BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATTER OF THE PETITION OF QWEST ) CORPORATION d/b/a CENTURYLINK QC FOR A ) DETERMINATION THAT TELECOMMUNICA- ) TIONS SERVICES ARE SUBJECT TO ) EFFECTIVE COMPETITION IN NEW MEXICO ) ) Case No. ll-00340-UT REFILED DIRECT TESTIMONY OF WARREN R. FISCHER, C.P.A. On Behalf of the NEW MEXICO ATTORNEY GENERAL’S OFFICE REVISED PUBLIC VERSION Per Hearing Examiner’s Second Order on Confidentiality November 2, 2012
Transcript
BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION
IN THE MATTER OF THE PETITION OF QWEST)CORPORATION d/b/a CENTURYLINK QC FOR A)DETERMINATION THAT TELECOMMUNICA- )TIONS SERVICES ARE SUBJECT TO )EFFECTIVE COMPETITION IN NEW MEXICO )
)
Case No. ll-00340-UT
REFILED DIRECT TESTIMONY OF
WARREN R. FISCHER, C.P.A.
On Behalf of the
NEW MEXICO ATTORNEY GENERAL’S OFFICE
REVISED PUBLIC VERSION
Per Hearing Examiner’s Second Order on Confidentiality
November 2, 2012
Direct Testimony of Warren R. FischerCase No. 11-000340-UT
August 24, 2012
I1.
III.
IV.
TABLE OF CONTENTS
INTRODUCTION, PURPOSE AND SUMMARY OF TESTIMONY ........................1
CENTURYLINK QC’S PETITION -- WHAT 1S IT 1;rEQUESTING? .......................5
STATE REGULA’llON REQUIREMENTS AND ECONOMIC ANALYSES THATARE NECESSARY TO EVALUATE CENTURYLINK QC’S REQUEST .............13
A. New Mexico Statutes and Administrative Codes .......................................................13
B, Commission Inquiry in Case No. 08-00353-UT .........................................................23
C. FCC’s Comprehensive Analytical Framework to Evaluate the State of Competition inTelecommunicati~:ms Markets ..................................................................................... 26
2. Tenth Circuit Court of Appeals Decision .............................................................36
ATTORNEY GENERAL OFFICE’S FINDINGS ON "FHE NATURE ANDEXTENT OF COMPETITION IN CENTURYLINK QC’S SERVING AREA ....... 39
A. QSI’s Report - Status of Competition in CenturyLink QC’s Certificated Areas in NewMexico ........................................................................................................................ 40
B. TheNMAGO Survey. .................................................................................................41
1. NMAGO Sur\,ey Format and Design ...................................................................43
2. Survey Solicitation Process ...................................................................................45
3. Survey Statistics And Analysis .............................................................................52
CENTURYLINK QC’S ASSERTIONS AND EVIDENCE DO NOT SUPPORT AFINDING OF EFFECTIVE COMPETITION THROUGOUT ITS NEW MEXICOSERVING AREA ............................................................................................................. 64
A. Critique of CentutyLink QC’s Publically Available Data and General Assertions onlntermodal Competition ..............................................................................................68
1. Line Loss Dat~ ......................................................................................................69
Survey Initial Corltact Statistics ..................................................................................52Survey Responses_; Received .......................................................................................53Summary of Responses to Key Survey Questions ......................................................57Count of Survey Responses by Zip Code and Entity Type ........................................59Question 7 Respo:nses by Metropolitan / M icropolitar.~ Statistical Areas ...................61Question 10 Resp,~nses by Metropolitan / Micropolit~n Statistical Areas .................62CenturyLink QC New Mexico Business Line Disconr~ects ........................................72Consumer Market Scorecard Subscriber Categories: .................................................81CenturyLink QC’~i. 3Q 2011 Market Share by Metrop~.litan / Micropolitan Statistical85
Table of Contents - 2
Direct Testimony of Warren R. FischerCase No. ! 1-000340-UT
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INTRODUCTION, PURPOSE AND SUMMARY OF TESTIMONY
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS FOR THE RECORD.
My name is Warren !;’,. Fischer. I currently serve as Chief Financial Officer for QSI
Consulting, Inc. ("QSI"). My business address is 2500 Cherry Creek Drive South, Suite
319, Denver, Colorado 80209.
WHAT IS QSI CONSULTING, INC. AND WHAT IS YOUR POSITION WITH
THE FIRM?
QS1 Consulting, Inc. I"QSI") is a consulting firm specialitzing in traditional and non-
traditional utility industries, econometric analysis and computer-aided modeling. QS!
provides consulting services for regulated utilities, competitive providers, government
agencies and organizations (including public utility commissions, attorneys general and
consumer counsels) and industry organizations.
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND WORK
EXPERIENCE.
I have a Bachelor of S, cience degree in Business Administration with a concentration in
Accounting from the [_iniversit> of Colorado in Boulder, I~olorado. I am licensed as a
Certified Public Acco~antant in the States of Colorado and California. After graduating
from the University ol’Colorado, 1 worked for several years as an accountant with
Deloitte & Touche LI.P conducting financial audits. Thereafter, 1 worked for two major
corporations as a financial analyst. I joined AT&T Wireless Services in 1995 as a
financial analyst where ! managed the preparation of annual revenue forecasts for the
Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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company’s cellular diivision. In 1996, 1 transferred to AT&T Corp. where i became a
financial manager and a subject matter expert on pricing and cost issues involving local
exchange and exchange access services. In 2000, i.joined QSI as a Senior Consultant. In
2007, I became QSI’.~; Chief Financial Officer.
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HAVE YOU PREVIOUSLY TESTIFIED BEFORE THE NEW MEXICO PUBLIC
REGULATION COMMISSION ("COMMISSION") OR OTHER REGULATORY
BODIES?
Yes. I testified on th~:~ appropriate pricing methodology fc~r unbundled network elements
offered by CenturyLink QC’s predecessor, US WEST Communications, Inc. ("US
WEST"), and GTE Southwest Incorporated ("GTE") in Docket Nos. 96-310-TC & 97-
334-TC and on payphone deregulation issues in Docket No. 97-69-TC. l recently
testified in the petition filed by Verizon to eliminate certain filing requirements for its
operating companies in Case No. 1 i-00305-UT and in the application filed by Sacred
Wind Communicatio~lts for approval of rates, terms and conditions of service as well as
for support from the ~’,Ie~ Mexico Rural Universal Service Fund in Case No. IO-00315-
UT. I have also testitied at the FCC and before 22 other state commissions on several
issues, including the introduction of competition in the serving areas of rural local
exchange carriers ("RLECs"), rate of return issues, pro-competitive regulatory reform
issues concerning universal service, inter-carrier compensation, and appropriate cost-
based rates under the FCC’s Total Element Long-Run Incremental Cost ("TELRIC")
methodology. A mort: detailed description of the cases in which I have provided
testimony is included in my curriculum vitae as Fischer Direct Attachment 1.
Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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ON WHOSE BEHALF WAS THIS TESTIMONY PREPARED?
This testimony was p;epared on behalf of the New Mexico Attorney General’s Office
("NMAGO").
WHAT IS THE PURPOSE OF YOUR TESTIMONY’?
The purpose of this testimony is to respond to the petitior~ filed by Qwest Corporation
d/b/a CenturyLink QC ("CenturyLink QC) seeking a determination of effective
competition for all of its retail voice telecommunications services in New Mexico under
NMSA 1978, §63-9A-8.
PLEASE SUMMAR IZE YOUR TESTIMONY.
CenturyLink QC’s petition should be rejected because it has not demonstrated that there
is effective competition within each relevant market area of its serving territory in
accordance with NMSA 1078. §63-9A-8 and NMAC §§ 17.11.13. i 6-18. While
CenturyLink QC does [hce competitive pressure of varying degrees, it relies upon an
overly aggregated relevant market area - the entire CenturyLink QC serving territory in
New Mexico -- that i~qores the relevant product and geographic markets that should be
examined. CenturyLir~k QC’s petition includes all of its rctail services that provide voice
communication whether or not each of those services has a functionally equivalent or
substitute service available from a competitor at competitive rates, terms and conditions.
Instead, CenturyLink QC generally assumes that the offeriings of its competitors are
functionally equivalen~ to all ofCenturyLink QC’s retail voice services without any
analysis to demonstrate that on a service by service basis. In fact, CenturyLink QC’s
predecessor, Qwest, c~wrectly deduced over three years ago that the services it claims are
Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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providing effective competition to its retail voice service.,; would fall short of the statutory
requirements of functional equivalence and substitute services specified in NMSA 1978,
§ 63-9A-8(B). ~
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The evidence Centur:,’I.ink QC has provided to support it,.~; petition is flawed for the
following reasons:
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CenturyLink QC has failed to comply with or even address most of therequirements fbr a petitioner under NMAC §§ 17.1 I. 13.16-18;
CenturyLink QC fails to demonstrate that the spectrum of retail voice services forwhich it is requesting a finding of effective competition (those listed within itsExchange and Network Services tariff) have functional equivalents or substituteservices offered by alternative providers that are or can be made readily availableat competitive rates, terms, and conditions as required in NMSA 1978, § 63-9A-8(B)(2);
CenturyLink QC’s positions on market power evaluation are inconsistent withestablished guidelines promulgated by the Federal Communications Commission("FCC’) in recent decisions regarding Qwest’s forbearance petitions in certainmetropolitan statistical areas.
The FCC and ~:be National Health Statics Report C’NI-|SR") data CenturyLink QCrelies upon is c, verly broad since it does not provide granular information at thelevel required to demonstrate the degree of compe6tion in the relevant marketareas for CenturyLink QC’s retail voice services;
CenturyLink (, (_ s assertions regarding its decline in market power are notsupported by its market share statistics nor established standards for evaluating acarrier’s individual market power: and,
The confidential Centris reports relied upon by CenturyLink QC for its market-share-by-provider evidence are overly a~ggregaled at the state level and for selectcommunities only within New Mexico.-
In the Matter of a Commission Inquiry into the Status of Competition for Public Telecommunications Servicein Qwest Communication’s Cectificated Area in New Mexico, Qwesl’s Preliminary Response To Slaff Petitionto Open Inquiry and Response Io Commission Order, Case No. 08-00353-UT, dated January, 30, 2009, at 4.("Qwest’s Preliminary Responr;e")
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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Because of this generalized and high level data, the Commission lacks any sort of factual
basis required for the much more stringent finding of "effective competition."
HOW IS YOUR TES’[IMONY STRUCTURED?
My testimony (1) addresses what CenturyLink QC is req~aesting through its petition and
the direct testimony c,f Robert H. Brigham in Section II, ~2) discusses state regulation
requirements and ecc, nomic analyses that are necessary to evaluate CenturyLink QC’s
request in Section Ill, t3) describes the activities undertaken by the NMAGO to
determine the nature and extent of competition in CenturyLink QC’s serving area in
Section IV, and (4) critiques the assertions made and evidence provided within
CenturyLink QC’s petition and testimony to support a delermination of effective
competition by the C,:~mmission in Section V. 1 conclude the testimony with my
recommendation that the Commission reject CenturyLink QC’s petition due to its failure
to demonstrate that effective competition exists for all of CenturyLink QC’s retail voice
services within ~ relevant market area within its serving territory in accordance with
NMSA §63-9A-8 and NMAC §§17.11.13.16-18.
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CENTURYLINK QC’S PETITION -- WHAT IS IT REQUESTING?
WHAT IS CENTURYLINK QC REQUESTING IN "[HIS CASE?
CenturyLink QC is requestin~ a finding of effective competition by the Commission so
that it can then seek rt~:~.~,ulatory parity with its competilors to enable it to be more
See Fischer Direct Attachme~’t 4 for CemuryLink QC’s Supplemental Response to lw telecom of new mexico,llc’s Second Set of Discovery. ]Requests, Request No. tw telecorn 2-4. Co~afidential Attachment 2-4.
Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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responsive to customer demand, competition, and market conditions.3 if the Commission
grants CenturyLink QC’s request in this case, CenturylAnk QC will request in a second
phase that its retail telecommunications services be regulated by appropriate Commission
orders or AFOR plan’,~ that apply the same rules and reguitations that apply to CLECs
today including the minimum pricing rules under NMAC 1 7.11.13.17.4 CenturyLink QC
also intends to request modification of service quality regulations governing retail
telecommunications service throughout its New Mexico s~ervice territory such that it
becomes subject to same service quality regulatory scheme as applies to CLECs.5
DOES CENTURYL]INK QC’S PETITION OR MR. BRIGHAM’S TESTIMONY
IDENTIFY THE SE RVICE OR SERVICES THAT ARE THE SUBJEC~I" OF ITS
PETITION?
Not with specificity. The petition only refers to CenturyLink QC’s telecommunications
service, including but not limited to basic local exchange service and all associated
features and services. ’’ Mr. Brigham’s direct testimony provides a little more detail by
stating CenturyLink (.?C seeks a finding of effective competition for all retail services
including basic local exchange service.7 CenturyLink QC offers a variety of retail voice
and data services to it:~; residential and business customers. Only in response to discovery
propounded by the NMAGO did CenturyLink QC explicitly state that its petition was for
all retail voice communications services within its New Mexico Exchange and Network
CenturyLink QC petition, Sepl:ember 9,2011, at 2-3.Id., at 10.
ld., at 9-10.
Id. at 1.Direct Testimony of Robert H. Brigham at 3 U’Brigham Direct").
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Direct Testimony of Warren R. FischerCase No. I i-000340-UT
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Services Tariff that relate to the provision of voices services, including basic local
exchange service, related services, features, ancillary services, and any other rate, term or
condition that relates t~z the provision of voice services.~
HAS CENTURYLINK QC’S PETITION STATED HOW A FINDING OF
EFFECTIVE COMPETITION WILL ALLOW IT TO BE MORE RESPONSIVE
TO CUSTOMER DEMAND, COMPETITION, AND MARKET CONDITIONS?
No. CenturyLink QC’s petition offers only vague proclamations of the benefits that will
accrue to CenturyLink QC and its customers if the Commission grants its request. As
noted above, the petili~n states that a finding of effective competition ~,ill allow
CenturyLink QC to seek regulatory parity with its competitors to enable it to be more
responsive to custom~’,r demand, competition, and market conditions. 9 "CenturyLink QC
will be better positioned to bring products, services, and targeted offers and promotions
with greater speed and effectiveness, and prices for all services will reflect costs and
market conditions rather than historical monopoly pricing, models." ~0
ADDITIONAL PROMOTIONAL PRICING THAT CENTURYLINK QC WOULD
OFFER TO CUSTOMERS IF ITS PETITION IS GIL~NTED?
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Fischer Direct Attachment 4, (’enturyLink QC’s Responses to the New Mexico Attorney General’s Third Set ofInterrogatories and Request f~ Production of Documents, Attorney General 3-03.
CenturyLink QC Petition a~ 2.
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No. In interrogatories Attorney General 3-24, 3-25, 3-27’. and 3-28, the NMAGO asked
CenturyLink QC to describe the additional products or services and/or the additional
promotional pricing that CenturyLink QC would offer customers if the Commission
grants its petition for reduced regulation in response to competitive pressure from cable
telephony, wireless, znd VolP services. In response to each interrogatory, CenturyLink
QC provided the following evasive response:
CenturyLink QC objects to this request because it requiresCenturyLink QC to speculate on the Commission’s order in thiscase (Centur3 Link QC cannot know the precise level of regulationthat might res,alt from Commission orders in this case), marketconditions, advancements in technology, other regulatory andgovernment approvals, and many other factors. ~
DOES CENTURYLINK QC ALREADY OFFER PRODUCTS AND SERVICES
THAT COMPETE AGAINST THE BUNDLED OFFERS OF THE CABLE
COMPANIES OPERATING IN CENTURYLINK QC’S SERVICE AREA?
Yes. Mr. Brigham stales that both CenturyLink QC and Comcast offer discounts for
customers that bundle telephone service with high speed internet and video services. ~
Comcast’s introductory price for its bundle is $99 per month for six months while
CenturyLink QC’s bundle is approximately $5 less per month.13 Mr. Brigham also states
that both companies offer additional bundles with added functions at higher prices. ~n
Based on Mr. Brighmln’s statements, CenturyLink QC is already offering attractive
bundles of services at competitive prices. CenturvLink QC also competes against
Fischer Direct Attachment 4, CenturyLink QC’s Responses to the New Mexico Attorney General’s Third Set ofInterrogatories and Request fi;,r Production of Documents, Attorney General 3-24.3-25, 3-27, and 3-28.
Brigham Direct at 30.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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Comcast in other stales within the former Qwest region. Fherefore, it should have some
idea of what it will offer its New Mexico customers beyond what it is able to offer today
if it is eventually granted reduced regulation as a result of’this petition.
DOES CENTURYLINK QC ALREADY OFFER PRODUCTS AND SERVICES
THAT COMPETE AGAINST THOSE OFFERED BV WIRELESS CARRIERS
OPERATING IN CENTURYLINK QC’S SERVICE AREA?
Yes. CenturyLink QC offers its customers wireless service from Verizon Wireless as
part of a bundle of se~’\.ices. This gives CenturyLink an additional service to help retain
its wireline voice customers. Mr. Brigham stated that when a customer disconnects his or
her CenturyLink QC s;crvice and becomes a wireless-only customer. CenturyLink QC
will lose that customer.~-s However, CenturyLink QC’s website indicates that a Verizon
Wireless customer who disconnects its CenturyLink QC voice service but retains its
CenturyLink QC internet service can remain a Centur.~Link QC customer. ~ in this
circumstance, CenturyLink QC still receives revenue from the marketing arrangement it
has with Verizon Wireless even though it no longer receives basic local exchange service
revenue from that customer.
DOES CENTURYLI NK QC ALREADY OFFER PRODUCTS AND SERVICES
THAT COMPETE AGAINST THOSE OFFERED BY VOIP PROVIDERS
OPERATING IN CI::NTURYLINK QC’S SERVICE AREA?
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See CenturyLink website at
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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CenturyLink QC doe’s; not offer VolP service, but its non-regulated affiliate, Qwest
Communications Corporation ("QCC"), does offer VolP service in CenturyLink QC’s
New Mexico serving area. ~v The fact that CenturyLink OC names wireless and VolP
providers as its major competitors that erode its wireline line counts is at odds with the
observation that through resale or its own affiliates, CenturyLink QC also offers VolP
and wireless products; Ithus, "competing" with itselD.
WHAT BENEFIT DOES CENTURYLINK QC STAbID TO GAIN IF ITS
PETITION IS GRANTED?
Despite its claims thai a finding of effective competition will allow CenturyLink QC to
offer products, services, and targeted offers and promotions to the market with greater
speed and effectiveness, the real benefit CenturyLink hopes to gain is relief from the
Commission’s minimum pricing rules in NMAC § 1 7.11.13.1 7 and the service quality
rules that protect New Mexican customers, especially thoz~e who do not have an
alternative provider that the5.’ can switch service to if they are dissatisfied with
CenturyLink QC’s ser’~ ice.
WHAT ARE THE SERVICE QUALITY RULES THAT CENTURYLINK QC IS
SUBJECT TO THAT CLECS ARE NOT SUBJECT TO?
NMAC § 17.11.12 contains service rules that govern both ILECs and CLECs. ILECs
such as CenturyLink ()C are subject to rules governing the following that CLECs are not
subject to:
Fischer Direct Anachment 4, (’enturyLink QC’s Supplemental Response to tw telecom of new mexico, Ilc’sSecond Set of Discovery Requests. Request No. tw telecom 2-51J).
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1. Reporting requirements (NMAC § 17.11.12.8)
2. Provision of ~tlternate service to a customer whose order is held (NMAC §17.11.12.13)
3. Installation datc notification for designed service~; (NMAC § 17.11.12.14)
4. Out of service credits for designed services (NMA C § 17.11.12.15)
5. Directory assistance listing and intercept service l~ime commitments (NMAC §17.11.12.16)
6. Network call completion requirements for direct dialed calls (NMAC §17.1 !.12.17)
7. Quality of service standards for non-designed serJices (NMAC § 17.11.12.19)
8. Timely respoase by customer service representatives (NMAC § 17.11.12.20)
9. Reporting and payment of aggregate customer credits on non-designed services(NMAC § 1711.12.21)
10. Calculation of aggregate credits on non-designed services (NMAC § 17. I 1.12.22)
I1. Ratemaking treatment of penalties and credits (NMAC § 17.11.12.24)
The remainder of the rules in NMAC § 17.11.12 apply to all LECs.
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THERE IS A FINDING OF EFFECTIVE COMPETITION BY THE
COMMISSION?
CenturyLink QC asserts, with no support, that these rules are the most punitive and
restrictive service quality rules in the nation.~8 It also asserts that these rules unfairly
single out and penalize CenturyLink QC. 19 Although CenturyLink QC views these
service quality rules as overly restrictive and punitive, these are the rules set by the New
Mexico Commission. In fact, compliance with these very rules gives CenturyLink QC
advantage over its co~npetitors.
Fischer Direct Attachment 4, CenturyLink QC’s Responses to the New Mexico Attorney General’s Third Set ofInterrogatories and Request f~r Production of Documents, Attorney General 3-02.
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HOW CAN CENTURYLINK QC USE COMPLIANCE WITH SERVICE
QUALITY STANDARDS TO ITS ADVANTAGE?
It can differentiate it,;elf from its competitors by promoting its service reliability in
addition to offering competitive pricing and product pronaotions to stem its purported
market share losses. ~’hile 1 am not familiar with CenturyLink QC’s advertisements in
New Mexico, I am faaqiliar with its current and past advertising in Colorado. As a
Centur),Link QC customer in Denver for the last 17 year,~;, I recall the advertising
campaign it ran when i~ was formerly known as Qwest during the beginning of Richard
Notebaert’s tenure as CEO. Qwest promoted its Spirit of Service campaign to its
customer base through television ads and bill inserts. This campaign included profiles of
certain employees dedicated to providing the highest quality service. The campaign also
highlighted Qwest’s call completion statistics to demonstrate its network reliability.
However, CenturyLink OC’s current consumer advertising is focused on service bundles
priced to compete with the bundles offered by Comcast. [ have remained a CenturyLink
QC customer despite receiving constant solicitations from Comcast to switch service, in
significant part, due to CenturyLink QC’s high degree of network reliability in Denver.
Similar observations can be made from QSI’s online survey of the New Mexico business
customers in CenturyLink QC’s serving area disctJssed in more detail in Section IV.B. In
that survey, service q~.:~ality and reliability was the third most typical reason for the
respondents to stay with CenturyLink QC - after the first and second reasons "no
alternative provider" and "historical relation with the utility." respectively.
22 Q. ARE THERE CUS’[OMERS WHO VALUE PRICE OVER RELIABILITY?
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Ao Yes. Some consumers may value price over reliability, and so may choose a provider
with lower prices and less of an investment in reliability. Conversely, there are
consumers who value reliability over price who will choose a provider with competitive
or even high prices if they can be assured of reliable service by the carrier. Since
CenturyLink QC is already matching competitive offerings through its own bundles that
are competitively priced, it should tout its network reliability in New Mexico, assuming it
is at a level worth highlighting, to differentiate itself.
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STATE REGULATION REQUIREMENTS/~d~lD ECONOMICANALYSES THAT ARE NECESSARY TO EVALUATECENTURYLINK QC’S REQUEST
A. New Mexico Statutes and Administrative Codes
1. NMSA !978, ,~63-9A-8(B)
WHAT IS THE STATE STATUTE GOVERNING A DETERMINATION OF
WHETHER A SERVICE IS SUBJECT TO EFFECTIVE COMPETITION?
NMSA 1978, §63-gA-8(B) states, " In determining whether a service is subject to
effective competition, the commission shall consider the following:
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the extent to which services are reasonably available from alternateproviders in the relevant market area:
the ability of alternate providers to make functionally equivalent orsubstitute services readily available at competitive rates, terms andconditions: and
existini_~, economic or regulatory barriers."
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I discuss the deficiencies in CenturyLink QC’s petition and testimony in meeting its
burden of proof under the requirements of this statute section in Section V of my
testimony below.
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REQUIREMENTS OF A PETITION FOR A DETEHMINATION OF EFFECTIVE
COMPETITION?
NMAC § 17.11.13.16 through NMAC § 17.11.13.19.
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2. NMA(’ ~,~ 17.11.I3.16
WHAT ARE THE t’ERTINENT SECTIONS OF NMAC § 17.11.13.16 THAT
DIRECTLY IMPACT CENTURYLINK QC’S PETITION IN THIS CASE?
NMAC § 17. I 1. ! 3.16(B) lists six requirements that the petitioner must meet for the
Commission to consider classifying a service as subject to effective competition.
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(2)
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relevam facts regarding the nature of the public telecommunicationsservice or services for which a determinati3n is sought including thenames of competitor(s) by location providing or ready and willing toprovide the same or similar service or services or a functionally equivalentalternative or substitute service within the game market area which meetsthe same general customer needs within that area;
the mi~timum rate or charge proposed to be charged for the service that isthe subject of the petition or the proposed range of charges for suchservice or services:
a cost :;tudy demonstrating that the minimum rate proposed to be chargedfor the :service that is the subject of the petition is not less than the truecost of providing such service;
a full and adequate description of the market area for which the proposedminim~tm rate or range of rates is to apply:
the type: of customer affected by the competitive service together with anestimate of the number of customers so affi:cted;
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(6) if an applicant provides regulated telecommunications services in NewMexico, the applicant shall specify the loss, if any, in net contributionexpected, due to competition in the competitive service and how theapplic ant proposes to adjust rates in their ~on-competitive services, tocompensate for the loss of contribution.
DID CENTURYLINK QC’S PETITION OR TESTIMONY ADDRESS OR
COMPLY WITH "I’HE SIX REQUIREMENTS OF NMAC § 17.11.13.16(B)?
No. CenturyLink QC’s petition and testimony, attempts to address the requirement of
NMAC § ! 7. I 1.13.16(B)(1 ), but its filing ignores the requirements ofNMAC §
17. I 1.13.16(B)(2) through (6).
HOW DOES CENTURYLINK QC’S PETITION AN]I) TESTIMONY ADDRESS
THE REQUIREMENTS OF NMAC § 17.11.13.16(B)(1)?
Mr. Brigham names cable companies and CLECs who serve or can serve customers in
various locations throughout CenturyLink QC’s serving area on pages 26-40 of his direct
testimony and provides a listing of cable provider line counts by CenturyLink QC wire
center in Confidential Exhibit RHB-3 to his direct testimony.
Mr. Brigham names wireless carriers he believes provide functionally equivalent service
on pages 40-50 of his direct testimony and provides wireless coverage maps which show
the general areas served or not served by AT&T and Verizon in Exhibit RHB-5 to his
direct testimony. WhJile the CenturyLink QC wire center boundaries are overlaid on top
of the wireless covera._~e areas, there is no identification of the names of these locations.
Additionally, Mr. Brigham’s maps show significant portions of certain wire centers with
no coverage or only moderate coverage by wireless service. I discuss below in Section
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III.C that wireless services do not present effective competition to wireline services since
regulators, including the FCC. have not yet found any evidence that mobile wireless
service constrains wireline voice service prices paid by c~ustomers of the incumbent
carriers.2°
Mr. Brigham names numerous nomadic or over-the-top VolP providers as competitors
who provide functionally equivalent alternative services to those offered by CenturyLink
QC on pages 50-56 of his direct testimony. However, he does not identify the specific
locations within its serving area that these services are available. Additionally, I discuss
below in Section III.C. I that the FCC has not found that over-the -top VolP service is in
the same relevant product market as wireline voice service when evaluating the market
power of the wireline voice service provider.’~
ARE THE CABLE I"ELEPHONY, CLEC, WIRELESS, AND VOIP SERVICES
OFFERED BY ALTERNATIVE PROVIDERS FUNCTIONALLY EQUIVALENT
TO CENTURYLINK QC’S RETAIL VOICE SERVICES?
Partially, depending ~m the service in question, pricing, features, and the location the
service is offered in. ~:enturyLink QC’s petition never addresses this point. I discuss
why cable telephony may not be a functionally equivalent service for many customers in
the QS1 Report - The Status ~f Competition in CenturyLink QC’s Cert(ficated Areas in
New Mexico included as Fischer Direct Attachment 2 to this testimony. The reasons
I also note in Section Ill.CA that the Tenth Circuit Court of Appeals upheld lhe FCC’s Phoenix MSAforbearance order that affirms; this position on wireless substitution as a reasoned and reasonable decision.
I also note in Section Ili.C.4 that the ]enth Circuit Court of Appeals upheld the FCC’s Phoenix MSAforbearance order that affirm,’; this position on over-the-top VolP as a reasoned and reasonable decision.
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include the limited f~otprint of the cable companies compared with the geographic scope
of CenturyLink QC’s wire centers, restrictions on service availability depending on the
cable companies’ systems in a given wire center location, restrictions on the availability
of certain services such as connections to unaffiliated long distance carriers and dial
around calling, and service unavailability during extended power outages.22 None of
these service limitation issues are present in CenturyLink QC’s service offerings as an
incumbent carrier wilh the only ubiquitous network within its serving area.
The QSI report also discusses in detail why wireless and nomadic (over-the-top) VolP
services are not functionally equivalent services to Centu:~yLink QC’s retail voice
services.23 Additionally, 1 discuss in Section III.C below., why the FCC has determined
that wireless service substitution statistics are insufficient evidence that wireless service
has become a functionally equivalent service to wireline voice service because there has
been no adequate demc, nstration that such service substitution is sufficient to materially
constrain the price of the incumbent’s wireline voice service.
IS CENTURYLINK QC’S FAILURE TO COMPLY \VITH ALL OF THE
PROVISIONS OF NMAC § 17.11.13.16(B) SUFFICIENT REASON FOR THE
COMMISSION TO REJECT CENTURYLINK QC’S PETITION?
While I am not an attorney, a plain English reading of the rules suggests to me that absent
CenturyLink QC obtaining a waiver from the requirements ofNMAC §
See Fischer Direct Attachmen~ 2 at Sections III.A.2 and III.C.I.
Id. at Section III.C.
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17.11.13.16(B)(2) through (6), the Commission should either reject the petition outright
or require CenturyLink QC to amend its filing to address these requirements.
3. NMAC .!; 17.!1.13.17
WHAT DOES NMAC § 17,11.13.17 REQUIRE OF TltE PETITIONER?
NMAC § 17.11.13.17 states:
Unless othe~’ise ordered by the Commission upon specific requestby the applic~nt containing ample justification for the request andwhy none ol the pricing methodologies discussed below areapplicable t~ the petition, the information provided with orcontained in a petition shall be such that it will provide theCommission ~ith the minimum price or the range of prices for acompetitive public telecommunications service developed throughone of the following pricing methodologies:
(1)(2)(3)(4)
Direct Cost PricingFully Allocated Cost PricingIncremental Cost PricingAvoidable Costs Pricing
HAS CENTURYLINK QC ADDRESSED THE REQUIREMENT OF NMAC §
17.11.13.17 IN ITS PETITION OR TESTIMONY?
No. CenturyLink QC has stated that it intends to seek parity of pricing regulation with
CLECs in the second phase of its petition including the minimum pricing rules applicable
pursuant to NMAC § 17, I 1.13.17. However, it has not demonstrated compliance with
this rule in this phase of the proceeding nor has it requested a waiver from the minimum
pricing rule as permitled within the rule, Consequently, the Commission should either
reject the petition outright or require CenturyLink QC to amend its filing to address the
requirements ofNMAC § 17.11.13.17.
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4. NMA C ,~,~ 17.11.13.18
WHAT DOES NMAC § 17.11.13.18 REQUIRE OF THE COMMISSION TO
GRANT A PETITION FOR DETERMINATION?
NMAC § 17.1 I. 13.18 states the Commission will:
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Make a finding that multiple persons or entities are providing or ready toprovide the same or similar service or services or a functionally equivalentalternative or substitute service and that such persons or entities aremaking such service or services reasonably available in the same marketarea which generally meets the same customer needs;
Identil~y the market area wherein the particular service is subject tocompetition:
Establish a minimum rate or range of rates to be charged for suchcompetitive service within the particular market area which shall not beless than the cost of providing such service unless the Commission findsthat the sen,’ice should be priced above cost for a specific reason:
Give i~Is approval to and authorize the petitioner to change from time totime the rates and charges for such service: provided that the Commissionshall he notified within ten days prior to any such change in rates andcharges and thal such change in rates and charges shall not be set belowthe approved minimum rate;
Authorize the removal of the price of any such competitive service fromany public tariff which is on file with the Commission;
Authorize, if the Commission deems it necessary, an open docket solelyfor the ~iling and disposition of further m~tters pertaining to a competitiveservice: and
Provide for filing of the minimum price or range prices with theCommission as proprietary information.
Q. HAS CENTURYLINK QC MET THE REQUIREMENT OF NMAC 17.11.13.18?
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Only partially. NMA C § 17.11.13.18(A) through (C) must be addressed for the
Commission to grant the petition and NMAC § 17.11.13.18 (D) through (G) appear to be
steps taken after the petition is granted. CenturyLink QC has submitted information on
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the alternative providers it believes are offering functionally equivalent services in the
relevant market area a,~ required under NMAC § 17. I 1.13.18 (A) and (B).
DID CENTURYLINK QC SATISFY THE REQUIREMENTS OF NMAC §
17.11.13.18 (A) AND IB)?
No. It provided information on alternative providers operating in its markets throughout
the state and generally described some of the services offered by these providers. Most
of these service examples focused on alleged functionall3 equivalent or substitute
services to CenturyLink QC’s basic local exchange service. However, CenturyLink QC’s
petition seeks a findi~.g of effective competition for all of its retail voice services (those
listed within its Exchar~ge and Network Services tariff). Yet, it has not shown how most
of these services hayer functionally equivalent or substitute services offered by other
providers.
DID YOU ASK CENTURYLINK QC FOR ANALYSES IT HAD PREPARED ON
COMPARABLE SERVICES IT ALLEGES ARE AVAILABLE TO ACT AS
SUBSTITUTES TO ITS RETAIL VOICE SERVICES?
Yes. In Attorney General 4-07. the NMAGO asked the following:
Please confirrn or deny whether Mr. Brigham conducted any analyses ofits New Mexico retail voice services where a given service was matchedagainst a comparable service offered by one or more of CenturyLink QC’scompetitors tc, ,determine the ability of that comparable service to act as asubstitute that would or could constrain CenturyLink QC’s market powerin the relevanl market area.
CenturyLink QC’s response was as follows:
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CenturyLink QC objects to this request because it is vague andambiguous, a~; the service "’matching" analysis described in the question isunclear and not fully defined. Subject to and without waiving itsobjections, CenturyLink states that the competitive analysis contained inMr. Brigham’s testimony demonstrates that QC’s competitors providecomparable services that "act as a substitute that would or could constrainCenturyLink QC’s market power in the relevant market area." Cable,wireless and VolP providers all offer voice ~ervices that serve as asubstitute for CenturyLink local voice services. Please also see Responseto AG 4-05.
DID YOU PREPARE A LISTING OF CENTURYLINK QC’S RETAIL VOICE
SERVICES FROM ITS EXCHANGE AND NETWOI~d~ SERVICES TARIFF?
Yes. Fischer Direct A~tachment 3 contains a listing of CenturyLink QC’s retail voice
services within its Exchange and Network Services Tariff to show the Commission the
scope of services that are the subject of this petition.
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DID CENTURYLINK QC SATISFY THE REQUIRI~MENTS OF NMAC §
17.11.13.18 (C)?
No. NMAC § 17. I 1.13.1 8(C) requires setting a minimum rate or range of rates to be
charged for such competitive service within the particular market area. CenturyLink QC
has not provided sufficient information on its prices and cost for each service listed in
Fischer Direct Attachmenl 3 for the Commission to set a minimum rate, or range of rates,
for its services.
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SERVICES SHOU1,D THE COMMISSION GRANT ITS PETITION?
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Yes. Mr. Brigham has asserted that CenturyLink QC has historically been required to
offer stand-alone service at artificially low levels for policy reasons.24 Mr. Brigham also
stated in response to an interrogatory on prices in a competitive market that prices that
are held artificially low in a regulated market may increa~,;e to the appropriate market
level when the markel~ is effectively compet~hve." Consequently, the Commission may
not have to be concerned with CenturyLink QC dropping its prices below an acceptable
minimum level. Instead, it should anticipate that prices will likely increase.
5. NMA(’ .~," 17.11.13.19
WHAT DOES NMAC § 17.11.13.19 ALLOW THE COMMISSION TO DO IN ITS
EVALUATION OF WHETHER A SERVICE IS SUBJECT TO COMPETITION
WITHIN A PAI~TICULAR MARKET AREA?
It states that a finding made in a particular market area of the state does not mean that the
Commission has found the service is competitive in other market areas or statewide. This
is an important consideration in this case. CenturyLink QC has petitioned for a finding of
effective competition fbr its entire serving area that it deems to be the relevant market.
As 1 note below, the Commission previously found in its inquiry into the status of
competition for public telecommunications service in Qwest’s certificated area, that the
analysis of competitiw: activity should be at the wire center or other geographic areas.
Consequently, the Commission has the discretion to reach a finding that effective
Brigham Direct at 25.
Fischer Direcl Allachment 4, CenluryLink QC’s Responses to the New Mexico Attorney General’s Third Set ofInterrogatories and Request fo~ Production of Documents, Attorney General 3-13.
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competition exists in a particular geographic area ofCenl:uryLink QC’s serving area but
not others.
B. Commission Inquiry in Case No. 08-00353-UT
HAS THE COMMISSION PREVOUSLY CONSIDERED THE STATUS OF
COMPETITION IN CENTURYL1NK QC’S SERVICE AREA?
Yes. Stafffiled a Petition to Open Inquiry on December I. 2008 to identify the source,
nature, extent and location of the competition asserted by Qwest at that time,26 Staff
stated that such an inquiry would also help the Commission to decide whether to hold
hearings to determine’ whether any price regulated telecommunications service was
subject to effective competition and in what relevant market areas.27
WHAT WAS THE COMMISSION’S DECISION IN THIS PETITION TO OPEN
INQUIRY?
The Commission agreed to open the inquiry in Case No. 08-00353-UT and ordered
Qwest to file a response that included the following:
A verified statement setting forth in detail which wire centers are/orgeographic areas Qwest believes are subject to eft~ctive competition forpublic telecommunications service, with supporting data showing thenumber and names of alternative providers, and their relative market sharesfor service and market area; and
2. Detailed factual information regarding functionally equivalent orsubstitute serv!ices, sufficient to enable the Commission to utilize the
2~
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In the Matter of a Commission Inquiry into the Status of Competition for Public Telecommunications Servicein Qwest Communication’s C~:rtificated Area in Ne~’ Mexico, Initial Ort~er, Case No. 08-00353-UT, datedDecember 30, 2008, at 2. ("(~ ommission Initial Order")
Id.
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statutory crite, ria set out in NMSA 1978, § 63-9A.-8(B) to determinewhether further proceedings are appropriate,"
WHAT WAS QWEST’S RESPONSE TO THE COMMISSION’S ORDER?
Qwest filed its preliminary response on January 30, 2009 and stated that it opposed
Staffs petition.29 Qwest also stated that it had not filed its own petition for a finding of
effective competition under NMSA 1978, § 63-9A-8 because it believed such a
proceeding would not be a productive use of the Commission’s or Qwest’s resources.3°
Qwest opined that the current statute contains three problem areas that render effective
competition proceedings unproductive:
1. The undefined term relevant market area in the statute leads to piecemealregulation.
2. The standards for determining effective competition are archaic and do notreflect economic principles of competition or ’l~he current telecommunicationsmarket.
Even on a finding of effective competition, the statute allows the commissionto continue regulation at nearly the same level.3~
Qwest asserted that opponents to regulatory parity would seize upon economically
meaningless disputes over whether competitive alternatives to Qwest’s services are
functionally equivale~q~t or provide a substitute for Qwest’~; services.3~
WHAT WAS THE ()UTCOME OF THIS INQUIRY?
28 ld. at 3.29 Qwest’s Preliminary Response. at I.3¢ Id.3~ ld.32 Id., at 4.
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Nothing occurred in the case until September 2% 2011 when the Commission closed the
case after Verizon filed its petition in Case No. 11-00305-UT and CenturyLink QC filed
its petition in this cas,e..33 CenturyLink QC’s decision to file its petition for a finding of
effective competition under NMSA ! 978, § 63-9A-8 is surprising given its statement in
Case No. 08-00353-UT that proceedings under the current statutory framework are not
likely to lead to the correct result.~4
WHY IS IT IMPORTANT FOR THE COMMISSION TO REQUIRE
CENTURYLINK QC TO PROVIDE THE DETAILED INFORMATION IT
PREVIOUSLY FOIJND NECESSARY TO SUPPORT THE PETITION IN THIS
CASE?
Incumbents are the d~minant carriers with ubiquitous facilities throughout their service
territories. These carriers own the physical infrastructure over which telecommunications
services are offered to customers throughout its service area. More specifically,
CenturyLink QC is a :tominant carrier in local telecommunications markets in New
Mexico and the owner of essential bottleneck facilities (fi)r example, wire centers where
CLECs and ISPs can physically locate their own equipment and inter-connect with the
ILEC and other carrier,’0 in an industry characterized by significant fixed costs and scale
economies. All these ,characteristics constitute economic and operational barriers to
ss In the Matter of a Commission Inquiry into the Status of Competition for Public Telecommunications Servicein Qwest Communication’s Certificated Area in New Mexico, Closure Order, Case No. 08-00353-UT, datedSeptember 27. 201 I.
34 Qwest’s Preliminary Responst’ at 6.
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competitive entry and create significant, if not overwhelming market power.35
CenturyLink QC is facing some degree of competition in some - but not all - local
exchange service markets, including competition from CLECs that lease CenturyLink
QC’s bottleneck facilities and more recently, from cable ,companies. Therefore, in
response to that competition, CenturyLink QC possesses the means, incentive and
opportunity for anti-competitive conduct in New Mexico telecommunications markets.3~
It is this incentive and opportunity for anti-competitive conduct, which emanates from its
historical role as the dominant carrier, and which has historically required asymmetric
regulation of ILECs such as CenturyLink QC.
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C. FCC’s Comprehensive Analytical Framework to Evaluate the State ofCompetition ~n Telecommunications Markets
WHY ARE ANALY SES UNDERTAKEN BY THE FCC TO EVALUATE THE
STATE OF COMPETITION RELEVANT FOR THE COMMISSION TO
CONSIDER IN THIS CASE?
The FCC’s analyses o’,~" the state of competition in telecommunications markets are
relevant because they provide a roadmap for the evaluation necessary to determine
whether a particular market is sufficiently competitive to protect consumers from unjust
and unreasonable price increases and discrimination, deterioration in service quality
and/or other harm to c~msumers. The FCC has made these determinations under 47
U.S.C. § 160(a) which provides that the FCC shall forbear from applying certain statutory
~5 A carrier has market power if :it is profitably able to charge a price above that which would be charged in acompetitive market. See, In ti~,e Matter of Implementation of the Local Competition Provisions in theTelecommunications Act of 1996; First Report And Order; CC Docket No. 96-98; Released August 8, 1996; at¶¶ 3, 4, 55, etc.. Hereinafter referred to as the FCC’s "Local Competition Order."
30 See, Local Competition Order al ¶~ 10, 15, etc.
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or regulatory require~ents to an incumbent carrier if it determines that those
requirements are (I) not necessary to ensure just, reasonable, and nondiscriminatory
terms of service, (2) ~ot necessary to protect consumers, and (3) consistent with the
public interest. These investigations are initiated when a carrier petitions the FCC for
forbearance.37 In making such determinations, the FCC also must consider whether
forbearance from enforcing the provision or regulation will promote competitive market
conditions.38 This la~;t point is particularly germane to the Commission’s evaluation of
the state of competition within CenturyLink QC’s Ne~, Mexico serving area.
WHAT ARE THE I4~LEVANT FORBEARANCE PETITIONS FOR THE
COMMISSION TO CONSIDER IN THIS CASE?
The relevant forbearance petitions are those filed by Qwest between 2004 and 2009 for
relief from loop and transport unbundling obligations pursuant to sections 251(c) and
27 i (c)(2)(B)(ii) and dominant carrier tariffing requirements under Part 6 I. During this
time period, Qwest filed a series of petitions for forbearance in the following
metropolitan statistical areas ("MSAs"): Denver, Minneapolis-St. Paul, Omaha, Phoenix,
and Seattle. It is important to note that these petitions were targeted to specific MSAs as
the relevant geographic, markets for the FCC to consider.
WHY IS THE MSA LEVEL OF GEOGRAPHIC MARKET USED IN THE
FORBEARANCE Pli:TITIONS RELEVANT TO THIS CASE?
47 U.S.C. § 160(c).47 U.S.C. § 160(b).
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The MSA and the wire centers within the MSA is the geographic market chosen by the
petitioners themselves for evaluation by the FCC. The geographic market chosen by
CenturyLink QC in this case is its entire serving area rather than a specific MSA like
Albuquerque or Sant;~ Fe. Considering that Qwest limited its petitions to specific MSAs
in states that have a higher degree of competitive entry based on the FCC’s reports on
local competition and the FCC’s denial of Qwest’s petitions in these MSAs, it is unlikely
that the entire CenturyLink QC New Mexico serving area can be considered as
competitive as those markets.
WHAT ASPECTS OF THE FCC’S ANALYTICAL FRAMEWORK ARE USEFUL
FOR THE COMMISSION TO FOLLOW IN THIS CASE?
The Commission shoald consider the FCC’s comprehensive analytical framework to
evaluate the state of competition in both the retail and wholesale markets of Qwest in its
MSAs. While the petitions were focused on Qwest’s wholesale service obligations, the
FCC also evaluated the degree of competition for Qwest’s. retail services. In doing so, the
FCC’s analytical framework has evolved over the last eight years from a marketplace
analysis to a return to the traditional market power framework employed in earlier
proceedings and in the Federal Trade Commission ("FTC")-Department of Justice
("DOJ") Horizontal Merger Guidelines.
1. Qwest!!; 2009 Phoenix Forbearance Petition
HAS THE FCC CHANGED ITS ANALYTICAL FRAMEWORK FOR
EVALUATING TELECOMMUNICATIONS COMPETITION?
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Yes. When evaluating the first Qwest forbearance petition, the 2004 Qwest Omaha MSA
petition, the FCC used a two-prong approach which consisted of (1) a market-share test
where the FCC assess;ed Qwest’s market share for retail mass-market customers, and (2) a
coverage test where the FCC considered the geographic reach of the incumbent cable
provider, and it granted unbundfing relief in a wire center if the incumbent cable
company’s network reached more than a specified percentage of end-user locations
served by that wire ce.nter.39 The FCC also considered both actual competition and the
potential for competition from other carriers.4° However., subsequent developments in
the market revealed the flaws of this approach and prompted the FCC to undertake a
more comprehensive analysis in the most recent case, the 2009 Phoenix MSA
forbearance petition. With the benefit of hindsighl, the FCC returned to the traditional
market power frame~,ork employed in earlier proceeding~ and in the FTC-DOJ
Horizontal Merger G~.t~dehnes. In the Phoenix Order the FCC also repudiated the two-
prong test it had adop~ed in the 2005 Omaha Order findir~g it problematic and not
adequately justified a~; a matter of economics.~2
WHAT DOES THE FCC’S MARKET POWER ANALYSIS CONSIST OF?
The FCC’s market power analysis consists of the assessment of a carrier’s individual
market power through a thorough analysis, which traditionally begins with a delineation
FCC WC Docket No. 09-135, fin the Matter of Petition of Qwest Corporation for Forbearance Pursuant to 47U.S.C. § 160(c) in the Phoeni,:, Arizona in the Metropolitan Statistical Area, Memorandum Opinion and Order,adopted on June 15, 2010, ¶ 2"7. ("Phoenix Order")
See In the Matter of Petition of Qwest Corporation for Forbearance Purs~aant Io 47 U.S.C. § 160(c) in theOmaha Metropolitan Statistic.:.d Area, FCC 05-170, Memorandum Opinion and Order, released December 2,2005, ¶¶ 28, 62, and 66 (2005)~ ("Omaha Order")
~ Phoenix Order, at ¶ 1.
~-~ ld., ¶¶ 24, 26.
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of the relevant product and geographic markets, and then considers market
characteristics, including market shares, the potential for ~:he exercise of market power,
and whether potential entry would be timely, likely, and sufficient to counteract the
exercise of market power.43 The evaluation of market characteristics and the potential for
the exercise of markel power are performed in analyses oi~" marketplace competitors and
the level of competition that exists.
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HOW DOES THE FCC DETERMINE THE RELEVANT PRODUCT MARKET?
The FCC first defines the relevant product market for retail voice services in the
following manner.
52. We begin our analysis by recognizing that, even thoughtelecommunications offerings typically include multiple features that maybe relevant u.hen defining product markets, at the most basic level, aconsumer demands "access" from a provider to connect to acommunicatio~ns network. Depending upon t~e type of access, theconsumer will be able to connect to a wireline telephone network, amobile wireless network, a data network, or another communicationsnetwork. Our determination of the relevant product market considers thedemand for access. For example, we consider the extent to which Qwest’sresidential voice customers would switch from (,!west’s service to Cox’sresidential voice services or to mobile wireless ~oice service in responseto an increase iin Qwest’s monthly price for voice :~ervice.
53. Wireline Services. in prior proceedings, the Commission hasdetermined tha.t services offered to mass market customers fall into severalseparate product markets, including local voice service, bundled local andlong distance voice service, broadband lnterr~et access service, andbundled voice and broadband lnternet access service. We find no reasonto reach a different conclusion in this proceeding.~ (footnotes omitted)
~ Phoenix Order, ¶ 28.~4 Phoenix Order, ¶ 52.
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Qo WHAT DECISION DID THE FCC REACH REGARDING WHETHER TO
INCLUDE MOBILE WIRELESS SERVICES IN THE RELEVANT PRODUCT
MARKET FOR WIRELINE SERVICES?
The FCC explicitly changed its earlier position on mobile wireless substitution as a
functionally equivalent or substitute service in the wireline w~ice product market analysis.
Its current position is that a petitioner must demonstrate that mobile wireless service
substitution is suffici~’.nt to materially constrain the price l~f the petitioner’s residential
wireline voice service.
57. As an i~tilial matter, we note that the (’ommission, the DO J, and.foreign regulotors have previously found that mobile wireless service doesnot constrain ~’he price of wireline service. For example, in 2005 and 2007the Commission found that mobile wireless substiitution does not appear tohave a price-constraining effect on wireline ser\,ice. A recent report bythe DOJ likewise .found no evidence that mobile wireless accesssubstitution constrains landline telephone service prices. In addition,Ofcom (the telecom regulator for the United Kingdom), in evaluating theretail market l~’or fixed (i.e., wireline) access, fonnd that, "while there issome substitt~tability between fixed and mobile access, consumerspredominantl,x, view the two types of access as me’eting different needs andhave a strong preference to purchase both fixed and mobile access."thus concludecl that mobile wireless services should not be included in thesame relevant product market as wireline access service.
58. No evidence in the record here causes us to reach a differentconclusion. In particular, neither Qwest nor a~y other commenter hassubmitted evidence that would support a conclurion that mobile wirelessservice constrains the price of wireline service. For example, Qwest hasproduced no ,~,conometric analyses that estimate the cross-elasticity ofdemand betu, e.~’n mobile wireless and wireline access services. Nor has itproduced any evidence that it has reduced price.,:.for its wireline servicesor otherwise adjusted its marketing for wireline service in response tochanges in the price of mobile wireless service. Nor has it produced anymarketing studies that show the extent to which consumers view wirelessand wireline a,’.’cess services as close substitutes.
59. Instead. Qwest submitted studies that estiimate the percentage ofhouseholds that exclusively rely upon mobile wireless services in the
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Phoenix area., which cannot alone establish whether mobile wirelessservices should be included in the same relevant product market asresidential wireline voice service. Knowing the percentage of householdsthat rely exciusively upon mobile wireless is insufficient to determinewhether mobi~le wireless services have a price-constraining effect onwireline access services. Moreover, uhile we acknowledge that thenumber o.f cu~tomers that rely solely on mobile wireless service has beengrowing steadi(I’, we find that other reasons may explain the growth in thenumber of wireless-only customers’, besides an increasing cross-elasticityof demand be~aveen mobile wireless and wireline’ services. For example,nationwide statistics published b.v the CDC suggest that the choice to relyexclusively u]~on mobile wireless services could be driven more bydifferences it~ consumers’ age, household structure, and underlyingpreferences them by relative price di.fferentials. Furthermore, jusl as somecustomers ma~ rely solely on mobile wireless service regardless of theprice of wireline service, several classes of customers appear unlikely todrop wireline service in response to a significant price increase, includingthose who: (a) value the reliability and safety ofwireline service; (b) valuea single poinl of contact for multiple household members; (c) live in ahousehold witin poor wireless coverage; (d) operate a business out of theirhome and believe that wireline service offers belier reliability and soundquality; or (e) desire a service that is more economically purchased whenbundled with a local service (e.g., wireline broadband Internet service, or avideo service), lndeed, because the record reflects that the majority ofresidential cu!:lomers continue to subscribe to both mobile wireless andwireline services, it appears that most mass market consumers use mobilewireless setwt,:’e to supplement their wireline service rather than as asubstitute for t.beir wireline service. (emphasis added) (footnotes omitted)
Consequently, the FC(2 determined that mobile wireless services should be excluded
from the relevant market for wireline services. The FCC considered whether the
increasing percentage of residential customers relying upon mobile wireless service was
sufficient to materially constrain the price of residential wireline voice service. It
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Regarding the marketing study Qwest did provide on mobile wireless subscribership in
the Phoenix area, the FCC specifically noted the following:
Instead, Qwest submitted studies that estimate the percentage ofhouseholds that exclusively rely upon mobile wireless services in thePhoenix area, which cannot alone establish whether mobile wirelessservices should be included in the same relevant product market asresidential wireline voice service. Knowing the percentage of householdsthat rely exclusively upon mobile wireless is insufficient to determinewhether mobile wireless services have a price-constraining effect onwireline access services.46
Consequently, the F(2,U excluded mobile wireless service from the same relevant product
market as wireline service.
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Qo DID THE FCC INCLUDE VOIP SERVICES IN THE, RELEVANT PRODUCT
MARKET FOR WIRELINE SERVICES?
As noted below from Lhe Phoenix Order, the FCC affirmed its earlier findings that
facilities-based VolP services are sufficiently close substitutes for local service to include
them in the relevant product market, but that there is insufficient evidence to include
over-the-top VoIP services.~
54. VolP. We find that the degree to which particular VolP services areviewed as close substitutes for other local services varies depending uponthe characteristics of the particular VoIP offizring. In accord withCommission precedent, we divide VolP providers into two general types:(1) facilities-based VolP providers; and (2~ "over-the-top" VolP providers.
Phoenix Order, ¶ 55.Phoenix Order, ¶ 59.Nomadic (non-facilities based) VolP product offerings require a high-speed Internet connection - a connectionthat nomadic providers do no1 offer.
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As in the pas~;, we find that mass market consumers view facilities-basedVolP service,_-;, such as those offered by cable providers, as sufficientlyclose substitulles lbr local service to include thera in the relevant productmarket. Also as in prior proceedings, we agree with commenters that therecord here is insufficient to determine which over-the-top VolP servicesshould be included in the relevant product market. (footnotes omitted)
This means that any market share loss thal CenturyLink QC attributes to VolP services
provided by cable telephony providers such as Comcast and Cable One would be
included as a substitute service, while VolP services provided by over-the-top providers
(cited by Mr. Brigham such as Vonage, Google, Magic Jack, Lingo, 8X8. VolP.com,
viatalk, Intalk, PhonePower. CallCentric, VolPYourLife, etc.) would be excluded from
the analysis.48
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Qo HOW DOES THE FCC DETERMINE THE RELEVANT GEOGRAPHIC
MARKET?
The FCC affirmed its methodology to determining the relevant geographic market in
forbearance petitions as follows:
64. Consistem with Commission precedent, we reaffirm that eachcustomer local ion constitutes a separate relevant 8eographic market, giventhat a customer is unlikely to move in response to a small, but significantand nontransit,:~ry increase in the price of the service. For reasons ofadministrative convenience, the Commission traditionally has aggregatedcustomers facing similar competitive choices. We’. continue to follow thisapproach here. ~9 (footnotes omitted)
Consequently, the FC(I continued its approach to examine data at wire center
level in its forbearance petition proceedings.
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Phoenix Order, ¶ 64.
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WHAT WERE SOME OF THE FCC’S OTHER FINDINGS WHEN IT RE-
EXAMINED ITS TWO-PRONG TEST?
It found that the mariner-share test used in the Omaha Order was unduly narrow in focus
and inadequate for as~;cssing a carrier’s market power -- i.e. its ability to maintain prices
above competitive levels.5° The FCC likewise found that the coverage test used in the
Omaha Order to estimate the potential for competition inappropriately assumed a
duopoly always const i~utes effective competition. The presence of only one alternative
provider (such as the cable company) with significant ma~Tket share, just like the presence
of only a few competitors, results in duopolistic or oligopolistic markets. The FCC noted
that these types of markets present competitive concerns, and that the presence of a single
competitor, such as a~ incumbent cable company, does not provide sufficient protection
to consumers.
29. The second, and arguably more important, part of the test focused onthe extent to w’hich a single provider (the incumbent cable company) couldprovide services in each Qwest wire center over its own facilities. Thisfocus inappropriately assumed that a duopoly always constitutes effectivecompetition and is necessarily sufficient to ensure .just, reasonable, andnondiscriminator~ rates and practices, and to protect consumers. The
potential for sapracompetitive prices ma~ be a concern where there is aduopoly or a market dominated by a few firms and there are high barriersto entry into the market.
30. We thus find that the move from monopoly, to duopoly is not alonenecessarily sulqicient to justify forbearance in l:,roceedings such as thisone. While duopolies may yield competilive results in certaincircumstances, both theoretical and empirical studies suggest thatduopolies ma3, pose competitive concerns in other circumstances. Forexample, economic theory holds that firms operating in a market with twoor a few firm:; (i.e., an oligopoly) are likely to recognize their mutualinterdependence and, unless certain conditions are met, in many cases may
50 Id., ¶ 28.
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engage in strategic behavior, resulting in prices z~bove competitive levels.5~ (footnotes omitted)
WHAT WAS THE BENEFIT OF HINDSIGHT THAT THE FCC ALLUDED TO
IN PARAGRAPH 2:1 OF THE PHOENIX ORDER?
The hindsight that the FCC refers to is regarding its use o1" predictive judgments when
evaluating competiti~ chess of a market. The FCC found that, "... that these predictions
have not been borne ~ut by subsequent developments, were inconsistent with prior
Commission findings, and are not otherwise supported by economic theory.’’-~2
Consequently, the potential for competition or the concept of competitive capacity raised
by Mr. Brigham53. have no basis in economic theory to be relied upon in evaluating the
degree of competitio~ that exists today in a relevant market area.
2. Tenth Circuit Court of Appeals Decision
DID QWEST CHAI..LENGE THE FCC’S DECISION IN THE PHOENIX
ORDER?
Yes. Qwest appealed the FCC’s decision in the Phoenix Order to the Tenth Circuit Court
of Appeals. The Court addressed two major challenges: (1) whether the FCC’s decision
was arbitrary and capricious and (2) whether the FCC’s assessment of competitive
conditions in the retail mass market in Phoenix was unreasonable. On August 6. 2012,
Id. at ~1~ 29-30.
Phoenix Order, ¶ 34.
Brigham Direct, at 23.
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the court issued its order denying Qwest’s petition.54 The court ruled that ruled that the
FCC met its procedural obligations under section 10 (47 U.S.C. § 160). Among other
things, the court stated that the FCC did not ignore the cut-the-cord phenomenon, but
rather offered a reasonable explanation for why mobile wireless voice services were
excluded for the prodact market it analyzed.
HOW DID THE COURT ADDRESS QWEST’S ASSERTION THAT THE FCC’S
RELIANCE ON WHETHER QWEST’S WIRELINE VOICE PRICES CHANGED
IN RESPONSE TO COMPETITIVE PRESSURE FROM MOBILE WIRELESS
SERVICES WAS UNREASONABLE BECAUSE Q~EST IS A REGULATED
ENTITY THAT CANNOT DECREASE PRICES FOR SOME CUSTOMERS
WHILE MAINTAINING THEM AT CURRENT LEVELS FOR OTHER
CUSTOMERS?~s
The Court noted that the FCC had specifically identified other types of proof-- besides
evidence that Qwest lowered prices -- that Qwest could have relied upon to support its
position that wireline and wireless voice services should be in the same product market.
1. Econometric analyses that estimate the cross-elasticity of demand between mobilewireless and ~,ireline access services.
2. Documentatio~ that Q~est has adjusted its marketing for wireline services inresponse to changes in the price of mobile wireless services.
United States Courts of Appeals’;, Tenth Circuit, Case No. 10-9543, Petition fbr Review of Order of The FederalCommunications Commission (FCC Docket No. 09-145), Qwest Corporation. Petitioner, vs. FederalCommunications Commission; United States of America, Respondenls, Published Opinion of the Court, issuedon August 6, 2012, at 3.
Id. at 37, footnote 8.
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3. Marketing stttdies that show the extent to which consumers view wireless andwireline access services as close substitutes.-%
DID CENTURYLINK QC PERFORM ANY OF THESE ANALYSES IN THIS
CASE TO SUPPORT ITS POSITION THAT WIRELESS SUBSTITUTION
SHOULD BE FACTORED INTO THE ANALYSIS OF ITS MARKET POWER IN
THIS CASE?
No. Attorney General 4-06 asked Mr. Brigham whether he had, "... conducted any
analyses, such as price elasticity of demand data, to determine whether its New Mexico
retail voice customer,s, would or could substitute away from CenturyLink QC’s services in
response to a price in~:rease." His response was as follows:
Mr. Brigham l~as not performed an elasticity of demand study, nor is onenecessary to, determine that "effeclive competition" exists forCenturyLink’s local exchange services in New Mexico. Thedetermination of "’effective competition" is based on an evaluation of thecriteria listed in NMSA, §63-9A-8.s7
WHAT WAS THE COURT’S DECISION ON THE SECOND MAJOR
CHALLENGE?
The Court rejected Q~:~est’s claim that the FCC was unreasonable in its assessment of
competitive conditions in the retail mass market in Phoenix because it excluded
competition from national wireless providers such as AT&T and Verizon Wireless. The
Court found that the FCC’s identification of market participants flowed logically from its
definition of the relewmt product market.
~" Id. at 37, footnote 8.Fischer Direct Attachment 4, (enturyLink QC’s Responses to the New Mexico Attorney General’s Fourth Setof Interrogatories and Request for Production of Documents, Attorney General 4-06.
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WHAT IS THE IMPORTANCE OF THE COURT’S DECISION TO THIS CASE?
The Court’s decision affirms the FCC’s comprehensive a~alylical approach to evaluating
the state of competition in telecommunications markets. l-his Commission can use the
FCC’s framework to ~.r, uide its decision on the evidence necessary to reach a finding of
effective competition in this case.
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ATTORNEY GENERAL OFFICE’S FINDINGS ON THE NATUREAND EXTENT OF COMPETITION IN CENTURYLINK QC’SSERVING AREA
WHAT HAS THE NMAGO DONE TO ASSESS THE NATURE AND EXTENT OF
COMPETITION IN CENTURYLINK QC’S SERVING AREA OVER THE LAST
FEW YEARS?
The NMAGO was an active participant in the Commission’s inquiry into the status of
competition in Qwest’s serving area in Case No. 08-00353-UT. The NMAGO’s initial
filing on January 30, 2009 included a report it requested from my firm, QS! Consulting,
Inc., to assess the status of competition in Qwest’s Certificated Areas in New Mexico.58
Following the petitio~ filed by CenturyLink QC in this case lbr a finding of effective
competition, the NMAGO requested that we undertake the following tasks in addition to
evaluating the merits of CenturyLink QC’s petition against the requirements of NMSA
1978, §63-9A-8 and NMAC §§ 17.11.13.16-18.
Update our 2009 report to evaluate CenturyLink QC’s claims in its petitionthat "{t: ]ompetition for all forms of communications services, in allgeographic areas, has exploded over the past decade... Local telephone
See Attorney General’s Initial Filing on the Status of Competition in Qwest’s Certificated Areas in NewMexico, Case No. 085-00353.UT. January 30, 2009.
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service (and related services and features) now competes for customerswith w, ireless providers, voice over internet protocol providers (VolP),cable telephony, and other wireline providers.’’59
Conduct a survey to gather information, from the consumer’s perspective,on the nature and extent of competition in the state’s telecommunicationsmarkets to help the NMAGO ascertain whether it is sufficient to protectthe consumer and public interest.
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A. QSl’s Report - Status of Competition in CentulTLink QC’s CertificatedAreas in New Mexico
WHAT DID QSI DO TO UPDATE ITS 2009 REPORT THAT WAS FILED IN
CASE NO. 08-00353-UT?
QSI updated its report, The Status of Competition in CenturyLink QC’s Certificated Areas
in New Mexico, usint~ publicly available statistics produced by the FCC as well as
analyses performed by the FCC in its evaluation of the petitions for forbearance filed by
Qwest that l discuss in section Ill.C above. This updated report is attached as Fischer
Direct Attachment 2 ~,3 this testimony.
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Qo WHAT DOES THE QS! REPORT EVALUATE.’?
The report evaluates the following: (1) the types of comF, etitors providing service in
intermodal competition in New Mexico, (4) the competitiveness of the New Mexico local
telecommunications market over time, (5) CenturyLink QC’s operations in New Mexico,
and (6) impairments to the development of effective competition in New Mexico.
25 Qo WHAT DOES THE QSI REPORT CONCLUDE?
CenturyLink QC Petition, at ~.
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The report concludes the following on the level of competition within CenturyLink QC’s
serving area:
New Mexico continues to rank last among all of the states in the continental U.S.in the level of competitive entry by CLECs.
CenturyLink QC dominates the retail New Mexico markets within its serving areabecause of its ownership of essential bottleneck facilities, which continue to bethe major economic barrier to competitive entry.
The level of competition appears to be stronger in residential markets compared tobusiness markets, but much of this compelition is from services that may not befunctional equivalents or provide price discipline to CenturyLink QC’s residentialretail voice services such as basic local exchange.
The available geographic-level data suggest that absent a few potential areas (e.g.Albuquerque), the vas! majority of CenturyLink QC’s serving territory in NewMexico is not subject to effective competition in business markets.
HOW IS THE QSI REPORT USED WITHIN YOUR TESTIMONY?
1 use the QSI report to, address certain claims made by CenturyLink in its petition and in
Mr. Brigham’s testimony in Section V. below.
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B. The NMAGO Survey
WHY DID THE NMAGO COMMISSION QSi TO CONDUCT A SURVEY OF
TELECOMMUNICATIONS USERS IN CENTURYIINK QC’S SERVING AREA
IN NEW MEXICO?
The purpose of the survey was to gather relevant information to assist in the analysis of
whether effective competition exists for CenturyLink QC in New Mexico. The approach
was to reach out to bu~dness end users by distributing among them a questionnaire on the
state of competition it, CenturyLink QC’s serving area. 7’his information fills the gap
between the two type~,~ of information typically available, which are anecdotal evidence
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and aggregated statewide data. Statewide data on the percent of telephone lines served
by competitors (statistics reported by the FCC) may over-represent the overall level of
competition if the competitors line counts are driven by jus! a few "outlier" large business
customers (while small business customers may remain lar~zely with the incumbent).
This issue is of lesser concern in residential markets where one line typically means one
customer, so that the ~;latewide average line count market shares fairly accurately
measure the level of competition.
IS THIS IN PART WHY QSI LIMITED THE SURVEY DISTRIBUTION TO
BUSINESS CUSTOMERS?
Yes. this was one of the reasons business markets were chosen as the subject of the
NMAGO survey. Another reason was QSI’s opinion thal business customers could be
easily reached within the time frame and resources available to conduct the survey before
the testimony filing deadline through the use of the local ,chambers of commerce and
similar trade organiza~tions. Finally, it was generally recognized that business users tend
to be more informed and more sophisticated telecommunications users. Such users are
more likely to be able to understand and relate to the que~,~.tions regarding competitive
alternatives.
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Qo PLEASE CONTIN[ E YOUR DISCUSSION OF THE DIRECT SURVEY
APPROACH.
The direct survey of et~d users also provides a unique measure of the end users’
perceptions and awareness about the availability of competitive choice. Public awareness
of the available competitive choices is an important measare of the level of competition
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because if end users ~tre not aware of the choices, they are the incumbent’s captive
customer base and are not protected from the incumbent’s price increases.
It was recognized from the very beginning that this project would not result in a
statistically rigorous ,:;tudy.
1. NMA(i;O Survey Format and Design
WHAT WAS THE SURVEY FORMAT?
QSI decided that an electronic written survey would be the most efficient method of
reaching as many resp<,~ndents as possible with the availal~le resources. The written form
would also be better llhan a telephone questionnaire becat~se it allows the respondent to
think over each question. The survey format was an online questionnaire posted on the
QSI web site. The majorily of the survey questions were multiple choice questions, and a
small number of ques~lions were open-ended questions such as the question asking to
provide additional comments and contact information. The respondent had a choice of
not providing his or her contact information, and leaving some questions blank. After the
respondent filed in the survey, the web site recorded his c~r her responses and
automatically generated an e-mail containing the survey zmd the respondent’s answers.
This e-mail was sent ~.c, QSI and was used by QSI to anal~¢ze and summarize survey
responses.
HOW WERE SURYEY RESPONSES MONI’I’ORED?
QS! monitored survey responses as they were coming in, making sure the questions made
sense to the responde~ts and that there were no other glitches. After the first few
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responses were received, QSI realized that some questions required refinement.6° In
addition, one of the respondents suggested that we track the respondents’ IP addresses to
reduce the probability of abuse (one respondent filling in the questionnaire multiple
times). As a result, (~!S1 modified the original questionnaire, refining and/or expanding
on some questions, a~d also turning on the function to record the respondents IP
addresses. Only six ~tal of over 100 survey responses received by QSI were responses to
the original questionnaire. QSI incorporated them in the ~;ummary of survey results
discussed below in cases where the question and the associated multiple choice answers
(if any) in the original questionnaire matched the question and the associated multiple
choice answers (if an),)in the revised questionnaire.
HOW WAS THE SI!RVEY DESIGNED?
The survey contained some introductory statements and questions, which can be divided
in four logical parts, il’he introductory part contained baci~ground information on the
purpose of the survey, as well as instructions on how to answer the questions.
Specifically, the survey instructed the respondent to ans~ver the questions as an employee
or owner ofa busines:.:; or organization in the state of Nevs Mexico (rather than as a
residential consumer)
The first part of questions contained pre-screening questions - questions designed to
verify that the respondent belongs to the target audience - whether the respondent is an
60 For example, Question 12 of l13e original survey asked for the number of local telephone providers therespondent’s business had in ll3e last 5 years. Due to an oversight in lhe original survey, this questioncontained a multiple choice answer "’1-4," which was not providing the necessary level of detail. In the revisedsurvey, the multiple choices f~3r this questions included separate options "1," "2," "3~’ and "4 and more."
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employee or an owner of a business or organization, whether the respondent’s business or
organization is located in New Mexico, whether CenturyLink local telephone service is
available in the respoadent’s area.
The second part cont~fined questions on the degree of competitiveness of the local
telephone market in the respondent’s area - whether the respondent is aware of any other
providers of local telephone service in the area besides CenturyLink, how frequently the
respondent’s busines~ or organization receives solicitations from other local telephone
providers, whether CenturyLink is the current provider of local telephone service of the
respondent’s busines.~ or organization and etc.
The third part of the survey contained questions related tc, the respondent’s experience
with CenturyLink QC’s billing practices. These question’:; were designed to collect
information for another docket (the billing issues case).
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business or organization, and also for additional commenl:s and contact information on a
voluntary basis.
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WHAT WAS THE P’ROCESS USED TO CONTACT POTENTIAL
RESPONDENTS TO THE SURVEY?
QSI identified three classes of business customers which it had means of reaching: (1)
small and medium bu,:;inesses. (2) municipalities and (3) ~,;chool districts. The logic was
that the list of schools and municipalities can be compiled from web sources, while small
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businesses can be reached through their membership within chambers of commerce. The
plan was to reach all municipalities, school districts and chambers of commerce (rather
than choosing a "sam]pie" (sub-set) of the universe of respondents). When contacting
municipalities and school districts, QSI looked for the potential respondents ~,ithin in the
municipalities and school districts that dealt with the procurement of and/or oversight of
the city’s telecommunication services. Small and medium business customers were not
personally contacted because they were reached indirectly through their membership in
chambers of commer~:e or other similar business organizations.
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In other words, to reach as many small and medium busivesses as possible in an efficient
manner, we contacted all chambers of commerce and other similar trade organizations
within CenturyLink QC’s serving area to act as the conduit to distribute the survey
request. Each chamber of commerce or trade organizatio~a that was contacted was asked
to distribute the letter from the Attorney General’s Office and the URL or hyperlink to the
web-based survey questionnaire to all of their members, fin other words, the QSI survey
objective was to react~ the entire universe of the chamber.,; of commerce and trade
organization member,,;hips rather than target a sample of the members.
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A directory of each chamber of commerce, trade organization, municipality, and school
district within CenturyLink QC’s serving area was developed through internet searches.
These directories were placed in a single Microsoft ExceltK~ workbook to track the
progress of calls made and surveys distributed. Each organization was then contacted by
phone to reach the per,~on who had the requisite knowledge about the organization’s
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telecommunications s;ervices or, in the case of the chambers of commerce, to identify the
person who could distribute the survey request to its membership. QSI personnel
explained the role ofthe NMAGO in representing their interests in this case, the purpose
of the survey request, and then ascertained whether the person would be willing to
receive an e-mail explaining the purpose of the survey with a URL link to the survey and
a copy of the letter from the Attorney General requesting their assistance. E-mails were
then sent to all potential respondent’s who agreed to at leas! review the information
before deciding whether to respond.
WHAT WERE THE ACTIVITIES QSI PERFORMED THROUGHOUT THE
SURVEY SOLICITATION AND DISTRIBUTION PROCESS?
QSI personnel focused on contacting all chambers of corrltmerce within CenturyLink QC’s
New Mexico serving area first, then called the municipalities, followed by the school
districts. Respondents who were reached were sent the e..mail and letter from the
Attorney General immediately. Potential respondents who were unavailable were given
follow-up calls until they were reached or until it was apparent they were not going to
return our calls. Once lhe e-mail and letter were sent, no further follow-up calls were
made to that respondent. Survey responses were reviewed sporadically as they came in
to get an idea of what customer experience was in the marketplace. No analysis of the
results was performed until late July 2012.
HOW LONG DID T!IE SURVEY PROCESS TAKE FROM THE SURVEY
DESIGN PHASE T() THE ANALYSIS OF RESULTS PHASE?
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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The process took almost four months from late April 2012 through the filing date of this
testimony in August. Preliminary discussions with the NMAGO and within QSI were
held between late April and early May 2012 regarding the parameters of a potential
survey project to asccrtain the level of competitive choice in CenturyLink QC’s serving
area as well as customer experience with CenturyLink QC’s billing practices and service
quality. The prelimirlary discussions ended when a formal memo was sent to the
NMAGO on May 4, 2012 outlining the scope of the project, the estimated timeline to
complete it, and the e:~timated cost. This memo was provided in response to CenturyLink
QC’s discovery to the NMAGO.~1
The online survey responses span the timeframe between May 23, 2012 and August 15,
2012 (the most recent survey response as of August 21. 21912 - the date the surveys were
last incorporated in the analysis. One additional response’, was received after the cut-off
date for this testimony, on August 22, 2012, and was not included in the results).
WERE THERE AN !( ORGANIZATIONS THAT EXPRESSED CONCERN
ABOUT DISTRIBUTING OR RESPONDING TO THE SURVEY?
Yes. The Albuquerque trade organizations, including the Albuquerque Chamber of
Commerce, the Econ~mfic Forum of Albuquerque, the Association of Commerce and
Industry, and the Alb~,~querque Hispano Chamber of Comrnerce.
61 See New Mexico Attorney General’s Responses to CenturyLink QC’s Fir’st Set of Interrogatories and RequestFor Production to the Attorney, General, 1-1, Attachment E.
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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PLEASE DESCRIBE YOUR ATTEMPTS TO HAVE THE ALBUQUERQUE
CHAMBER OF COMMERCE DISTRIBUTE THE E-MAIL AND ATTORNEY
GENERAL LETTER TO ITS MEMBERSHIP?
I contacted the Albuquerque Chamber of Commerce in early June 2012. l was told that
the chamber President would have to approve the distribution of our request since
CenturyLink QC was a board member. Follow-up messages were left with chamber
personnel in late June 2012 and late July 2012 to ascertain the chamber’s decision on
whether to distribute l~he e-mail or not. The chamber President returned my call in early
August to discuss the purpose of the survey. I asked if s~.te would have the chamber
distribute the survey. The President said she needed to review the survey first and then
make a decision. Since no responses were received from small or medium businesses in
Albuquerque, we speculated that the chamber never distriibuted the e-mail.
PLEASE DESCRIBE YOUR ATTEMPTS TO HAVE THE ECONOMIC FORUM
OF ALBUQUERQUE DISTRIBUTE THE E-MAIL AND ATTORNEY GENERAL
LETTER TO ITS MEMBERSHIP?
1 left a message for the Executive Director in early June 2012 and then sent him the e-
mail and Attorney General letter without waiting to hear back from him. 1 received no
response from the Executive Director.
PLEASE DESCRIBE YOUR ATTEMPTS TO HAVE THE ASSOCIATION OF
COMMERCE AND INDUSTRY DISTRIBUTE THE E-MAIL AND ATTORNEY
GENERAL LETTER TO ITS MEMBERSHIP?
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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I left a message for the President & CEO in early June 2(112 and then sent her the e-mail
and Attorney Generall letter without waiting to hear back from her. I received no
response from the President & CEO.
PLEASE DESCRIBE YOUR ATTEMPTS TO HAVE THE ALBUQUERQUE
HISPANO CHAMBER OF COMMERCE DISTRIBI~TE THE E-MAIL AND
ATTORNEY GENERAL LETTER TO ITS MEMBERSHIP?
QSI personnel identified three minority-based chambers of commerce to contact in the
Albuquerque area since we had no success in distributin~ the e-mail and Attorney
General letter to Albuquerque businesses through the Albuquerque Chamber of
Commerce: (1) the American Indian Chamber of Commerce, (2) the African American
Chamber of Commerce, and (3)the Albuquerque Hispano Chamber of Commerce. The
American Indian Chamber of Commerce never returned our calls and the African
American Chamber olF Commerce received our e-mail an~_t letter. However, when QS!
personnel spoke with the Vice President of Sales & Membership Manager for the
Albuquerque Hispan(, Chamber of" Commerce in mid-Jul2¢ 2012. she agreed to receive the
e-mail and Attorney (ieneral letter but said that she would need to confer with the
chamber’s board of directors since CenturyLink QC is a member of the chamber. Since
no responses were received from small or medium businesses in Albuquerque, we
speculated that the chamber never distributed the e-mail.
WAS THE NMAGO CONCERNED THAT CENTURYLINK QC MAY HAVE
EXERTED UNDUE INFLUENCE IN THE SURVEY DISTRIBUTION PROCESS?
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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Yes. Since we had n,at received any survey responses from businesses in the
Albuquerque area, the NMAGO was concerned that Cen~turyLink QC may have asked
these chambers of commerce and trade organizations to not distribute the survey e-mail
and Attorney General letter. Consequently, the NMAGO issued Attorney General 4-13
to ascertain whether CenturyLink QC had communicated with any chamber of
commerce, industry ~rade organization, or individual business regarding the NMAGO
survey.62 CenturyLink QC responded that it had not initiated any communications with
any of the above organizations, but that it was contacted by the Economic Forum of
Albuquerque and the Association of Commerce and Industry to make CenturyLink QC
aware of the survey request made of their organization by the NMAGO.63 CenturyLink
QC denied asking any of the above organizations to delay or forgo sending out the survey
to its members.64
WHAT WAS THE OUTCOME OF THE NMAGO’S EFFORTS TO SOLICIT
ACTUAL CUSTOMIER EXPERIENCE FROM SMALL AND MEDIUM
BUSINESSES IN ALBUQUERQUE?
The NMAGO was unable to ~.et any information on competitive choice, billing and
service quality issues from small and medium businesses in Albuquerque.
Fischer Direct Attachment 4, CenturTLink QC’s Responses to the New Mexico Attorney General’s Fourth Setof Interrogatories and Reques~ for Production of Documents, Attorney General 4-13.
63 Id., Attorney General 4-13(a) and Attachments A and B containing e-mail correspondence.64 Id., Attorney General 4-1
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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3. Survey Statistics And Analysis
Q. WHAT ARE THE SUMMARY LEVEL STATISTICS OF THE SURVEY
SOLICITATION, DISTRIBUTION AND COLLECTION ACTIVITIES?
A. The two tables below provide summary statistics on these activities. The initial contact
activities (survey solicitation and distribution) are captured in the first table, and the
counts of surveys received (collection activities) are captured in the second table.
Table 1: Survey Initial Contact Statistics
ENTITLES
CHAMBERS OF COMMERCE /ITHER TRADE ORGANIZATIONS
MUNICIPALITIES
SCHOOL DISTRICTS
TOTAL
TOTAL ENTITLES TOCONTACT
TOTAL CONTACTEDBY PHONE AND E-
MAIL
TOTAL WHO HAVENOT RETURNED OUR
CALLS
TOTAL WECOMMUNICATED WITHBY PHONE OR E-MAILAND WHO WERE SENTTHE E-MAIL AND AG
LETTER
41 41 3 38
4
2
9
35 35
33
109
31
31
100
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As shown Table I, we identified 109 entities (chambers of commerce, other trade
organizations, municipalities or school districts) to contact, and contacted all of them via
the phone and e-mail. Nine entities did not return our calls, while the remaining 100
entities did return our calls. QS! sent out the introductory e-mail, including the Attorney
General’s letter and the web link to the survey to all of these 100 entities, The e-mail
asked the recipient to lbrward the survey link to an)’ additional individuals beyond the
recipient who were al so knowledgeable about telecommunications services purchased by
their organization. This testimony refers to each individual filed questionnaire as one
"survey response."
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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The following table contains the counts of survey responses received:
Table 2: Survey Responses Received
ENTITLES
CHAMBERS OF COMMERCE IOTHER TRADE ORGANIZATIONSMI~BER BUSINESSES
M UNICI PALITI ES
ISCHOOL DISTRICTS
UNKNOWN TYPE OF ENTITY
TOTAL
TOTAL SURVEYSRECBVED AS OF
8/22/2012
26
6
15
61
SURVEY RESPONSESRECEIVED WITH
PERSONAl. CONTACTINFORMATION
INCLUDED
6
15
2
SURVEY RESPONSESRECBVED
ANONYMOUSLY
o
0
59
59
4
5
6
7
As shown in the abo~e table, in total we received 108 survey responses by August 22,
2012 (two days prior ~a) the due date of this testimony).65 Out of this total, 49 surveys
contained the optional contact information, and the remaining 59 were submitted
anonymously.
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Qo WHAT IS YOUR ESTIMATE OF THE STUDY’S ’SAMPLE RATE’ - THE
PERCENT OF THE: TOTAL BUSINESS MARKET THAT PARTICIPATED IN
YOUR SURVEY?
As noted above, after the first few responses were received, QSI revised some of the questions. Subsequently,two respondents to the original survey filed in the revised survey. Their responses to the revised survey areincluded in the total count (108), while their responses to the original survey are not included to avoidduplication.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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There were a total of 108 surveys. In many cases, one s~rvey response represented a
business with multiple business access lines. One of the ~,;urvey questions (question 23)
queried the respondent,,~ on the number of business access lines their organization
purchased. Thirty-nine percent of the respondents said that their business purchases
between "2 and 5 lines" (that was one of the multiple choiice ranges); 31% chose the
range "6 to 50 lines;" ~nd 9% of the respondents chose the range "over 50 lines." Given
these responses, the total number of business lines associated with the survey responses
(purchased by the respondents’ businesses or organizations) is at least 807 and over 2,429
lines.66 When compar~’,d to the total number of business lines in New Mexico as reported
in the most recent FC(2 Local Competition report,~;7 (ILEC and CLEC lines in both
CenturyLink QC’s and other 1LEC serving areas), business lines associated with the
survey responses constitute between 0.28% and 0.83% (a fraction of a percent). This is
the ’sample rate’ estimate for the NMAGO survey.
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While this sample rate appears to be small in absolute value, it is comparable to the
sample rate of the Cent~ris survey, where, according to the confidential attachment
provided in CenturyLir~k QC’s response to discovery request tw telecom 2-4, Centris
conducts [BEGIN CONFIDENTIAL **~ ** END CONFIDENTIAL]~ surveys
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This range is calculated by multiplying the counts of responses to each multiply choice answers by the lowerand upper boundaries of the lin~’, counts within each multiple choice answer, and summing up these counts.Specifically, the survey responses generate the following counts: 19 respondents chose answer "l line," 42respondents -"2-5 lines," 34 re’.~pondents -"6-50 lines" and 10 respondents -"over 50 lines." The lowerboundary of the range is 19 * 1 + 42 * 2 + 34 * 6 + 10 * 50 = 807. The upper boundary of the range is over thefollowing number: 19 * 1 + 42 ~’ 5 + 34 * 50 + 10 * 50 = 2,429.
Data as of June 2011. The Neu, Mexico business line count is 294,000 li:nes (Table 11).Page 1 section 4.1.1. Note that while section 4.1.2 discusses another survey (the online survey), that survey isdescribed as collecting information on FiOS and U-verse, which are brand names for products offered byVerizon (FiOS) and AT&T (U-verse), and therefore, do not concern CenturyLink QC markets.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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of residential and business customers annually nationwide. Given that the total number
of residential and business lines nationwide is approximately 145,875 million,69 the
sample rate in the Centris survey is only [BEGIN CONFIDENTIAL ** ~ ** END
CONFIDENTIAL1.
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Qo PLEASE DESCRIBE HOW THE SURVEY RESULTS WERE ANALYZED?
All survey e-mail resp~mses were loaded into a single Microsoft Excel® workbook.
Answers to each multiple choice questions were summarizes as counts of each possible
multiple choice answers, in addition, for each question, the percent distribution of
answers was derived. These counts and the associated percentage distributions are
presented in Fischer Direct Attachment 5. All answers were reviewed, and some surveys
were flagged because they contained what appeared to be inconsistent answers.7° Also
flagged were survey responses in which the respondent indicated that CenturyLink QC’s
local telephone service,:; were not available in the respondent’s area (question 6),71 and
cases in which more than one survey response was associated with the same IP address.7:
69 The most recent FCC Local Competition report, data as of June 201 1, Table 9.v0 An example of inconsistent answers is the presence of the following answer combination: Answer "Yes" to
question 5 "Has your business/organization purchased local telephone service in the last 5 years?"and Answer"0" to question 12 "In the last 5 years, how many different telephone companies provided local telephoneservices to your business/organization? (For example, if Qwest was your only provider, the answer is ’1 .’)"QSI conservatively flagged survey responses in which the perceived inconsistency may have been "explainedaway." One example in the following answer combination: Answer "Yes" to question 11 "Had Qwest (or itspredecessor US West) been your provider of local telephone service in the past?" and Answer "0" to question12 "In the last 5 years, how many different telephone companies provided local telephone services to yourbusiness/organization? (For example, ifQwest was your only provider, the answer is ’1 .’)" This combination ispossible (though unlikely) if, i~:.r example, Qwest had been the respondent’s provider more than 5 years ago,but in the last 5 years the respondent did not subscribe to local telephone service.
7~ One respondent indicated that Windstream is the only provider in his/her area.72 Multiple appearances of the same IP address may be caused by cases in which two persons within the same
organization filled in the survey (which was explicitly allowed by the survey design). For example, two of thesurvey responses associated wilh the same IP address were submitted with different names and e-mailaddresses. The e-mail addresses indicated that both respondents were part of the same school district.
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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In total, 32 survey responses were flagged. Using the remaining 78 survey responses
(this set is labeled in the analysis as "Flagged Surveys Excluded" or "Surveys Net of
Exclusions"), QSI created another summary of all multiple choice questions (as done for
the full set of 108 survey responses). These counts and the associated percentage
distributions are als~ presented in Fischer Direct Attachment 5. As explained below, the
exclusions did not materially affect the main qualitative conclusions of the survey
analysis.
PLEASE PROVIDE A SHORT SUMMARY OF QUANTITIATIVE RESULTS OF
THE SURVEY ANALYSIS?
"[’he purpose of the st,trvey, as it relates to the present docket, was to evaluate the state of
local competition in ~he business segment of CenturyLink QC’s serving area. The table
below summarizes survey responses to the four key questions that addressed this subject.
For each question, two versions of the survey results are presented in this table - for all
survey responses, andl tbr survey responses remaining after the flagged survey responses
were excluded.
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iDirect Testimony of Warren R. FischerCase No, 11-000340-UT
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Table 3: Summary of Responses to Key Survey Questions
SUMMARY OF SURVEY RESPONSES: Percent Di~lribution of An~#ers (Questions 7, 9, 10 and 13)
7. Are you aware of any compa,ties other than CenturyLink (Qwest) that provide local telephone services to!bu~inesees/organizat}ons within your area?
Don’tSurvey Set Yes No Want toI Answer
All Surveys 33% 66% 1%
Surveys Net ofFlagged Surveys 30% 68% 1%
TotalCount
108
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9. How often does your businesslorganization receive solicitations from any companies other than CenturyLink(Qwest) offering local telephone service in your area?
One:e aMultiple Unsure/ Don’t Want to Total
Sur~ey Set Ne~er year times per Noyear Opinion Answer Count
All S ur~eys 59% 7% 13% 19% 2% 108
Surveys Net ofFlagged Sun~ys 63% 7% 9% 21% 0% 76
10. Is CenturyLink (Qwest) currently providing local telephone service to your busine~/organizatJon?Unsure/ Don’t Total
13. If Qwest is your current local telephone service provider, what factors affected your (yourbusinese/organizafion’s) choice of Qwest as your local service provider? (choose as many answers asapplicable)
Ul~$ure
whether otherHistodcalNo other relationship Product pro~ders can U~nsurel Don’t Not Total
Sun, ey Set alternative Pnce offer the same No Want to ApplicableCountas utihty offerings service quality Opinion Answer
As seen in the above table, the percentage distribution of answers is similar for both
survey sets (where the flagged survey responses are included or excluded). The main
conclusions are as follows: Only one-third (30 to 33%) of the respondents are aware of
existence of competitive providers to CenturyLink QC’s Ilocal telephone service (question
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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7). Approximately 60% (59-63%) of respondents never receive solicitations for service
from competitive providers of local telephone service (question 9). CenturyLink QC is
the current local telephone provider of over 84% of respondent’s business or organization
(question 10). Over 50% (51-55%) of respondents indicated that CenturyLink QC was
their current local teh:phone provider because there were no alternative providers; 12 to
14% use CenturyLink QC because of their historical relationship with the company; over
! 0% are not sure whether competitors can offer the same level of service quality and
reliability (question 13).73
WERE YOU ABLE TO DISAGGREGATE THE SURVEY RESPONSE DATA BY
GEOGRAPHY?
Yes. Question 25 of the survey inquired about the zip code of the respondent’s business
or organization. QSI used this information to track respenses by locality. In total, 37
different zip codes appeared in the 108 survey responses. The count of survey responses
by zip code and the a,~;sociated city or towns is contained in the following table:
The total count (last column) 1~i3r this question is more than the number of survey responses because therespondents were asked to cho~:)se as many answers as applicable, resulting sometimes in more than one answerper survey response.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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Table 4: Ctl,unt of Survey Responses by Zip Code and Entity Type
Count of Survey Responses by Zip Code and Entity Type
Zip Code City ! Town Total
88310 Alamogor~lo 287103 Albuquerque 187110 AlbuquerQue 388021 Anthony 187514 Arroyo Seco 287410 Aztec 188023 Bayard 187004 Bemalillo 187522 Chimayo 187714 Cimarron 788101 Clovis 388030 Deming 387529 El Prado 287016 Estancia 187301 Gallup 187020 Grants 287937 Hatch 587701 Las Vegas 287544 Los Alamos 387031 Los Lunas 187553 Penasco 1
88130 Portales 687556 Questa 3875.57 Ranchos I~ Taos 387740 Raton 187558 Red River 387124 Rio Rancho, 187047 Sandia Pad~ 187501 Santa Fe 387505 Santa Fe 687507 Santa Fe 188061 Silver City 287801 Socorro 387571 Taos 2587059 lijeras 488401 Tucumcad 187749 Ute Park 1
Total 108
MemberBusinesses
11
2
11
13
Including
Municipalities Schools
1 11
2
111
1111
1
11
1
Entity Type notSpecified
1111
116112
1222
1
1231
1 11 29 1 151 3
11
26 6 15 61
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Direc’t Testimony of Warren R. FischerCase No. 11-000340-UT
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As shown in the above table, the largest number of survey responses came from Taos,
which is due to distrib~ation of the survey e-mail to Taos Chamber of Commerce members
as well as members of the Taos Entrepreneurial Network which is an arm of the chamber.
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8
9
The following two tab les provide disaggregation of answers to questions 7 and 9 at the
level of statistical are~ (such as the Metropolitan or Micropolitan Statistical Areas).74 In
these tables Metropolil.an Statistical Areas ("MSAs") -the largest population centers-
are depicted in bold font, while Micropolitan Statistical A~reas are in regular font, except
that four areas with two asterisks next to them are localities that do not belong to either
Metropolitan or Micropolitan Statistical Areas.
I0
According to the Census Bureau (http:!/www.census.gov/population/metro/about/), a metropolitan ormicropolitan statistical area is a core area containing a substantial population nucleus, which together withadjacent communities have a high degree of economic and social integration with that core. Each metropolitanstatistical area must have at lea.’a one urbanized area of 50,000 or more inhabitants. Each micropolitanstatistical area must have at le;,:;l one urban cluster of at least 10,000 but less than 50,000 population.
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Direct Testimony of Warren R. FischerCase No. ! 1-000340-UT
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Table 5: Question 7 Responses by Metropolitan / Micropolitan Statistical Areas
Count of Survey Responses by Statistical Area: Question 7 (All responses)
7. Are you aware o1’ any companies other than CenturyLink (Qwast) that provide local
Metropolitan I Microl3otitanStatistical Area=
telephon~ ser~ces to businesses/organizations vAthin your area?
Yes No No Answer* Total
Alamogordo 1 1 0 2
Albuquerque 3 10 0 13
Cimarron** 0 7 0 7
Clovis 3 0 0 3
Deming 2 1 0 3
Espanola 0 1 0 1
Farmington 0 1 0 1
Gallup 1 0 0 1
Grants 0 2 0 2
Las Cruces 0 5 1 6
Las Vegas 2 1 0 3
Los Alamos 2 1 0 3
Portales 4 2 0 6
Raton** 1 0 0 1
Santa Fe 5 5 0 10
Silver City 2 1 0 3
Socorro** 0 3 0 3
Taos 10 29 0 39
Ute Park** 0 1 0 1
Total 36 71 1 108* - Multiple choice optk;n "Do not Want to Answer. "** - Not a Metropolitan ,or Micropolitan Statistical Area
% Yes
50%23%
O%1 O0%67%O%0%
100%O%O%
67%67%67%100%50%67%O%
26%O%
33%
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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Table 6: Question 10 Responses by Metropolitan / Micropolitan Statistical Areas
2
10. Is CenturyL.ink (Qwest) currently providing local telephone service to yourbusiness/organization?
Metropolitan / Micr(~politanYes No No Answer* Total
Statisbcal Area
Alamogordo 2 0 O 2
Albuquerque 13 0 0 13
Cimarron** 7 0 0 7
Clovis 2 1 0 3
Derning 3 0 0 3
Espanola 0 1 0 1
Farmington 1 0 0 1
Gallup 1 0 0 1
Grants 2 0 0 2
Las Cruces 5 1 0 6
Las Vegas 3 0 0 3
Los Alamos 2 1 0 3
Portales 3 3 0 6
Raton** 1 0 0 1
Sa nta Fe 5 5 0 10
Silver City 2 1 0 3
Socorro** 3 0 0 3
Taos 35 3 1 39
Ute Park** 1 0 0 1
Total 91 16 1 108
- Multiple choice options "Unsure/No Opinion" &"Do not Want to Ansv~r."** - Not a Metropolitat;, or Micropolitan Statistical Area
% Yes
lO0%lOO%lOO%67%100%o%
lOO%lOO%lOO%83%lOO%67%50%100%50%67%100%9O%100%84%
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5
6
7
8
As seen in the above l:ables, the number of survey responses per statistical area is
typically too small to make definite conclusions about the level of competition at the
geographically-disaggregated level. The Taos Micropolitan Statistical Area is the area
with the highest representation - 39 survey responses, followed by Albuquerque MSA
with 13, and Santa Fe MSA with l 0 survey responses. According to these data, only
26% of respondents in the Taos Micropolitan Statistical Area, 23% of the respondents in
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the Albuquerque MS,\ and 50% of the respondents in the Santa Fe MSA are aware of
companies other than CenturyLink QC (Qwest) that provide local telephone services to
businesses/organizations in the respondent’s area (question 7). The Taos and
Albuquerque MSA numbers are lower than the total average (across all localities)
awareness of the respondents about the competitive options (33%). However, as noted
above, business customers in the Albuquerque MSA are likely underrepresented due to
the decision of the All:mquerque trade organizations’ deci:don to not distribute the
NMAGO survey among its members. The observed resuit for the Santa Fe MSA (50%)
is higher than the stale average, which is consistent with the expectation that competition
would be stronger in relatively more urbanized areas.
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With regard to question 10 (whether CenturyLink QC is the respondent’s current provider
of local services), for the majority of localities, CenturyLink QC is the most typical
provider of the respondent’s local telephone service. Specifically, in only three areas out
of the total (19 areas) Century. Link QC is the provider to 50% or less respondents. These
areas are the Santa Fe M~A, Portales and Espanola Micropolitan Statistical Areas. In all
other areas this meastwe is over 50%, including Taos at 913% and the Albuquerque MSA
at 100%.
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Qo WHAT CONCLUSIONS WERE DRAWN FROM THE SURVEY ANALYSIS?
The main conclusion [’rom the survey analysis is that the level of competition as
perceived by the surveyed business customers is relatively weak: Only one third of the
respondents was aware of the existence of competitive providers to CenturyLink QC’s
local telephone service. Approximately 60% of respondents never receive solicitations
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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for service from competitive providers of local telephone service. CenturyLink QC was
the current local telephone provider of over 84% of respondent’s business or
organization. This number corresponds to a 16% market share for competitive providers.
These results portra) a picture of a somewhat lower level of competition than the ones
suggested by the statewide FCC statistics, according to which non-lLECs hold a 29%
market share of business lines. 7_~ Also, the survey results are consistent with the market
share data compiled by Centris once it is adjusted to remove wireless substitution from
the calculation. For e.xample, in the Small Business segment examined by Centris, which
I discuss below, CenluryLink QC’s market share in New Mexico at the end of the 4th
Quarter 201 ! was 82.5%
after removing wireless subscribers and other non-wireline service subscribers.76
CenturyLink QC’s market share in New Mexico at the end of the 4th Quarter 201 | for the
Mid Markets segmenl after making a similar adjustment was
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CENTURYLINK QC’S ASSERTIONS AND EVIDENCE DO NOTSUPPORT A FINDING OF EFFECTIVE COMPETITIONTHROUGOUT ITS NEW MEXICO SERVING AREA
WHAT ARE THE GENERAL ASSERTIONS MADE BY CENTURYLINK QC TO
SUPPORT ITS PETI[TION?
CenturyLink QC makes the following general assertions regarding competition in New
Mexico today and the impact it has had on its operations:
The most recent FCC Local C~,mpetition report, data as of June 2011. Table 11.See discussion of adjusted calt:ulation in Section V.B.
Id.
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The telecommunications market in New Mexico is exceptionally competitive dueto the availability of services from numerous alternative providers including
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CenturyLink QC’s market power is constrained bs competition today.79
¯ CenturyLink QC has experienced a significant decline in access lines over the last10 years as competition for voice communications has increased.8°
CenturyLink QC measured its market share trends by using the absolute counts ofvoice connections (instead of market share as a percentage of total wirelines inservice) compiiled by the FCC as well as confidenl:ial survey data compiled byCentris on behalf of CenturyLink QC.8~
¯ Competitive capacity provides a better indicator of market power than marketshare. 8~
¯ Evaluation of !;latic market share measures do not provide an indicator of wherethe market is headed or what competitive alternatives are available to customers,s3
¯ Despite its flaws, the available market share data ~,~hows competitors achievingrapid increaser; in market share.~
¯ Because CenturyLink QC’s prices are regulated, it has historically been requiredto offer stand-alone service at artificially low levels which discouragedcompetitive entry and artificially inflated CenturyLink QC’s market share,s5
DO YOU AGREE WITH ANY OF CENTURYLINK QC’S GENERAL
ASSERTIONS?
No. CenturyLink QC:~ assertions are the same or very sirailar to those rejected by the
FCC in the Phoenix lbrbearance petition discussed above. CenturyLink QC attempts to
convince the Commission that the New Mexico telecommunications market is effectively
Brigham Direct at 10.
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Id. at 11,Id. at 13.
Id. at 23.
ld, at 24.
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competitive. Howe\’er.. when the data it relies upon is adjusted to exclude services that
are not functionally equivalent or substitute services to its wireline voice services
(wireless and nomadiic VolP), it shows that CenturyLink QC still maintains dominant
market share throughout its serving area. While competition in CenturyLink QC’s
serving area has incr~,~ascd since 2009 when the Commis:~ion opened its inquiry on the
status of competition in Case No. 08-00353-UT, it is troublesome that even if the
unadjusted FCC data (the data that measures market shares held by a sum of CLECs,
facilities-based and n,:~madic VolP providers) is considered, it shows that New Mexico
continues to rank las~ in all of the states in the continental U.S. in the level of competitive
entry by non-ILECs.~
WHAT IS YOUR RESPONSE TO MR. BRIGHAM’S ASSERTION THAT
CENTURYLINK QC’S MARKET SHARE FOR STAND ALONE VOICE
SERVICE HAS BEEN ARTIFICIALLY INFLATED DUE TO PRICE
REGULATION?
As 1 noted earlier, Mr Brigham has asserted that CenturyLink QC has historically been
required to offer stand-alone service at artificially low levels resulting in its artificially
inflated market share. ~ Mr. Brigham made this statement to support his position that
CenturyLink QC’s ma:cket share in New Mexico is only o~.ae factor the Commission
should consider in its evaluation of the level of CenturyLink QC’s market power.88 When
asked to support his cl~fim by identifying each wire center or relevant market area where
Fischer Direct Attachment 2.Brigham Direct at 25.
ld. at 23.
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CenturyLink QC’s market share is artificially inflated because the current rate for its
stand-alone service is too low to encourage competitive entry by an alternative provider,
Mr. Brigham stated that CenturyLink QC has not performed such an analysis.89
DOES MR. BRIGHAM CONSIDER THE IMPACT OF THE "TWIN
PHENOMENON" -.- QWEST’S SERVICES THAT HAVE BEEN PRICED
ARTIFICIALLY HliGH FOR PUBLIC POLICY REASONS?
No. Mr. Brigham fai:ls to mention that while regulatory policy may have kept residential
basic exchange at lower rates to ensure affordable service was available to New
Mexicans as part of the Commission’s universal service objectives, other services were
allowed to be priced ~ign ificantly higher than their cost to off’set potential revenue losses
from this policy. For example, implicit subsidies were p~,~rmitted in business local
exchange prices to e~sure that residential local exchange service remained affordable.
Rates for business loca[ exchange was often double the rate for residential service or
more depending on the state. Rates for vertical features are traditionally significantly
greater than their underlying cost. Consequently~ the market share of competitors
offering business local exchange and/or services with features at a lower price than
CenturyLink QC’s pri=es may also be inflated due to high rates required by state
regulation. So, Mr. Brigham’s argument would result in the opposite result in the
CenturyLink QC’s hitch-end markets.
Fischer Direct Attachment 4, CenturyLink QC’s Responses to the New Mexico Attorney General’s Third Set ofInterrogatories and Request fc,r Production of Documents, Attorney General 3-22.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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DO YOU AGREE WITH MR. BRIGHAM THAT COMPETITIVE CAPACITY IS
A BETTER INDICATOR OF CENTURYLINK QC’S MARKET POWER THAN
MARKET SHARE,?
No. As I noted in Section 111 above in my discussion of the FCC orders in Qwest’s
forbearance petitions., Mr. Brigham has provided no citations to an authoritative source
for his theory that competitive capacity is a better indicator of market power than an
analysis of market share by carrier in the relevant market area. The FCC repudiated its
earlier approach in thee Omaha Order to rely on predictive judgment concerning the
potential for competition based on what actually happened in the Omaha MSA following
the granting of Qwest’s petition in 2005. Instead, the FCC has gone back to a more
analytical market power analysis that is rooted in sound economic theory.
DOES THE DATA IRELIED UPON BY CENTURYLINK DEMONSTRATE THAT
EFFECTIVE COMPETITION EXISTS IN NEW MEXICO?
No. The data relied upon by CenturyLink does not demc, nstrate that effective
competition exists sul:’ficient to constrain CenturyLink QC’s market power. ! address the
flaws in the publically available and confidential data relied upon by CenturyLink QC
below.
A. Critique of CenturyLink QC’s Publically Availiable Data and GeneralAssertions on lntermodal Competition
WHAT ARE THE PRIMARY FLAWS WITH THE PUBLICALLY AVAILABLE
DATA RELIED UPON BY CENTURYLINK IN ITS PETITION?
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CenturyLink QC relies on a combination of publically available state level (rather than
CenturyLink QC-specific) statistics on competitive entry and wireless subscribership
produced by the FC(I and the April 2011 National Health Statics Report that is overly
broad and fails to provide granular detail at the relevant market level such as cities,
towns, and wire centers. Further, CenturyLink QC under.~tates its market share using
FCC’s statistics on local competition by including services that are not functional
equivalents to its wirt,.line voice service, such as mobile wireless and nomadic VolP, in
calculating the estimates CenturyLink QC’s share of total voice connections. Also, the
FCC and NHSR data ,:1o not satisfy NMAC § 17.11.13.16(B)(1) which requires
CenturyLink QC to provide names of competitor(s) by location providing or ready and
willing to provide the same or similar service or services or a functionally equivalent
alternative or substitute service within the same market area which meets the same
general customer needs within that area.
WHAT ARE YOUR OTHER CONCERNS WITH CENTURYLINK QC’S
PUBLICALLY AVA ILABLE DATA.’?
The QS! Report addresses numerous shortcomings in the publically available data relied
upon by CenturyLink QC. I hi~hlight additional concerns!; below that are not in the QSI
Report or are addressed in more detail here based on information filed in the case.
Line Loss Data
MR. BRIGHAM ASSERTED THAT CENTURYLINK QC’S ACCESS LINE
COUNTS HAVE DECLINED BY 48% OVER THE I,AST 10 YEARS WHILE
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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COMPETITION FOR VOICE SERVICES HAS INCREASED.9° HAS
CENTURYLINK QC ADEQUATELY DEMONSTRATED THAT ALL OR MOST
OF ITS ACCESS LINE LOSS IS DUE TO COMPETITION?
No. Mr. Brigham relies upon anecdotal evidence in the form of charts showing a
downward trend in access lines by year from 2001 through 2{)1 land an increase in the
population in New Mexico over the same time period.
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DID YOU ASK CE !qTURYLINK QC TO PROVIDE ANALYSES IT PREPARED
THAT CALCULATED ITS RETAIL LINE LOSSES BY YEAR BY REASON FOR
THE PERIOD 2001 THROUGH 2011?
Yes. The following request for production was issued to ascertain the number of
customer disconnects by year and the reason for them.
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ATTORNEY GENF, RAL 3-02. Please provide all analyses prepared byCenturyLink QC for either external reporting or internal management purposes thatcalculate the portion ofCenturyLink QC’s loss in New Mexico retail access lines by yearfor the period 2001 through 2011 due to the following reasons:
Second lines that ~)vere disconnected by customers migrating to CenturyLink QC’sbroadband servicers or bundled services.
Lines that switched to a CLEC who provisioned service by leasing UNEs fromCenturyLink or thorough total service resale.
c. Lines that were di!;connected due to customer migration to a facilities-based wirelinecompetitor.
d. Lines that were di!;connected due to customer migration to a wireless serviceprovider.
Lines that were di!;connected due to customer dissatisfaction with CenturyLink QC’sprices or service quality.
Brigham Direct at I I.
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CenturyLink QC responded by’ referring the NMAGO to its response to tw telecom
Request I-3(G) which requested information on business end-users who terminated their
service with CenturyLink QC over the last four years.~ ,~ttorney General RFP 3-02
requested information on all retail line losses while the tw telecom request was limited to
business line losses. In response to the tw telecom request, CenturyLink QC provided a
confidential attachment called a New Mexico Disconnect:; May 2011 through June 2012.
CenturyLink QC stated that data prior to May 2011 is unavailable.°:
WAS CONFIDENTI[AL ATTACHMENT I-3(G) USEFUL?
No. The copy provided to the NMAGO was incomplete. Consequently, the NMAGO
issued Attorney General 5-04 seeking the complete attachment even though it was limited
to business customer line losses.93 CenturyLink QC provided Confidential Attachment
A. New Mexico Disconnects May 2011 through June 2012, in response which details the
number of business lines disconnected by month and by reason.
WHAT DOES CENTURYLINK QC’S DISCONNECT REPORT
DEMONSTRATE?
The disconnect report demonstrates that the leading reason for disconnects was related to
business downsizing c,r inability to pay (i.e. reasons not related to competition). At the
same time less than half of CenturyLink QC’s business line losses over the period May
Fischer Direct Attachment 4, CenturyLink QC’s Responses to the New Mexico Attorney General’s Third Set ofInterrogatories and Request for Production of Documents, Attorney General RFP 3-02.
Fischer Direct Attachment 4~ CenturyLink QC’s Supplemental Response to tw telecom of new mexico, IIc’sFirst Set of Discovery Requests, Request No. tw telecom 1-3(G I.
Fischer Direct Attachment 4, CenturyLink QC’s Responses to the New Mexico Attorney General’s Fifth Set ofInterrogatories and Request for Production of Documents, Attorney General 5-04.
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D~rect Testimony ofWm~ren R FischerCa~e No. 11-0003-10-LrT
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2011 fluough Jlme 2012 was due to competition. -l-he smmnaxT below prepared from
Attorney General 5-0.1 Confidential At/acl.m~eut A shows ll~e distribution of discotmecls
9:by type of reason.
Table 7: ~ enturvLink QC New Mexico Business Line Disconne~t~
[BEGIN CONFIDENTIAL]
6
[END CONFIDEN’I-IAL ]
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\~’ERE YOU SURPRISED THAT CENTUR~LINK QC COULD ONLY PROVIDE
THIS DATA BACK TO MAY 20117
No~e ~ha~ reason ca~e[aories pre;.en~ed m ttus table are sunm~a~5 ]ex el categories crea~ed by flw NMA~tluou~ i~s con~ila;ion of fl~e ~nore na,~ox~ reason codes conlamed m tht:: Cena~-Lu~ QCs anaclunent Forexan~le, the N3fAGO ca~egoF, "Econonuc - Downsizmg Cmmo~ Pay" inch,des reason codes "’Ba,~,p~cy.’"’Clo~mg Bus Dwns~e.’" "’Non -- P~)~ne~ , qMC ONLYT’ m~d ’Cant Aflrd Life
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Yes. If CenturyLink QC’s systems cannot make more than a year’s worth of statistics
available to perform analyses of the company’s line loss activity, CenturyLink QC should
have archived this data outside its systems. Without it, CenturyLink cannot demonstrate
that its 48% decline in access lines is due solely to competitive pressure. Table 7 above
demonstrates that les,:’, than half of CenturyLink QC’s recent line losses are caused by
competition, lfCenturyLink QC’s percentage line loss dt~e to competition over the period
May 2011 through June 2012 reflects its experience in years prior to this period going
back to 2001, then less than half of the 48% line loss it has experienced since 2001 is
attributable to competition. Without verifiable data that only CenturyLink QC can
produce, there is no way to know what the actual percentage is.
2. Wireless Subscribers
MR. BRIGHAM ASSERTS THAT THE MARKET SHARE OF ALL ILECS IN
NEW MEXICO HA’,~ DECLINED TO 25% TO TOTAL VOICE CONNECTIONS
IF WIRELESS SUBSCRIBERSHIP IS INCLUDED IN THE CALCULATION. IS
THIS DATA MEANINGFUL IN THIS CASE?
No. Statewide wireless subscription data has no relevance in this case since mobile
wireless is not a funct:ionally equivalent service to wirelir~e voice service. As 1 noted
above in Section Ilk the FCC has determined that not even the smaller subset of wireless
subscribers who have cut the cord are relevant to include in an analysis such as this.
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3. Nom,:Idic VolP
HOW SHOULD NOMADIC VOIP SERVICE BE CONSIDERED IN
DETERMINING WHETHER THERE IS EFFECTIVE COMPETITON FOR
LOCAL EXCHANGE SERVICES?
As I noted in Section7. Ill, nomadic (non-facilities based) VolP product offerings require a
high-speed lnternet connection - a connection that nomadic providers do not offer. This
means that for many New Mexican end-users, this service may not be available or
affordable especiall) t~ customers who currently only subscribe to standalone basic local
exchange service. Also. as opposed to traditional phone service, nomadic VoIP phone
service would not funcl:ion during general power outages., may not support "dial around"
long-distance calling., and may not always support the same level ofEgl I service as
traditional basic local exchange service offered by a LEC using the public switched
telephone network. Because nomadic (non-facilities basedl VoIP product offerings
require a high-speed internel connection (typically an LI~C DSL line), they simply do not
represent "effective" competition to an LEC’s basic local exchange service. More
specifically, ifCentu~’3 Link QC is the dominant provider of internet services, then the
nomadic VolP product offering in CenturyLink QC’s serving area is dependent on
internet connectivity ll’rom CenturyLink QC and cannot be considered effective
competition to CentuLvLink QC’s voice services.
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WHAT ARE THE I.,IMITATIONS OF CABLE-BASED TELEPHONY AS A
MEANS OF PROVIDING EFFECTIVE COMPETrHON TO BASIC LOCAL
EXCHANGE SERVICE?
There are at least three limitations. First, the geographic footprint of cable-based
telephony does not "match" the ILEC’s footprint and wire center boundaries. In other
words, cable phone service may be available in some pans of an area served by an
ILEC’s wire center, but not in others. Therefore, the level of disaggregation required to
evaluate whether there is effective competition from cable telephony may be lower than
the wire center level referred to by the Commission in Case No. 08-00353-UT.95
Second, similar to nomadic VolP, cable-based telephony service may not function during
general power outages, may not support "dial around" long distance calling, and may not
always support the same level of E911 service as traditional basic local exchange service
offered by a LEC usfilg the public switched telephone network. For example, Comcast
states that a power outage in the network or the customer’s home may affect that
customer’s ability to dial 911.~ Comcast offers a battery backup but only with modems
leased from Comcast.’~’ Additionally, a customer must notify Comcast in advance of the
Commission Initial Order, at !,See Comcast Customer Centr:.:tl, About Egl 1, al hllp:c~) I I .Id.
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customer’s move to a different location or the customer’s 911 calls may be directed to the
wrong emergency authorities based on the old address.98
Third, cable telephony services are primarily targeted to customers who purchase bundled
services. End users that subscribe to standalone voice service only without any features
may find that cable telephony does not offer affordable telephone packages.
WHAT IS THE CO’ST OF COMCAST’S TELEPHONY SERVICES?
The cost of Comcast’!; telephony services varies depending on other services the
customers subscribes to such as high-speed Internet and cable services offered by
Comcast. Mr. Brigham cites Comcast’s XFINITY~ VOICE service priced at $19.99 as a
competitive standalone voice service alternative to CenturyLink QC’s residential local
exchange service.~ While Mr. Brigham does note that this price is a promotional
offering for a six-month period only, he fails to disclose the other limitations that would
render this service unattractive to CenturyLink QC’s current customers who purchase
standalone service with no features. For example, the following excerpt contains the
terms and conditions fi>r new customers subscribing to XI:INITY~ VOICE service as a
standalone product.
Xfinity Voice Offer ends 09/30/2012, and is limi’ted to new residentialcustomers. Not available in all areas. Offer limited to Comcast Unlimitedservice and requires subscription to either Comcast TV or lnternet serviceat regular rates. After first 6 months, monthly service charge goes to$34.99 for months 7-12. After 12 months, or if any service is cancelled ordowngraded, regular charges apply. Comcast’s cub-rent monthly servicecharge for Cor~cast Unlimited ranges from $39.95 to $44.95, and may
Id.Brigham Direct at 29.
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vary depending on your area and other Comcast services (if any)received. ~00
While XFINITY~ VOICE is available as a standalone service, the promotional price of
$19.99 is only available to customers who also subscribe Lo either Comcast TV or
lnternet service at regular rates. If purchased on a standalone basis, the regular price of
XFINITYa’ VOICE is between $39.95 (with subscription to Comcast High-Speed lnternet
and Comcast Cable) and $44.95 (with subscription to Corncast High-Speed Internet or
Comcast Cable) for a :~ervice that includes unlimited nationwide calling and features such
as Caller ID, Call Waiting and Voicemail. ~0~ Comcast New Mexico’s least expensive
standalone local residential digital phone offering with features is currently $34.95 per
month for its Local with More service which excludes long distance charges. 102 There is
no basic local exchan~;e service without features to compete with CenturyLink QC’s basic
local exchange service, priced at $15.50.
B. Critique Of CenturyLink QC’s Confidential C~,ntris Data
WHAT IS THE SOURCE OF THE CONFIDENTIAL DATA RELIED UPON BY
CENTURYLINK QC IN ITS PETITION?
In addition to the publ!ically available data that CenturyLink cites to in its petition and in
Mr. Brigham’s testimony, CenturyLink also relies upon confidential analyses produced
by Centris, a marketing science firm that provides specialty research services to the
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media and entertainment industry, on its behalf to demonstrate the increasing level of
competition faced b.v CenturyLink QC on a state-by-state basis and by market areas in
New Mexico. As noted in the Statement of Work governing their relationship, Centris
reports are used by CenturyLink to facilitate marketing research and competitive
intelligence analysis ~o:;
WHAT IS YOUR PRIMARY CONCERN WITH THIS CONFIDENTIAL
CENTRIS DATA RELIED UPON BY CENTURYLINK QC IN ITS PETITION?
CenturyLink QC provided Centris reports on consumer and small and mid-market
business customer market share statistics by carrier and service provider type to support
its assertions that effective competition exists throughout its entire serving area. For
residential service cu,_;tomers. CenturyLink provided Cenlris reports of market share at
the state and community level in New Mexico for 16 communities within its serving
areas. ~04 WhiLe the consumer market share data is at least provided at a lower level of
disaggregation than the entire serving area (i.e. cilies and towns), the small and mid-
market business customer report contains market share estimates at the state level and for
Fischer Direct Attachment 4, (" mturyLink QC’s Supplemental Response to tw telecom of new mexico, lie’sSecond Set of Discovery Requests, Request No. tw telecom 2-4. Confidential Attachment 2-4 at Section 5Scope of Services.Fischer Direct Attachment 4, CenturyLink QC’s Supplemental Response to the New Mexico AttorneyGeneral’s Fifth Set of Interrogatories and Request for Production of Documents, Attorney General 5-02,Confidential Attachment AG 5-02 Confidential Attachment J - BB_NM CBSA 1Q09-3QI l.xlsx. This analysisincludes the following cities: Albuquerque, Las Cruces, Santa Fe, Farmington, Roswell, Alamogordo, Clovis,Silver City, Deming, Gallup, I~os A amos, Taos, Las Vegas, Portales, Carlsbad-Artesia, and Grants.
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center level.
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COULD CENTURYMNK QC HAVE PROVIDED TIlE COMMISSION MARKET
SHARE DATA AT THE WIRE CENTER LEVEL?
Yes. As I discussed above, the Commission requested that Qwest provide the numbers
and names of alternative providers and their relative market shares for service and market
area at the wire center level and/or geographic areas Qwest believes are subject to
effective competition in Case No. 08-00353-UT. Under the terms of their agreement,
Centris is capable of providing CenturyLink with information at the most granular level
available, [BEGIN CONFIDENTIAL ** ~
~ ** END CONFIDENTIAL] 106 The agreed
upon deliverables in the Statement of Work stipulated that Centris would provide
CenturyLink with subsc, riber data for [BEGIN CONFIDENTIAL ** ~
~ ** END CONFIDENTIAL].1°7 Centris
could have provided reports or presentations at this level of disaggregation. However,
CenturyLink QC stated in response to Attorney General 5-.06 that it, "...purchases the
Fischer Direct Attachment 4, CenturyLink QC’s Supplemental Response Lo tw telecom of new mexico, llc’sSecond Set of Discovery Requc:~ts, Request No. tw telecom 2-3, Confidential Attachments 2-3(b) and 2-3(c).
~0~ Fischer Direct Attachment 4, CenturyLink QC’s Supplemental Response ~:o tw telecom of new mexico, llc’sSecond Set of Discovery Requests, Request No. tw telecom 2-4, Confidential Attachment 2-4 at Section 5.1.1Terms Applying to all Data Categories.
~o7 ld. at Section 6.
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information from Centris primarily for internal marketing and competitive analysis
purposes; the Centri~; data is not obtained specifically to meet regulatory needs."
WHAT IS THE SIGNIFICANCE OF CENTURYLINK QC’S
ACKNOWLEDGMENT ABOUT THE PURPOSE OF ITS CENTRIS REPORTS?
CenturyLink QC had the ability’ to request reports from Centris at a greater level of
disaggregation for this case to satisfy the Commission’s requirement from Case No. 08-
00353-UT. However, it chose not to.
1. Critique of Centris ’ Consumer Market Share Data
WHAT ANALYSIS IS PRODUCED USING THE CENTRIS AND
CENTURYLtNK QC CONSUMER SUBSCRIBER D~ATA?
CenturyLink and Centris prepare an analysis of subscriber data by service by quarter
called the Consumer Market Scorecard. This analysis compares Legacy Qwest voice line
counts at the end of each quarter to line counts for cable telephony providers, over-the-
top VolP providers, and CLECs. It also adds in wireless .subscriber counts for wireless
only customers in the state or specific CBSA (Core Based Statistical Areas, which
include MSAs and Micropolitan Statistical Areas). CentttryLink QC relies on these total
voice connections to di lute its w’ireline voice market share,
WHAT DOES THE CONSUMER MARKETSCOREC~IRD CONTAIN?
Fischer Direct Attachment 4, CenturyLink QC’s Responses to the New Mexico Attorney General’s Fifth Set ofInterrogatories and Request f(,r Production of Documents, Attorney General 5-06.
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The Consumer Market Scorecard contains residential subscriber count, penetration of
occupied households, and market share calculations by service by quarter beginning with
ist quarter 2009 through 3r° quarter 2011.
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The subscriber counts are accumulated in the following categories.
Line Loss Flow Share %:Cable Share of Line LossWireless Substituion
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Categories appearing in this table are as follows: Legacy Q Voice Lines represent
CenturyLink QC’s residential wireline voice subscribers. Cable Telephony is the
summary of all cable provider telephony lines. VoIP is the summary of all over-the-top
VolP subscribers. CI,EC’s reflect CLEC penetration statistics provided by CenturyLink
QC. All four categories are summed to calculate Subtotal Lines. Wireless Substitution
subscribers compiled by Centris are then added to the scorecard. The Consumer Market
Scorecard then calculates two market metrics: (I) Market Penetration and (2) Market
Share by subscriber category.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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WHICH OF THESE TWO MARKET METRICS DOES CENTURYLINK QC
RELY UPON TO II~EMONSTRATE ITS THAT IS IVlARKET SHARE IS LESS
THAN 50%?
Mr. Brigham relies on Market Penetration statistics to demonstrate that CenturyLink
QC’s consumer mark el share declined to 45.6°/o
of occupied households at the state level in New Mexico by the end
of the 3rd Quarter 201 I. 10~
HOW DOES MARKET PENETRATION DIFFER FROM MARKET SHARE?
The Consumer Market Scorecard Definitions document provided by CenturyLink QC in
response to tw telecom 02-005(D) provides the following definitions.
Market Share - The percentage of a market (defined in lerms of subscribers) accountedfor by a company in lhe legacy Qwest footprint. Market share is a key subscriberindicator of market competitiveness, as it quantifies how well a firm is doing against itscompetitors.
Market Penetration - A measure of the amount of subscribers compared to the totaltheoretical market for that product or service. The amount of subscribers can be anindividual company’s subscribers count or industry., while the theoretical market reflectsthe total potential cor~sumers for the product.
WHY IS MARKET PENETRATION THE INCORRECT METRIC FOR THIS
CASE?
~’9 Brigham Direct at l g.
Fischer Direct Attachment 4, CenturyLink QC’s Supplemental Response to tw telecom of new mexico, llc’sSecond Set of Discovery Requests, Request No. tw telecom 2-0051D), Confidential A~lachment 2-5(D).
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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Market Penetration is the incorrect metric for this case because it measures subscribership
as a percentage of an unobserved and not clearly defined total theoretical market. In this
case, the theoretical market according to Mr. Brigham includes subscriber counts
attributable to wireless substitution. As ! discussed above in Section II1, the FCC and the
DOJ have determined that mobile wireless service should not be included in the relevant
product market for wireline voice service until the petitioner can demonstrate that
wireless services con:m’ain prices for wireline voice services.
WHY IS THE MARKET SHARE METRIC THE CORRECT MEASUREMENT
FOR THIS CASE?
The Market Share metric within the Consumer Market Scorecard is the correct
measurement because the definition provided above states that,
"Market share is a key indicator of market competitiveness, as it
quantifies how well a firm is doing against its competitors."
This metric appropri~tel)’ calculates market share by wirdine service category as a
percentage of Subtotal Lines in the scorecard excluding wireless substitution
subscribers.
WHAT IS CENTURYLINK QC’S MARKET SHARE AT THE END OF THE 3aa
QUARTER 2011 IF WIRELESS SUBSTITUTION IS EXCLUDED FROM THE
CALCULATION?
The one exception is that it al:~.o includes over-the-top VolP subscribers which should be excluded; however,total VoiP subscribers are de minimis compared to the other categories. Consequently, no adjustment wasmade to exclude VolP from the summary table of CenturyLink QC’s market share below.
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It is significantly greater than what Mr. Brigham claims. The Consumer Market
Scorecard relied upol~ by Mr. Brigham summarizes Market Penetration and Market Share
statistics at the state level of aggregation. Consequently, 1 reviewed AG 5-02
Confidential Attachment .I - BB_NM CBSA I QO9-3Q I l.x~’sx provided in response to
Attorney General 5-02 to identify CenturyLink QC’s Market Share by each of the 16
CBSAs noted above. The results of my research are summarized in the table below.
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1234
Table 9: CenturyLink QC’s 3Q 2011 Market Share by Metropolitan / MicropolitanStatistical Area
[BEGIN CONFIDENTIAL]
I I5
6 [END CONFIDENTIAL]
7 Q. WHAT IS THE SIGNIFICANCE OF THE MARKET SHARE LEVELS IN THE
8 TABLE ABOVE?
9 A. The market shares in column "CenturyLink QC" are very high. These high market share
10 levels indicate that CenturyLink QC is still a dominant provider in the market despite the
11 erosion of its market share by the alternative providers above. Additionally, cable
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telephony is by far the biggest competitive service provider in each of the 16 CBSAs
above. VolP providers and CLECs account for only a couple percentages of market
share in each market. Therefore, the statistics suggest a result similar to what the FCC
found in Qwest’s Phoenix MSA forbearance petition in Section IlI.C.I above: two
companies, Q~vest and the incumbent cable company, Cox, accounted for almost all of
the market share in the Phoenix MSA. The FCC concluded that mass market consumers
effectively faced a duopoly for these services in the Phoenix MSA. ~1~, The same situation
is present through Ce~turyLink QC’s New Mexico marke~s. Consequently, cable
telephony may not be providing sufficient competitive pressure to constrain CenturyLink
QC’s prices.
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MR. GOLDSTEIN’S TESTIMONY EXPLAINS THAT THE DEPARTMENT OF
JUSTICE USES A S PECIAL INDEX, HERFINDAHL-HIRSCHMAN INDEX
("HHI") TO EVALIIATE THE DEGREE OF MARKET POWER IN ANTI-
TRUST REVIEWS. CAN YOU CALCULATE THE ][-IHI FOR THE CONSUMER
VOICE MARKET USING THE CENTRIS DATA?
Yes. As explained by Mr. Goldstein, the HHI is calculated simply by summing squared
market shares of all market players. ~:3 The above discussed Centris data~4 produces the
HHI value of 6,477 at the
statewide (CenturyLink QC’s serving area) level, and ran!ges from a low of [BEGIN
Phoenix Order at ¶ 81.
The HH! is explained on the [IS Department of Justice ("USDOJ") merger enforcement materials available at[~ ~X~ ..iiisticc.<__,,.,\ alr ptib; ~c il,cr._,cr-cnlbr~’ci3~cl~t I~li3~l. It is also defined in the USDOJ HorizontalMerger Guidelines, Section 5.3.
Attachments AG 5-02 Confid~ ,,~tia! Attachment d - BB_NM CBS.4 I QO9-3Ql l.xlsx and AG 5-02(a)Coqfidential Attachment .,I - I~,O ,’~.’.~il state 1QO9-3Q i.xls provided in resgonse to Attorney General 5-02.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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CONFIDENTIAL ** ~ ** END CONFIDENTIAL] to a high of
[BEGIN CONFIDENTIAL **~ ** END CONFIDENTIAL] at the
CBSA level. For the Albuquerque MSA, the HHI is [BEGIN CONFIDENTIAL **
l ** END CONFI[DENTIAL]. As noted by Mr. Goldstein, values of HHI in excess
of 2,500 points are considered "Highly Concentrated Markets" by the USDOJ. 1~5 As a
further point of reference, the USDOJ classifies markets in three categories, with the
other two categories be.ing "Moderately Concentrated Markets" (HHI between 1,500 and
2,500 points) and "Unconcentrated Markets (HHI under 1,500 points). 116
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Qo HOW DOES CENTURYLINK QC’S MARKET SHARE IN NEW MEXICO
COMPARE TO THE BENCHMARK USED BY THE, FCC WHEN IT GRANTED
THE AT&T (THE LONG DISTANCE CARRIER) NON-DOMINANT CARRIER
STATUS IN THE LONG-DISTANCE INDUSTRY?
AT&T (the long distance carrier) did not receive non-dominant carrier status until its
market share had dropped to 55.2 % of revenue and 58.6 percent of minutes. 117 The FCC
considered 6 factors in reaching its decision:118
AT&T’s markel: share had been falling steadily for ten years, and had decreased toapproximately "55.2 and 58.6 percent in terms of revenues and minutesrespectively;"
AT&T faced at least three nationwide facilities-based providers and hundreds ofsmaller competitors;
AT&T’s competitors possessed the ability to accommodate a substantial numberof new customers on their networks with "little or no investment immediately,
~5 See the USDOJ Horizontal Merger Guidelines, Section 5.3.116 ld.117 Phoenix Order, ¶ 7.~s Phoenix Order, ¶ 7 (footnotes c~mitted).
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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and relatively modest investment in the short term," (i.e., that they had sufficientexcess capacity to constrain AT&T’s pricing behavior);
4. "virtually all c, ustomers.., have numerous choice, s of" equal access carriers;"
5. both business and residential customers were highly demand elastic andfrequently switched carriers; and
6. AT&T had not controlled local bottleneck facilities for over ten years.
Clearly, CenturyLink QC’s current market share is significantly greater than the
bcnchmark used by the FCC to determine when a long distance carrier such as AT&T
was no longer dominant.
2. Critique of Centris’ Small Business and Mid .Markets Market Share Data
HOW ARE THE TERMS "SMALL BUSINESS" AN]i) "MID MARKETS"
DEFINED WITHIN THE CENTR1S REPORTS?
Small Business is defined as
Austin Tetra dataset with less than $1,500 estimated monLhly telecom spend
:1~, Mid Markets is defined as
businesses contained in the Austin Tetra dataset with between $1.500 and $5,000
estimated monthly telecom spend ~2o
businesses contained in the
WHAT ANALYSIS 101D CENTRIS PREPARE FOR CENTURYLINK QC ON ITS
SMALL BUSINESS AND MID MARKETS MARKET SHARE?
120
Fischer Direct Attachment 4, CenturyLink QC’s Supplemental Response to tw telecom of new mexico, Ilc’sSecond Set of Discovery Requ, ests, Request No. tw telecom 2-5, Confidential Attachment 02-005(Q).
Id.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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Centris prepared a slide presentation containing voice and data market share statistics
within the 14-state legacy Qwest footprint (referred to in the presentation as "L-
Qwest"). 12~ It contains 3rd Quarter and 4th Quarter 2011 :statistics on market share at the
Qwest region level, at the individual state level, and for certain MSAs such as
Albuquerque. In this presentation, term "L-Qwest" refers to the 14-state legacy Qwest
footprint, and the abbreviation "CTL" refers to CenturyLink.
WHAT WAS CENTRIS’ INITIAL CONCLUSION IN ITS SMALL BUSINESS
AND MID MARKETS PRESENTATION?
In the Executive Summary, Centris concluded that CenturyLink QC,"
... continues to maintain a dominant market share position across
voice and data in the l_-Qwest footprint, followed by CLECs. However. Cable is gaining
share at the expense of both CTL and CLECs. ,, ~zz
WHAT DOES THE SMALL BUSINESS AND MID MARKETS PRESENTATION
STATE REGARDING MARKET SHARE STATISTICS IN NEW MEXICO?
This Centris report shows that CenturyLink QC’s Small E;usiness and Mid-Markets voice
market share in New ~dexico is the fourth
largest in the ranking of all 14 legacy Qwest states (where the
ranking of"first" is the state with the highest CenturyLink QC market share) exceeded
only by its market share in Wyoming, Idaho, and Iowa
Fischer Direct Attachment 4, (?enturyLink QC’s Supplemental Response to tw lelecom of new mexico, lie’sSecond Set of Discovery Req~ests, Request No. tw telecom 2-3(c), Confidential A~achment 2-31c).
Id., at p. 3. (emphasis added)
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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~3 At the end of the fourth quarter in 2011, CenturyLink
QC’s Small Business wficc market share in New Mexico was
WHAT DOES THE SMALL BUSINESS AND MID MARKETS PRESENTATION
STATE REGARDING MARKET SHARE STATISTIICS IN ARIZONA?
Conversely, the same reports shows that CenturyLink QC’s market share in Arizona,
which contains the Phoenix MSA that was the subject of~wo of the Qwest forbearance
petitions to the FCC discussed in Section III above, ranks
seventh out of 14 states within the legacy Qwest region.
At the end of the four~Lh quarter in 201 !, Centuryl_,ink QC’s Small Business voice market
share in Arizona was 60.6%
~,ersus the average market share of
62.6% for its entire 14-state region. ~z6 Similarly,
CenturyLink QC’s Mid Markets Arizona voice market share was
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Id., atp. 10.Id., at p. 10
Id., at p. I1.
ld., at p. 10.
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Direct Testimony of Warren R. FischerCase No. I 1-000340-UT
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60.2%
share of
entire 14-state region, ~::7
52.7%
versus the average market
for its
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WHAT IS THE SIGNIFICANCE OF CENTURYLINK QC’S ARIZONA
MARKET SHARE ’VERSUS ITS NEW MEXICO MARKET SHARE IN SMALL
BUSINESS AND MIlD MARKETS?
Even with CenturyLink QC’s lower
market share in the more competitive Arizona market, the FCC
rejected CenturyLink QC’s petition for forbearance under both its previous marketplace
analysis and its curren! market power analysis. Also, the Arizona ranking illustrates the
deficiency of using state-level data as it is not indicative of the more granular (MSA or
wire center) level of competition that is required. For example, Phoenix must be
CenturyLink’s most ~:ompetitive MSA within its 14-state region since it filed a second
forbearance petition |br this market in 2009 after the FCC rejected the Four-MSA petition
it filed in 2007, yet, tt~e state of Arizona ranks only in the QC’s
middle (and has somewhat similar
CenturyLink QC market shares) when compared to the other 13 states within
CenturyLink QC’s region.
19 Q. WHAT IS THE SIGNIFICANCE OF CENTRIS’ FINDING REGARDING
20 CENTURYLINK’S MARKET SHARE POSITION ACROSS THE LEGACY
21 QWEST FOOTPRINT?
127 ld., at p. 11.
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As ! note above, Centris concluded that, region wide, CenturyLink,"
... continues to maintain a dominant market share position across
voice and data in the L-O~est footprint .....
CenturyLink QC’s market share in New Mexico is
" Given that
greater
than its regional legacy Qwest footprint market share,
CenturyLink QC mu~,~t have an even more dominant
market share position in New Mexico.
DID YOU CALCUI.,ATE THE HERFINDAHL-HIRSCHMAN INDEX (THE
MEASURE OF CONCENTRATION USED BY THE DEPARTMENT OF
JUSTICE) FOR THE BUSINESS VOICE MARKET USING THE CENTRIS
DATA?
Yes. The above discassed Centris Market Share data ~28 produces the following HHI
values: 5,207 for small
business voice, and 6,524
for mid-market business voice at the state level. As noted about in the discussion of the
HH1 associated with t~he consumer voice markets, the tlHI values greater that 2,500 are
considered to be "Highly Concentrated Markets."
DOES THE CENTRIS REPORT UNDERSTATE CENTURYLINK QC’S
MARKET SHARE FOR BOTH THE SMALL BUSINESS AND MID MARKETS
SEGMENTS?
Attachments ,4G 5-05 Confid,~’ntial,,Ittachment A provided in response to, Attorney General 5-02.
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Yes. Similar to the ~i’onsumer Market Scorecard discussed in Section V.A. above, the
Centris report includes mobile wireless subscribers in its market share calculations (while
the proper analysis s!~oald only include wireline subscriber counts). As I discuss in detail
above, mobile wirele~;s subscribers are not in the relevan! product market and should be
excluded.
WERE YOU ABLE TO DETERMINE HOW MUCH MARKET SHARE WAS
ATTRIBUTED TO WIRELESS AND OTHER NON-WIRELINE VOICE
SERVICES IN THE. SMALL BUSINESS SEGMENT IN NEW MEXICO?
Yes. The necessary intbrmation was contained in the workbook that underlined the
Centris presentation -- the confidential Microsoft ExcelS’ workbook provided by
CenturyLink QC in response to Attorney General 5-05. This workbook calculates the
market share of CenturyLink QC and all other wireline v,:)ice providers in New Mexico at
the state level for the 4th Quarter 2011. CenturyLink QC’s market share is calculated at
70.2% which is virtually
the same as the market share in the slide presentation provided in response to tw telecom
2-3(c) referred to above. ~’~ That same workbook calculates market share of
14.9% for the "All Other Type" -
the category that includes wireless and other non-wireline counts (i.e. improperly
included wireless substitution). ~30 Excluding subscriber counts from this category results
~-~ Fischer Direct Attachmen~ 4, Centu~Link QC’s Responses to the New Mexico Attorney General’s Fifth Set ofInterrogatories and Request fi:,r Production of Documents, Attorney General 5-05, Confidential Attachment 5-05 A, tab SB Voice.
i.~ Id.
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Direct Testimony of Warren R. FischerCase No. 11-000340-UT
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in a CenturyLink QC market share of 82.5%
for the Small Business segment in New Mexico.~3~
HOW MUCH MARKET SHARE WAS ATTRIBUTED TO WIRELESS AND
OTHER NON-WIRELINE VOICE SERVICES IN THE MID MARKETS
SEGMENT IN NEW MEXICO?
The same confidentkd Microsoft Excel® workbook provided by CenturyLink QC in
response to Attorney General 5-05 calculates CenturyLink QC’s market share at
80.3% ~32 This amount is
inexplicably higher than the Centris slide presentation by approximately
10 percentage points Adjusting this
calculation to exclude wireless subscribers results in a CenturyLink QC market share of
82.0% for the Mid Markets
segment. ~ 33
WHAT IS THE SIGNIFICANCE OF THESE ADJUSTED MARKET SHARE
CALCULATIONS?
The adjusted market ,_-;hare calculations further re-enforce Centris’ observation that
CenturyLink QC has a dominant
ld. Subtract amount in cell P5 from Q5 to calculate total New Mexico wireline subscribers as the market sharedenominator.
Fischer Direct Attachment 4, (enturyLink QC’s Responses to the New Mexico Attorney General’s Fifth Set ofInterrogatories and Request t,:~r Production of Documents, Atlorney Ger~erat 5-05, Confidential Attachment 5-05 A, tab MM Voice.
ld. Subtract amount in cell P4 from Q4 to calculate total New Mexico wireline subscribers as the market sharedenominator.
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position in the wireline voice market in New Mexico.
Consequently, these data do not support a finding of effective competition.
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NMAGO’S REQUESTED RELIEF
WHAT RELIEF IS ’I’HE NMAGO REQUESTING?
CenturyLink QC’s petition should be denied since it has not demonstrated there is
effective competition in each relevant market area using data focused on the relevant
product market. Alternatively, the Commission should determine which specific relevant
market areas are subj~;ct to effective competition and which are not.
DOES THIS CONCLUDE YOUR TESTIMONY?
Yes.
95
BEFORE THE NEW MEXICO PUBLIC REG~!~A:r[ON~COMMISSiON
IN THE MATTER OF THE PETITION OF ~1~ ~_:)CORPORATION d/b/a CENTURYLINK Q~’~bR A )DETERMINATION THAT TELECOMMUNICATIONS)SERVICES ARE SUBJECT TO EFFECTIVE )COMPETITION IN NEW’ MEXICO )
Case No. II-00340-UT
AFFIDAVIT OF WARREN R. FISCHER
STATE OF (.oLo :,~q,, __ )
COUNTY OF 0~-~ ~- __ )
Warren R. Fischer, Chief Financial Officer, QSI Consulting, upon being f’f~
duly swom according to law, under oath, deposes and states: That I have read the
foregoing revised Direct Testimony, including exhibits and it is tree and accurate based
on my own personal knowledge and belief.
SIGNED this \~:’ day of October, 2012.
WARREN R. FISCHER
SUBSCRIBED AND SWORN TO before me by Wa,rren R. Fischer on thisday of October, 2012.
~y Commission Expires:16. NOTARY ~t~l~’Ll’gTI’l~ AND FOR
THE STATE OF
BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION
IN THE MATTER OF TIlE PETITION OF QWEST )CORPORATION d/b/a CENTURYLINK QC FOR A)DETERMINATION THAT TELECOMMUNICA- )TIONS SERVICES ARE SUBJECT TO )EFFECTIVE COMPETITION IN NEW MEXICO )
)
CERTIFICATE OF SERVICE
Case No. ll-00340-UT
I HEREBY CERTIFY that a true and correct copy of the foregoing Revis~-~
Direct Testimony of Warren R. Fischer, C.P.A., on Behalf of the New Mexico
Attorney General (Public and Confidential), filed on November 2, 2012, was l~led
first-class, postage pre-paid, to the following parties:
’772
* Jeff Albright201 Third Street, NW, Suite 1950Albuquerque, NM 87102
Bill GarciaWindstream Communications1800 Old Pecos Trail, Suite JSanta Fe, NM 87505
