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State Of New Jersey Division of Ratepayer Advocate  

Opening Statement on behalf of
Ronald K. Chen, Public Advocate,
Seema M. Singh, Director
New Jersey Division of Rate Counsel

I/M/O the Board Investigation Regarding the Reclassification of Competitive
Local Exchange (CLEC) services as Competitive
BPU Docket No. TX06120841

March 19, 2007

Good Morning Commissioner Butler, Commissioner Bator, Commissioner Hughes, Board Staff and respective counsel. Today, we begin the evidentiary phase of this proceeding in which the New Jersey Division of Rate Counsel (“Rate Counsel”) is a statutory party and as such has filed Initial, Reply and Rebuttal Testimonies that contest the positions of the other parties in this proceeding, and asks that the Board reclassify two or more lines as non-competitive.

First, let us recognize that this proceeding was initiated by the Board, sua sponte, and involves the potential wholesale reclassification of all CLEC services. Let us also acknowledge that there are over 130 companies on paper that are authorized to provide local exchange service in New Jersey, according to the Board’s website. However, it is peculiar that there are only two CLECs – AT&T and Time Warner – that have joined this proceeding as active parties. Neither of the two other active parties – Verizon NJ who has its own agenda in this proceeding, and the NJCTA who represents cable telephony providers – are CLECs. These are the exclusive Intervenors. Eight other CLECs have joined in the matter on Participant status, which exempts them from filing Testimony and relieves them of having to provide discovery. As it turns out, this proceeding is therefore really about AT&T’s effort to obtain regulatory freedom on all its services and thereby have the Board authorize its ability to increase rates at will for New Jersey customers who will have no recourse to the Board for relief. While AT&T still has customers in New Jersey for local exchange service, it is on a mission to harvest as much revenue from those customers as it can before those customers wake up and go to the provider of last resort – Verizon NJ. All the remaining CLECs are smaller carriers who have decided not to even enter into this fray. Their absence speaks volumes as to whether any reclassification is warranted or necessary.

That, in a nutshell, is the state of competition in New Jersey for local exchange service. The level of competition provides no pricing constraints on either ILECs or CLECs. In fact, AT&T will have succeeded in getting the Board to grant competitive status without any commitments for job growth, technological advancements, or other conditions. AT&T is using competitive reclassification of CLECs as a stalking horse to advance its corporate goal of harvesting its customers through unrestricted price increases. Rate Counsel urges the Board not to abdicate its statutory authority to guard the public interest zealously, and to deny AT&T’s request.

Rate Counsel’s Testimony clearly demonstrates that the claim that the local exchange service market is competitive is a myth. There is evidence that in the absence of the Board’s regulation of AT&T’s rates AT&T would already have been overcharging its customers. The record also shows that Verizon NJ’s rates on services previously declared competitive have increased since the Board declared them so. The marketplace is not adequate to constrain and control pricing. There is no dispute that no CLECs have previously applied to the Board for reclassification of any services, and that CLEC tariffs are generally approved without review and certainly without any evidence as to the reasonableness of CLEC rates. Moreover, no CLEC has yet petitioned the Board for alternative regulation which is the statutory vehicle the legislature identified as the mechanism for promotion of economic development, investment and job growth.

Most important, though, is to confront the mirage that CLEC and Verizon NJ rates are constrained by each others pricing. Verizon NJ continues to dominate New Jersey’s telecommunications markets and effectively exercises it market power to the detriment of consumers. As a result, because Verizon NJ under assigns and under allocates joint and common costs to DSL, FIOS, and bundled offerings, its local exchange rates inappropriately subsidize its new lines of business; therefore, its rates for local exchange service cannot be considered just and reasonable. The record supports that CLECs are not offering services at rates that are at or below Verizon NJ’s rates. Therefore, no pricing constraint exists.

The public interest and indeed New Jersey ratepayers will be immediately harmed by the reclassification of CLEC services as competitive. The Board should not yield the ability to promote broadband at POTS (affordable) rates, oversee universal service and net neutrality, and promote economic development by the telecommunications carriers, as set forth in legislative policy, by reclassifying any services as competitive.

Rate Counsel has made every attempt to obtain as much evidence as possible to support its position in this matter, evidence that is mostly in the possession of AT&T and Verizon NJ. Yet, those efforts have been thwarted. Nevertheless, Rate Counsel’s testimony clearly shows that no other party has sustained the burden of proof so as to warrant classification of freeing Verizon NJ and the CLEC services as competitive.

At the end of the day, it is the public interest, as the overarching criterion that must be protected. In view of the failure of CLECs to actively partake in this investigative proceeding, the harm to the public interest is self-evident. The Board should not declare any CLEC services competitive at this time and should reassess whether Verizon NJ services previously declared competitive should now be reclassified as non-competitive. AT&T’s assertions on behalf of all CLECs are merely a sham so that AT&T can increase rates without regulatory oversight. AT&T’s goal is not in furtherance of the public interest.

The Board should deny all attempts to deregulate telecommunications services in New Jersey.


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