OPENING STATEMENT OF BLOSSOM A. PERETZ, ESQ.
Ratepayer Advocate
New Jersey Division of the Ratepayer Advocate

New Jersey Technology Council
November 30, 1999

 Good evening. My name is Blossom Peretz and I am the Ratepayer Advocate of the State of New Jersey.

Let me first of all thank the N. J. Technology Council for providing this forum which will be considering the timely issue of telecommunications competition in New Jersey. It is of vital importance not only to the many telecommunications carriers interested in entering the New Jersey market, but should also be of central concern to all of our legislators, government officials, major employers, indeed, the entire society. I say this because the pace at which competition develops in New Jersey, particularly as compared to our neighboring states along the Atlantic seaboard, will not only determine how soon our residents and businesses will realize tangible benefits of competition, but will almost certainly impact the economy of the state for many years to come. In today’s business world, there are very few geographic constraints on decisions companies make on where to locate. With the advent of modern, high speed communications, firms can locate anywhere and still enjoy access to their customers through the magic of modern communications technologies. As the pervasive Internet increasingly becomes the medium of choice for transacting ever more of our interactions, both commercial and personal, distance becomes increasingly irrelevant. Who in this room knows, or for that matter cares, where Yahoo is located, where the computer processing your orders to Amazon.com is physically situated, or in which state your relative’s home web page with family photographs and news is actually located? They could be next door or a continent away.

The same is true for all the many business functions performed daily or assisted by computers. With modern telecommunications, the customer service rep answering your billing inquiry could be in Washington Township or Washington State. The order for competitive energy to your home could be processed in Lodi, California as opposed to Lodi, New Jersey. And questions about your insurance claim could be answered by an agent located in Ireland rather than in the U.S. Modern high speed information networks have made distance a non-issue. And what is it that drives the marketplace to make the investment into modern, high speed telecommunications networks? It is the profit motive being exercised in the free marketplace. If New Jersey does not present the same opportunities for the Qwests, MCI Worldcoms, Metromedias, AT&Ts, Williams Communications, and others to develop their networks and build their infrastructures in this state, they will simply build it elsewhere. And the investments, jobs, networks, and services that go with that business decision, will also go elsewhere. Once that decision has been made and the investment expended, it is not likely to be revisited for a long time. Thus, promoting the rapid advancement of competition is not only good for the consumers of telecommunications services, it is vitally linked to the economic health of New Jersey.

The Division of the Ratepayer Advocate has been an active party in a variety of proceedings before the Board of Public Utilities and the courts, involving issues of competition. Just today my office is filing reply briefs on the issues of natural gas retail unbundling and competition -- and for the past four years we have been active proponents of a competitive retail electric marketplace.

We have supported a retail shopping credit within the "Electric Discount and Energy Competition Act" to provide incentives for marketers to offer energy services to residential and small business customers in New Jersey. In assessing issues relating to energy deregulation our position is consistent with those we have taken in telecommunications.

Our position has always been clear and consistent: we want competition; we want a level playing field for all competitors; we want all classes of consumers to share in the bounty that a vigorous competitive marketplace will produce. One of the worrisome developments that we have seen in the industry, is the fact that New Jersey lags many of our neighboring states along the Atlantic seaboard in the level of telecommunications competition. The fact that we lag behind our neighboring states is pointed up by various assessments of the telecommunications competition that are prepared from time to time. One such snapshot of telecommunications competition in provided by the Board’s report of July 1998, entitled "Status of Local Telephone Competition: Report and Action Plan," which contains benchmarks of competition in New Jersey and the country overall as of April 1998. Without getting into the details of the data contained in the report, the conclusion is clear. Using the Board’s own statistics, as of April 1998, the level of local exchange competition in New Jersey was approximately one-half of that being experienced by the rest of the country, as a broad national average.

The other assessment of competition is derived from data contained in a report released by the Federal Communications Commission (FCC) this past summer, titled "Local Competition: August 1999," which contains comparative data for the entire country, state by state. Not only does the FCC’s report reflect the undeniable fact that New Jersey lags behind the nation on an average basis, but comparing the results obtained by the FCC for December with those reported by the Board in July 1998, there appears to be limited progress in the development of competition in New Jersey. When the FCC’s reported results for New Jersey are compared with similar data reported for other Northeastern industrialized states such as New York, Connecticut, Massachusetts and Pennsylvania, the lack of competition in New Jersey is striking, with the results in New Jersey being generally less than half, and often less than one third of percentages measuring levels of competition under the various parameters used in the report.

The FCC Report also states that competitive carriers are entering the largest and densest markets first, since it is axiomatic that such states would offer the greatest opportunities for growth and profits. However, the results reported for New Jersey -- by both the Board and the FCC -- do not evidence that dynamic. Since New Jersey is a small state and the most densely populated of all the states, one would expect that New Jersey should be a particularly attractive marketplace for competitive carriers to pursue their competitive strategies. But the data reported by both the Board and the FCC point to the converse conclusion: low levels of competitive entry and no indication that competitors are making major inroads. New Jersey’s policy makers should ask "why?" and respond with meaningful legislation to address those aspects of the telecommunications marketplace which are not permitting competitive carriers to pursue economic opportunities in this State. We believe that the economic future of New Jersey hangs in the balance.

So what do we do about the current state of telecommunications competition in New Jersey? We believe that there are several initiates that should be undertaken. Initially, we believe that the prices established by the BPU for the elements of Bell Atlantic’s network available for purchase by competitors is simply too high. It should be remembered, in this regard, that New Jersey is a small, densely populated state; as a result, it should be very cost efficient to build network facilities of all kinds in New Jersey. The FCC’s ARMIS reports, by which local exchange carriers throughout the country periodically report their costs as reflected in their accounting records, reveals that Bell Atlantic -- New Jersey has the eighth lowest cost local distribution plant in the country. However, when the BPU established the "forward looking" cost of the same network facilities, which is the price competitors must pay Bell Atlantic for using these facilities to connect their customers, "the interconnection costs" established by the Board place New Jersey almost in the middle of all the states, as the twenty-first lowest cost jurisdiction in the country. If New Jersey is low cost as reflected in Bell Atlantic’s accounting records, it should likewise be low cost when calculating the price for New Jersey under "forward looking" cost principles. We believe that the price established by the Board in New Jersey is simply not reflective of the true cost nor does it bear a resemblance to prices established by other state commissions for the same distribution plant, and we are currently litigating this issue in the Federal District Court in Newark. High interconnection costs will not encourage a robust competitive marketplace.

Access charges are another reality that competing carriers have to deal with in today’s telecommunications arena. Access charges are the prices that competitors pay Bell Atlantic -- New Jersey to use the incumbent’s network to initiate and complete long distance calls. Current access charges were established in New Jersey in 1985, as part of the only rate case to have been litigated following the break-up of AT&T. At that time, New Jersey’s access charges were among the lowest in the nation and substantially lower than interstate access charges administered by the FCC, again reflective of the fact that New Jersey should be a low cost state for network facilities because of our demographics. Since then, the federal interstate access charge has been reduced on several occasions, and various states have adjusted their access charges to reflect current economic realities, as well as to promote competition. It should be remembered, in this regard, that telecommunications is a declining cost industry, and as the underlying costs go down, rates should also go down. But that has not happened in New Jersey because of rate cap regulation, which has resulted in rates for non-competitive services being maintained at the levels that were established fifteen years ago. Thus, today we have access charges in New Jersey that are no longer among the lowest in the country, and substantially higher than the price of interstate access. In order to create a truly level playing field, we believe that access charges must be priced at or near the true economic cost of providing access, which, in New Jersey, would require a substantial reduction. The State Senate is currently considering a bill that would bring down the price of access to cost plus seven percent. Our office supports the goals of this bill, and we hope that the Legislature will address the issue in the near future.

We also expect that Bell Atlantic -- New Jersey will be filing a petition with the BPU sometime before the end of this year, proposing a new plan for alternative regulation of the company as of January 1, 2001. While we do not know what issues Bell Atlantic will propose to litigate within that proceeding, the Ratepayer Advocate would propose to have the hearings explore issues related to

On the issue of access to new technologies, my office which represents all classes of consumers, the residential, commercial and industrial -- has of course special concern for the residential consumers. We would like to see ADSL available to all residential and small business customers -- and high school students and college students. However, recognizing the capital intensive nature of building broadband structure raises the issues of who should be connected and at what cost? Is the new information superhighway an essential service like telephony, that all Americans should be able to access regardless of geographic or economic circumstances? Or will competition bring the costs down so they are affordable?

Should there be a regulatory policy to govern Internet access and other advanced technology applications or will a truly competitive robust marketplace do the job? Will the ongoing convergence of network industries that provide essential services, i.e. telephony, electricity and natural gas - maximize network efficiencies by integrating the latest developments in information technology?

And should the BPU in New Jersey be considering the separation of wholesale and retail operations in the telecommunications industry similar to the structural separation of the electric and natural industries, namely separation of electric generation from transmission and distribution and separation of the natural gas commodity from the gas pipeline. We are all aware that the Pennsylvania PUC concluded that structural separation of the wholesale and retail operations of the incumbent LEC was the most efficient tool to ensure competition where the local incumbent monopoly controlled the marketplace, noting that Bell Atlantic Pennsylvania controlled over 90% of the local service market.

There are a great many challenges that lie ahead in our quest to achieve a truly competitive telecommunications marketplace in New Jersey. But it is a vitally important effort that requires all of our talents and energies, which need to be expended in a variety of forums and venues. Working together with all stakeholders, policymakers and the public alike has to be a major focus of this effort. Quoting from Alexander Graham Bell, "great discoveries and improvements unvariably involved the cooperation of many minds and there is nothing more difficult and more uncertain in its success than to take the lead in the introduction of new ideas."

Let us all take the lead together.

Thank you.

 Addendum

The New Jersey Board of Public Utilities in its report of July 1998, entitled "Status of Local Telephone Competition: Report and Action Plan," provided data respecting the level of telecommunications competition, as developed in hearings held before the Board in April.

The Report noted that competitive carriers were still not providing "significant statewide . . . local land line residential or small business telephone offerings to . . . customers . . . in New Jersey." Recognizing that there are primarily two methods by which potential competitors will enter the market against the incumbent local exchange carrier, the Report focused on (1) the resale of the exchange carrier services provided by the incumbent, Bell Atlantic-New Jersey, and (2) purchase of local distribution facilities from the incumbent Bell Atlantic-New Jersey as unbundled network elements (UNEs), to which the competitive carrier would attach its own facilities. The Board’s report concludes that competitors in New Jersey were providing telephone service through resale to less than 1/4 of one percent of residential customers, and less than 1/10 of one percent of businesses. Using facilities of the incumbent in conjunction with networks and plant owned by competitors (the use of UNEs), the Board concluded that in New Jersey, competitors were providing facilities based competition to no residential customers, and less than ½ of one percent of business customers. Comparing New Jersey to the rest of the country, the data assembled by the BPU indicates that the level of national competition through resale was less than ½ of one percent for residential customers, and less than 1/10 of one percent for businesses. With regard to facilities based competition through the use of UNEs, the Board

found that nationally less than 1/10 of one percent of residential customers were served by competitive carriers, and approximately 7/10 of one percent of business customers.

 The Federal Communications Commission (FCC) released its report, titled "Local Competition: August 1999," on August 31, 1999. The FCC concluded that in December 1998 the percentage of local lines provided by Bell Atlantic-New Jersey to competitive carriers for resale in New Jersey was 0.9 percent. The national average for the same measurement was 1.7 percent. When the FCC looked at the percentage of customers served by competitors using total service resale of incumbent carriers’ facilities, the Commission determined that in December 1998 the percentage was 0.9% in New Jersey and 1.9% nationally. The FCC also looked into the number of local lines provided by incumbent carriers to competitors as UNEs. With regard to the same December 1998 time period, the FCC found that in New Jersey only 1,000 of Bell Atlantic-New Jersey’s 6,356,000 lines were provided as UNEs, whereas nationally the number was 361,000. As a percentage of all switched access lines, the data constituted 16/1000 of one percent in New Jersey, while being approximately 2/10 of one percent nationally.

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