STATE OF NEW YORK DEPARTMENT OF PUBLIC SERVICE THREE EMPIRE STATE PLAZA, ALBANY, NY 12223-1350 Internet Address: http://www.dps.state.ny.us PUBLIC SERVICE COMMISSION WILLIAM M. FLYNN DAWN JABLONSKI RYMAN Chairman General Counsel THOMAS J. DUNLEAVY LEONARD A. WEISS JACLYN A. BRILLING NEAL N. GALVIN Secretary PATRICIA L. ACAMPORA September 21, 2005 Hon. Jeffrey Stockholm Administrative Law Judge 3 Empire State Plaza Albany, NY 12223-1350 Re: Case 05-C-0616 – Proceeding on Motion of the Commission to Examine Issues Related to the Transition to Intermodal Competition in the Provision of Telecommunications Services Dear Judge Stockholm: Enclosed is a copy of Telecommunications in New York: Competition and Consumer Protection, the staff white paper required to be served today by the August 29, 2005 Procedural Ruling in the captioned case. Sincerely, s/ Peter Catalano Peter Catalano Dakin Lecakes enc. c: parties STATE OF NEW YORK DEPARTMENT OF PUBLIC SERVICE Case 05-C-0616 - Proceeding on Motion of the Commission to Examine Issues Related to the Transition to Intermodal Competition in the Provision of Telecommunications Services Telecommunications in New York: Competition and Consumer Protection A White Paper Prepared by the State of New York Department of Public Service Staff September 21, 2005 TABLE OF CONTENTS I. EXECUTIVE SUMMARY .......................................................................................................................................................1 II. INTRODUCTION ...................................................................................................................................................................10 III. MARKET POWER AND REGULATORY FLEXIBILITY ...............................................................................................13 INTRODUCTION......................................................................................................................................................................... 13 BACKGROUND.......................................................................................................................................................................... 14 PARTIES’ COMMENTS............................................................................................................................................................... 18 Status of Competition.......................................................................................................................................................... 18 Market Analysis/Competitive Index.................................................................................................................................... 22 Pricing Flexibility............................................................................................................................................................... 24 DISCUSSION ............................................................................................................................................................................. 28 The Status of Competition................................................................................................................................................... 28 Pricing ................................................................................................................................................................................ 34 Competitive Checkpoint...................................................................................................................................................... 48 Regulatory Requirements.................................................................................................................................................... 49 CONCLUSION............................................................................................................................................................................ 50 IV. UNIVERSAL SERVICE .........................................................................................................................................................52 PARTIES COMMENTS ................................................................................................................................................................ 53 Universal Service Goals ..................................................................................................................................................... 53 Definition of Basic Service ................................................................................................................................................. 53 State "High-Cost" Funding Mechanism ............................................................................................................................. 53 Affordable Service to All Consumers.................................................................................................................................. 54 TAF/State Universal Service Fund/Social Benefit Programs ............................................................................................. 54 Infrastructure Costs............................................................................................................................................................ 55 DISCUSSION ............................................................................................................................................................................. 56 CONCLUSION............................................................................................................................................................................ 60 V. SERVICE QUALITY ..............................................................................................................................................................62 INTRODUCTION......................................................................................................................................................................... 62 Telephone Service Standards.............................................................................................................................................. 62 Other Indicia of Service Quality......................................................................................................................................... 65 PARTIES' COMMENTS ............................................................................................................................................................... 68 DISCUSSION ............................................................................................................................................................................. 71 CONCLUSION............................................................................................................................................................................ 74 VI. CONSUMER PROTECTIONS ..............................................................................................................................................75 INTRODUCTION......................................................................................................................................................................... 75 PARTIES' COMMENTS ............................................................................................................................................................... 76 Essential Consumer Protections......................................................................................................................................... 77 Relaxing Traditional Regulation ........................................................................................................................................ 79 Commission Complaint Handling Role .............................................................................................................................. 80 Municipally Owned Wire/Wireless Networks ..................................................................................................................... 81 DISCUSSION ............................................................................................................................................................................. 82 Existing Wireline Consumer Protections............................................................................................................................ 84 CONCLUSION............................................................................................................................................................................ 90 VII. LEVEL PLAYING FIELD AND WHOLESALE MARKETS .................................................................................................91 BACKGROUND.......................................................................................................................................................................... 91 PARTIES' COMMENTS ............................................................................................................................................................... 92 Wholesale Market Operation and Interconnection Bottlenecks ......................................................................................... 92 Wholesale Service Quality.................................................................................................................................................. 93