Local telecommunications competition in New Jersey is still in a state of critical condition. Competitors control less than 3.4% of local loops in New Jersey. Martha McKay, "Local Competition Still Elusive After the ‘Revolution,’" The Record (Feb. 8, 2001). This is less than half the national average. Id. And the situation is getting worse not better. Companies once so eager to enter the local market are now exiting the State. For example, Conectiv Communications, which had about 13,000 phone lines in New Jersey, is pulling out of the local market entirely. Joseph Swavy, "Connectiv Deal Brings New Player to Market," The Press of Atlantic City Online (June 7, 2001). And as competitors are failing, Verizon is thriving. John T. Ward, "Verizon Rising," The Sunday Star-Ledger (July 1, 2000). Unless the New Jersey Board of Public Utilities ("Board") establishes permanent unbundled network element ("UNE") rates based on proper forward-looking costs, competitors will continue to exit the market, signaling the death knell for local telecommunications competition in New Jersey.

All parties to this proceeding agree that establishment by the Board of appropriate UNE rates is critical for the development of local competition -- a key Congressional goal of the Telecommunications Act of 1996. The disagreement in this proceeding is predicated on the opposing incentives of the parties. Verizon New Jersey Inc. ("Verizon-NJ") would benefit from the establishment of excessively high UNE rates because such rates would discourage, and likely prevent, market entry by competitive carriers. Conversely, competitive local exchange carriers ("CLECs") would benefit from low UNE rates because such rates would incent CLECs to enter the market. The Ratepayer Advocate, however, is the only party to this proceeding whose primary interest is the people of the State of New Jersey. The Ratepayer Advocate’s purpose is the same as Congress’ was in enacting the 1996 Act -- to promote local competition -- through the establishment of "rates, terms, and conditions that are just, reasonable, and nondiscriminatory." 47 U.S.C. § 251(c)(3). Thus, the Ratepayer Advocate supports the establishment of rates by the Board that are low enough to promote competition, yet sufficient to enable Verizon-NJ to recover its forward-looking costs plus a reasonable profit.

Accordingly, and contrary to Verizon-NJ’s misplaced attempts to characterize the Ratepayer Advocate as simply another CLEC, the Ratepayer Advocate supports UNE rates that comply with the TELRIC methodology and thereby offer the greatest chance of bringing competitive choice to New Jersey for the benefit of ratepayers. To that end, the Ratepayer Advocate urges the Board to correct the inputs and assumptions to Verizon’s cost models pursuant to the Ratepayer Advocate’s recommendations where possible, and otherwise, to adopt comparable TELRIC-compliant rates from neighboring states. The Ratepayer Advocate’s proposed adjustments and comparable rates are contained throughout its Initial Brief, filed on June 18, 2001, with specific, numeric rate proposals contained in the Appendix thereto.

In its Reply brief, the Ratepayer Advocate again highlights the numerous areas identified in the Initial Brief where Verizon-NJ’s inputs or assumptions were inconsistent with TELRIC.. The Ratepayer Advocate points out that Verizon-NJ’s arguments are based on the faulty premise that its cost study should be based on its network, as opposed to the least cost, most efficient, forward-looking network required by TELRIC.. The Ratepayer Advocate notes Verizon’s use of its existing network in its recommendations on digital loop carrier, fill factors, structure sharing and pole placement assumptions. Throughout this proceeding, Verizon-NJ has failed to understand that its current network configurations are completely irrelevant to a proper TELRIC analysis. Verizon-NJ’s use of its existing network, and its embedded plant and historical costs, is fundamentally the wrong basis for a cost study under the TELRIC methodology. Accordingly, Verizon-NJ’s actual costs represent an improper starting point for the Board to use in determining TELRIC-complaint rates.

In assessing the flaws in the Verizon-NJ cost models identified by the Ratepayer Advocate (and by all other parties), the Board should include as a key aspect of its analysis the relative burden of proof of the different parties. The FCC explicitly established that an incumbent provider, such as Verizon-NJ, bears the burden of proving any costs it seeks to recover through UNE rates. The Board, therefore, should only permit Verizon-NJ to recover properly proven TELRIC-compliant, forward-looking costs. In crucial aspects, however, Verizon-NJ’s model fails to meet TELRIC requirements, and Verizon fails to rebut challenges to its proposed rates. Because Verizon-NJ failed to both present sufficient evidence to support its cost studies in its case-in-chief and has failed to rebut the corrections proposed by the Ratepayer Advocate and by other parties, Verizon-NJ has failed to meet its burden of proof. Consequently, the Board must reject Verizon-NJ’s proposed rates and recommends the adoption of the UNE rates proposed by the Ratepayer Advocate.

Finally, the Ratepayer Advocate urges the Board to ignore Verizon-NJ’s irrelevant and frequently misguided, rhetoric contained throughout Verizon-NJ’s Initial Brief. For example, Verizon-NJ’s claim that CLECs adopted a "hold hostage" strategy, intentionally staying out of the market to pressure the Board to adopt UNE rates below cost, is both preposterous and irrelevant. Verizon-NJ Initial Brief at 3-4. As the downturn in capital markets over the past year shows, CLECs need all the customers they can get. CLECs also need certainty in rates to plan properly and are not benefitted by delay. More to the point, however, even were Verizon-NJ’s unsupported allegations true, the behavior of CLECs or of Verizon-NJ in the marketplace is irrelevant in determining proper TELRIC-compliant UNE rates. Rather, the proper basis for UNE rates is the 1996 Act and the FCC’s TELRIC rules. Accordingly, the Ratepayer Advocate urges the Board to conduct a thorough analysis of all the evidence before it, keeping firmly in mind the relative burdens of proof of the parties and the requirements of the TELRIC methodology. Only then will the Board be able to establish rates within the range of TELRIC. Only then will we achieve the goal of a competitive local exchange telecommunications marketplace in New Jersey with benefits of lower rates and affordable new technologies for all consumers.

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