EXECUTIVE SUMMARY OF THE DECLARATION OF LEE L

EXECUTIVE SUMMARY OF THE DECLARATION OF LEE L. SELWYN

Filed October 22, 2001, BPU Docket No. TO01090541

Mr. Selwyn's declaration addresses the testimony being proffered by Verizon New Jersey ("VNJ") in support of its future Application for authority, pursuant to Section 271of the Telecommunications Act of 1996 ("Act"), before the FCC, to enter the in-region long distance market. The testimony of VNJ discusses the state of competition in the New Jersey local telecommunications market and claims that there is evidence to show that the market in New Jersey is irreversibly open to local competition. The Division of the Ratepayer Advocate ("Ratepayer Advocate") does not agree that the market is presently open to competition and is concerned that the granting of VNJ's Application will further impede the development of competition in this market.

Despite long-standing legislative and regulatory efforts at both the federal and state levels to facilitate and encourage the development of effective competition in the local telecommunications market, VNJ continues to be New Jersey's dominant incumbent local exchange carrier, maintaining overwhelming dominance of both the residential and business segments. To date, Competitive Local Exchange Carriers ("CLECs") have only a small fraction of the local exchange market. Further, once VNJ attains entry to the in-region long distance market, the company's incentive to comply with FCC competitive safeguards will be lost and VNJ will be in a position to rapidly re-monopolize the long distance market in New Jersey.

VNJ's application does not comply with the "fourteen point checklist" required by the Act. The checklist puts forth standards to be met to ensure a level playing field for CLECs attempting to enter the market. For example, VNJ is required to provide nondiscriminatory access to unbundled network elements ("UNEs") and operations support systems ("OSS") as part of compliance with the checklist. But the Board of Public Utilities ("BPU") does not have approved rates for VNJ's UNEs in place. Fair competition is virtually impossible without pre-established rates for these essential components. In 1998 the BPU identified, acknowledged, and accepted as fact that the absence of cost-based UNE rates in New Jersey remain a barrier to entry in the local exchange market. The BPU must establish appropriate rates before VNJ's application can be considered. The Board also cannot conclude that fair access to OSS exists because VNJ has not yet demonstrated this by real-world experience. Instead, VNJ relies on a draft report of an independent third party, which is no substitute for actual commercial usage data.

VNJ"s application also fails to meet the public interest standards required within the Telecommunications Act of 1996. For example, VNJ's 271 application does not include detailed information on the geographic distribution of competitive activity. VNJ cites the number of CLEC facilities-based and resold lines by area code, without providing evidence that each and every geographic area in New Jersey is sufficiently open to competition. The Board cannot fully determine whether all New Jersey consumers would benefit from 271 approval or whether consumers would be harmed by approval, without more specific data.

Also the state does not have a Universal Service Fund in place. The Ratepayer Advocate contends that the establishment of a state Universal Service Fund is essential to satisfying the public interest requirement of Section 271 because such a program ensures the availability of affordable service to all of the state's low income ratepayers and the benefits of competition to those persons in high cost geographic areas. In the absence of a Board decision on Universal Service, approval of VNJ's application would not be in the public interest.

The combined effects of the lack of competition in New Jersey's local exchange market, coupled with VNJ's ability, upon obtaining Section 271 authority, to jointly market local and long distance services, will permit VNJ to be an unregulated dominant monopoly in the market. VNJ would gain an unfair competitive advantage by being able to use "joint marketing" for its local and long distance services. Again, this would reduce long distance competition and create price increases for New Jersey consumers, particularly residential consumers. VNJ's improper use of its joint marketing opportunity, coupled with the nature of the financial relationship between the regulated VNJ and its long distance affiliate Verizon Long Distance ("Verizon LD") violates New Jersey statutory prohibitions against cross-subsidization of competitive services and other affiliate transaction regulations as well as the pro-competition sections of the Act.

The VNJ's long distance marketing and sales agreement outlining the relationship between the VNJ Long Distance and VNJ affiliates completely ignores the requirement under the Act for "arm's length" transactions. The Ratepayer Advocate has requested copies of VNJ's training materials and scripts to be utilized by VNJ employees to sell VNJ long distance service to VNJ local exchange service residential and business customers, but VNJ has not provided this information. The Ratepayer Advocate has discerned from a review of documents available on the VNJ website that VNJ is entirely ignoring the Act's requirement that transactions between the VNJ and Verizon's LD be set on an "arm's length" basis.

VNJ's joint marketing strategy, as reflected in the Marketing and Sales Agreement, depends critically upon its unfair use of subscriber information to achieve a unique advantage over competing long distance providers. This is unfair to VNJ long distance competitors as well as VNJ customers. VNJ can take advantage of it incumbent monopoly over local customers by using these relationships to undermine competing long distance carriers. This ultimately results in higher long distance prices.

By utilizing VNJ customer service personnel to "jointly market" its long distance services, Verizon LD is able to preempt CLECs by reaching inbound customers at the time they contact VNJ to order local service. The anticompetitive edge gained by this is extraordinary. VNJ seeks the right to integrate local and long distance service into a single package, to make two services indistinguishable to the customer, and to leverage its current dominance of the local market to similarly come to dominate the long distance market. New Jersey consumers will lose the chance to have a meaningful choice of service providers.

As a prerequisite to any recommendation to the FCC on VNJ's section 271 filing, the Board must, therefore,require full structural separation of VNJ's wholesale and retail entities. Structural separation of portions of VNJ's operations that provide essential network resources to competing retail services from those portions of VNJ's operations that are involved in the retail provision of service to end user customers is needed to prevent anticompetitive conduct. Under structural separation, VNJ-retail would be required to deal with Verizon NJ-wholesale in exactly the same manner and under the same terms, conditions, and operational interfaces as its nonaffiliated retail competitors.

The Public Interest Standard of the 1996 Act as well as the New Jersey statutes on affiliate transactions requires that the Board implement a strict Code of Conduct to prevent violations of the federal and state prohibitions against cross-subsidization, as well as the remonopolization of the long distance market, before the Board can issue a recommendation regarding VNJ's 271 application to the FCC. A strict and effective Code of Conduct could achieve full parity, subject to effective and rigorous monitoring by the Board. It is critical that CLECs be afforded equal and nondiscriminatory access to the same resources, in the same manner, and in the same time frame as VNJ provides to its own retail operation.

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