Very truly yours, Dennis G. Friedman

Transcription

1 VIA UPS OVERNIGHT DELIVERY Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 6545 Mercantile Way P.O. Box Lansing, MI January 23, 2004 Mayer, Brown, Rowe & Maw LLP 190 South La Salle Street Chicago, Illinois Main Tel (312) Main Fax (312) Dennis G. Friedman Direct Tel (312) Direct Fax (312) Re: MPSC Docket No Dear Ms. Mary Jo Kunkle: Enclosed for filing are an original and five copies of SBC Michigan s Direct Testimony of Carol A. Chapman; Joint Testimony of Kristen Cogswell, Kathy King, Fred Christensen and Jay Farlese; Direct Testimony of Susan K. Kuhn; Robert W. Henning and James D. Ehr, in the above-referenced matter. SBC Michigan makes this filing electronically by posting the enclosed documents onto the Commission s website at: Could you please return one of the file stamped copies to me in the enclosed postage pre-paid, selfaddressed envelope. Thank you for your assistance. Very truly yours, DGF/ds Enclosures Dennis G. Friedman Brussels Charlotte Chicago Cologne Frankfurt Houston London Los Angeles Manchester New York Palo Alto Paris Washington, D.C. Independent Mexico City Correspondent: Jauregui, Navarrete, Nader y Rojas, S.C. Mayer, Brown, Rowe & Maw LLP operates in combination with our associated English limited liability partnership in the offices listed above.

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion, to investigate and to implement, if necessary, a batch cut migration process. ) ) ) ) Case No. U DIRECT TESTIMONY OF CAROL A. CHAPMAN ON BEHALF OF SBC MICHIGAN JANUARY 23, 2004

3 TABLE OF CONTENTS I. INTRODUCTION AND PURPOSE OF TESTIMONY...1 II. OVERVIEW OF TRIENNIAL REVIEW ORDER TREATMENT OF HOT CUTS.7 III. BACKGROUND OF SBC MICHIGAN S BATCH HOT CUT PROPOSAL...15 A. RATIONALE AND OBJECTIVES OF THE PROPOSAL...16 B. MULTI-REGIONAL COLLABORATIVE APPROACH...18 IV. DETERMINING REASONABLE BATCH CUT VOLUMES...21 A. THE EMBEDDED BASE...21 B. NEW ACQUISITIONS...25 V. DETAILED DESCRIPTION OF SBC MICHIGAN S BATCH HOT CUT PROPOSAL...29 A. ENHANCED DAILY PROCESS...29 B. DEFINED BATCH PROCESS...33 C. BULK PROJECTS...37 VI. PRICING FOR THE PROPOSED BATCH CUT PROCESS...39 VII. OUTSIDE THE SCOPE OF THE PROPOSED BATCH CUT PROCESS...51 A. CLEC-TO-CLEC MIGRATIONS...54 B. CONVERSIONS INVOLVING EELS...56 C. MIGRATIONS TO CLECS USING THIRD PARTY SWITCHING...56 VIII. LINE SHARING AND LINE SPLITTING...57

4 Chapman - Direct 1 I. INTRODUCTION AND PURPOSE OF TESTIMONY Q. PLEASE STATE YOUR NAME BUSINESS ADDRESS. A. My name is Carol A. Chapman. My business address is 311 S. Akard, Dallas, Texas Q. BY WHOM ARE YOU EMPLOYED AND WHAT IS YOUR POSITION? A. I am an Associate Director Local Interconnection Services for Southwestern Bell Telephone Company ( SWBT ). I work in SBC Communications Inc. s 13-state Local Interconnection Marketing group on behalf of the SBC incumbent local exchange carriers ( SBC ) throughout SBC s 13-state region Q. WHAT IS YOUR BACKGROUND AND WORK EXPERIENCE? A. I am responsible, in conjunction with others, for researching, formulating, and communicating SBC s positions regarding the provisioning of various Unbundled Network Elements ( UNEs ) and other SBC wholesale offerings used by Competitive Local Exchange Carriers ( CLECs ). As part of my responsibilities, I monitor various state and federal regulatory proceedings, regulations and orders that may affect SBC s thirteen-state Local Interconnection Marketing operations or current and future interconnection agreements with Competitive Local Exchange Carriers ( CLECs ). In addition, I represent SBC s Local Interconnection Marketing positions to regulatory bodies. The primary responsibilities of SBC s Local Interconnection Marketing group are to develop and manage wholesale products and services; to support negotiations of local interconnection agreements with CLECs; to participate in state arbitration U

5 Chapman - Direct 1 2 proceedings; and to guide compliance with the Telecommunications Act of 1996 ( FTA ) and its implementing rules Prior to my current position, I was Area Manager - Product Management. In that position, I was responsible for researching, formulating and communicating SBC s policy regarding the provision of Unbundled Network Elements ( UNEs ) used for advanced services to CLEC customers My job responsibilities before that included developing, writing and/or modifying the methods and procedures used by SWBT employees to process CLECs loop qualification and loop service requests. In that position, I was involved in the initial development and roll-out of the frame due time option for hot cuts in SBC s Southwest region. I began my career with SBC as Manager at the Local Service Center ( LSC ) in Fort Worth, Texas. I was part of the group that handled the initial roll-out of local number portability ( LNP ) in SBC s Southwest region. In that position, I supervised service representatives who processed CLEC requests for local telecommunications services and handled day-to-day operational issues, questions, and concerns of the CLECs supported by those service representatives Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? A. The purpose of my testimony is to provide a detailed description of SBC Michigan s batch cut proposal, to address a number of issues raised by the CLECs during batch cut proceedings in SBC states, and to demonstrate how SBC Michigan s batch cut proposal will be sufficient to meet the anticipated demand for hot cuts in the in market areas where U

6 Chapman - Direct 1 2 the Commission determines that SBC Michigan is no longer required to offer local switching for mass market customers. 3 4 Q. DO YOU HAVE ANY EXHIBITS SUPPORTING YOUR TESTIMONY? A. Yes. I have the following exhibits: Exhibit A- (CAC-1) 1 : SBC s Final 11-State Batch Hot Cut Process Proposal (Michigan Version) dated January 9, 2004 (SBC s proposal consists of five documents, listed as Exhibits CAC below.) Exhibit CAC-1.1: Batch Hot Cut Process Overview with flow charts 2 Exhibit CAC-1.2: Detailed process description 3 Exhibit CAC-1.3: Incremental hot cut demand analysis Exhibit CAC-1.4: Overview of OSS changes associated with SBC s proposal 4 Exhibit CAC-1.5: Recommendation to enable CLECs to obtain real time hot cut completion notification Q. DO YOU HAVE ANY INFORMATIONAL EXHIBITS? A. Yes. I have the following informational exhibit: Exhibit A- (CAC-2): Collaborative Issues Matrix as filed in the Joint Status Report on Multi-State Batch Cut Collaborative Results with the Public Utilities Commission of Ohio on January 6, SBC is proposing an 11-state batch cut process for Arkansas, California, Illinois, Indiana, Kansas, Michigan, Missouri, Ohio, Oklahoma, Texas and Wisconsin. Certain aspects of the proposal, such as pricing and anticipated volumes, are state specific. Where state-specific differences exist, the proposal indicates Michiganspecific data. This exhibit reflects modifications from the January 6, 2004 versions to clarify that the reservation tool is required when using the proposed process. This exhibit reflects updates from the January 6, 2004 version to correct typographical errors and to correctly reflect that the project limit in Michigan is 24. This exhibit has been updated to reflect the Midwest OSS. This Collaborative Issues Matrix is provided in response to a request from MPSC Staff. It is an informational exhibit, which I am not sponsoring, since it is not a part of SBC Michigan s final proposal. U

7 Chapman - Direct 1 2 Q. HOW IS YOUR TESTIMONY ORGANIZED? A. It consists of seven sections: Section I summarizes the discussion of hot cuts in the Triennial Review Order and the FCC Rule that requires the establishment of a batch cut process. One purpose of this discussion is to identify the criteria the FCC has indicated the Commission should use when it determines whether to approve the batch cut process proposed by SBC Michigan. My testimony and the other SBC Michigan testimony discussed below demonstrate that the Commission should approve SBC s proposal Section II provides background information regarding SBC Michigan s proposed enhancements to the existing hot cut processes, including a new defined batch hot cut process. This section provides the rationale and approach for meeting increased hot cut demand resulting both from new customer acquisitions and from embedded base migrations in markets where mass market local switching is no longer a required network element. This section also summarizes the 11-state batch cut collaborative results to date and SBC Michigan s responses to concerns raised by CLECs with respect to the scope of the defined batch, the size of the batch, and availability, intervals and defined cut timeframes. SBC s Final 11-State Batch Hot Cut Process Proposal (Michigan Version) dated January 9, 2004, is attached to this testimony as Exhibit CAC- 1. It consists of five documents: a Batch Hot Cut Process Overview with flow charts, which is Exhibit CAC-1.1; a detailed process description, which is Exhibit CAC-1.2; an incremental hot cut demand analysis, which is Exhibit CAC-1.3; an overview of OSS changes associated with SBC s proposal, which is Exhibit CAC-1.4, and a U

8 Chapman - Direct 1 2 recommendation to enable CLECs to obtain real time hot cut completion notification, which is Exhibit CAC Section III describes the approach SBC used to determine reasonable increased hot cut demand if unbundled local mass market switching is no longer a required network element. I review both anticipated new customer acquisitions and the embedded base migration using two migration assumptions. One is based on the FCC transitional timeline specified in Rule 319(d)(iv), and the other is based on an accelerated timeline assumption. Under either approach, the hot cut volumes in SBC Michigan s proposal are more than adequate Section IV describes in detail the three new hot cut options (and proposed rates) that SBC Michigan is proposing: (1) the Enhanced Daily Process, which is designed to support CLECs acquisition of new customers, and which will allow each CLEC to arrange for as many hot cuts as it needs (i.e., no daily volume limits ) using existing intervals for loop with LNP migration requests, typically three business days (without coordinated hot cut request) or five business days (with coordinated hot cut request), for new mass market customers won over from SBC Michigan retail or from another CLEC that was serving those customers via resale or UNE-P; (2) the Defined Batch Process, which will allow CLECs to transition their embedded base of UNE-P customers to the CLECs own switches comfortably before the FCC requires that transition to be complete, by offering expanded hours and allowing each CLEC up to 100 cutovers of embedded base customers U

9 Chapman - Direct per wire center per day, with a maximum of 200 cutovers per wire center per day. (CLECs may also include new acquisitions in the Defined Batch Process.) These orders are generally handled within a 13-business day interval; and (3) the Bulk Project offering, which will allow CLECs an additional option for scheduling large volumes of hot cuts, both for new acquisitions and for the embedded base. The interval for these large volume cutovers is negotiated Each of these offerings provides different benefits, which I discuss in Section IV. Together, these processes will provide CLECs with the tools to successfully handle both the acquisition of new mass market customers and the transition of the CLECs embedded bases Section V describes the TELRIC-based rates SBC Michigan proposes for its batch cut proposal. First, I summarize the discussion of hot cut rates in the Triennial Review Order (TRO) and the FCC Rule that addresses the establishment of TELRIC rates for the new batch cut process. This discussion identifies the criteria the FCC has indicated this Commission should use when it determines whether to approve the batch cut rates proposed by SBC Michigan. Next, I provide each proposed rate, explain how and when the rate element will be applied, and discuss the benefits of SBC Michigan s proposed rates for the CLECs Section VI discusses the few scenarios such as UNE-L to UNE-L migrations that CLECs suggested be included in the defined batch proposal but that are not in fact included, and explains the reason for each such exclusion, namely, that the TRO does not U

10 Chapman - Direct 1 2 contemplate that the batch cut process would apply to the scenario or that the scenario is so rare (or non-existent) that it does not warrant inclusion in the batch process. 3 4 Finally, Section VII demonstrates that the batch cut process that the Commission approves should not apply to line splitting arrangements at this time. 5 II. OVERVIEW OF TRIENNIAL REVIEW ORDER TREATMENT OF HOT CUTS Q. CAN YOU PROVIDE SOME BACKGROUND FOR THE FCC S FINDINGS IN THE TRIENNIAL REVIEW ORDER ( TRO ) REGARDING THE BATCH CUT? A. Section 251(c)(3) of the Telecommunications Act of 1996 requires incumbent local exchange carriers ( ILECs ) to provide requesting telecommunications carriers with access to network elements on an unbundled basis ( UNEs ). Section 251(d)(2) of the 1996 Act requires the FCC, in determining which network elements must be unbundled, to consider whether the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer In the TRO, the FCC interpreted the impairment standard in Section 251(d)(2), and then applied its interpretation to the elements of ILEC networks to determine for which elements the standard was met and, therefore, which elements must be unbundled For the local circuit switching network element, the FCC performed separate analyses for two different categories of end user customers: customers who are served by DS0 loops (up to a maximum number the DS0 cutoff ), which the TRO refers to as mass market customers ; and customers who are served by (a) DS1 (and higher capacity) loops, or (b) more than the DS0 cutoff number of DS0 loops at a single location, which together the U

11 Chapman - Direct 1 2 TRO refers to as enterprise customers. What is pertinent here is the FCC s determination with respect to mass market customers. 3 4 Q. WHAT DID THE FCC FIND? A. The FCC found that: competing carriers are impaired without access to unbundled local circuit switching for mass market customers. This finding is based on evidence in our record regarding the economic and operational barriers caused by the cut over process. These barriers include the associated non-recurring costs, the potential for disruption of service to the customer, and our conclusion... that incumbent LECs appear unable to handle the necessary volume of migrations to support competitive switching in the absence of unbundled local switching. (TRO 459.) Q. WHAT ARE MASS MARKET CUSTOMERS? A. As far as the pertinent FCC Rule (47 C.F.R. 319(d)(2)) is concerned, the FCC s finding of impairment (and therefore the hot cut issue) simply applies to all DS0 loops up to a given number at a single customer location (the DS0 cutoff ). The FCC explained that this mass market group consists primarily of consumers of analog plain old telephone service or POTS that purchase only a limited number of POTS lines and can only economically be served via analog DS0 loops. (TRO 459.) Q. WHAT IS THE GIVEN NUMBER OF DS0 LOOPS THAT YOU REFER TO THE DSO CUTOFF? A. The FCC directed the states to draw that line, but provided that until a state does so, the line would be drawn between three and four DS0 loops. In other words, an end user who purchases three or fewer DS0 loops is part of the market in which impairment was found U

12 Chapman - Direct 1 2 (the mass market), and an end user who purchases four or more DS0 loops lines will be treated as part of the enterprise market. (TRO 497.) Q. WHAT IS THE CUT OVER PROCESS ON WHICH THE FCC BASED ITS FINDING OF IMPAIRMENT FOR MASS MARKET CUSTOMERS? A. The FCC stated, The physical transfer of a customer s line from the incumbent LEC switch to the competitive LEC switch currently requires a coordinated loop cut over or hot cut for each customer s line. (TRO 465.) This hot cut, the FCC explained, is a largely manual process requiring incumbent LEC technicians to manually disconnect the customer s loop, which was hardwired to the incumbent LEC switch, and physically re-wire it to the competitive LEC switch, while simultaneously reassigning (i.e., porting) the customer s original telephone number from the incumbent LEC switch to the competitive LEC switch. (Id. n ) Q. WHAT ELABORATION DID THE FCC PROVIDE ON THE BARRIERS THAT IT PERCEIVED AS ASSOCIATED WITH THE HOT CUT PROCESS? A. The complete answer to that question appears in TRO paragraphs 464 through 475. Among the FCC s comments, however, were: With respect to the ILEC s ability to handle the necessary volume of migrations: The FCC stated, In deciding whether competitors are impaired by incumbent LEC provisioning processes, we must necessarily make a predictive judgment concerning this systemic capability to handle anticipated future hot cut volumes which (absent access to unbundled local circuit switching) would be greater than volumes that have been experienced in the past.... Having reviewed the record evidence, we find that it is unlikely that incumbent LECs will be able to provision hot cuts in sufficient volumes absent unbundled local switching in all markets. (Id. 468.) With respect to non-recurring costs: U

13 Chapman - Direct The FCC stated, Competitors seeking to use their own switches must incur the costs associated with a hot cut, including both the charges assessed by the incumbent LEC and their own costs of managing and participating in the hot cut process.... Although hot cut costs vary among incumbent LECs, we find on a national basis that these costs contribute to a significant barrier to entry. (TRO 470.) Q. WHAT CONCLUSION DID THE FCC REACH WITH RESPECT TO IMPROVEMENT OF THE HOT CUT PROCESS? A. The FCC, in paragraph 474 of the TRO, said that the hot cut process could be improved if cut overs were done on a bulk basis, such that the timing and volume of the cut over is better managed. We expect that such improvements would result in some reduction of the non-recurring costs.... As a result, the FCC directed state commissions to either implement a batch cut migration process that addresses these issues, or to make findings as to why a batch process is not necessary. Id The FCC s findings on the hot cut issue were not specific to any state; they did not, for example, cite any evidence regarding SBC Michigan s hot cut processes, which, as I discuss below, are wellestablished and demonstrably reliable. Accordingly, the FCC, though finding impairment on a national basis, also provided that: If a state should conclude that the absence of a batch cut migration process is not causing impairment for a particular market that conclusion will render the creation of such a process unnecessary. For example, in a small, rural wire center, where there is not a significant volume of customer migrations, the absence of a batch cut process may not cause impairment. In such cases, the state commission may decline to institute a batch cut process, so long as it instead issues detailed findings regarding the volume of UNE-L migrations that could be expected if competitive LECs were no longer entitled to unbundled local circuit switching, the ability of the incumbent to meet that demand in a timely and efficient manner using the existing hot cut processes, and the non-recurring costs associated with the hot cut process. If a state commission determines that these findings demonstrate that existing hot cut practices would be adequate even in the absence of unbundled local circuit switching, and that U

14 Chapman - Direct the costs of such processes will not deter entry by competitive LECs, it may conclude that a batch cut process is not necessary. TRO 490 (footnote omitted). See also 47 C.F.R (d)(2)(ii)(B) Q. DID THE FCC DETERMINE THAT THE HOT CUT CONCERNS IT FOUND COULD BE ELIMINATED? A. Yes. The FCC recognized that hot cut processes vary based on the incumbent LEC s network design and practices and directed each state commission to consider adopting a batch cut migration process using four criteria. First the state commission should decide:... a batch cut over increment for migrating customers served by unbundled loops combined with unbundled local circuit switching to unbundled stand-alone loops. In other words, states should decide the appropriate volume of loops that should be included in the batch. Second, the state commission should examine existing processes to determine if operational efficiencies can be gained. Third, the state commission should evaluate whether the incumbent LEC is capable of migrating batch cutovers of unbundled loops combined with unbundled local circuit switching to unbundled stand-alone loops... in a timely manner. Finally, the FCC directed each state commission, if it has not already done so, to adopt TELRIC rates for the batch cut activities they approve. Id Q. WHAT RULE DID THE FCC PROMULGATE CONCERNING A BATCH CUT PROCESS? A. The FCC promulgated 47 C.F.R (d)(2)(ii). The Rule defines a batch cut process as a process by which the ILEC simultaneously migrates two or more loops from one carrier s switch to another carrier s switch, giving rise to operational and economic efficiencies not available when loops are migrated on a line-by-line basis. For each U

15 Chapman - Direct market in SBC Michigan s service territory, the Rule requires the Commission either to establish a batch cut process or to issue detailed findings explaining why such a batch process is unnecessary. 6 The Commission, in establishing the batch cut process, is to 4 5 (1) determine the appropriate volume of loops that should be included in the batch (47 C.F.R (d)(2)(ii)(A)(1)); 6 7 (2) adopt specific batch cut processes, taking into account SBC Michigan s network design and cut-over practices (47 C.F.R (d)(2)(ii)(A)(2)); (3) evaluate whether SBC Michigan is capable of timely migrating multiple lines served using unbundled switching to switches operated by other carriers (47 C.F.R (d)(2)(ii)(A)(3)); and (4) adopt rates for the batch cut activities in accordance with the FCC s TELRIC rules, taking into consideration efficiencies associated with batched migrations (47 C.F.R (d)(2)(ii)(A)(4)) Q. DO SBC MICHIGAN S PROPOSED ENHANCEMENTS TO ITS HOT CUT PROCESS SATISFY THE BATCH CUT MIGRATION PROCESS WITHIN THE MEANING OF RULE 319(D)(2)(II)? A. Yes. SBC Michigan s defined batch process is consistent with the FCC s definition of a multi-line migration process. As shown in the testimony submitted today on behalf of SBC Michigan, its proposal contains a number of operational improvements in the hot cut process. With respect to the first criterion, batch size, my testimony demonstrates that 6 The Commission is to define these markets pursuant to 47 C.F.R (d)(2)(i); they are the same markets that the Commission is to use to make the separate mass market switching impairment determinations that are the subject of 47 C.F.R (d)(2)(iii). U

16 Chapman - Direct the volumes supported under SBC Michigan s Defined Batch process 7 are more than adequate for... migrating customers served by unbundled loops combined with unbundled local circuit switching to unbundled stand-alone loops. TRO 489. Second, as demonstrated in the following testimony submitted today on behalf of SBC Michigan: Direct Joint Testimony of Kristen Cogswell, Fred Christiansen, Kathy King and James Farlese (the Direct Joint Testimony ) and the Direct Testimony of Susan K. Kuhn, SBC Michigan s proposal takes its existing processes into account. Third, the Direct Joint Testimony demonstrates that SBC Michigan is capable of timely migrating multiple lines served using unbundled switching to switches operated by other carriers both under the existing situation and if unbundled local switching is no longer a required network element in certain market areas in Michigan. The Direct Testimony of James Ehr summarizes SBC Michigan s outstanding hot cut performance results for the last year. As he notes, SBC Midwest proposed modifications to its existing performance measurements to accommodate the defined batch process on January 19, Finally, SBC Michigan s proposed TELRIC-based rates for the various processes in the batch cut proposal are appropriate, cost-based rates that reflect the efficiencies associated with SBC Michigan s proposed batch cut processes and provide CLECs with a straightforward rate structure and pricing certainty. 7 A single CLEC may request up to 100 lines be cutover each day in each central office under the Defined Batch process. Up to 200 lines per day per central office may be scheduled via Defined Batch requests from two or more CLECs. U

17 Chapman - Direct Q. HOW DOES THE POTENTIAL FOR DISRUPTION OF SERVICE TO THE CUSTOMER FIT INTO THE BATCH CUT ANALYSIS REQUIRED BY THE FCC S RULE? A. The Rule itself does not include service disruption as one of the criteria the Commission should consider when approving a batch cut process. In fact, the rule makes no mention at all of the potential for disruption of service to the customer. It appears that the FCC correctly recognized that a momentary disruption of service is inevitable, at least with currently available technology, when the customer s loop is moved from one switch to another, and that the FCC did not contemplate that the institution of a batch cut process would eliminate (or otherwise affect) that disruption. In fact, in the various paragraphs of the TRO that discuss the benefits the FCC anticipates from the establishment of a batch process, no mention is made of an effect on service disruptions. See TRO 474, Q. ARE YOU SAYING THAT THE COMMISSION SHOULD APPROVE SBC MICHIGAN S PROPOSED BATCH PROCESS WITHOUT REGARD TO THE EFFECT IT HAS ON SERVICE DISRUPTIONS? A. No. Obviously, minimizing the duration of service disruption is an important component of any hot cut process batch or otherwise. SBC Michigan s existing hot cut process and the proposed batch process have been designed to do just that. But under the controlling FCC Rule, and the underlying discussion in the TRO, the elimination of service disruption is not a prerequisite to approval of a batch cut process, given the fact that it is impossible to perform a hot cut with no disruption using the existing telecommunications network. This is further discussed in the Direct Joint Testimony. U

18 Chapman - Direct Q. WHAT WOULD BE THE CONSEQUENCE IF THE COMMISSION WERE TO FIND ITSELF UNABLE TO APPROVE A BATCH CUT PROCESS THAT SATISFIES THE FCC S CRITERIA? A. Rule 319(d)(2)(ii) does not allow for such an outcome unless the Commission finds that no batch process is needed anywhere in SBC Michigan s service territory, which I do not anticipate. The Rule provides that the Commission shall either establish an incumbent LEC batch cut process as set forth in paragraph (d)(2)(ii)(a) of this section which is the paragraph that sets forth the FCC s criteria or issue detailed findings explaining why such a batch process is unnecessary, as set forth in paragraph (d)(2)(ii)(b) of this section. Thus, the Commission is charged with establishing a batch cut process (again, unless it finds one unnecessary) that satisfies the FCC s criteria and thereby eliminates that basis for the impairment the FCC found. 13 III. BACKGROUND OF SBC MICHIGAN S BATCH HOT CUT PROPOSAL Q. WHAT IS A HOT CUT AS THE TERM IS USED IN THIS TESTIMONY? A. When a DS0 customer changes from SBC Michigan to a switch-based competitive provider as its local exchange carrier, the connection between the customer s DS0 loop and SBC Michigan s switch must be removed and a new connection must be established between the customer s loop and the CLEC s switch. Generally, the work that is performed to remove the old connection and establish the new one is performed while the customer s line is in service. To make the new connection, the customer s loop is cut, while it is hot i.e., while it is in active service. Accordingly, we use the term hot cut, as the FCC does, to refer to a largely manual process requiring incumbent LEC technicians to manually disconnect the customer s loop, which was hardwired to the incumbent LEC switch, and physically re-wire it to the competitive LEC switch, while U

19 Chapman - Direct 1 2 simultaneously reassigning (i.e., porting) the customer s original telephone number from the incumbent LEC switch to the competitive LEC switch. (TRO 465 n.1409.) Q. IS SBC MICHIGAN ABLE TO MEET CURRENT HOT CUT DEMAND? A. Yes. As discussed in more detail in the Direct Testimony of James Ehr, SBC Michigan is meeting the current hot cut demand. Furthermore, SBC Michigan has consistently maintained a high level of performance while providing hot cuts. 7 A. RATIONALE AND OBJECTIVES OF THE PROPOSAL Q. ARE HOT CUT VOLUMES LIKELY TO INCREASE IN THE FUTURE? A. Yes. As CLEC switch-based competition increases, the volumes of hot cuts will increase as well. The magnitude of the increase will be impacted by the Commission s findings regarding switching impairment. Assuming the Commission finds that CLECs are not impaired without access to unbundled switching in certain market areas in Michigan, hot cut volumes in those markets are expected to increase significantly. This increase will primarily be driven by two factors new customer acquisitions and the transition of CLECs embedded base of customers Q. WHAT IMPACT WILL NEW CUSTOMER ACQUISITIONS HAVE ON HOT CUT VOLUMES? A. CLECs that currently use UNE-P to serve mass market customers in market areas where the Commission makes a finding of no impairment for mass market switching will now need to serve their new mass market customers by other means. While some CLECs may use resale or an alternative network platform (such as wireless or cable telephony) to serve their new customers, others will provide their own switch to serve their new U

20 Chapman - Direct customers over unbundled loops provided by SBC Michigan. When a CLEC providing such service wins a new customer from SBC Michigan, that customer s loop will have to be cut over to the CLEC s switch; such a cutover would not be required today if the CLEC (using UNE-P) wins over the same customer. Thus, after a finding of nonimpairment, new customer acquisitions that previously were provided using UNE-P (which requires no hot cut) will likely be provided using an unbundled loop (which requires a hot cut). Therefore, hot cut volumes will increase Q. WHAT IMPACT WILL MIGRATIONS FROM THE EMBEDDED BASE OF UNE-P HAVE ON HOT CUT VOLUMES? A. Assuming the Commission finds that CLECs are not impaired without access to unbundled switching for mass market customers in some market areas in Michigan, a CLEC currently providing service to mass market customers via the UNE-P in those markets will need to transition its existing UNE-P customers the so-called embedded base to the CLEC s own switch. During the period while the embedded base is being migrated to the CLEC s switch, hot cut volumes will be higher than at any other time. This is because SBC Michigan will be performing not only the hot cuts associated with new customer acquisitions (as discussed above), but also the hot cuts needed to transition the embedded base. As a result, if SBC Michigan is able to meet the hot demand during this transition period, it should have no difficulty meeting the ongoing demand once the transition is complete Q. WHAT OBJECTIVES DID SBC MICHIGAN STRIVE TO MEET IN DEVELOPING ITS PROPOSED BATCH CUT PROCESS? A. SBC Michigan s primary objective was to develop a batch cut process that was consistent with the directives outlined by the FCC in the TRO. In doing so, SBC Michigan worked U

21 Chapman - Direct to develop an effective batch cut process that would build upon the hot cut processes it uses successfully today. SBC Michigan designed a batch cut process that will support the anticipated volumes, provide increased efficiency, and decrease CLEC costs while ensuring reliability and high quality. 5 B. MULTI-REGIONAL COLLABORATIVE APPROACH Q. WHAT APPROACH DID SBC MICHIGAN USE TO ACHIEVE THE OBJECTIVES YOU IDENTIFIED IN YOUR PREVIOUS ANSWER? A. Initially, SBC Michigan developed a preliminary batch cut proposal based upon the requirements and objectives outlined by the FCC in the TRO. SBC Michigan evaluated its current hot cut processes and anticipated future volumes and looked for ways in which those processes could be improved to make them more efficient, less costly, and better suited to handle the volumes anticipated where SBC Michigan is no longer required to offer unbundled access to local circuit switching. However, SBC Michigan realized that in order to develop the best proposal possible, it would need to consider input from the CLECs that would actually be using the process. Accordingly, SBC Michigan did not finalize its batch cut proposal until after extensive multi-state collaborative sessions on the batch cut processes were held in various states across SBC s territories. SBC Michigan then evaluated the input from the CLECs and modified its initial proposal. Although this approach required additional development work for SBC Michigan, the end result is a final batch cut proposal that has been tailored to better meet the desires expressed by the CLECs and that is consistent with the final batch cut proposal in other SBC states. U

22 Chapman - Direct Q. WHAT IS THE CURRENT STATUS OF THE VARIOUS BATCH CUT COLLABORATIVE WORKSHOPS THROUGHOUT SBC S TERRITORY? A. SBC Michigan has consolidated the issues raised by the participants in the various batch cut collaborative workshops into a batch cut issue tracking matrix. The matrix pertains to all of the batch cut collaboratives in which SBC participated, because apart from regionspecific systems issues, the issues raised during the various collaboratives were consistent across all of the SBC regions. On December 15, 2003, SBC provided its final batch cut proposal to the collaborative participants in each of the 11 states, including Michigan, that have participated in the workshops. An updated version of that proposal is attached to my testimony as Exhibit CAC-1.1 through CAC-1.5. Presumably, CLECs in Michigan will be filing their response to SBC s proposal in testimony filed with this Commission today. A copy of the issues matrix filed in the Joint Status Report on Multi-State Batch Hot Cut Collaborative Results with the Public Utilities Commission of Ohio on January 6, 2004, is included in my Exhibit CAC Q. HOW HAS SBC MICHIGAN UTILIZED THE BATCH CUT ISSUE TRACKING MATRIX? A. SBC Michigan first used the matrix to ensure that it had captured all of the CLEC issues. SBC Michigan then took the issues from the matrix to its product development teams to determine where it was possible and practical to modify the batch cut proposal in order to address CLEC requests. Where it was possible and practical, SBC Michigan modified its batch cut proposal to meet the CLECs requests, and the resulting changes are reflected in SBC Michigan s final proposal. 8 This issues tracking matrix is provided in response to a request from MPSC Staff. It is an informational exhibit, which I am not sponsoring, since it is not a part of SBC Michigan s final proposal. U

23 Chapman - Direct Q. HAS THE SCOPE OF THE DEFINED BATCH CUT PROCESS CHANGED IN RESPONSE TO CLEC INPUT? A. Yes. SBC Michigan modified its preliminary batch cut proposal based on the CLEC input provided during the various collaborative workshops held in SBC s Midwest, Southwest, and West regions in order to better meet the business needs of the CLECs that will be using the process. Some of the more significant changes that SBC Michigan made to its proposal in response to CLEC requests were the addition of the FDT option (described below) for all three of the proposed processes; the inclusion of IDLC loops in the Defined Batch Process and the Bulk Project offering; and changes to the volumes of orders that CLECs may submit under the various processes Q. HOW HAS SBC MICHIGAN MODIFIED ITS PROPOSED VOLUME REQUIREMENTS IN RESPONSE TO CONCERNS RAISED IN THE VARIOUS COLLABORATIVES? A. SBC Michigan s final proposal removed the 50-line limit that applied to the Enhanced Daily Process as initially proposed; established a central office daily maximum of 200 lines for the Defined Batch Process; and lowered the minimum number of lines required for the Bulk Project offering to 20. The final proposal has also expanded the Defined Batch Process to include orders for enterprise customers with up to 24 lines. (Assuming that this Commission arrives at a number lower than 24 for the DSO cutoff, this last change clearly goes beyond what the TRO requires, and thus demonstrates SBC Michigan s willingness to accommodate CLEC concerns where it is practicable to do so, even where SBC Michigan could not lawfully be required to do so.) U

24 Chapman - Direct 1 IV. DETERMINING REASONABLE BATCH CUT VOLUMES Q. IS SBC MICHIGAN CONFIDENT THAT ITS PROPOSED BATCH CUT PROCESS WILL BE SUFFICIENT TO MEET ANTICIPATED VOLUMES? A. Yes. The volumes in SBC Michigan s batch cut proposal are more than sufficient both to ensure that CLECs can meet the timelines established by the FCC for transitioning the embedded based of UNE-P customers to stand-alone loops and to ensure that SBC Michigan can meet the demand for hot cuts associated with CLEC acquisitions of new customers even as those volumes increase. I will discuss the transition of the embedded base first, and then the processing of new acquisitions. 10 A. THE EMBEDDED BASE Q. WHAT IS SBC MICHIGAN S EMBEDDED BASE OF VOICE GRADE LEVEL UNE-P? A. As of September 2003, SBC Michigan had approximately 1.2 million UNE-P lines in service. 9 This embedded base of UNE-P lines is spread across over nearly than three hundred and forty central offices Q. UNDER THE FCC S RULES, HOW LONG WOULD SBC MICHIGAN HAVE TO TRANSITION THOSE UNE-P LINES IF SBC MICHIGAN WERE NO LONGER OBLIGATED TO OFFER UNE-P? A. I will note, and then set aside for the moment, that at this time, SBC Michigan is only seeking a finding of non-impairment in certain specific market areas in Michigan not for its entire service territory. As a result, SBC Michigan will not have to transition its entire UNE-P base. In any event, FCC Rule 319(d)(2)(iv)(A) (entitled Transition 9 Volume estimates are based on in-service billing data. See Exhibit CAC-1.3 for detail. U

25 Chapman - Direct timeline ) in effect requires CLECs to transition one third of their unbundled local circuit switching end-user customers within a thirteen-month period; another one third within the next seven months (by month 20); and the last third within the next seven months (by month 27). Based on that, if the Commission were to eliminate the unbundling obligation for local switching for all mass market customers in Michigan, and assuming that all of the existing UNE-P lines convert to UNE-L, SBC Michigan would need to cut approximately 403,229 lines (spread across 337 central offices) by the thirteenth month, 806,458 lines by the twentieth month, and the remaining portion of the existing 1,209,687 UNE-P lines by the twenty-seventh month Q. HAS SBC MICHIGAN EVALUATED THE HOT CUT VOLUMES IT WOULD NEED TO SUPPORT ON A CENTRAL OFFICE BASIS TO MIGRATE THIS EMBEDDED UNE-P BASE TO UNE-L? A. Yes. SBC Michigan has evaluated the distribution of exiting UNE-P in its central offices based on the number of UNE-P lines in the office. That analysis was done based on the number of UNE-P lines per switch as shown in Exhibit CAC-1.3, which shows that more than half of the central offices with UNE-P volumes have less than 2,000 embedded UNE-P lines. The vast majority of the remaining offices have between 2,000 and 14,999. SBC Michigan only has 8 central offices with a UNE-P embedded base of 15,000 lines or more. Of these 8 central offices, only 3 central offices have a total of more than 20,000 embedded UNE-P lines. For my evaluation I focus on the central office with the highest volumes to provide the most conservative assessment. As shown in Exhibit CAC-1.3, the central office with the largest UNE-P embedded base (as of September 2003) has 23, These numbers are inclusive, not cumulative. In other words, at the end of the twenty-seventh month, 1,209,687 UNE-P lines would be migrated to UNE-L. U

26 Chapman - Direct UNE-P lines. With this size embedded base, for this largest central office, at most, SBC Michigan will need to cut approximately 7,973 lines by the thirteenth month, 15,945 lines by the twentieth month, and the entire 23,917 lines by the twenty-seventh month in order to meet the FCC s transition timetable. If spread evenly over the entire twenty-seven month transition period, this translates to approximately 42 lines per day (assuming 21 business days in a month). If CLECs also request Saturday cuts, the daily number would be even lower Q. IS IT REASONABLE TO EXPECT THE MIGRATION OF THE EXISTING EMBEDDED UNE-P BASE TO UNE-L WILL BE SPREAD OVER THE TRANSITION PERIOD? A. Yes. A gradual transition is more manageable for all parties. The TRO provides the Commission a means to ensure that this transition is handled smoothly. In 47 C.F.R (d)(2)(iv)(b), the FCC provided that ILECs and CLECs would submit joint transition plans to the Commission. These plans will need to be consistent with the process the Commission approves. SBC Michigan anticipates that the Commission will require CLECs to spread embedded base transition over time in order to ensure that the transition process moves as smoothly as possible and that CLECs do not find themselves unable to meet the transition timeline. As CLECs have varying incentives regarding the time of their conversions, the assumption of uniform conversion is a reasonable middle ground. This is particularly true in light of the fact that SBC Michigan and CLECs must submit a joint implementation conversion plan to the Commission. The carriers involved will have the opportunity to spread the activity in a reasonable manner. The daily volumes assume that CLECs begin the transition process immediately after the effective date of the Commission s determination regarding the elimination of unbundled local U

27 Chapman - Direct 1 2 switching obligations for mass market customers and do not wait until after the filing of the joint implementation plan Q. WHAT IF THE TRANSITION TURNS OUT NOT TO BE AS EVENLY SPREAD OVER THE 27-MONTH PERIOD AS YOU PROJECT? A. As my next answer shows, it would make no meaningful difference. The order volumes supported by SBC Michigan s proposal are so generous by which I mean that the supported order volumes far outweigh the volumes needed to meet the FCC timeline that an uneven spread of the work activity would simply mean that SBC Michigan would have to perform more cuts on some days than others (at volumes that SBC Michigan has determined it can readily handle) or, potentially, complete the transition work far ahead of FCC s timeline Q. HOW DO THE BATCH SIZES OFFERED IN SBC MICHIGAN S DEFINED BATCH CUT PROCESS COMPARE TO WHAT IS NEEDED TO CONVERT THE ACTUAL EMBEDDED BASE VOLUMES? A. As illustrated in the tables provided in Exhibit CAC-1.3, the defined batch volumes offered in SBC Michigan s batch cut proposal far exceed what is needed to ensure that CLECs can transition their embedded base in the timeframe allotted in the TRO. For example, although SBC Michigan will support up to 200 hot cuts per day at each central office for transition from UNE-P to UNE-L under the Defined Batch Process, the actual average number of cuts needed per day in the highest volume wire center to meet the FCC s timeline is only, as I just explained, approximately 42 lines per day. Therefore, SBC s proposed batch sizes are clearly appropriate to support migration of the embedded base consistent with the FCC s transition timetables. Were CLECs to actually convert their embedded base at a rate of 200 per day, the entire conversion for the highest volume U

28 Chapman - Direct wire center would be complete in approximately 120 business days less than six months out of the FCC s twenty-seven month transition timeline. 11 At this accelerated schedule, 251 of the 337 central offices would be transitioned in approximately 16 business days. For the 108 lowest volume wire centers, the work would be completed in approximately three business days. 6 B. NEW ACQUISITIONS Q. WHAT IMPACT WILL NEW CUSTOMER ACQUISITIONS HAVE ON HOT CUT VOLUMES? A. As we start to discuss new customer acquisitions, bear in mind that they, unlike the embedded base conversions, are not required to be in a Defined Batch and therefore are not subject to any daily limitations if submitted as part of the Enhanced Daily process While some CLECs may use resale or an alternative network platform (such as wireless or cable telephony) to serve their new customers, others will provide their own switch to serve their new customers over unbundled loops provided by SBC Michigan. When a CLEC providing such service wins a new customer from SBC Michigan, that customer s loop will have to be cut over to the CLEC s switch; such a cutover would not be required today if the CLEC (using UNE-P) wins over the same customer. Thus, after a finding of non-impairment, new customer acquisitions that previously were provided using UNE-P (which requires no hot cut) will be provided using an unbundled loop (which requires a hot cut). Therefore hot cut volumes will increase. 11 This calculation is based on 21 business days per month and assumes that CLECs only request hot cuts on business days. If CLECs also request hot cuts on Saturdays, the conversion would be completed even more quickly. U

29 Chapman - Direct Q. WHAT ASSUMPTIONS DID SBC MICHIGAN MAKE IN DETERMINING THE LEVEL OF ANTICIPATED DEMAND IT WOULD NEED TO MEET FOR HOT CUTS ASSOCIATED WITH NEW CUSTOMER ACQUISITIONS? A. SBC Michigan assumed that all of the inward volumes currently associated with UNE-P orders would become stand-alone loop volumes. As illustrated in Exhibit CAC-1.3, based on the highest monthly volumes for new acquisitions of UNE-P, 12 the most activity a central office could anticipate would be 50 additional cuts per day for new acquisitions. When this is added to the 200 cuts per day (the maximum volume for the Defined Batch Process for the embedded base), the total is 250 additional cuts per day. In other words, the most additional batch cuts per day that is foreseeable in any SBC Michigan central office, taking into account both the maximum allowable number for the embedded base and the maximum foreseeable number for new acquisitions is 250. Although unlikely for reasons discussed below, if CLECs regularly requested the maximum number of cuts available under the defined batch process (200) and one hundred percent of the current incoming UNE-P activity became hot cut activity, this type of additional volume would be seen in no more than three of SBC Michigan s central offices (the central offices discussed above with an embedded base of more than 20,000 UNE-P lines). 13 In the event SBC Michigan did see these maximum foreseeable volumes, at this accelerated rate the entire embedded base would be transitioned in less than six months. Once the transition is complete, the only remaining additional volumes are the new acquisitions (for instance, the 50 new acquisition hot cuts in the worst case scenario described above) The chart illustrates the highest monthly volumes (between January and September 2003) for UNE-P new acquisitions on a wire center basis. The average maximum additional total daily demand for the largest 3 UNE-P central offices is actually only 233. The 250 line estimate is based on the highest inward monthly UNE-P volumes for a single central office (for the period between January 2003 and September 2003). U