TESTIMONY OF KENNETH E. LEE

BEFORE THE PENNSYLVANIA HOUSE OF REPSENENTATIVES

CONSUMER AFFAIRS COMMITTEE

SUBCOMMITTEE ON

PUBLIC HEARING

REGARDING

AREA CODE DEPLETION

AUGUST 8,2001

JIM THORPE, PENNSYLVANIA Good morning; my name is Kenneth Lee, and I am Vice President and General

Counsel for Commonwealth Telephone Enterprises, also known as C.T.E., located in

Dallas, Pennsylvania just to the west of Wilkes Barre. With me today are Michael

Sharry, Sr. Manager of Regulatory Affairs for Commonwealth Telephone and William

Shaner our manager of governmental affairs.

We are here today to offer CTE's perspective on the various proposals being considered by the Pennsylvania Public Utility Commission to insure an adequate supply of telephone numbers for Pennsylvania's residents and businesses in the coming years.

First, permit me to offer a little background on CTE's family of companies.

With its operations going back over 100 years, Commonwealth Telephone Company is one of Pennsylvania's largest incumbent local exchange carriers and the eighth- largest independent telephone company in the . Commonwealth serves approximately 320,000 lines in rural Pennsylvania with feature-rich, 100-percent digital switching technology, and a customer service organization that has repeatedly been identified as the best amongst the state's five largest local telecommunications carriers.

In 1994, epix Internet Services was formed and has become a regional leader in providing dial-up and high-speed dedicated Internet access to Pennsylvanians. In fact, every Commonwealth Telephone Company customer can now reach the Internet via a free local telephone call to epix.

CTSI, the competitive local exchange carrier (CLEC) arm of CTE, was founded in 1997 to offer consumers in Verizon territories a choice for local telecommunications services. CTSI is currently the largest competitive supplier of services in several areas adjacent to Commonwealth Telephone's service territory including the Scranton, Wilkes-Barre, Hazleton, Lancaster, and Harrisburg areas. In many cases, CTSI has been the first taste of local telephone service competition residential and business customers in these areas have ever experienced.

Now that you know a little more about CTE, I'd like to address the issue at hand.

Both Commonwealth Telephone Company and CTSI rely upon the Pennsylvania

Public Utility Commission's directives regarding implementation of the most efficient and reasonable means to address area code depletion. Historically, the PUC has endorsed two alternatives: the geographic split of an existing area code and overlays of an existing area code. Recently, several other proposals have also been forwarded to address this problem including 1000 block number pooling and

Consolidation (RCC).

With regard to area code splits, we believe that experience has shown this approach to be a cumbersome and costly method of dealing with the number depletion problem. In addition to the administrative burden placed upon telephone companies by such splits, the approach negatively affects consumers and businesses who must endure the confusion and expense associated with changing the area code designation of their existing telephone numbers.

Of the other proposals currently being considered, we feel that the best long- term solution to the number depletion problem is area code overlays. We recognize that the initial implementation of area code overlays can be confusing to consumers since it requires callers to embrace the concept of ten-digit dialing to complete local calls. However, our experience has been that once the consumer education portion of an area code overlay is completed, there is little additional hardship on consumers since any future number depletion can be remedied by overlaying another area code over the same region.

Pennsylvania needs to find a long-term solution to manage its numbering resources. With the proliferation of advanced telecommunications services and service providers, it appears that the telecom industry's appetite for assignable telephone numbers will not soon be satisfied, and an overlay is the only means to guarantee that consumers will not be further inconvenienced in the future.

While Commonwealth appreciates the PUC's recent efforts to explore new solutions in order to remedy the number depletion problem, we believe that some of the proposed "solutions" may cause more harm than good for consumers. Of special concern to both of our operatiC g telephone companies is the concept of rate center consolidation. Under this proposal, extended area service (or free local calling) would be greatly expanded. Admittedly, the proposal would reduce the number depletion problem by allowing CLECs to utilize the same NXXs across the entire expanded rate centers.3 However, this consolidation would totally disrupt the existing network of local calling areas and would necessitate a dramatic increase in local dial tone rates for our customers including those who would not experience additional free calling.

In addition, the implementation of rate center consolidation would dramatically impact the competitive position of CLECs such as CTSI since they would have no choice but to recover the cost of greatly extended free calling but through higher dial tone rates. In the meantime, we fear that CTSI's chief competitor, Verizon of

Pennsylvania, could spread out the additional cost of such free calling to their entire customer base, including those who do not have a competitive choice. The end result would be that CTSI's prices would be much less competitive vis-8-vis Verizon's.

For Commonwealth Telephone Company, which operates as a rural local exchange carrier on the outer fringes of the studied rate center consolidation areas,

RCC implementation would result in significant engineering and network costs while at the same time dramatically reducing the company's toll and access revenues. These additional costs and revenue reductions could only be realistically made up by

increasing local dial tone rates across the Company's entire service territory.

In short, CTE believes that rate center consolidation is a bad idea both because it

will provide only a short term solution to the number depletion problem and because

its unintended consequences will be higher dial tone rates and a reduction in local

telephony competition.

Thousands-Number Block Pooling, the currently popular and seemingly most practical short-term number conservation alternative, involves the allocation of blocks of one thousand sequential telephone numbers within the same NXX code to different service providers. Currently, a full NXX code of

10,000 numbers is assigned to a single telecommunications provider regardless of how many numbers a service provider actually needs. With a pooling option, a single NXX code can serve the needs of several service providers, provided there is local calling area parity for carriers serving the NXXs that will be pooled.

In comparison to Rate Center Consolidation, 1000 block number pooling offers a means by which to conserve numbers while avoiding any significant effects on consumer rates or local telecommunications competition. However, we wish to remind the Committee that while number pooling appears to be a simple and direct way of conserving numbers, we must all keep in mind the fact that administrative costs and overhead will be experienced by virtually every telecommunications carrier required to utilize Thousands-Number Block

Pooling; costs which may eventually be borne by our ratepayers. In addition, please keep in mind that number block pooling is likely only a short-term solution to the number depletion problem.

In conclusion, Commonwealth believes that the use of area code overlays to remedy number depletion is the only long-term solution to this problem. Overlays are viable, proven solutions and offer a permanent resolution to the problem of number availability. The great advantage of an area code overlay is that it allows customers to retain their current telephone numbers, their current local dial tone rates, and their current local calling areas.

Commonwealth is concerned that there are risks to our consumers posed by the

other proposed solutions to the numbering problem in terms of increased costs,

customer confusion and a reduction of local telecommunications competition.

Commonwealth believes that these risks are too high especially given the fact that

these proposals offer only short-term solutions to Pennsylvania's numbering resource

problem.

We recognize that none of the proposed solutions to the number depletion

problem are painless. However, in order to minimize the amount of inconvenience to our customers, we favor a solution that offers a permanent solution to the problem.

For this reason, we favor area code overlays over the other temporary fixes which have been recommended to address this problem.

Thank you very much for your time and consideration. I would be happy to answer any questions that you may have.