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State Of New Jersey Division of Ratepayer Advocate  



MAY 18, 2006
10 a.m.

Good morning, Chairman Chivukula and members of the committee. I thank you for giving me the opportunity to testify today on Assembly bill, A-2541, which concerns the state regulation of certain telecommunications services.

As Ratepayer Advocate, it is my responsibility to protect the interests of the utility customers in New Jersey. This legislation would effectively result in the elimination of regulation for most providers of telecommunications services; higher rates for consumers; and would preclude the Board of Public Utilities from regulating service quality and reliability. It is my view that A-2541 will have a significant negative impact upon telephone customers in the state and for that reason, I must oppose this legislation.

As currently drafted, the bill would substantially limit and remove regulatory authority and the corresponding protections associated with such authority that have been in place for more than 100 years to ensure telecommunications customers receive just, adequate and proper service at rates, terms, and conditions that are just, reasonable and non-discriminatory.

In addition, this bill would imperil technological development, competition, and innovation, which are essential to the economic development in New Jersey.

It’s important to note that A-2541 conflicts with and is inconsistent with the announced policy of the state of New Jersey expressed by the Legislature in 1992. N.J.S.A. 48:2-21.16(a) provides:

The Legislature finds and declares that it is the policy of the state to:

(1) Maintain universal telecommunications service at affordable rates.

(2) Ensure that customers pay only reasonable charges for local exchange telecommunications services, which shall be available on a non-discriminatory basis.

(3) Ensure that rates for non-competitive telecommunications services do not subsidize the competitive ventures of providers of telecommunications service.

(4) Provide diversity in the supply of telecommunications services and products in telecommunications markets throughout the state.

(5) Permit the board the authority to approve alternative forms of regulation in order to address changes in technology and the structure of the telecommunications industry; to modify the regulation of competitive services; and to promote economic development.

The bill lists a number of prohibitions, which would in effect, deregulate the telecommunications industry and eliminate the many consumer protections that have been put into place. Among the prohibitions in the bill causing the most concern, the BPU would be prohibited from:

• exercising its authority over rates;
• ensuring safe, proper, and adequate service, including preventing discontinuance of service to customers;
• setting standards, classifications, and measurement of service;
• regulating extension of service;
• precluding that books and records be kept in New Jersey and that offices are maintained;
• ensuring compliance with “One-Call Damage Prevention” requirements;
• permitting residential customers to have four free calls for directory assistance;
• reviewing transfer of control, sales, consolidations, contracts, loans and other transactions;
• regulating the sale of stock and issuance of bonds;
• regulating easements, rights of way of property and municipal consents; and
• exercising authority to require the joint use of poles.

I would like to bring to your attention specific sections of the bill, which if implemented, will result in higher rates for consumers and will eliminate consumer protections.

Section 4 of the bill requires only incumbent local exchange carriers to offer basic local service default package—essentially single line residential service—at current rates and removes any authority to review and set rates for basic local service default package.

In addition, Section 4(a)(2) permits any provider of basic local service default package to petition the BPU to adjust such rates. With no economic regulation permitted, this amounts to carte blanche authority to increase rates at any time.

Section 4(a)(3) permits elimination of all plain old telephone service after five years. Presumably, all consumers would have to purchase bundles of service from carriers and this would be of particular concern for low-income customers and senior citizens, who might not necessarily need the additional services or may not be able to afford them.

Section 4(b) of the bill would eliminate rate of return regulation for Sprint, and Warwick Valley Telephone and eliminates Verizon’s alternative form of regulation (PAR-2) including Opportunity New Jersey, Lifeline, and schools and libraries programs—all programs which benefit ratepayers.

Section 5 would over time reduce intrastate access charges and permit incumbent local exchange carriers to recover those reduced charges directly from ratepayers through higher rates.

Section 6 establishes a state universal service fund with contributions coming from the General Fund. This would result in an additional burden on taxpayers and is contrary to the BPU’s position that a state universal fund is not warranted or needed. This portion of the bill ignores the fact that there are major issues and problems with the Federal Universal Service Fund (“FUSF”) and how it is administered. New Jersey is a net payer into the FUSF and receives only a small fraction of what it contributes. The ratepayers of New Jersey are subsidizing universal service for other states. The FCC is also considering intercarrier compensation changes that could require a $4 increase to the subscriber line charge--the charge could increase to $10 per month.

Section 8 of the bill permits the BPU to adopt rules to protect against slamming and cramming and from deceptive trade practices. This authority appears limited to incumbent local exchange carriers who are the only entities required to have a certificate of authority. This section and the prohibition of economic regulation would also eliminate the protection afforded ratepayers under the New Jersey Do Not Call law. The bill would also prevent the BPU from regulating the protection of customer proprietary network information from disclosures to third parties.

Another of the bill’s provisions would permit companies to discontinue service at any time commencing immediately upon the effective date of the bill, and increase rates at any time.

Further, the bill would also preclude the BPU from monitoring and correcting cross subsidization between services. Most of the major participants are multi-service firms and have the wherewithal to use less competitive services to subsidize other services at the expense of ratepayers. Structural separations, cost tracking and reporting, and implementation of affiliate transaction rules are the tools to detect cross subsidization. The BPU would be precluded by this bill from imposing such requirements.

In addition, the bill would most likely lessen economic development in New Jersey since businesses would have no assurance that an up-to-date communications infrastructure would retain its leading edge.

Finally, this legislation is so broad it could have many unintended consequences. For example, if this bill was enacted into law, the state would not have authority on the two others bills up before this committee today.

I firmly believe that telephone service is a lifeline service. We must continue to work within the current regulatory process to ensure consumers are afforded the lowest possible rates and the best of services and protections.

In conclusion, I recommend that you oppose this bill because deregulating the telephone industry in New Jersey would be detrimental to our state’s consumers. My staff and I are available to provide assistance on this important matter as you continue with the deliberative process.

I thank you for the opportunity to testify today and look forward to working with all of you.


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New Jersey Division Of The Ratepayer Advocate
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