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Vasington Direct Testimony-Public.DOC MA 07-9 Attachment (e) XO-VZ 2-2 Revised STATE OF NEW JERSEY BOARD OF PUBLIC UTILITIES IN THE MATTER OF THE BOARD ) INVESTIGATION REGARDING THE ) RECLASSIFICATION OF INCUMBENT ) DOCKET NO. TX 07110873 LOCAL EXCHANGE CARRIER (ILEC) ) SERVICES AS COMPETITIVE ) VERIZON DIRECT TESTIMONY OF PAUL B. VASINGTON DECEMBER 14, 2007 PUBLIC VERSION MA 07-9 Attachment (e) XO-VZ 2-2 Revised Testimony of Paul B. Vasington I. Introduction .................................................................................................................... 1 II. The Relevant Services and Product Market ..................................................................... 4 III. New Jersey’s Reclassification Policy .............................................................................. 7 IV. Verizon’s Mass Market Services Satisfy the Statutory Reclassification Criteria .............. 9 A. Ease of Market Entry ...................................................................................................... 9 B. The Presence of Competitors......................................................................................... 12 1. Cable Companies Are Present Throughout the State and Have Emerged As Major Competitors............................................................................................................. 13 2. Wireless Competitors Are Present throughout the State and Wireless Service Is Thriving .................................................................................................................. 18 3. VoIP Providers Have Emerged As Significant Competitors..................................... 19 4. Broadband Providers Are Present Throughout the State........................................... 21 5. CLECs Are Present and Active Throughout New Jersey.......................................... 27 6. Presence of Competitors for DA Services................................................................ 28 C. Availability of Like or Substitute Services in the Relevant Geographic Area................. 38 1. Cable Services Substitute for Verizon’s Mass Market Services................................ 49 2. Wireless Services Are Viable Substitute Services for Wireline Mass Market Services................................................................................................................... 53 3. Broadband and VoIP Are Viable Substitutes for Verizon’s Mass-Market Services .. 58 4. CLECs Services Are Viable Substitutes for Verizon’s Mass Market Services.......... 60 5. Verizon’s Competitive Losses Provide Clear Evidence That Viable Substitutes for Verizon’s Services Are Widely Available................................................................ 62 6. Intermodal Service Offerings Are Viable Substitutes for Verizon’s Mass Market Services................................................................................................................... 67 i MA 07-9 Attachment (e) XO-VZ 2-2 Revised 7. Availability of Like or Substitute Services for DA Services..................................... 71 V. Conclusion.................................................................................................................... 86 ii MA 07-9 Attachment (e) XO-VZ 2-2 Revised 1 I. Introduction 2 Q. PLEASE STATE YOUR NAME, TITLE AND BUSINESS ADDRESS. 3 A. My name is Paul B. Vasington. I am a Director-State Public Policy for Verizon. My 4 business address is 185 Franklin Street, Boston, Massachusetts 02110. 5 Q. PLEASE DESCRIBE YOUR EDUCATIONAL AND PROFESSIONAL 6 BACKGROUND. 7 A. I have a Bachelor of Arts in Political Science from Boston College and a Masters in 8 Public Policy from the Kennedy School of Government, Harvard University. I have been 9 employed by Verizon since February 2005. From September 2003 to February 2005, I 10 was a Vice President at Analysis Group, Inc. Prior to that, I was Chairman of the 11 Massachusetts Department of Telecommunications and Energy (“MDTE”) from May 12 2002 to August 2003, and was a Commissioner at the MDTE from March 1998 to May 13 2002. Prior to my term as a Commissioner, I was a Senior Analyst at National Economic 14 Research Associates, Inc. from August 1996 to March 1998. Prior to that, I was 15 employed in the Telecommunications Division of the MDTE (then called the Department 16 of Public Utilities), first as a staff analyst from May 1991 to December 1992, then as 17 division director from December 1992 to July 1996. 18 Q. WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY? 19 A. The purpose of my testimony is to show that Verizon mass market services that have not 20 yet been classified as competitive satisfy the statutory reclassification criteria, and should 21 thus be reclassified as competitive. The three criteria are: (1) ease of market entry; MA 07-9 Attachment (e) XO-VZ 2-2 Revised 1 (2) presence of other competitors; and (3) the availability of like or substitute services in 2 the relevant geographic area. 3 Q. PLEASE SUMMARIZE YOUR CONCLUSIONS. 4 A. Verizon’s mass market services that have not yet been classified as competitive meet the 5 three-pronged statutory reclassification test. The first prong – ease of market entry – is 6 satisfied by evidence showing that existing mass market competitors have been very 7 successful at entering the market; expanding the scope of services they offer; and 8 increasing the scale of their business. The second prong – presence of competitors – is 9 met by evidence demonstrating that a wide variety of competitors, including traditional 10 competitive local exchange carriers (“CLECs”), cable companies, wireless carriers, and 11 voice over Internet protocol (“VoIP”) providers, are competing to serve mass market 12 customers throughout the State. The third prong – the availability of like or substitute 13 services – is demonstrated by the array of local calling plans and feature-rich service 14 packages for residential and small business customers offered throughout the State, as 15 well as evidence of dramatic line losses from Verizon to intra- and inter-modal 16 competitors. 17 The following are some highlights from the overwhelming evidence, discussed in 18 detail later in my testimony, showing that Verizon’s retail mass market services are 19 competitive: 20 • Cable, wireless, VoIP, and CLEC services are widely available: 21 22 o Cable providers have passed over 3.37 million of the 3.47 million 23 housing units in New Jersey, and cable telephony is available to 96.5% 24 of those housing units. 25 26 o Every municipality in the New Jersey has at least five wireless carriers 27 offering service. 2 MA 07-9 Attachment (e) XO-VZ 2-2 Revised 1 2 o Every zip code in New Jersey is served by at least four broadband 3 providers, and thus VoIP over existing broadband connections is 4 available to consumers throughout the State. 5 6 o There are now about [BEGIN VERIZON PROPRIETARY] 100 7 [END VERIZON PROPRIETARY] traditional CLECs offering 8 service to customers in New Jersey. 9 10 • Verizon’s Competitors Are Successful And On The Rise: 11 12 o There are now an estimated [BEGIN VERIZON PROPRIETARY] 13 700,000 [END VERIZON PROPRIETARY] cable telephony lines in 14 the State. 15 16 o New Jersey wireless subscribership has more than tripled from year 17 end 1999 to June 2006, growing from 2.3 million to 8.1 million 18 subscribers (in fact, since year end 2004, wireless subscribers have 19 outnumbered switched access lines in the State). 20 21 o A significant percentage of households (12 – 17%) are “cutting the 22 cord” in favor of wireless only service and this trend is projected to 23 increase (projected at 27% by year-end 2010). 24 25 o Over the past five years (2001 to 2006), the CLEC share of the 26 wireline market has grown from four to 17 percent. 27 28 • Mass Market Customers Are Substituting Away From Verizon: 29 30 o From year end 2000 to year end 2006, Verizon lost about 2.5 million 31 retail voice lines, 1.7 million of which are residential (despite 32 population and economic growth in the State). 33 34 o The volume of telephone numbers ported from Verizon to its facilities- 35 based competitors demonstrates that Verizon line losses are due to 36 competition (Verizon has ported more than [BEGIN VERIZON 37 PROPRIETARY] 1 million [END VERIZON PROPRIETARY] 38 numbers completely off its network as of September 2007). 39 40 o Analysts estimate that cable, VoIP, and wireless substitution rates are 41 growing and taking around 7 to 8% share annually from the telephone 42 companies. 43 3 MA 07-9 Attachment (e) XO-VZ 2-2 Revised 1 In summary, my testimony contains overwhelming evidence demonstrating that the 2 Verizon mass market services at issue meet the statutory reclassification criteria, and 3 should be reclassified at the conclusion of this proceeding. 4 II. The Relevant Services and Product Market 5 Q. PLEASE DESCRIBE THE VERIZON SERVICES FOR WHICH 6 RECLASSIFICATION IS BEING SOUGHT. 7 A. A subset of Verizon’s mass market services are not classified as competitive. These 8 services include residential basic exchange service and single line business exchange 9 service as well as associated local usage, vertical features, and directory assistance 10 (“DA”) services. 11 The relevant usage and vertical features include: (a) switched services (i.e., 12 exchange access line service; foreign exchange service; and local usage messages); (b) 13 ancillary services – switched (i.e., call block; call forward busy/don’t answer; call 14 forwarding; call trace; call waiting; caller ID; caller ID manager; caller ID with name; do 15 not
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