Testimony of Susan M
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STATE OF NEW JERSEY BOARD OF PUBLIC UTILITIES In the Matter of the Board’s Investigation Regarding the Reclassification of Incumbent Docket No. TX1 1090570 Local Exchange Carrier (ILEC) Services as Competitive — Phase II TESTIMONY OF SUSAN M. BALDWIN AND SARAH M. BOSLEY ON BEHALF OF THE NEW JERSEY DIVISION OF RATE COUNSEL STEFANIE A. BRAND DIRECTOR AND RATE COUNSEL Division of Rate Counsel 31 Clinton Street, 11th Floor P.O. Box 46005 Newark, NJ 07101 (973) 648-2690 - Phone (973) 624-1047 — Fax www.rDa.state.nI.us [email protected] Filed: February 24, 2012 REDACTED VERSION ALLEGED CONFIDENTIAL INFORMATION HAS BEEN REDACTED Testimony of Susan M. Baldwin and Sarah M. Bosley NJ BPU Docket No. TX1 1090570 TABLE OF CONTENTS INTRODUCTION 1 Qualifications 1 Assignment 4 Summary 6 II. PROCEDURAL AND REGULATORY BACKGROUND 11 Regulatory and statutory context for proceeding 11 III. INCUMBENT CARRIERS 16 Background 16 Verizon NJ 17 CenturyLink 23 IV. LOCAL EXCHANGE MARKETS 35 Market structure 35 Companies offer telecommunications services to residential and business consumers using various technologies, and consumer demand varies by platform and customer class 38 Public FCC data demonstrates that ILECs still own or control the vast majority of wireline telephone lines in their operating territory in New Jersey 40 Cable companies compete only in the bundles market, leaving low-income and moderate- income consumers as well as those who do not want to buy bundles with few alternatives 43 Wireless use is prevalent but, for the vast majority of households, does not yet represent an economic substitute for basic local exchange service 46 Assessment data provides information about the scale of ILECs’ rivals 51 Rate Counsel’s survey demonstrates a lack of economic substitutes for ILECs’ basic local Testimony of Susan M. Baldwin and Sarah M. Bosley NJ BPU Docket No. TX1 1090570 exchange service 53 ILEC-provided data provide evidence of the lack of economic substitutes for basic local exchange service 54 Rivals’ entry in Verizon NJ’s markets 55 CLECs serving Verizon NJ’s residential local markets 62 Migration among cathers 67 Analysis of CenturyLink’s rivals 69 Intermodal alternatives do not discipline the rates, terms and conditions of residential dial tone services provided by the ILECs 74 A duopoly does not represent effective competition 78 The FCC’s denial of Verizon’s petitions for forbearance in six Metropolitan Statistical Areas includes analyses and findings that are germane to this proceeding 83 The Board should dismiss any ILEC arguments regarding the cost of basic local exchange service unless the Board conducts a comprehensive investigation of the allocation and assignment of costs and revenues associated with ILECs’ networks in New Jersey 97 Conditions of service 99 The Board should rate-regulate essential, noncompetitive services to protect consumers form supracompetitive rate levels and service quality deterioration 100 Summary of findings and recommendations regarding residence and business local exchange service 101 V. DISCRETIONARY SERVICES MARKET 103 Presently, discretionary services are classified as competitive services 103 Discretionary services are integrally related to basic local exchange service, and, therefore, they do not confront any more competition than does basic local exchange service 105 The Board’s deliberations regarding the classification of discretionary features will affect significant quantities of residential and business consumers 107 II Testimony of Susan M. Baldwin and Sarah M Bosley NJ BPU Docket No. TX1 1090570 Prices for discretionary services provide evidence about the level of competition 113 The cost to carriers of providing discretionary features is negligible 116 Summary of findings and recommendations regarding discretionary services 119 VI. DIRECTORY ASSISTANCE 121 Background 121 Analysis of data shows continuing consumer demand for DA 121 Public interest concerns and analysis of competitive alternatives 128 Implications of competitive classification 133 Summary of findings and recommendations regarding directory assistance service 134 Conclusion 136 Tables Section III (Incumbent Carriers) Table C- 1 Verizon NJ Business Customers Table C-2 Residential Installation Orders: Standalone versus Bundled- October 2010 — September 2011 - CenturyLink Table C-3 Distribution of Business Demand for Local Exchange Service CenturyLink Table 4 Rates for Services Covered by Stipulations Section IV (Local Exchange Markets) Table 5 Total Switched Access Lines and VoIP Subscriptions in New Jersey as of December 31, 2010 Table 6 Total Residential Switched Access Lines and VoIP Subscriptions In New Jersey as of December 31, 2010 Table 7 Composition of Non-Incumbent Wireline Service — December 31, 2010 Ill Testimony of Susan M. Baldwin and Sarah M. Bosley NJ BPU Docket No. TX1 1090570 Table 8 Composition of Residential Non-Incumbent Wireline Service — December 31, 2010 Table C-9 Facilities-Based Competitors to Verizon NJ (2009-2011, sorted by September 2011 lines) Table C-b CLEC Lines Served Based on Verizon NJ’s Wholesale Facilities, Residential and Business Customers, 2009-2011 Table C-il CLEC Presence in Residential Local Markets in Verizon NJ’s Territory, Based on Verizon NJ’s Wholesale Facilities, ranked by CLEC “number” Table C-b 2 CLEC Presence in Residential Local Markets in Verizon NJ’s Territory,Based on Verizon NJ’s Wholesale Facilities, ranked by scale of CLEC Table C- 13 Win Backs and Win Overs: 2009-2011, Verizon NJ Table C- 14 Residential Resale in CenturyLink’ s Territory Table C- 15 CLEC Presence in Business Local Markets in Verizon NJ’ s Territory Table C- 16 CLEC Presence in Business Local Markets in Verizon NJ’ s Territory (ranked by scale of CLEC) Table C- 17 There Is Negligible Competition for Business Local Exchange Service Section V (Discretionary Services Market) Table C- 18 Total Demand by Basic Standalone Residential Customers, Verizon NJ Table C- 19 Residential Demand for Discretionary Features by Basic Customers: Stratification Verizon NJ Table C-20 Residential Demand for Discretionary Features by “Package” Customers: Stratification, Verizon NJ Table C-2 1 Residential Demand for Discretionary Features by Basic Customers: Stratification CenturyLink Table C-22 Residential Demand for Discretionary Features by “Package” Customers: Stratification, CenturyLink Table 23 Monthly Rates for Selected Discretionary Features —Verizon NJ Testimony of Susan M. Baldwin and Sarah M. Bosley NJ BPU Docket No. TX1 1090570 Table 24 Monthly Rates for Selected Discretionary Features — CenturyLink Section VI (Directory Assistance) Table C-25 Monthly Average of Residential DA Calls November 2010-October 2011 Verizon NJ Table C-26 Monthly Average of Residential DA Calls October 201 0-September 2011 CenturyLink Figures Figure 1 Residential Wireline Market in New Jersey as of December 31, 2010 Figure C-2 Carriers by Percent of Gross State Revenues List of Attachments Attachment A Statement of Qualifications of Susan M. Baldwin Attachment B Statement of Qualifications of Sarah M. Bosley Exhibits Confidential Exhibit SMB-C-i Verizon NJ’s confidential responses to RC-VNJ-4 (wire centers where Verizon NJ offers residence service and business service) Confidential Exhibit SMB-C-2 Verizon NJ’s confidential responses to RC-VNJ-5 (identifies the wire center that serves each municipality within Verizon NJ’s service territory) Confidential Exhibit SMB-C-3 Verizon NJ’s confidential responses to RC-VNJ-6 (quantity of Lifeline customers by wire center in each year, 2009 through 2011) Confidential Exhibit SMB-C-4 Verizon NJ’s confidential responses to RC-VNJ-lO (quantities of households encompassed by each of Verizon NJ’s wire centers) v Testimony of Susan M. Baldwin and Sarah M. Bosley NJ BPU Docket No. TX1 1090570 Confidential Exhibit SMB-C-5 Verizon NJ’s confidential responses to RC-VNJ-48, parts a through f (Form 477s) (incorporated by reference) Confidential Exhibit SMB-C-6 CenturyLink’s confidential responses to RC-CTL-47 (Form 477s) (incorporated by reference) Confidential Exhibit SMB-C-7 Verizon NJ’s confidential responses to RC-VNJ-7a (provides lines disaggregated by wire center) Confidential Exhibit SMB-C-8 Verizon NJ’s confidential responses to RC-VNJ-14 (data regarding demand for packages) Confidential Exhibit SMB-C-9 Verizon NJ’s confidential responses to RC-VNJ-6e (demand for single line business by wire center, December 2010, September 2011) Confidential Exhibit SMB-C-10 Verizon NJ’s confidential responses to RC-VNJ-2 (demand for mass market services) Confidential Exhibit SMB-C- 11 Excerpt from CenturyLink’ s confidential response to RC CTL-6 Revised (lines by wire center, residence primary, residence additional, Lifeline, business total) Exhibit SMB- 12 CenturyLink’ s response to RC-CTL-4 (CenturyLink lines by wire center) Exhibit SMB-l 3 CenturyLink’s response to RC-CTL-5 (municipalities) Exhibit SMB-14 CenturyLink’s response to RC-CTL-89-A (exchange map) Exhibit SMB-l 5 CenturyLink’s response to RC-CTL-l 0 (quantities of households by wire center) Confidential Exhibit SMB-C- 16 CenturyLink’ s complete confidential response to RC-CTL 6 (incorporated by reference) (includes business lines disaggregated by quantities per customer) Confidential Exhibit SMB-C-I 7 CenturyLink’s confidential response to RC-CTL-2 (numbers of customers per service) Confidential Exhibit SMB-C-18 CenturyLink’s confidential responses to RC-CTL-59 (disaggregation of business demand by quantity per customer, October 2010 —