Senate Energy, Utilities and Communications Committee

Merger Hearing
Talking Points

June 21, 2005
9:30am

Introduction

• Telscape Communications, CLEC in California 100,000 customers, and over 350 California employees
• Facilities based carrier with our own infrastructure and switching equipment
• Our charter is to serve the Hispanic community, specifically the Spanish speaking household
• And we do it by offering new products and services & lower pricing/better value
• We believe the merger of SBC/ATT will negatively impact the lower income consumer in a dramatically larger proportion than the general market consumer.

A look back

• Local competition was created in 1996 because the local monopolies of the Baby Bells had a strangle hold on the local telecommunications market
• Congress held that the Baby Bells had to open their monopoly networks and allow competitors access to key network elements, the wires in the ground, so consumers could enjoy new services and products offered by competitors.
• A key point is that these networks are the ratepayers’ networks, built and paid for by the ratepayers under a guaranteed rate of return over a period of more than 50 years.
• This point was not lost to California, which before 1996 was already at the forefront by recognizing the California network Building Blocks and required the incumbents, SBC & Verizon, to lease the bottleneck network elements such as the wires in the ground as well as switching components in which competitors could not reasonably replicate to compete.
• Furthermore, as a trade-off for letting the Baby Bells enter the long distance market, state and federal regulators reaffirmed the requirement for the Bells to lease the switching component of their network.

Fast Forward to the Present

• SBC is now representing to the World that the telecommunications market is irrevocably open to competition, and it is time to allow them to re-create their regional monopoly and restrict access to their networks from competitors.
• I am here to tell you that this is not yet the case, competition is working, but it is not irrevocably open, and it is not yet time to allow these companies to remonopolize and squeeze off competition: Let there be no mis-understanding, if this happens, California Consumers will be harmed by fewer choices and higher prices for telecommunications.
• This is how monopolies protect their monopoly: they purchase their biggest competitive threats and drive the rest out of business so they can raise prices and protect their market share.
  
  As proof I will offer this fact: the rates that SBC and Verizon have publicly proposed to charge competitors in many cases is actually higher than what they currently sell those same services to the public.
  
  Creating wholesale rates that are higher than retail rates will cause a price squeeze driving competitive carriers from the market.

Competition mis-understood and mis-represented

• The first thing you’ll hear is that intermodal competition is here- this is not the case
  
  Mobile phones do not work every where
  
  Cable does not serve every house or every place of business
  
  VoIP is a fun experiment, but it is not main stream. In truth only a handful of VoIP lines are really in service according to the latest FCC report.
   
• The second thing you’ll hear is that Wireline competition is strong- this is not true either
• In the residential marketplace, facilities based competition is really at a very fragile state. I have come to find out that of all the residential consumers being served by competitive company switching equipment, about half of them are Telscape customers… and Telscape is not a large company. If this is true, this would mean that as few as ¼% of California’s residential consumers receive their phone service from a competitive facilities based provider.

Investment in California

• It is the California competitive companies that are growing employment and driving investment, and bringing the benefits of newer technology to California consumers.
• The merger companies have announced billions in proposed savings- how do you suppose they will create those savings? By downsizing payroll and shipping the remaining jobs to lower cost areas other than in California.
  
  The Bell’s had DSL first, but chose not to deploy it because they could sell their high priced T-1 lines instead, until Covad and the competitive carriers rolled it out and it was embraced by the masses. Now the Bells are rolling out their DSL offerings as a reaction.
  
  In voice services, once again its competitors driving innovation and technology advances. In some of the inner-city areas in which Telscape serves, consumers on legacy Verizon equipment could not even get simple features such as Caller ID until they moved to Telscape and got connected to our switching equipment.
   
• SBC and Verizon talk about Billions in investment and newer technologies like fiber to the home. Where do you think these investments will be made? Beverly Hills, Santa Monica, and Newport Beach…. Surely not the inner-city and traditionally underserved communities.
  
  The existing outside plant that serves the vast majority of California has been laid in place and fully paid for by ratepayers for many, many years. It is essential that the ratepayers continue to receive the benefits for the network they have paid for, and to which they deserve to receive benefits.
  
  The incumbents would love to move everyone off of the old copper and make them buy newer and higher cost services, but the copper plant if in place, working well, and if someone wants basic service they should be able to continue to order plain old telephone service at economical rates.
  
  Let there be no mistaking about it: it will be the low income and impoverished people that can least afford it that will be harmed by the incumbents squeezing competitors and the public off the rate payers imbedded copper plant.
  
  It is essential to California consumers that the competitive carriers continue to receive unfettered access to the ratepayers’ network, unimpaired interconnection and at prices that are at par with the incumbents true costs- not misleading cost model levels or anti-competitive predatory pricing.

Closing

I applaud Chairwoman Escutia and the other members of the Senate Energy, Utilities and Communication Committee for taking a proactive approach to these potential mergers. Don’t let California get sold down the road with the corporate rhetoric and glossy promises of greedy monopolists. I urge you to move forward with robust and firm measures to protect California consumers and small business in this time of burgeoning telecommunications competition. Now is not the time to bow to Wall Street, national pressure, or corporate greed, now is the time to act to protect California’s investment in its infrastructure and work to ensure an economic future in which the citizens of California reap the benefits they deserve.