EXECUTIVE SUMMARY OF THE INITIAL DIRECT TESTIMONY OF
LEE L. SELWYN, Ph.D.
Filed August 9^th, 2000, BPU Docket No. TO99120934

Dr. Lee Selwyn is President of Economics and Technology, Inc., located in Boston, Massachusetts and Washington, D.C. The firm specializes in research and consulting on telecommunications economics, regulation, management and public policy. His pre-filed testimony is offered in response to Bell Atlantic- New Jersey’s Modified Plan For Alternate Form of Regulation, as well a BA-NJ’s request that the Board deem all of its rate regulated services as "competitive". Due to the limited time provided for the preparation of testimony, coupled with a lack of adequate responses to the Ratepayer Advocate’s data requests, supplemental testimony will be required to cover an embedded cost of service study for Bell Atlantic-New Jersey’s (BA-NJ) residential and single line businesses, switched access services as well as the results of a calculation that identifies an appropriate productivity factor for BA-NJ.

Overall, Dr. Selwyn concludes that the Competitive Telecommunications Plan (CTP) filed by BA-NJ should be rejected by the Board. It fails to promote a competitive landscape for local exchange service, it is ill-timed based on the dismal level of competition manifest in New Jersey’s local exchange market, and reclassification at this time of rate regulated services as competitive would end the development of effective price constraining competition. Furthermore, the bundling of local, intraLATA, and vertical services is anticompetitive and would not produce just and reasonable rates as mandated by New Jersey law and would violate the concept to Universal Service under the 1996 Telecommunications Act.

In reaching these conclusions, Dr. Selwyn makes several significant points:

• BA-NJ’s petition to reclassify services is premature and must be denied until the appropriate reclassification standards are determined and met. The minimal standards observed in the statute require elaboration. In any event, BA-NJ fails to provide evidence sufficient for the Board to conclude that reclassification is appropriate.
  
• When properly measured the inescapable conclusion is that the local exchange market is not open to price constraining competition. Mere head counts of certificated carriers is not evidence of competition. By BA-NJ’s own account, despite its contention that sufficient competition exists so as to merit reclassification, it controls 96.5% of the local service market. Furthermore, competitive entry at the exchange level is critical to determine whether the local exchange service market that consumers participate in exhibits price constraining competition.
  
• BA-NJ has not substantiated its contention that switched access service to interexchange carriers satisfies the criteria for reclassification of switched access as competitive.
  
• Present day specific barriers to competitive entry include: Unbundled network element (UNE) prices not based upon economic cost; inability of competing carriers to access to BA-NJ’s operations support systems (OSS); customer inertia to switch to an unknown carrier; service pricing leadership that does not create a competitive market.
  
• BA-NJ erroneously considers wireless service as a substitute to wireline local exchange service to support its contention of an existing competitive marketplace.
  
• The minimal criteria for reclassification must be enlarged to include proof of :

* price constraining competition in the relevant geographic area;
* compliance with Section 271 competitive checklist
* reclassification on a service by service basis;
* UNE pricing reflective of economic cost;
* availability of UNE-P (unbundled network element platform);
* prompt and efficient dispute resolution mechanisms;
* service quality measurements and standards

• The rate restructuring proposal is anticompetitive and contrary to the public interest. There is no credible evidence that in the absence of rate regulation, the competitive marketplace has developed to the point that prices are market driven. Competition must be widely evident in the present in order to deregulate services.
  
• The bundling of services is inconsistent with the present levels of customer purchases of the services BA-NJ seeks to have reclassified as competitive. Customers would be paying for services to which they presently do not subscribe. This amounts to a rate increase instead of a rate reduction.
  
• The bundling of intraLATA toll and residential exchange access service is anticompetitive and strongly suggests an unlawful tying arrangement prohibited by federal antitrust law. BA-NJ’s’s exercise of its market power to compel the purchase of certain other products serves to eliminate competition.
  
• The rate restructuring plan violates the FCC rules with respect to toll dialing parity.
  
• In rejecting the proposal, the Board should instead establish a ceiling rate for residential exchange service at existing levels to continue until BA-NJ can demonstrate actual and effective price constraining competition. Additional evidence to support the petition should be required:

* detailed cost/price studies for all services;
* a study of contribution for all major service categories;
* a full rate design for each proposed rate change;
* showing of just and reasonable rates;
* analysis of rate change effects on universal service and affordability of rates.

• Any rate increase should be linked to an expansion in local calling areas and rate center consolidation, which will also help to eliminate the need for future area code relief.
  
• The proposal fails to satisfy the statutory requirements of approval of a Plan for Alternative Regulation (PAR). The eight provisions would only be met if there were price constraining competition; in its absence, the specific requirements of the law cannot be satisfied on the speculations contained in BA-NJ’s testimony that competition will arrive by next year. That would be tantamount to waiting for Godot.

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