATA long distance service, a Title 62 service. In
10 order to remain competitive in this arena and to try to
11 meet the competition, it has been necessary for U S WEST
12 to make reductions or simplifications in our long
13 distance price schedules. As this occurs, it reduces the
14 amount of contribution long distance provides to the
15 Company. Similar price pressures affect U S WEST's
16 access and vertical service revenues.
17 Q WHY IS THIS DISCUSSION RELEVANT SINCE WE
18 ARE ONLY DEALING WITH TITLE 61 SERVICES IN THIS DOCKET?
19 A This discussion is relevant because it
20 indicates that it is imperative that each service that is
21 Title 61 must recover a reasonable and equitable portion
22 of embedded costs within its own rates because other
23 services will no longer have the luxury to make
24 historically large contributions to the Title 61
25 services' cost recovery.
3555
Mary S. Owen, RE 26
U S WEST Communications, Inc.
1 Q IS COMPETITION WHAT WE ARE REALLY
2 DISCUSSING AND HOW THAT COMPETITION DRIVES PRICES?
3 A Yes. We already have seen competition
4 drive the prices of services closer to their underlying
5 costs in the long distance and access products. Because
6 the residential line is actually priced below its cost,
7 competition will mandate that those prices increase.
8 Q THERE IS A VIEW IN MR. EASTLAKE'S TESTIMONY
9 THAT COMPETITION DRIVES ALL PRICES DOWNWARD. IS THAT
10 NECESSARILY TRUE?
11 A No. First, competition will drive prices
12 to their correct economic level. That level, however, is
13 dependent upon the price of the service being above its
14 cost to begin with. Because of the monopoly environment
15 in which we have been operating over the past years, it
16 did not make a difference if each service covered its own
17 cost as long as there were highly profitable services to
18 make up the difference. However, competitive entry
19 removes the margins found in many of those services.
20 Second, there are many different types of
21 competition. Because the FCC has mandated some aspects of
22 pricing which U S WEST and others believe are untenable,
23 it is
24
25
3556
Mary S. Owen, RE 27
U S WEST Communications, Inc.
1 imperative that this Commission understand the
2 interrelationships of the various types of pricing
3 (wholesale vs. retail) that U S WEST and other incumbent
4 LECs will face in the new environment. This will mean
5 that there will be a transition time in which some
6 service prices will increase while others will go down.
7 Again, there is nothing in economic literature which
8 mandates that all prices will go down when competition
9 arises but rather discusses the movement of prices
10 towards their underlying costs. This can be either
11 upward or downward pressure.
12 Q WHAT IS THE NEXT AREA OF MR. EASTLAKE'S
13 TESTIMONY YOU ADDRESS?
14 A Mr. Eastlake next accuses U S WEST of
15 a "..monumental rate increase." (page 17, line 16.)
16 First, let me examine one major oversight on the part of
17 Mr. Eastlake and his Exhibit No. 131. In this exhibit,
18 he has detailed the various rate proposals and the
19 percentage increase they represent. However, he did not
20 use as the base the stipulated EAS rates. Subsequent to
21 his filing rebuttal testimony, the EAS stipulation was
22 approved.
23
24
25
3557
Mary S. Owen, RE 28
U S WEST Communications, Inc.
1 Q WHAT HAVE YOU DONE TO CLARIFY THIS EXHIBIT
2 OF MR. EASTLAKE'S?
3 A I have prepared Exhibit No. 40C to detail
4 the actual increases using the approved EAS rates as the
5 base. This Exhibit also reflects the change in prices to
6 reflect the revenue requirement change, as highlighted by
7 Ms. Wright. As this exhibit shows, the amount of the
8 actual increases which U S WEST is requesting in this
9 docket is less than originally highlighted by
10 Mr. Eastlake. I should note that it also depicts the
11 percent changes in the same phased-in approach which has
12 been advocated by U S WEST throughout this proceeding.
13 This approach better reflects the real impacts the
14 customers will see over the three time frames. I have
15 also included Exhibit No. 40D to depict changes to
16 business basic local service. The primary change is that
17 this proposal will now all be accomplished in Phase 1.
18 Q WHAT OTHER AREAS OF YOUR TESTIMONY DID
19 MR. EASTLAKE FAIL TO COMMENT ON AS IT RELATES TO THE
20 MAGNITUDE OF THE RATE INCREASE?
21 A Mr. Eastlake made many blanket statements
22 which failed to take into account the U S WEST proposal
23 to transition to the new rates in three steps and to
24 overlay that
25
3558
Mary S. Owen, RE 29
U S WEST Communications, Inc.
1 transition with the establishment of special discounted
2 rates for the Telephone Assistance Plan customers which
3 will be funded by other U S WEST customers.
4 Q DID MR. EASTLAKE MENTION EITHER OF THESE IN
5 HIS TESTIMONY?
6 A No, he did not. However, they are key
7 elements of this proposal and an attempt by U S WEST to
8 mitigate the impacts of these rate increases on customers
9 least able to afford these increases. Oddly enough,
10 Mr. Eastlake did not once comment on the TAP proposal and
11 upon our willingness to work with Staff to expand the
12 eligibility of TAP to a broader base of needy customers.
13 Q ARE THERE ANY OTHER AREAS WHICH
14 MR. EASTLAKE FAILED TO TAKE INTO ACCOUNT IN HIS ANALYSIS
15 OF THE IMPACTS OF THESE RATE CHANGES?
16 A Yes. Although monthly charges for
17 customers residing outside the Base Rate Area are not a
18 part of this particular case, it is important that
19 Mr. Eastlake factor into his overall analysis the fact
20 that over 57,000 customers will no longer be obligated to
21 pay the $3.19 rate for residing outside the base rate
22 area. Therefore, there are many customers who, when this
23 case
24
25
3559
Mary S. Owen, RE 30
U S WEST Communications, Inc.
1 is examined in the context of the EAS proceeding, also
2 have a rate decrease that will benefit them.
3 Q MR. EASTLAKE FAILED TO RESPOND TO THE
4 COMPANY'S RECOMMENDATION AS IT RELATED TO THE RATE GROUP
5 CONSOLIDATION. PLEASE COMMENT.
6 A The final area in the rate increase and
7 rate group consolidation which the Company recommended
8 deals with the establishment of two different rate groups
9 IF the Commission approved the EAS proposals. The
10 Commission did approve the EAS expansion and U S WEST,
11 therefore, believes that the rate group consolidation
12 should only combine the few exchanges remaining outside
13 EAS regions in Rate Groups 1 and 2 into a single Rate
14 Group, with the EAS expansion exchanges forming a second
15 Rate Group. Again, this mitigates the magnitude of the
16 change as highlighted in our initial recommendation that
17 did NOT reflect the EAS approval.
18 Q DOES MR. EASTLAKE SEEM TO AGREE WITH THE
19 CONSOLIDATION INTO TWO RATE GROUPS AS YOU PROPOSED IN
20 YOUR EARLIER TESTIMONY?
21 A Yes. On page 43 of his testimony, lines
22 10 - 12, he does recommend the establishment of such a
23 rate structure.
24
25
3560
Mary S. Owen, RE 31
U S WEST Communications, Inc.
1 Q WHEN TAKEN AS A WHOLE, HOW WOULD YOU
2 SUMMARIZE MR. EASTLAKE'S ANALYSIS OF THE SPECIFIC RATE
3 DESIGN PROPOSALS AS HIGHLIGHTED IN YOUR DIRECT TESTIMONY?
4 A Unfortunately, Mr. Eastlake did an
5 incomplete analysis of the rate proposals and failed to
6 put those proposals within the context of the EAS
7 approvals. He also neglected to acknowledge the
8 transitional implementation schedule as proposed by
9 U S WEST and our attempt to mitigate the impacts on the
10 rate changes to those customers who might need support
11 due to financial burden. It is my firm belief that when
12 this case is viewed in its entirety including an overlay
13 of the EAS impacts, that the rate changes as proposed by
14 U S WEST are reasonable and have taken into account the
15 need to both transition to the higher rates and to work
16 with Staff to develop a plan to mitigate the impacts for
17 low income individuals.
18 Q THE NEXT AREA OF DISCUSSION IN
19 MR. EASTLAKE'S TESTIMONY IS HIS ACCUSATION ON PAGE 17,
20 LINES 17 - 20 THAT U S WEST WANTS TO HINDER COMPETITIVE
21 ENTRY AND TO ATTEMPT TO REMAIN WHOLE FINANCIALLY. PLEASE
22 COMMENT.
23
24
25
3561
Mary S. Owen, RE 32
U S WEST Communications, Inc.
1 A As I discussed earlier in my testimony,
2 there are three significant areas which the Commission
3 needs to understand as it relates to pricing in a
4 competitive environment:
5
6 * There is an interrelationship between
7 wholesale and retail pricing based upon the same
8 underlying costs.
9
10 * Competition drives prices of a service
11 toward its underlying costs. If the current price
12 of a service does not recover its costs, then a
13 new competitive entrant will be less willing to
14 enter and to install their own facilities if it
15 means their prices will have to be higher than the
16 incumbent provider.
17
18 * U S WEST has legitimately incurred the
19 costs as detailed in Mr. Elder's testimony. It is
20 not a question of recovering revenue losses due to
21 competition - it is rather the historical pact
22 U S WEST has with this Commission which mandates
23 that we be allowed fair opportunity to recover
24 costs incurred to provide price regulated service.
25
3562
Mary S. Owen, RE 33
U S WEST Communications, Inc.
1 Q DOES MR. EASTLAKE APPEAR TO UNDERSTAND
2 THESE RAMIFICATIONS OF COMPETITIVE ENTRY INTO IDAHO?
3 A His testimony does not seem to acknowledge
4 these concepts. However, their understanding is a
5 critical element of this case. It is important,
6 therefore, for the Commission to balance its decision in
7 this case with an understanding of the ramifications of
8 its decision and the impacts on all other aspects of the
9 Idaho telecommunications market.
10 Q DO YOU AGREE THAT U S WEST IS HINDERING
11 COMPETITIVE ENTRY THROUGH THE PRICING PROPOSALS IT
12 ADVOCATES IN THIS DOCKET?
13 A Definitely not. As mentioned earlier, it
14 is imperative that the various services provided by
15 U S WEST are priced appropriately in order to encourage
16 the entry of facilities-based competition. As I
17 discussed earlier, true competition is not the appearance
18 of a reseller who utilizes the entirety of the underlying
19 services of an incumbent LEC. Rather, it is the presence
20 of a company which provides its own infrastructure
21 including the outside plant. If the Commission and
22 U S WEST do not price the underlying residential access
23 line in a manner indicative of the costs we incur to
24 provide that line,
25
3563
Mary S. Owen, RE 34
U S WEST Communications, Inc.
1 facilities based competition will be very slow in
2 arriving in Idaho for the general residence customer.
3 Q MR. EASTLAKE NEXT DISCUSSES THE
4 RESIDENCE/BUSINESS PRICING RELATIONSHIP. DO YOU AGREE
5 THAT THE CURRENT PRICE RATIO SHOULD BE MAINTAINED?
6 A Definitely not. Mr. Eastlake deals with
7 this ratio in several different manners. First, he
8 discusses the percentage share of the Title 61 revenue
9 paid by each.
10 Q IS THE CURRENT PERCENTAGE OF REVENUE FOR
11 RESIDENCE AND BUSINESS RELEVANT FOR THIS DISCUSSION?
12 A Not unless it is based upon the costs
13 incurred by each separate group. Unfortunately, there is
14 no analysis by Mr. Eastlake dealing with cost
15 proportions. If one looks at the total number of access
16 lines that are Title 61 services, 83% of the lines are
17 residence. One could logically overlay this same
18 proportion to the total costs of the network that has
19 been allocated to the embedded costs of those lines.
20 Using Mr. Elder's numbers, this means that the residence
21 customers should pay for at least 83% of the total costs
22 associated with the line. Even as Mr. Eastlake points
23 out, that is not
24
25
3564
Mary S. Owen, RE 35
U S WEST Communications, Inc.
1 what is being done today. (See testimony of Eastlake,
2 pages 22 - 23.)
3 Q THEREFORE, IF ONE LOOKS AT THE UNDERLYING
4 COSTS AND THE RELATIONSHIP TO THE TOTAL NUMBER OF ACCESS
5 LINES, DOES IT MAKE SENSE TO CHANGE THE TRADITIONAL RATIO
6 OF REVENUES?
7 A Definitely.
8 Q WHAT WAS MR. EASTLAKE'S NEXT ARGUMENT ON
9 WHY THE HISTORICAL RATE RATIO BETWEEN BUSINESS AND
10 RESIDENCE IS REASONABLE?
11 A He discusses his concern that there is not
12 a showing based on actual costs that the business
13 customers cost less to serve than the residence
14 customers.
15 Q DO YOU AGREE?
16 A No. Although it is not in Mr. Elder's
17 exhibits, one can extract from his workpapers that the
18 Return On Investment (ROI) for business is a
19 significantly positive one and the residence is a
20 negative ROI. This alone demonstrates that on a
21 cost/revenue ratio that business covers their cost and
22 residence does not.
23
24
25
3565
Mary S. Owen, RE 36
U S WEST Communications, Inc.
1 Q EVEN IF YOU DO NOT USE ACTUAL COST NUMBERS,
2 IS THERE A TEST OF REASONABLENESS WHICH CAN BE DONE BY
3 THIS COMMISSION WHICH CAN BE RELIED UPON?
4 A Yes. Even though Idaho classifies all
5 businesses under 6 lines as Title 61, it is still a
6 general truism that most businesses, including small
7 ones, tend to reside in more densely populated areas.
8 These could include small businesses in downtown Boise;
9 small businesses located in various shopping or strip
10 malls; or the businesses that can be found in the
11 downtown areas of smaller exchanges. It is generally not
12 true that most of the small business customers are found
13 in rural areas of Idaho, although there are certainly
14 some. However, it is true that most residential
15 customers are not found in highly concentrated areas like
16 shopping malls and downtown areas. They are found
17 further from the central office in developments or in
18 even more rural areas. For Mr. Eastlake to argue that
19 the average business costs might not be less or equal to
20 the average residence customer, simply does not hold
21 water from a general logical perspective. Additionally,
22 Mr. Eastlake can do actual calculations based on
23 Mr. Elder's workpapers which do provide the average Title
24 61 embedded costs for both residence and business Title
25 61 lines.
3566
Mary S. Owen, RE 37
U S WEST Communications, Inc.
1 Q DOES HE PROVIDE ANY EVIDENCE THAT THE
2 CONVERSE IS TRUE - THAT BUSINESS COSTS ARE GREATER FOR
3 THE TITLE 61 BUSINESS CUSTOMER THAN FOR THE TITLE 61
4 RESIDENCE CUSTOMER?
5 A Not really. He does mention on page 25,
6 lines 10 - 12, than business customers have more usage.
7 He does not, however, provide any support for this
8 position.
9 Q WHAT DO YOU MEAN?
10 A Although it may be true that generally
11 businesses have more local usage than residence, that is
12 from a global perspective. It is just as easily true
13 that the small businesses that are considered Title 61
14 services might use only a small amount of local usage -
15 usage similar to that of the average residence customer.
16 Additionally, when one overlays the significant increase
17 in local usage for residential lines due to Internet
18 access, it is unclear how this impacts the
19 residence/business usage analysis.
20 Q EVEN IF MR. EASTLAKE'S ASSUMPTION ABOUT
21 BUSINESS USAGE WERE TRUE, DOES IT MATTER?
22 A No. The reason is that the cost of usage
23 is literally pennies for either residence or business
24 service. Any
25
3567
Mary S. Owen, RE 38
U S WEST Communications, Inc.
1 such cost differences caused by usage certainly does not
2 account nor argue the more than double price for the
3 small business customer over the residence customer.
4 Q DOES ALL OF THIS DISCUSSION AROUND COSTS
5 AND THE RELATIONSHIP OF BUSINESS COSTS TO RESIDENCE COSTS
6 HELP THE COMMISSION TO DECIDE UPON THE RATE PROPOSALS?
7 A Not really. The fact is that business
8 service is priced significantly higher than residence
9 service. Even if the prices for the residence and
10 business loop are the same, or even if business costs are
11 higher, the reality is that there is not the same type of
12 cost difference between the services as there is between
13 the prices. Therefore, even if we did not have
14 Mr. Elder's data, it is apparent that there is a
15 misalignment between the relationship of the cost and
16 price of business service to the cost and price of
17 residence service.
18 Q MR. EASTLAKE THEN DISCUSSES THE VALUE OF
19 THE SERVICE TO THE BUSINESS CUSTOMER. PLEASE CITE THE
20 PROOF HE GAVE OF THIS VALUE.
21 A Unfortunately, there is no proof, but
22 rather only assertions. Value of service is an
23 interesting concept, but it is also a concept that is
24 being tested daily with
25
3568
Mary S. Owen, RE 39
U S WEST Communications, Inc.
1 new entrants that are providing service to business
2 customers in other states, such as Washington, where I
3 live. There are already tariffs on file where a new
4 provider is offering an access line, and it does not
5 matter whether you are a residence or a business. The
6 price is the same.
7 Q DO RESIDENTIAL CUSTOMERS VALUE THEIR
8 SERVICE?
9 A Certainly. Many of the arguments which
10 Mr. Eastlake uses for the value of the access line for
11 the business customer, can also be true for the residence
12 customer. (page 25, lines 12 - 17.) Residential
13 customers' use of the Internet at home; the increased use
14 of FAXes for home services; the well-known use of the
15 telephone for emergency services; etc. All of these
16 indicate that there is a significant value to the
17 residential customers of their telephone service. It is
18 unclear, therefore, whether anyone in this docket can
19 really delineate which customer group values their
20 service more. What is clear is that the costs are
21 probably greater for residence because they tend to be
22 more dispersed and are further from the central office,
23 and that even if the possibly greater local usage for
24 business is factored into the equation, the price for the
25 business line does not appear to be reasonable at a
3569
Mary S. Owen, RE 40
U S WEST Communications, Inc.
1 price that is more than twice that of the residential
2 line.
3 Q ARE THERE ANY FINAL AREAS OF OBSERVATION
4 YOU WOULD LIKE TO MAKE REGARDING MR. EASTLAKE'S
5 RECOMMENDATION THAT THE RESIDENCE/BUSINESS RATIO REMAIN
6 THE SAME?
7 A Yes. First, in the recently completed EAS
8 case, Staff agreed to not impose a price increase on
9 business customers similar to that imposed on residence
10 customers. This had the net effect of changing the
11 supposed ratio between the two services which is in
12 effect today. As Mr. Joe Cusick said in his testimony:
13
14 "This ratio was established under
15 value-of-service pricing used under fully
16 regulated rate-of-return regulation. It also
17 reflected the different cost causation inherent
18 with mechanical and other older technology
19 switches. In the competitive world this type of
20 pricing and the current technology's cost drivers
21 must be reevaluated." (Page 9, lines 19 - 25.)
22
23 Second, the idea of a ratio between rates is
24 nothing that can be found in the economic texts cited by
25 Mr. Eastlake, nor is there good economic rationale for
3570
Mary S. Owen, RE 41
U S WEST Communications, Inc.
1 maintaining a ratio that is not founded upon cost
2 considerations, or upon documentation that shows that a
3 business customer values their line two times as much as
4 the residence customer.
5 Overlaying these two observations on the cost data
6 provided, it is apparent that the proposal to raise the
7 price of the residential line while keeping the price of
8 the business line relatively the same, is appropriate.
9 This alignment of prices for these two services is closer
10 to establishing a cost/price relationship. For all these
11 reasons, I recommend the Commission adopt the U S WEST
12 proposal.
13 Q MR. EASTLAKE NEXT EXAMINES THE U S WEST
14 MEASURED SERVICE PROPOSAL. PLEASE COMMENT.
15 A U S WEST is proposing to simplify the usage
16 element for the measured service while incorporating a
17 significant amount of local usage (180 minutes) into the
18 basic price. In other words, there is a price increase
19 that is appropriate in light of the costs identified by
20 Mr. Elder, but coupled with that increase is the
21 inclusion of a generous amount of local calling.
22
23
24
25
3571
Mary S. Owen, RE 42
U S WEST Communications, Inc.
1 Q WHAT IS MR. EASTLAKE'S POSITION ON THIS
2 PROPOSAL?
3 A His position is unclear to me. At the end
4 of his testimony, on page 43, lines 1 - 8, he indicates
5 his willingness to go to a single rate per minute for
6 usage of $.02 (instead of the $.03 recommended by
7 U S WEST.) This implies to me that he agrees with the
8 basic concept of the simplified rate structure, at least
9 within the context of a revenue reduction. Therefore, I
10 assume that he agrees that the basic structure we
11 proposed is reasonable. (I should also note that it is
12 in alignment with recent advertising seen in which
13 carriers such as Sprint and AT&T have simplified their
14 rate structures for long distance into flat per minute
15 rates.)
16 Q SHOULD THE COMMISSION ACCEPT THE U S WEST
17 PROPOSAL REGARDING THE INCREASE TO THE MEASURED SERVICE
18 RATE?
19 A Yes. We seem to be in agreement with Staff
20 on the basic structure, and it must be understood that
21 the increase on the rate does include the generous usage
22 allowance that is not there today. Putting this proposal
23 together with the underlying cost information, therefore,
24 points out the reasonableness of this proposal, and it
25 should, therefore, be adopted.
3572
Mary S. Owen, RE 43
U S WEST Communications, Inc.
1 Q MR. EASTLAKE ALSO DISAGREES WITH THE SLIGHT
2 INCREASE U S WEST PROPOSED FOR THE INSTALLATION CHARGE.
3 PLEASE COMMENT.
4 A Although we believe the change is
5 reasonable, U S WEST is willing to withdraw this proposal
6 at this time.
7 Q MR. EASTLAKE NEXT RECOMMENDS REDUCING THE
8 PRICE OF PRIVACY LISTINGS. DO YOU AGREE?
9 A No, I do not agree, for several reasons:
10 1. Privacy listings are a value added service
11 which a minority of our Idaho customers use.
12 Mr. Eastlake used the value of service argument
13 earlier, but apparently only uses it selectively.
14 It is certainly true that privacy listings meet a
15 specific customer need and more customers value
16 that need enough to pay the current price of
17 $4.00. Additionally, the value of this service
18 has increased due to telephone directory data now
19 being available on the Internet. By subscribing
20 to privacy service, it means that these
21 subscriber's names and numbers will not be
22 available through Internet directories.
23 2. The price of $4.00 was fully litigated by
24 this Commission and there has been no substantive
25 evidence
3573
Mary S. Owen, RE 44
U S WEST Communications, Inc.
1 supplied by Mr. Eastlake that this is
2 inappropriate. There are other U S WEST states
3 with this price, but even more importantly, there
4 are other LECs in Idaho with a privacy listing
5 price that is similar. To the best of my
6 knowledge, all Idaho LECs charge some recurring
7 rate for privacy listings.
8 3. Any reduction in the price of this service
9 will mean a corresponding increase in the
10 residential line price. It is interesting that
11 Mr. Eastlake is willing to spread this part of the
12 revenue over the majority of Idaho customers who
13 do not request or want this service, rather than
14 having the customers who value this service also
15 be the ones to pay for it.
16 4. Finally, there are costs associated with
17 the provisioning of this service, some of which
18 include the extra entry on the service order, the
19 exclusion from lists, and the need to continually
20 update the directory assistance records. Although
21 the Directory Assistance (DA) inquiry costs may be
22 recovered through Directory Assistance charges for
23 customers who call and request a non-published or
24 non-listed number, the reality is that the privacy
25 customers are already causing a cost to be
3574
Mary S. Owen, RE 45
U S WEST Communications, Inc.
1 incurred by other users who must find out a
2 specific telephone number through DA or to be told
3 that the number is totally unavailable. I guess I
4 must ask, why
5
6 /
7
8 /
9
10 /
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
3575
Mary S. Owen, RE 45A
U S WEST Communications, Inc.
1 is it then further appropriate to force
2 non-subscribers to privacy listings to further
3 supplement the revenue that would be reduced or
4 eliminated in Mr. Eastlake's proposal through a
5 further increase in their monthly rate? Such a
6 proposal simply does not seem reasonable nor
7 equitable to me.
8 Q MR. EASTLAKE ALSO RECOMMENDS THE
9 ELIMINATION OF VACATION RATE SERVICE. DOES HE APPEAR TO
10 UNDERSTAND WHY THIS SERVICE IS VALUED BY IDAHO CUSTOMERS?
11 A No. Mr. Eastlake does not seem to
12 appreciate the fact that some customers want this
13 service.
14 Q PLEASE DESCRIBE THE BENEFITS OF VACATION
15 RATE SERVICE.
16 A Vacation Rate Service is a temporary
17 suspension of normal telephone service and is usually
18 used by customers who are going to be absent for an
19 extended period of time. It includes several key
20 elements, many of which are not available under
21 Mr. Eastlake's solution of only offering measured
22 service.
23 * The ability to forward calls to another
24 telephone number.
25 * Credit cards for intraLATA calling will
continue.
3576
Mary S. Owen, RE 46
U S WEST Communications, Inc.
1 * In the event the residence is broken into
2 illegally, there cannot be the unlawful use of
3 long distance calling through the telephone
4 instrument.
5 * All directory listings are maintained.
6 * Retention of telephone number.
7 In other words, Vacation Rate service offers more
8 options and more protection than does the measured
9 service alternative Mr. Eastlake advocates.
10 Mr. Eastlake simply does not provide a reasonable
11 justification for abolishing it
12 Q ARE THE REVENUE IMPACTS OF THIS CHANGE
13 SIGNIFICANT?
14 A Absolutely not. They are a negative
15 $23,000. This is pennies in the scheme of this whole
16 case and for Mr. Eastlake to recommend eliminating a
17 service which provides definite benefits for Idaho
18 customers is simply inappropriate.
19 Q WHAT ACTION SHOULD THIS COMMISSION TAKE?
20 A Because the whole impact of Vacation Rate
21 Service is de minimus, I strongly urge the Commission to
22 accept the proposed simplified restructure and to not
23 abolish a
24
25
3577
Mary S. Owen, RE 47
U S WEST Communications, Inc.
1 unique service which meets the specific needs of absent
2 Idaho customers.
3 Q THE FINAL AREA MR. EASTLAKE ADDRESSES IS
4 SOME HIGH LEVEL RECOMMENDATIONS ON RATE DESIGN IF THE
5 COMMISSION WERE TO ORDER RATE DECREASES. DO YOU AGREE
6 WITH HIS GENERAL RECOMMENDATIONS?
7 A Generally, his recommendations are not
8 unreasonable. However, there are three exceptions or
9 areas upon which I should comment. First, I must
10 reiterate that it is no longer appropriate to maintain
11 some type of artificial ratio between the prices of
12 residence and business lines. Second, I can agree with
13 the reduction of the measured service per minute rate to
14 $.02 from $.03, but again, only if the rate restructure
15 which U S WEST proposed is adopted. Finally,
16 Mr. Eastlake's recommendation to keep two rate groups
17 instead of 1 based upon EAS expansion is the same
18 proposal which I made in my initial comments. It is,
19 therefore, another area in which we agree.
20
21
22
23
24
25
3578
Mary S. Owen, RE 48
U S WEST Communications, Inc.
1 VI. SUMMARY OF REBUTTAL TESTIMONY
2 Q PLEASE SUMMARIZE YOUR REBUTTAL TESTIMONY.
3 A My rebuttal testimony discusses the nature
4 of competition in Idaho especially in the long distance
5 and private line arenas and how new local exchange
6 entrants will leverage that competition to become the one
7 stop provider of a given customer's total
8 telecommunications services. The next area I review is
9 the interrelationship between pricing for wholesale and
10 pricing for retail services and note that this filing by
11 U S WEST is a first step in bringing those prices which
12 will occur in a competitive environment, more closely in
13 alignment. The allocation of costs has marketing
14 ramifications which are not sustainable in the long term
15 in a competitive environment, and this transition period
16 is the right time in which to gradually increase the
17 residential access line to cover its costs.
18 Finally, I rebut various aspects of Mr. Eastlake's
19 testimony. I demonstrate that the rate proposals set
20 forth in this docket are in the best interests of the
21 Idaho consumer through the encouragement of facilities
22 based competition and through sending the correct
23 economic signals to new entrants through pricing services
24 based upon their underlying cost. When the
25
3579
Mary S. Owen, RE 49
U S WEST Communications, Inc.
1 totality of the rate design is examined and overlaid
2 within the context of the Commission approved EAS
3 expansion, the increases recommended by U S WEST are
4 reasonable. Coupling these increases with the offer to
5 work with Staff to develop a better Telephone Assistance
6 Plan, I believe that this rate design is reasonable and
7 helps to advance the underlying basis upon which a
8 competitive telecommunications market in Idaho should be
9 based.
10 Q DOES THIS CONCLUDE YOUR TESTIMONY?
11 A Yes, it does.
12
13
14
15
16
17
18
19
20
21
22
23
24
25
3580
Mary S. Owen, RE 50
U S WEST Communications, Inc.
1 (The following proceedings were had in
2 open hearing.)
3
4 DIRECT EXAMINATION
5
6 BY MS. FORD: (Continued)
7 Q Ms. Owen, are you also prepared to give
8 some live surrebuttal here today?
9 A Yes, I am.
10 Q What are the key areas of disagreement
11 remaining between U S WEST and Mr. Eastlake in this
12 docket?
13 A I believe the two key areas that are
14 remaining in this docket are the realities of competition
15 in Idaho and its subsequent impact on the rate design in
16 this case and the identification by Mr. Eastlake of the
17 historic ratio between residence and business prices and
18 a determination if such a ratio makes sense today and if
19 that ratio is sustainable into the future.
20 Q Now, the first area you just mentioned is
21 competition. Could you please elaborate?
22 A Certainly. Mr. Eastlake claims in his
23 surrebuttal testimony that the only relevant issue is
24 Title 61 competition and that facilities-based
25 competition will require a great deal of money by the new
3581
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 entrant to build their facilities, and my problem is I
2 disagree with his avoidance of the subject of competition
3 in Idaho and the most likely manner that such competition
4 will enter, but even more importantly, I'm concerned by
5 his lack of focus on the establishment of an environment
6 in Idaho which will encourage facilities-based
7 competition and thereby bring the benefits, such as
8 technology and innovative services, to meet the needs of
9 all Idaho customers.
10 Q In your opinion, why is this competitive
11 entry important in this case?
12 A I believe it's important that the
13 Commission understand the need to analyze this case in
14 light of the potential entry of competition and then to
15 overlay that understanding with a rate design which is
16 not inconsistent with the development of competition
17 which relies upon the use of a variety of facilities,
18 including the competitor's own facilities.
19 Q In your opinion, is it possible that the
20 rate design in this docket could either help to encourage
21 or discourage such competition?
22 A Yes, it is. I believe that the rate design
23 and the pricing specifically of the residential access
24 line will allow the new competitive entrants to determine
25 on an individual case basis if it makes economic sense
3582
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 for them to build their own facilities or if it is more
2 appropriate for them to simply use the resale provisions
3 from U S WEST to provide their basic service.
4 However, a continuation to underprice the
5 residential access line provides no incentive to the new
6 entrant to build their own facilities when they can
7 purchase the lines from U S WEST at a price that is below
8 not only U S WEST's cost but also below any cost that the
9 new entrant would incur to build similar facilities, and
10 I think that this lack of understanding competition and
11 how it will enter and the importance of sending the
12 correct economic pricing signals to those same
13 competitors simply has the potential to not help the
14 Idaho customers realize competition based both upon
15 resale of services and upon the use of the competitor's
16 own facilities and for these reasons, I think that much
17 of what Mr. Eastlake is advocating is simply not
18 realistic in today's environment in Idaho.
19 Q What are your conclusions about the
20 importance of pricing as it relates to the encouragement
21 of competition in Idaho?
22 A I believe that it's imperative that the
23 allocation that U S WEST recommends in this docket is
24 appropriate and does a better job of sending the
25 realistic economic pricing signals to potential new
3583
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 entrants. Although in an ideal world, I believe that the
2 network costs should all be attributed to the access
3 line, the allocations proposed by Ms. Wright and by
4 Mr. Elder in this docket are certainly reasonable as a
5 first step. To follow Mr. Eastlake's and other Staff
6 members' recommendation that a significant share of those
7 network and switching costs should go to the Title 62
8 services is simply not appropriate nor do I believe it is
9 reasonable.
10 Q What is the second major area of concern
11 that you have with Mr. Eastlake's surrebuttal testimony?
12 A The second area of concern is our
13 disagreement over the pricing relationship between
14 residence and business service.
15 Q Could you elaborate on how Mr. Eastlake
16 addresses this issue in his surrebuttal testimony?
17 A Certainly. Mr. Eastlake makes an
18 interesting observation on page 19, lines 6 through 12 in
19 his surrebuttal testimony. He states, and I quote,
20 "Regulation, on the other hand, is driven primarily by
21 cost. Most service is cost-plus and the challenge is to
22 document that whatever costs are incurred are done so in
23 a prudent manner. Given that premise, prices are set
24 high enough to cover costs. Only incidentally are real
25 marketing considerations such as willingness to pay
3584
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 brought into the equation."
2 Q Now, based on this statement, what would
3 you conclude that regulation should have done as it
4 relates to the business/residence price setting?
5 A Based on what Mr. Eastlake said in his
6 testimony about what regulation has supposedly done in
7 the past, I would conclude that the business rate would
8 actually be lower than the current residence rate, and
9 although there is some possibility that usage for
10 business in general is higher than usage in general for
11 residence customers, I believe that the small businesses
12 being discussed as Title 61 service and the residence
13 customers, their usage will be relatively similar. Even
14 if the usage is higher for business, the cost of usage is
15 literally pennies.
16 In addition, if I continue to examine the
17 cost, and we heard Mr. Plummer mention that earlier this
18 morning is that the average length of the business loops
19 is less than the average length of residence loops, and
20 in data that I reviewed, business generally costs about
21 the same or slightly less to serve than does residence
22 service, so based on Mr. Eastlake's statement regarding
23 regulation driving services towards cost, the actual
24 prices today do not seem to mirror that same premise.
25 Q Now, Mr. Eastlake discusses value of
3585
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 service and that such consideration is a part of the
2 competitive world. Do you agree with that statement?
3 A I do agree and I think I mentioned last
4 time I was on the stand that value of service I think
5 Mr. Eastlake is using in the context of market-based
6 pricing, so with that understanding, I think that value
7 of service or market-based pricing is appropriate, but
8 it's first and most imperative that a service cover its
9 cost in that pricing, and I think once that's done, a
10 competitive pricing policy, you examine the willingness
11 of the customer to pay, you examine the availability of
12 other alternatives and then you also look at the
13 competitors and how they are packaging a particular
14 service, and it certainly is after that analysis has been
15 done that marketing considerations dictate the price of a
16 service.
17 Q Why is this relevant to the discussion of
18 the relationship between pricing of residence and
19 business service?
20 A I believe it's relevant because all of
21 Mr. Eastlake's comments indicate that regulation and its
22 subsequent pricing was not based on competitive realities
23 and market-based pricing. He noted that in the
24 previously cited quotation, but further, on page 9,
25 lines 9 through 11, he states: "Comparison to historical
3586
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 rates may not be the proper standard for judgment of what
2 is reasonable in this case," and I definitely agree with
3 that observation. The history of the price relationship
4 between business and residence service is simply not the
5 correct basis upon which to base pricing decisions
6 today. Although Mr. Eastlake argues for the sanctity of
7 that historical residence/business relationship and of
8 its need to continue, the rest of his testimony really
9 argues just the opposite.
10 Q What do you conclude about this
11 relationship?
12 A I believe that the movement of the price of
13 the residence and business access lines closer together
14 is reasonable based upon the cost to provide the service
15 and because of the value that both types of customers
16 place on their service. Certainly over time it is
17 U S WEST's intention to base the prices of our services
18 on the values our customers place on them, in conjunction
19 with a scan of the types of pricing competitors will do.
20 However, there first needs to be a
21 realignment of the prices to bring them closer to their
22 cost for the residential access line pricing. We think
23 that the pricing that we've proposed in this docket is
24 simply a first step in an attempt to align our prices,
25 first, in relationship to their cost. Therefore, I
3587
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 believe it is in the best interests of Idaho customers to
2 set rates appropriately now in anticipation of the entry
3 of competition in Idaho, and for these reasons, I ask the
4 Commission to understand and to rule that there is
5 nothing sacrosanct about the historical
6 residence/business pricing ratio and that such an
7 arbitrary ratio is not the correct manner of continuing
8 to price our services. Mr. Eastlake's recommendation,
9 therefore, to continue this ratio is simply
10 inappropriate.
11 Q Let's turn to the issue of privacy
12 listings. Can you tell us how many Idaho customers use
13 these services today?
14 A Yes. That was asked apparently earlier in
15 the week or last week and there are currently 29,447
16 residential subscribers to non-published service and
17 2,519 business customers. For non-list service, there
18 are 3,760 residence and 358 business customers.
19 COMMISSIONER SMITH: Could you read those
20 one more time?
21 THE WITNESS: Certainly. 29,447 residence
22 and 2,519 business non-published customers, and 3,760
23 residence and 358 business non-list customers.
24 Q BY MS. FORD: Can you explain why in your
25 opinion the rates for these services are justified?
3588
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 A Certainly. I believe there are several
2 justifications for maintaining the current price for
3 these services. First, if this price is reduced, then
4 the price of the residential access line will need to
5 increase more to meet the revenue requirement, so as you
6 reduce revenue from this pot, you need to recover it in
7 another pot, and certainly since most of it does come
8 from residential customers, that's where it would be most
9 appropriate to put it as well.
10 Second, as Mr. Eastlake advocates in his
11 testimony, it is reasonable to do market-based pricing in
12 the emergingly competitive environment in which we now
13 find ourselves. What this means is that these privacy
14 listing subscribers do receive additional service and/or
15 benefits for this option and I think there is a price tag
16 associated with that privacy, and I think that as
17 customers realize how new technology will impact that
18 privacy, the value that they place on this service is
19 becoming even greater.
20 For example, if anybody were to go into the
21 Internet, you can find all sorts of different listings of
22 customers' names, addresses and telephone numbers and,
23 generally, those Internet providers get that from
24 directories, whether they directly scan right in from
25 directories or whether they buy consumer listings, so
3589
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 what this does is it has the net impact of increasing the
2 value of non-published service even more for these
3 customers, so value of service or market-based pricing
4 certainly should have a big role in determining the
5 correct price to pay for this service.
6 Third, I think we need to remember that the
7 customers who ask for this service do devalue the local
8 switched network because it makes it fewer people can
9 call them because they don't have access to their phone
10 number, and, again, this reduced value should carry with
11 it an appropriate price tag. If the price is lowered, it
12 would lower maybe expectations of customers in that more
13 customers may now subscribe to it, thereby further
14 devaluing the network for other subscribers, and,
15 finally, I think that we mustn't lose sight of the fact
16 that privacy listings do require special handling by the
17 Company, whether it's through directory assistance or any
18 type of marketing and solicitation, and it's also my
19 understanding that U S WEST has a special bureau that has
20 been established to simply handle emergency calls to
21 non-published customers, so I think when you look in
22 aggregate at the value that these customers receive from
23 the service, the net impact of reducing it, what does it
24 mean, should other customers pay for this value by
25 increasing their monthly rate and the special handling
3590
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 that's needed, I think it's apparent that the current
2 price of the privacy listings is appropriate.
3 Q Can you give us an indication of how many
4 Idaho customers currently take advantage of the ITAP
5 program and how many additional customers would be added
6 if the age 60 requirement were removed?
7 A Yes. There are currently 4,695 customers
8 subscribing to the current ITAP service and I am unable
9 to predict how many would be eligible if the criteria
10 were to change. We'd have to work with the Department of
11 Human Health and Welfare to make that determination, but
12 I do believe the number would be significantly greater
13 than those who are eligible today, because our
14 recommendation is that you eliminate the age 60
15 requirement which Idaho now has in effect.
16 Q Moving on to a slightly different topic,
17 when Dr. Power was on the stand, he testified that any
18 price increase would have an effect on subscribership
19 levels. Do you agree with that statement by Dr. Power?
20 A No, I don't. I believe that the
21 characterization by Dr. Power that the proposed rate
22 increases will adversely affect penetration levels in
23 Idaho is not proven out based on national studies done.
24 First, we have to remember there is a low cost option we
25 have in Idaho of measured service and with the proposal
3591
CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 that we have in this case, that includes within it 180
2 minutes per month of local calling, but, secondly and
3 more significantly, the Massachusetts Public Service
4 Commission actually did a study to determine if raising
5 the rates of the residential access line would in fact
6 have a negative impact on their subscribership levels and
7 they raised the rates from 11.98 to 17.83 and they
8 determined that by this rate increase there was no
9 negative impact on their penetration levels in
10 Massachusetts, so we have a specific example of where a
11 commission wanted to determine if raising the basic price
12 was going to negatively impact subscribership levels and
13 they concluded that no, it did not.
14 And then to add further data to that is
15 there are three totally separate studies which have been
16 conducted. One is by Field Research Corporation, one is
17 by the Chesapeake and Potomac Telephone Company and one
18 is by Rutgers University and they specifically looked at
19 behavior of customers who chose or for whatever reason
20 did not have telephone service and they found that the
21 single most significant influence on a customer's
22 willingness to have telephone service was their inability
23 to control their volume usage, in other words, their long
24 distance calling. They did not determine that the local
25 rate had a negative impact. What they did determine is
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CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 that uncontrollable long distance calling was the single
2 most important reason that customers did not subscribe to
3 telephone service.
4 The second most important reason that they
5 discovered that customers didn't subscribe was that there
6 were large up-front expenses. Those expenses could
7 include installation charges, they could include
8 deposits, and they could include large unpaid final bills
9 and those were the two primary reasons that people didn't
10 subscribe and none of the studies cited, and they were
11 done in three different areas of the United States, cited
12 the recurring monthly rate as an issue with the
13 subscribers, so when you overlay those studies with the
14 data that the Massachusetts Public Service Commission did
15 in looking at their penetration levels, I think we can
16 say that it is highly unlikely that the subscribership
17 levels will decline based on the increases that we're
18 proposing here, and one other side note I would mention,
19 I believe it was in the Rutgers study, people actually
20 said in the study that if push came to shove, they would
21 disconnect their telephone before they would disconnect
22 their cable TV, which was a real eye opener as well.
23 Q Does U S WEST have any methodology for
24 addressing the issues identified by those studies?
25 A Yeah, we do. U S WEST has options such as
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CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 installment billing of installation charges and we also
2 have a limited service option whereby a customer can have
3 their service installed, they take toll restriction
4 service and then make arrangements to pay off their
5 uncollected final bill, and what this does is it gives
6 them a low cost entry to come back on to the network
7 while still helping them to pay off their unpaid bills,
8 and these are alternatives that when you use in
9 conjunction with the measured service option that we're
10 proposing in this case provides Idaho consumers with an
11 ability to get their telephone service reinstated while
12 still helping them to control the area in which they need
13 help, the uncontrollable long distance usage.
14 Q And, finally, Mr. Eastlake has suggested
15 that the remaining revenue sharing funds should be used
16 to fund a large one-time credit for customers. Do you
17 agree with his proposal?
18 A No, I don't, and I think my concern is that
19 if there is remaining revenue sharing money to be used
20 that the Commission might want to delay deciding upon how
21 best to use it and rather wait and make a determination
22 if maybe it would be better used for EAS expansion. I
23 notice that the Commission is getting in a lot more
24 petitions from independents who want EAS into the various
25 regions that the Commission has seen fit to grant and
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CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 that we may want to wait and see what the result of those
2 petitions are because maybe that money could be used for
3 some of those EAS expansions.
4 Q Ms. Owen, you are the witness that sponsors
5 the rate design, are you not?
6 A Yes.
7 Q Have you prepared a revised Exhibit 30 for
8 this docket?
9 A I have and I think Carolyn has copies for
10 everyone and this is the new rate spread based on
11 Ms. Wright's 15.509 million revenue requirement and it
12 only changes, I think, by a penny what I thought it was
13 going to be at the last hearing, but this is something
14 you now have in hand and what this shows is the current
15 rate and then I've broken it down into, first, the rate
16 group consolidation of in region and out of region and
17 then a proposed two phase-in with the end result being
18 the various EAS regions would have a $20.00 rate and
19 those out regions would have a $16.38 rate.
20 Q Did you also prepare an additional exhibit
21 which I will have handed to you now which has been marked
22 U S WEST Exhibit No. 63?
23 A Yes, I did. I'm not sure what you asked.
24 I made it.
25 (Documents being distributed.)
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CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications
1 THE WITNESS: And all this is, I thought it
2 would be helpful to go back and summarize the major
3 categories of our rate design and this simply reflects
4 any changes that were made. For example, I took out the
5 residence non-recurring because Mr. Eastlake and I had
6 now agreed on that, so, hopefully, this reflects all of
7 those changes and it does also reflect on the measured
8 service piece going to $.02 per minute from the original
9 $.03 that I proposed in my original testimony, so this
10 just gives an overview of the total rate design.
11 MS. FORD: Madam Chair, at this time I
12 would offer revised Exhibit 30 and Exhibit No. 63.
13 COMMISSIONER SMITH: Is there any objection
14 to the admission of revised Exhibit 30 and Exhibit 63?
15 If not, they will be admitted.
16 (U S WEST Communications, Inc. Exhibit
17 Nos. 30 and 63 were admitted into evidence.)
18 MS. FORD: Ms. Owen is available.
19 COMMISSIONER SMITH: We're going to go to
20 lunch right now. We'll be back at 1:30.
21 (Noon recess.)
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CSB REPORTING OWEN (Di-Reb)
Wilder, Idaho 83676 U S WEST Communications