REMARKS OF BLOSSOM A. PERETZ, ESQ.
DIRECTOR, DIVISION OF THE RATEPAYER ADVOCATE
BEFORE THE BOARD OF PUBLIC UTILITIES
EVIDENTIARY HEARING ON THE VERIZON ALTERNATE PLAN OF REGULATION
Newark, New Jersey
September 18, 2000
Good morning, Commissioner Armenti. I appreciate this opportunity to briefly outline the position of the Ratepayer Advocate concerning Verizon-New Jersey’s proposed Modified Plan for an Alternative Form of Regulation and its Proposal to Reclassify all Rate-Regulated Services as Competitive.
The Ratepayer Advocate is exceedingly concerned that the effect of Verizon’s present filing would prematurely declare competitive and remove from regulation essential services for which there are no ready substitute. The essence of Verizon’s petition states, time and again, that competition will be coming and price-disciplining effects of competition will exert themselves in the future. When that reality has come to pass, the Board should certainly give serious consideration to the assertions Verizon is making today. But that is not the reality of today’s New Jersey local market for telephone services. Verizon is the monopoly provider with close to 99 percent of the market in its territory. To deregulate a monopoly creates the worst of all possible worlds and establishes overwhelming roadblocks to real competition.
The Ratepayer Advocate’s concerns regarding the proposal are many, but basically fall into three broad categories:
1) We believe that one of the most important issues in this case is allowing customers to have a choice of how little or how much local telephone service they want. The proposed bundled service offerings deny choice, are anti-competitive, and actually represent a substantial rate increase for consumers.
2) We believe that customer choice of service providers is another extremely important issue for consumers. Currently, that choice does not exist for close to 99 percent of Verizon’s customers. Verizon’s request to declare all rate-regulated services as competitive is over-broad, premature, and unsubstantiated; and
3) We at the Ratepayer Advocate are very concerned about how Verizon will continue to provide discounts for low income customers as well as schools and libraries. Continuing Lifeline services for low-income residents ranks high on our list of priorities.
--------------------------------------------------------------------------------------------------------------------
1) Choice of Services: Verizon proposes to require consumers to purchase bundled packages of service regardless of whether they want, need, or use those services. Our staff has researched and found that no other local telephone service provider in the country mandates packages without offering Plain Old Telephone Service (POTS) as an alternative. First, I must stress that the Ratepayer Advocate is not against the concept of offering several different packages and bundled rates to customers who are interested in them. What we do take issue with is the lack of choice of either choosing POTS OR one of several possible telephone service packages.
We oppose the non-voluntary nature of Verizon’s proposed package. The company’s proposal would eliminate the traditional flat-rate and measured-rate residence exchange service options and force residential customers to subscribe to a package that bundles together the dial tone line, local usage, three vertical services, and 25 minutes of intraLATA toll. The main fault with this proposal is not the offering of a new service package, but the elimination of the traditional ala carte offerings of flat-rate service. We want to make the points that:
Verizon claims that its customers are demanding easy-to-understand one-price packages that include local toll, vertical services, and Touch Tone. The company has provided no evidence of this "demand" and I have not received any letters from consumers or legislators requesting these packaged services. Exactly which customers are demanding these packages?
Judging by the public’s reaction -- the sheer outrage that many customers have expressed in print, in letters, and in person -- I would have to say that most New Jerseyans vehemently oppose Verizon’s plan because it provides them no choice. I also find it telling that members of the Legislature, both Republicans and Democrats, have been harshly critical of the plan. The message from the public and the Legislature is clear: Do not force me to pay for services I don’t want, need, or use and try to tell me that I am saving money. New Jerseyans value their right to choose and are refusing to allow Verizon to abridge that right. It is important to note that we have not received any letters or calls urging us or the BPU to support approval of Verizon’s plan. I am attaching for the record a sampling of letters received by my office in opposition to the proposal. I would also like to point out that many concerned residents have called and written me about their displeasure with the public hearings because there are only two public hearings scheduled-- in Newark and Trenton, both at 5 p.m.--places and times that many residents have said are not convenient for them.
Verizon’s claim of savings is, quite simply, a myth. Verizon says that its plan will cut the average price of a local phone bill in New Jersey for most consumers. Perhaps the minuscule number of customers who currently take three vertical services, make 25 minutes of local toll calls every month, and have Touch Tone, may realize some savings. Since the vast majority of customers don’t take more than one vertical service and nearly half don’t take any at all, these customers will see their bills go up. Let’s be clear about this: Nearly every local telephone customer in the State of New Jersey will experience an increase in their monthly telephone bill if Verizon implements its proposal. For many customers, this represents at a minimum the doubling and sometimes the tripling of the amount they currently pay each month for local telephone service.
As computer technology becomes more affordable and more people participate in the Information Age, more and more households are installing second phone lines for their computers and fax machines. Most people can’t even tell you what the number is for their second telephone line, yet Verizon wants to force these customers to take a bundled package of services for these lines too. They want people to pay for vertical services and local toll time for a telephone line that will likely never have a human voice travel over it. No other state in this country allows phone companies to charge consumers by making them pay for voice services on auxiliary lines used primarily for data transmission. For that matter, no other state forces customers to pay for options they don’t want, use, or need. Customers always have the option of taking Plain Old Telephone Service, usually defined as basic service by the state’s public utilities commission.
Clearly, basic service should include dial tone, local calling, appropriate calling areas, white page listing, and access to long-distance services. Touch Tone should also be included in any definition of basic service. Any other currently optional service -- like call waiting or caller ID -- that would add to a customer’s monthly telephone bill should remain just that - optional.
2) Choice of Suppliers: On the issue of competition, I would also like to make it perfectly clear that the Ratepayer Advocate supports the goal of a competitive local exchange marketplace in New Jersey.
In 1998, Professor Alfred Kahn said, "I yield to no one in the intensity of my conviction that competition is a better safeguard and promoter of the interest of both consumers and the public at large than regulated monopoly, wherever it is feasible." The Ratepayer Advocate endorses that statement.
Creation of a competitive local exchange marketplace represents a worthy public policy goal -- one which the Board has properly embraced and which is widely supported by business, government, and the public. The creation of vibrant telecommunications competition in New Jersey will be vital for the economic health of the State in the information age. If New Jersey proves to be less attractive to competitive carriers than our adjacent and neighboring states, the multi-million dollar investments that carriers and companies will make in telecommunications over the next several years will instead be directed to those other states. The loss to New Jersey’s economy, vitality, and attractiveness for all other forms of economic development will be immeasurable.
But at the present time New Jersey does not have a competitive local exchange marketplace. Approximately 99 percent of residential customers in Verizon-New Jersey’s service territory continue to get their local service from Verizon.
The choice of suppliers and the ability to come into New Jersey is not just a question of a supplier being licensed. Competitive suppliers also need the ability to offer services to customers while making a profit. Under the current cost structure, that possibility does not exist.
An example of this problem is the current status of energy restructuring in New Jersey. Currently, only about 2 percent of energy customers have switched providers because of the inability of new suppliers to meet the costs of the incumbent utilities because of the rising costs of the wholesale market. In telecommunications, it’s the high interconnection costs that are causing the problem, although in contrast to energy, the telephone industry is a declining cost industry. New local telephone suppliers cannot come in an compete with Verizon because these interconnection costs of using Verizon’s existing system are too high.
We need to create a competitive marketplace in New Jersey so we do not lose the race to our neighboring states. New Jersey cannot continue to lag behind other states in implementing policies which will promote competitive entry by a variety of carriers.
FCC Chairman William Kennard made the following statement when Bell Atlantic New York won approval to enter the long distance marketplace:
"Today we are able to finally declare that the Berlin Wall of local phone monopoly in New York has been demolished and hauled away. Consumers in New York are now free to pass into an exciting new world of competition and choice in telephone service. I look forward to repeating this day for the consumers in every state."
Not only does effective competition encourage lower prices, but it encourages technological development and, most importantly, widespread deployment of those technologies.
Advanced telecommunications availability and capacity are strategic assets for our state. Companies considering expansion or relocation from one jurisdiction to another will carefully consider the state of the telecommunications infrastructure available in various States as either a positive or negative in influencing the ultimate decision. If the latest innovations in modern, efficient, high speed telecommunications are not offered in New Jersey because of a
burdensome regulatory environment or if those services are priced higher in New Jersey than in surrounding states, companies may choose not to invest in New Jersey.
Verizon has offered to freeze its new rates for two years. Given that it seeks the declaration of an open, competitive marketplace and freedom from regulatory constraints, New Jersey consumers have no guarantee that Verizon will not increase its prices once the freeze is lifted. New Jersey law dictates that rates must be just and reasonable.
Any consideration of the competitiveness of current rate-regulated services should be done on a service by service basis and focusing on the presence of actual competition in each central office. No consideration should be given to a petition for reclassification of services as competitive until Verizon can demonstrate actual and effective price constraining competition in a given geographic region no larger than that served by a local switching office.
3) Low-income customers, schools and libraries: Another major concern that is not adequately addressed in Verizon’s filing is universal service. The company makes no commitment to ensure the availability of affordable service to low-income customers, customers in high cost areas, and schools and libraries.
The benefits of competition and advanced technologies must be affordable for low income consumers and those who live in high cost areas.
Current Lifeline customers will be some of the hardest hit by Verizon’s bundled service package. If Lifeline continues to be a $7 monthly credit against the prevailing local rate, these consumers will end up paying as much as ten times what they currently pay for local exchange service. At a minimum, the Board should require Verizon to fund its Lifeline program to allow low-income New Jerseyans to gain the full extent of federal assistance for local phone service. Many New Jersey residents, especially senior citizens, use basic phone service as their only means to contact a doctor or pharmacy, family members, and emergency 9-1-1 services. We cannot sit back and allow Verizon to force low-income residents to cancel telephone service used for these lifeline purposes.
In addition to low-income customers, Verizon also makes no commitment to continuing the provisions of customer premises electronics and extension of discounts currently available to schools and libraries for data services and Internet connections under the Access New Jersey program, which expires at the end of 2001. Since existing federal funding will be insufficient to help all schools and libraries meet their needs, the Board should compel Verizon to extend its commitment to Access New Jersey for at least an additional four years and expand the services to be offered through Access New Jersey to include technologies like DSL to facilitate high speed Internet access using the latest technological innovations.
In many cases, schools and libraries provide New Jersey residents the only source of Internet access available to them. As you know, the Internet has become a most important source of information about jobs and current events. It is also clear that schools without Internet access are shortchanging students of a wealth of information and research materials. For these reasons, we believe it is clear that Verizon must continue offering these important services to New Jersey’s schools and libraries.
On this topic, William E. Kennard, Chairman of the Federal Communications Commission, said, "How do we make sure the Information Highway has on-ramps and off-ramps into every neighborhood? How do we avoid creating a country of information haves and have-nots? ... This is what I call the digital divide. If we can’t bridge that digital divide, it will separate Americans when they most need to be brought together."
All New Jersey consumers, residential, business and municipal, should have equal and affordable access to telecommunications and information services that meet their social, business, educational, career, and quality of life needs.
While this concludes my opening statement. I feel that I have barely scratched the surface in identifying why Verizon’s proposal is not good for New Jersey consumers. Where are the promised merger savings ordered by the BPU and the FCC? During the coming weeks, we hope to further underscore the inappropriate, ill-timed, and unsupported nature of Verizon’s filings to assist you in making your determination. I remain upbeat, however, in our support for a vibrant competitive marketplace, of giving customers a choice when it comes to what services they are offered and who provides that service to them. Our overwhelming concern for the importance of affordable service to low-income customers and schools and libraries will also continue.
I trust that you and your fellow commissioners will decide what is right for New Jersey, its residential and business customers, and, ultimately, the continued prosperity of this state, and reject all aspects of Verizon’s request.
I leave you with a statement made by Governor Whitman this past April. She said that "We’ve seen only the tip of the iceberg in how technology will change our lives. We in New Jersey are determined not to let the revolution march on without us." Thank you.
ADDENDUM
In conclusion, I would like to share with you a story taken from a speech made by FCC Chairman William Kennard on May 3, 1999.
"I want to tell you a story about the people of Ivanhoe, Oklahoma. Ivanhoe was a town that had one street-Main Street. It had a general store and a barber shop. In the surrounding fields, people eked out a living, mostly working the land.
Then, in 1917, the world changed in Ivanhoe, Oklahoma. The town leaders read that the railroad was due to come to their part of the world. The biggest and most important network in the country was going to reach out to their part of the West. The economic possibilities seemed endless with quick transportation would come new jobs, new businesses, new ideas, and more people.
Except there was one problem. When they studied the plans, the town fathers saw that the railroad was coming, no question about that, but six miles away--in Texas.
Knowing that being bypassed by the railroad would devastate their town, its leaders made a decision. They decided to move. The entire town. Buildings and all. Now, Ivanhoe, Oklahoma rests six miles to the north and is known as Follett, Texas.
Should New Jersey have to move across the Hudson or Delaware River? Should we move Bergen County or Mercer County across the river to get benefits of local competition or should we bring those benefits to New Jersey?
When drafting the Telecommunications Act of 1996, Congress wisely reached back to a value as old as America itself: choice. The idea is that competition would drive deployment of the networks of the future. And that once given an array of options, individuals can best decide what is best for them.
Because the goal is to bring all Americans the benefits of a competitive marketplace, we must redouble our efforts to bring choice to residential subscribers--choice in local phone service.
In the state of New Jersey, only large businesses have choice of local phone service. If that’s all we get out of the Telecom Act, then we will have failed the New Jersey public.
I believe that an open, competitive marketplace will benefit our state with better service, lower prices, and affordable advanced technologies. This is a goal that we should work towards every single day. That is not the apparent goal or outcome of the Verizon petition. Thank you.