EXECUTIVE SUMMARY OF THE RATEPAYER ADVOCATE

EXECUTIVE SUMMARY OF THE RATEPAYER ADVOCATE'S INITIAL BRIEF IN VERIZON-NJ SECTION 271 PROCEEDING BEFORE THE BPU

Filed December 7, 2001, BPU Docket No. TO0190541

The essence of the Section 271 proceeding is whether the New Jersey Board of Public Utilities ("Board") will follow the mandate of the Telecommunications Act of 1996 (" Act") and require Verizon New Jersey ("VNJ or Verizon") to irreversibly open its local telecommunications markets to competition before it recommends Verizon-New Jersey's entry into the lucrative long distance market.

Section 271 approval is contingent upon VNJ demonstrating that: (1) it satisfies Track A which requires a showing that it faces facilities based-competition in both the residential and business markets; (2) it complies with the 14 point checklist items; (3) it would abide by the separate affiliate and other safeguards of section 272; and (4) its provision of long distance services would be fully "consistent with the public interest, convenience, and necessity." The Federal Communications Commission ("FCC") has stated that all four requirements must be satisfied before section 271 approval can be granted.

The presence of competition in the local market is a necessary prerequisite to VNJ's entry into the long distance marketplace. Unfortunately, the New Jersey local market is not yet irreversibly open to competition. This is because VNJ still retains monopoly control, particularly in the residential market. Evidence of VNJ's monopoly control in New Jersey abounds. Competitive local exchange carriers ("CLECs") provide local service to less than two percent (2%) of the approximately 4.4 million residential access lines in New Jersey. In addition, only 280 residential lines are provided by competitors using their own facilities.

The Ratepayer Advocate's brief aptly demonstrates that Verizon has failed to demonstrate that it satisfies the public interest requirement of section 271 because there is neither sufficient residential competition nor sufficient geographic distribution of competition (residential and business) to show that the local market is presently competitive. Furthermore, there is currently no state universal service fund in place in New Jersey to ensure that consumers will continue to receive universal service benefits once a competitive market is achieved in New Jersey.

The lack of competition in both the residential and business markets in New Jersey has resulted in Verizon failing the "Track A" requirement because it has not shown the presence of competitors who are serving customers "exclusively" or "predominantly" over their own facilities. Satisfaction of Track A requires the showing of actual facilities-based competitors, not potential competitors. The 280 residential lines that Verizon cites as being served over CLECs own facilities does not meet the FCC's de minimis standard for compliance with Track A and does not constitute a satisfactory showing of facilities-based competition.

Verizon also fails to demonstrate compliance with section 271 checklist item 2, "nondiscriminatory access to UNEs." Both competitors and consumers still need real world testing of Verizon's Operations Support Systems ("OSS") in order to ensure nondiscriminatory access to that UNE. Without such testing, ratepayers cannot be certain that Verizon will not obstruct competition through discriminatory treatment in OSS provisioning. In addition, competitors and consumers also require experience with the implementation of newly established unbundled network elements ("UNE") rates. While the Ratepayer Advocate applauds the Board for establishing UNE rates designed to permit the development of competition, only actual real-time implementation of those rates will determine whether competitors are, indeed, enjoying "nondiscriminatory access."

Finally, a grant of section 271 authority in the absence of local exchange competition raises a very real possibility that Verizon may remonopolize the market for long distance services. Moreover, the manner in which Verizon chooses to engage in joint marketing could potentially violate cross subsidization provisions of both the 1996 Act and the New Jersey 1992 Act. The Ratepayer Advocate submits that the Board should take steps to prevent this illegal result by imposing a strict Code of Conduct supported by strict penalties and accounting safeguards. The Board, in the alternative, could decide to structurally separate Verizon's retail arm from its wholesale arm in order to assure the ongoing competitive conditions required by section 271.

The Ratepayer Advocate urges the Board to deny Verizon's current 271 petition and revisit these issues in six months following implementation of the new UNE rates, the Board's implementation of PAR II (including structural separation), commercial testing of Verizon's OSS, and the creation of a state universal service fund for low income ratepayers, schools and libraries, and consumers living in high cost areas. This time is necessary to determine whether the Board's UNE decision and Verizon's OSS will irrevocably open the local market to competition.

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