NASUCA MIDYEAR MEETING 2006 Memphis, TN

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NASUCA MID-YEAR MEETING - 2006Memphis, TN

• DEREGULATION ISSUES CONSULTANT PANEL
• June 14, 2006
• Presentation by
• Bion C. Ostrander, CPA
• OSTRANDER CONSULTING
• 1121 SW Chetopa Trail, Topeka, KS. 66615
• [phone]
• bionostrander_at_cox.net

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FCCs June 30, 2005 Local Competition Report
Important Changes Issues to Consider

• First time that CLECs and ILECs with fewer than
  10,000 switched access lines in a state are
  required to file.
• - This includes about 2.3 m new CLEC lines and
  1.9 m new ILEC lines, other than those
  voluntarily reported in the past.
• - The Dec. 2004 data included about .4 m CLEC
  lines and .2 m ILEC lines that were
  voluntarily included by filers with lines.
• First time that negotiated commercial
  arrangements (to replace UNEs) between CLECs and
  ILECs are included in the Resale category
  instead of the UNEs category (Tables 3 4).
• - FCC does not separately identify the number
  of lines served by commercial arrangements in
  its data.
• - Potential misreported data by ILECs and CLECs
  in this area.
• First time that small business lines have
  been included in the business category of lines
  instead of the residential category of lines
  (Table 2).
• - ILECs experienced a 33 increase in business
  access lines from Dec. 2004 to June 2005, but it
  is not clear how much of this increase is
  attributed to the shift of lines between
  categories (critical data is missing).
• ATT and MCI UNE/Resale/Facility lines are
  still included in CLEC data.

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UNE Decline Competition All Shook Up
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UNE Decline Competition All Shook Up
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UNE Decline Competition All Shook Up
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UNE Decline Competition All Shook Up
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UNE Decline Competition All Shook Up
Note Qwest wholesale lines are not shown
above. The three RBOCs above provide about 80 of
CLEC UNE/Resale lines at June 2005.
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UNE Decline Competition All Shook Up
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UNE Decline Competition All Shook Up

• Table 1 through 6 Summary Points
• For the year June 2004 to June 2005, CLEC
  UNE/Resale lines declined 1.6 million, or 6, and
  UNE-P declined by 2.5 million lines, or 15.
• UNE-P had previously increased by 4.1 million
  lines (to a peak level of 17.1 million lines), or
  a 31 increase, for the year June 2003 to June
  2004, and UNE-P was 77 of total CLEC line growth
  from June 2003 to June 2004.
• UNE line losses for CLECs will accelerate in 2006
  due to accelerated impact of Court/FCC decisions
  regarding elimination of UNE-P. For example,
  from June 2004 to June 2005, CLEC UNE/Resale
  lines declined 6 (per FCC data), but recent RBOC
  data (ATT, Verizon, and BellSouth) shows
  UNE/Resale lines provided to CLECs declined 14
  (2 million lines) in just the first quarter of
  2006.
• Source Tables 1, 2, 3 and 6 of prior slides are
  from FCC Local Competition Report (Form 477).
  Table 1, 2 and 3 slides used UNEs reported by
  ILECs at FCC Table 4, because this includes UNE-P
  information, and CLECs do not separately report
  UNE-P data at FCC Table 3. Tables 1, 2 and 3 of
  prior slides used Resale lines reported by CLECs
  at FCC Table 3, because this includes Resale
  lines from other CLECs (and not just ILECs).
  Tables 1, 2 and 3 used CLEC reported Facility
  lines at FCC Table 3. Table 6 is from FCC Table
  1. Tables 4 and 5 of prior slides are from RBOC
  web-site financial data.

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UNE Decline Competition All Shook Up

• Table 1 through 6 Summary Points
• The PACE Coalition cautions that those smaller or
  more rural states where CLECs are more dependent
  on UNE-P could be hurt the most. This includes
  the states of Mississippi and N. Dakota (both at
  close to 100) and Arkansas at about 76. Also,
  states like Louisiana and Kentucky (both at 80 to
  90) could be hurt. It remains to be seen how
  more urban/densely populated states with high
  UNE-P dependency could be affected, such as New
  Jersey, Michigan and Maine (all in the upper 70
  range). At June 2005, the FCC information shows
  mixed results regarding this assumption by PACE.
  The June 2005 FCC data does not show any negative
  CLEC market share impacts for Mississippi, N.
  Dakota (N. Dakota CLEC share increased by 13
  from December 2004, the largest growth among all
  states where information is publicly available),
  Louisiana, Kentucky, Arkansas, and Maine.
  However, New Jerseys CLEC market share remains
  at 22 for Dec. 2004 and June 2005 and Michigans
  CLEC market share decreased from 26 to 25 (even
  after including the The reader is cautioned regarding PACE data,
  because this is a coalition of smaller
  competitors that use UNE-P for some or all of
  their local service).
• Analysis of FCC data does not appear to show that
  UNE-P is being replaced by negotiated commercial
  agreements, because UNE-P shows a 2 million line
  decline and Resale (the category where FCC is now
  including negotiated commercial agreements) only
  increased by 437,000 lines. Under a best case
  scenario (assuming all of Resale gain is
  attributed to negotiated commercial agreements),
  the UNE-P loss is 1.6 million more than the gain
  in negotiated commercial agreements.

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UNE Decline Competition All Shook Up

• Table 1 through 6 Summary Points
• CLEC Facility-Owned lines were 22 of total CLEC
  lines for the 18 month period December 2002 to
  June 2004, and now have increased to 27 of total
  CLEC lines at June 2005 (as UNE-P declined 5 for
  this same period). From June 2003 to June 2004
  Facility-Owned lines increased 1.3 million (17)
  and from June 2004 to June 2004 Facility-Owned
  lines increased 1.6 million lines, or 21. Has
  elimination of UNE-P caused this moderate
  increase in CLEC facility lines? How will
  removal of ATT/MCI lines from the CLEC category
  affect this information?
• CLEC market share nationwide was 18 at both June
  and December 2004, and it increased slightly to
  19 at June 2005. However, the 19 market share
  includes CLECs with fewer than 10,000 lines for
  the first time, and the 18 market share does not
  include this information. After adjusting the
  2004 data for the impact of the filers, the market share for 2004 would also be
  19. This means that CLEC market share has not
  increased from June 2004 to June 2005, and it
  will very likely decrease in the future due to
• - Continued loss of UNE-P lines for CLECs
• - Removing ATTs CLEC lines (after SBC
  acquisition and name change to ATT at November
  2005)
• - Removing MCIs CLEC lines (after Verizon
  acquisition at January 2006)
• - Possible fallout from ATT acquisition of
  BellSouth to be completed by year-end 2006

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UNE Decline Competition All Shook Up

• Table 1 through 6 Summary Points
• CLEC line loss is more damaging than reported
  RBOC line losses, because RBOCs are losing some
  lines to affiliated Cellular and DSL companies
  and keeping revenues/lines in the consolidated
  family. For example, ATTs 1st quarter 2006
  Investor Briefing states that 40 of its retail
  access line decline for the first quarter
  (267,000 decline) is due to migration of lines to
  its DSL service. Also, some part of the
  remaining retail line losses are to ATTs
  cellular affiliate Cingular, but these numbers
  are not reported or know (although Cingular added
  1.7 million customers in the first quarter of
  2006, and 5.5 million in the past year, while
  reporting its lowest subscriber churn ever).
  Furthermore, the acquisition of BellSouth (which
  means 100 ownership of Cingular), will further
  offset ATTs retail access line loss on a
  consolidated basis.
• Conclusion It will be extremely difficult to
  continue to show increased CLEC market share and
  increasing UNE/Resale lines, and a general
  positive spin on CLEC/Local Competition.

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FCC Reports Refined

• The FCC invites users of the Local Competition
  Report to provide suggestions for
• improved data collection. Here are some
  necessary refinements
• Current information is no longer on an apples to
  apples comparative basis, this needs to be
  resolved as much as possible.
• Information regarding competition between
  RBOCs/ILECs needs to be reported, especially with
  additional mergers/acquisitions among these
  entities.
• Identify impact of removing ATT/MCI CLEC lines
  due to acquisitions when this is applicable.
• Reconcile and explain various inconsistent data.
  For example, FCC indicates that it does not fully
  know why the ILECs and CLECs report different
  UNE/Resale volumes. Also, FCC does not know if
  ILECs and CLECs are consistently reporting
  negotiated commercial agreements in the Resold
  Lines category.
• Separately report negotiated commercial
  agreements in a separate category outside of
  Resold Lines.

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Be Aware - Anti-Consumer Outcomes

• RBOC/ILECs further consolidation and not
  competing with each other.
• ILECs/RLECs get ETC status for cellular/cable
  affiliate for additional federal/state support,
  then they push (by increasing local rates of ILEC
  or having the affiliate offer better bundled
  service) access lines from the ILEC/RLEC to the
  ETC affiliate which has numerous potential
  negative customer outcomes
• - Decreases revenues/access lines of the
  ROR-regulated RLEC (most often this is a rural
  LEC that remains under ROR regulation), which
  decreases earnings and helps justify local rate
  increases.
• - The loss of lines by the ILEC/RLEC could
  increase the state support per line paid to the
  ILEC/RLEC.
• - Removes jurisdiction from the state regulatory
  agency, so additional rate increases by the ETC
  affiliate are possible without regulatory
  scrutiny and service quality is not monitored or
  subject to regulatory oversight.

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Be Aware - Anti-Consumer Outcomes

• CLECs loading unwarranted recurring miscellaneous
  charges on customer bills, identifying the
  amounts as PICC/EUCL, to recover additional
  charges passed on to CLECs by ILECs,
  miscellaneous billing costs, carrier cost
  recovery fee, etc.
• - In Kansas, Sage charges an FCC Subscriber Line
  Charge of 9.50/line, whereas ATT/Southwestern
  Bell (the ILEC) charges 6.50 as do other CLECs.
  Sage recovers an additional 3.00/line per month
  with this unjustified and significant charge.
  The Kansas Corporation Commission (KCC) has
  allowed this charge to date, despite objection
  by CURB.
• - Also in Kansas, Sage implemented another
  miscellaneous charge, the switched network
  recovery charge of about 1.33 per line/per
  month. The KCC has allowed these charges to
  date despite objections by CURB. In Missouri
  (reportedly due to pressure from the Office of
  Public Counsel), Sage withdrew its proposal to
  implement this same switched network recovery
  charge.
• RLECs acquiring ILEC exchanges, implementing
  substantial modernization, and then recovering
  these costs from all customers throughout the
  state via the state universal service charge
  mechanism - - while avoiding regulatory scrutiny
  in part.

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Conclusion

• With the loss of UNE-P lines, will CLECs be
  Crying in the Chapel?
• Will those CLECs that are charging excessive
  miscellaneous fees tell regulators to keep their
  hands off and Dont Be Cruel?
• Will the former ATT and MCI be telling their new
  owners SBC (now ATT) and Verizon, Love Me
  Tender?
• Will regulators be viewing RBOC consolidation and
  deregulation measures with Suspicious Minds
• Thank you, thank you very much!