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I.
Q.
IDENTIFICATION OF WITNESS
PLEASE STATE YOUR NAME, OCCCUPATION AND BUSINESS
ADDRESS.
A.
My name is Thomas A. Linstrom.
I am CEO/President of
Beaver Creek Cooperative Telephone Company (“Beaver
Creek”).
My business address is 15223 S. Henrici
Road, Oregon City, Oregon 97045.
II.
PURPOSE AND SUMMARY OF TESTIMONY
Q.
WHAT IS THE PURPOSE OF YOUR TESTIMONY.
A.
The purpose of this testimony is to respond to certain
portions of the testimony filed by Mr. William R.
Easton on behalf of Qwest.
Q.
PLEASE SUMMARIZE YOUR TESTIMONY.
A.
From a general perspective, I will respond to Mr.
Easton on the ultimate issue in this case.
I will
also respond to certain specific items that he raises
in his testimony.
I will explain how Qwest and Beaver Creek compete
for intraexchange customers.
I will respond to the
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issue of “fairness” raised by Mr. Easton.
Finally, I
point out several errors in Mr. Easton’s Testimony.
III.
Q.
TESTIMONY
WHAT IS YOUR GENERAL RESPONSE TO MR. EASTON’S
TESTIMONY?
A.
Qwest’s theory for this arbitration rests on the
Memorandum of Understanding between Beaver Creek and
Qwest’s predecessor (US West) entered into on
approximately November 3, 1997.
Qwest is essentially
arguing that the Memorandum of Understanding creates
an exception to Oregon statute, the Telecommunications
Act of 1996 and Commission precedent and allows Qwest
to serve as an incumbent local exchange carrier
(“ILEC”) in the same territory that Beaver Creek is an
ILEC.
If Qwest is correct that the Memorandum of
Understanding creates such an exception, then Qwest is
correct and an interconnection agreement is not
needed.
If Qwest is wrong, then the operations of
Qwest in the Beavercreek exchange are as a CLEC and
should be required to be under the terms of an
interconnection agreement.
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IV.
Q.
MEMORANDUM OF UNDERSTANDING
PLEASE STATE YOUR UNDERSTANDING OF THE TERMS AND
CONDITIONS CONTAINED IN THE MEMORANDUM OF
UNDERSTANDING.
A.
Most of the Memorandum of Understanding contains a
recital of the events that led up to the Memorandum of
Understanding.
In fact, all of the first page and
part of the second page of the two page Memorandum of
Understanding contains that recital of events.
The
only substance of the Memorandum of Understanding is
found in the last bullet point.
That bullet point
sets out the purpose of the Memorandum of
Understanding and then some brief points of how the
two companies will operate.
Q.
WHAT DOES THE MEMORANDUM OF UNDERSTANDING STATE IS ITS
PURPOSE?
A.
The Memorandum of Understanding states that the
purpose of the Memorandum is to allow Qwest and Beaver
Creek to enter an agreement “so that customers in the
‘subject territory’ are not required to change
telephone service providers from USWC to Beaver Creek
as a result of the approved boundary changes….”
Thus,
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it is specifically limited in purpose so that the
customers who were in the area at the time it was
transferred could continue to be served by US West and
were not forced to change service providers and, at
that point in history, their telephone numbers.
It
does not set out, as Qwest asserts, that Qwest may
serve as an ILEC in perpetuity in that area.
Q.
WHAT ELSE DOES THE SUBSTANTIVE PORTION OF THE
MEMORANDUM OF UNDERSTANDING STATE?
A.
It provides that if a customer elects another service
provider, that election will stand and then it also
contains the obvious requirement that Qwest must be
responsible for maintenance of its own equipment.
That is all it says.
Q.
WHY IS THIS IMPORTANT?
A.
The Memorandum of Understanding was drawn up to
protect the customers who were there at that time from
the inconvenience of having to change service
providers.
The intent from Beaver Creek’s
perspective, which is supported by the language of the
Memorandum of Understanding, is that once a customer
moved out and a new customer moved in, that customer
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would become Beaver Creek’s customer.
However, that
has not happened, Qwest has continued to seek to serve
those new customers in the Beavercreek exchange.
Q.
WHAT IS QWEST’S POSITION ON THIS ISSUE?
A.
Mr. Easton denies that Qwest is directly competing
with Beaver Creek.
See, Mr. Easton’s Testimony at
Qwest/1, Easton/10 at l. 10 et seq.
However, Mr.
Easton does admit that Qwest will serve a new customer
that comes into the area and asks for Qwest’s service.
Qwest/1, Easton/11 at l. 8 et seq.
He has the novel
concept that Qwest is serving the “residence,” i.e.
the physical building, and that service apparently is
the intent of the Memorandum of Understanding.
However, clearly the language of the Memorandum of
Understanding does not support such an interpretation.
I would also point out that nothing in the
Memorandum of Understanding states that Qwest is
operating as an ILEC.
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Q.
MR. EASTON ASSERTS THAT THE ONLY REASONABLE
IMPLICATION OF THE MEMORANDUM OF UNDERSTANDING IS THAT
QWEST WAS GOING TO SERVE THE CUSTOMERS AS AN ILEC.
DO
YOU AGREE?
A.
No.
Qwest removed the area in question from out of
its ILEC service territory by the boundary line
adjustment.
Qwest had no legal authority, based upon
its own tariffs, to serve those customers as an ILEC.
The fact, as stated by Mr. Easton at page 10 of his
Testimony, that Qwest did not get its CLEC authority
until January of 1999 does not change this fact.1
Q.
DOES THE MEMORANDUM OF UNDERSTANDING PROVIDE QWEST
WITH AUTHORITY TO SERVE THOSE CUSTOMERS?
A.
No.
The Memorandum of Understanding was submitted to
Commission staff as a matter of information.
It was
submitted by Sheila Harris, Qwest’s Regulatory
Manager, on November 19, 1997, to Mr. Tom Harris.
The
Memorandum of Understanding was not approved by any
Commission order.
1
Mr. Easton states that January of 1999 is a year and a half after the
Memorandum of Understanding was signed. However, it was actually just
a little over a year after the Memorandum of Understanding was signed.
Qwest had applied for its CLEC status well before that time. The way I
read these events is that Qwest realized that it did not have authority
to serve those customers as an ILEC and felt it must obtain CLEC
authority.
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Qwest’s own actions demonstrated that it
apparently felt it needed at least paper authority
through a CLEC certificate when it made its
application to the Commission for such authority in
Beaver Creek’s exchange.
It is only when the issue of
the interrelationship between Qwest and Beaver Creek
came into scrutiny in ARB 365 that Qwest took the
position that it was an ILEC operating in Beaver
Creek’s territory.
V.
Q.
FAIRNESS
HOW DO YOU RESPOND TO MR. EASTON’S ARGUMENTS THAT
REQUIRING QWEST TO BE A CLEC WOULD BE UNFAIR TO BOTH
THE CUSTOMERS QWEST SERVES AND TO QWEST?
A.
One of Mr. Easton’s arguments is that the customers
would be required to change telephone numbers.
With
number portability in place today, that is not true.
Mr. Easton’s other argument concerning customer
disruption is that Qwest would abandon those customers
because of the increased costs of operation it would
receive.
That is just one of the decisions that Qwest
would have to make.
It is a decision faced every day
in competitive markets.
Presumably, Congress made the
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determination that customer service interruption
through a change in service providers was an aspect
that was outweighed by the other benefits of
competition.
Mr. Easton’s Testimony at pages 14 and 15 points
out exactly why Beaver Creek sought to arbitrate an
agreement with Qwest when Qwest refused to negotiate
an interconnection agreement.
Qwest has every right
to compete for customers in the Beavercreek exchange.
However, it should not be given an unfair advantage in
this competition.
Everyone now has a much better understanding of
the impact of the Telecommunications Act of 1996.
No
matter how well intentioned that Memorandum of
Understanding is, in order to address the customers
that existed in 1997 and avoid disruption to those
customers, it really cannot withstand the requirements
of the Telecommunications Act of 1996.
Further, it is Beaver Creek’s view that the
Memorandum of Understanding was meant to address the
customers that existed in 1997, not new customers that
move into the area.
new customers.
Qwest admits that it serves those
That is not an issue covered by the
Memorandum of Understanding.
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Q.
HOW DO YOU RESPOND TO MR. EASTON’S ARGUMENTS ABOUT THE
EFFECT ON QWEST?
A.
Again, I really do not have sympathy for that
argument.
That is precisely the argument Beaver Creek
made in ARB 365, and this Commission rejected it.
Because of ARB 365, Beaver Creek has been required to
incur additional costs associated with its operations
in Qwest’s Oregon City exchange.
That has placed
Beaver Creek at a competitive disadvantage and has
markedly slowed Beaver Creek’s competition with Qwest
in the Oregon City exchange.
Qwest was very
successful in ARB 365 in making it much more difficult
for Beaver Creek to compete as a facilities-based
provider with Qwest in the Oregon City exchange.
In
fact, I have given serious thought to stopping any
further new operations in the Oregon City exchange
precisely because of these costs.
Beaver Creek is only seeking fairness in front of
this Commission.
If Beaver Creek has to operate as a
CLEC in the Oregon City exchange, it is only fair that
Qwest must operate as a CLEC in the Beavercreek
exchange.
That is the cost of doing business that
Beaver Creek is incurring in the Oregon City exchange.
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Parity and fairness require that Qwest face the same
requirements in the Beavercreek exchange.
It is
patently unfair to give Qwest a competitive advantage
in the Beavercreek exchange and burden Beaver Creek’s
operation in Oregon City with the types of accounting
costs that Qwest finds so objectionable here.
VI.
Q.
CONTENT OF AGREEMENT
DO YOU AGREE WITH MR. EASTON’S STATEMENT THAT IF AN
INTERCONNECTION AGREEMENT IS NECESSARY IT SHOULD ALLOW
THE PARTIES TO NEGOTIATE A MUTUALLY AGREEABLE
CONTRACT?
A.
No.
Mr. Easton’s Testimony at page 20 is simply a
desire by Qwest to get a second bite of the apple.
Qwest chose to take the position that an
interconnection agreement was not required, much like
Beaver Creek did in ARB 365.
it must live with it.
Having made that choice,
Beaver Creek was not given an
opportunity to negotiate with Qwest in ARB 365 and was
ordered to sign Qwest’s proposed form of agreement.
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Q.
MR. EASTON ARGUES THAT BEAVER CREEK’S PROPOSED
RECIPROCAL COMPENSATION RATE IS TOO HIGH, DO YOU
AGREE?
A.
No.
We have provided evidence in support of that
rate.
Mr. Easton complains that it is approximately
seven and one-half times higher than the reciprocal
compensation rate used by Qwest.
He argues that there
cannot be that much difference in economies of scope
and scale.
However, Beaver Creek’s operations serve
approximately 5,000 access lines in the Beavercreek
exchange and ________ access lines in the Oregon City
exchange.2
Qwest is a fourteen state operation and in
Oregon serves over one million access lines.
Qwest’s
buying power is so much greater than Beaver Creek’s
buying power that it is not even comparable.
The
difference in the rates between Beaver Creek and Qwest
is hardly surprising.
Q.
DO YOU AGREE WITH MR. EASTON’S COMMENTS ABOUT BEAVER
CREEK’S RURAL EXEMPTION?
A.
No.
Mr. Easton states at page 20 that “I am not a
lawyer but my understanding of the Act and FCC
2
The number of access lines Beaver Creek serves in Oregon City is a
confidential number and is provided pursuant to the Confidentiality
Agreement.
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rules….” It is a good thing Mr. Easton made his
qualification.
His statements are wrong.
I did have a typographical error in my earlier
Testimony; the rural exemption is from duties found in
Section 251(c) of the Act.
There are several separate
and distinct obligations in Section 251(c).
For
purposes of this situation, Beaver Creek has waived
its exemption from the duty to negotiate an
interconnection agreement.
Beaver Creek has not
waived its exemption from the other obligations.
The specific point on which Mr. Easton is wrong
is that he asserts that rural carriers have the burden
of proof in demonstrating the validity of their
exemption if it is challenged.
First, Qwest hasn’t
challenged the exemption held by Beaver Creek in this
case.
However, the original FCC rule that put the
burden on the rural carrier was overturned on appeal,
and the FCC’s rule places the burden on the party
challenging the rural exemption, not on the rural
company.
3
See, 47 CFR 51.405.3
This rule has been modified as stated above by In the Matter of ACS of
Alaska, Inc., et al., Petition to Amend Section 51.405 of the
Commission’s Rules to Implement the Eighth Circuit’s Decision in Iowa
Utilities Board v. FCC Regarding the Burden of Proof in Rural Exemption
Cases Under Section 251(f)(1) of the Communications Act, Order, CC
Docket No. 96-98, DA 01-1951 (Aug. 27, 2001).
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Q.
HAS MR. EASTON MADE ANY OTHER ERRORS CONCERNING THE
RECIPROCAL COMPENSATION ISSUE?
A.
Yes.
At page 23, Mr. Easton states as a fact that the
Washington Commission Order “is not currently in
effect in Washington.”
That is not true.
While the
Court of Appeals overturned the underlying rationale
that the Washington Commission used for the Order, the
Order was not stayed and the requirements are still in
effect in Washington pending outcome of the review by
the Supreme Court in that state.
I do find it interesting that one of Mr. Easton’s
basic positions on the proper outcome in this case is
that Beaver Creek’s agreement should not be accepted,
and either Qwest’s SGAT should be accepted or “another
agreement that does not provide for reciprocal
compensation but which is limited to bill and keep for
this non-competitive EAS traffic” should be imposed.
See, page 2 of his testimony.
It is interesting that
Qwest insisted on reciprocal compensation with Beaver
Creek for traffic in the Oregon City exchange (ARB
365), but wants bill and keep for its traffic in the
Beavercreek exchange.
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VII.
Q.
COMPETITIVE NATURE OF TRAFFIC
DO YOU AGREE WITH MR. EASTON’S CHARACTERIZATION THAT
THIS IS NON-COMPETITIVE EAS TRAFFIC?
A.
No.
Mr. Easton makes this statement at both pages 3
and 14 of his Testimony.
traffic.
However, this is not EAS
EAS traffic is traffic that is interexchange
in nature, but for which toll charges do not apply.
The traffic in question for this case is intraexchange
traffic.
It is not interexchange traffic.
I agree with Qwest that an interconnection
agreement is not required for non-competitive EAS
traffic.
I do not agree that the traffic between
Qwest’s customers in the Beavercreek exchange and
Beaver Creek’s customers in the Beavercreek exchange
constitutes EAS traffic.
is not competitive.
I also do not agree that it
It is intraexchange traffic for
which an interconnection agreement under Section
251(c) and Section 252 apply.
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Q.
DO YOU AGREE WITH MR. EASTON’S TESTIMONY THAT QWEST
DOES NOT MARKET TO THE BEAVERCREEK EXCHANGE?
A.
No, I do not.
Mr. Easton tries to qualify his
statement by arguing that Qwest does not market
directly to the Beavercreek exchange.
However,
Qwest’s ads make no distinction as to what area or
which customers the services apply to.
See, Beaver
Creek/10, Linstrom/17-18.
VIII.
CONCLUSION
Q.
PLEASE SUMMARIZE YOUR TESTIMONY.
A.
Qwest’s argument boils down to a tautology.
An
interconnection agreement is not required because
Qwest is operating as an ILEC in the Beavercreek
exchange.
Qwest is operating as an ILEC in the
Beavercreek exchange because Qwest says it is.
However, the Memorandum of Understanding on which
Qwest relies was never approved by a Commission order.
It is inconsistent with the Telecommunications Act of
1996.
Traffic in question is clearly intraexchange
traffic, and an interconnection agreement should be
included.
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Qwest admits that most of the SGAT it argues for
would be inapplicable in this situation.
It has no
real basis for challenging the interconnection
agreement proposed by Beaver Creek except to express
surprise about the differences in economic scope and
scale between Beaver Creek and Qwest.
Those
differences are easy to understand given the vast
disparities in size between the two operations.
Beaver Creek requests that the Commission grant
its Petition in this matter.