EXECUTIVE SUMMARY OF TESTIMONY OF LEE L. SELWYN, Ph.D.
Filed May 15, 2001, BPU Docket No. TO01020095
Re: I/M/O Application of Verizon New Jersey For Approval of Alternative Form of Regulation and to Reclassify Multi-line Business Services as Competitive
Dr. Lee Selwyn is President of Economics and Technology, Inc., a consulting firm that specializes in research and consulting on telecommunications economics, regulation, management and public policy. His testimony is summarized as follows:
Verizon’s revised plan (PAR-2) is seriously flawed and should be rejected by the Board.
Verizon’s PAR-2 fails to promote local competition. PAR-2 contains features such as: (a) permitting the introduction of "new"services as competitive on five days’ notice; (b) permitting the filing of revenue neutral rate restructures across service categories; and (c) failing to commit for a time certain to the adherence of the $8.19 charge for basic residential service, are based on the erroneous assumption that competition presently exists in the market for local telephone service.
In reaching these conclusions, Dr. Selwyn finds that:
Verizon-New Jersey’s original plan for alternative
regulation (PAR-1) has not led to increased competition in the
marketplace nor benefitted ratepayers, because Verizon-New Jersey has been
allowed to retain earnings beyond what should have been shared with
ratepayers.
The telecommunications industry is a declining-cost
industry in which productivity gains generally offset industry costs.
Verizon-New Jersey’s original plan failed to pass on efficiency gains to ratepayers, and the current proposal, PAR-2, fails to do so as well. Dr. Selwyn’s major criticisms of the PAR-2 are:
(1) There is no commitment in PAR-2 to maintain the current rate of $8.19 for basic telephone service;
(2) The PAR-2 attempts to create a regulatory "carte blanche" for a monopoly service provider, because it places the burden on the Board to act within five days on Verizon’s application to offer new services. Five days is an unrealistic, short time frame, essentially designed to bypass any kind of meaningful regulatory review of the monopoly carrier.
(3) The PAR-2 takes effect as of the date of Board approval and does not have an end date;
(4) The PAR-2 includes a streamlined process for revenue neutral rate restructuring at any time and the revenue neutrality of such filings would not be limited to service categories.
(5) The PAR-2 proposes to eliminate the exogenous event provision.
The Ratepayer Advocate’s Proposed Incentive-Based Regulatory Plan Advances the Statutory Criteria Set Forth in N.J.S.A. 48:2-21.18.
Verizon-New Jersey should continue to operate under an incentive-based regulatory plan until the New Jersey local telecommunications market becomes fully competitive. The Ratepayer Advocate proposes a structure where the degree of pricing and earnings regulation (via periodic price adjustments and the sharing of excess earnings) would be linked to the level of actual competition that is present in the New Jersey local service market. Under this plan, Verizon New Jersey’s rate regulated services would be placed in two "baskets." Basket 1 would contain the basic exchange dial tone line, and Basket 2 would contain all other rate regulated services. Caps would be placed on each basket in relation to a sliding scale based on Verizon New Jersey’s market share. Basket 2 rates would be deregulated once Verizon New Jersey has a market share greater than 60% but less than 70%, and Basket 1 rates would be deregulated when Verizon New Jersey’s market share is 60% or less.
Verizon’s petition to reclassify multi line business services should be rejected, because its business services are currently cross-subsidized, and competition does not exist in multi line business services.
Verizon New Jersey’s residential services generate
substantial revenues in excess of costs, and are actually a source of
subsidy to other Verizon New Jersey services.