LAW OFFICES KAUFFELT 8 KAUFFELT CHARLESTON, WEST VIRGINIA (304) June 28,2006

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1 E D. KAUFFELT JAMES D. KAUFFELT MARK E. KAUFFELT LAW OFFICES KAUFFELT 8 KAUFFELT 300 CAPITOL STREET STE 803 CHARLESTON, WEST VIRGINIA (304) MAILING ADDRESS P. 0. BOX 3082 CHARLESTON, WV FAX (304) June 28,2006 Sandra Squire Executive Secretary Public Service Commission of WV 201 Brooks Street Post Office Box 8 12 Charleston, West Virginia Dear Ms. Squire: Re: Verizon of West Virginia, Inc. Case No T-PC Enclosed for filing in the above-styled case you will find the original and twelve (12) copies of the Direct Testimony of H. Russell Irvin, 111. Thank you for your attention to this matter. Very truly yours, Mark E. Kauffeltb MEWmmw Enclosures xc: Stratuswave Communications

2 , BEFORE THE PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON VERIZON OF WEST VIRGINIA, INC. Petition for consent and approval to cease rate regulation of certain workably competitive telecommunications services. CASE NO T-PC DIRECT TESTIMONY OF H. RUSSELL IRVIN, 111, PRESIDENT AND CEO OF GATEWAY TELECOM, LLC., dba STRATUSWAVE June 28,

3 DIRECT TESTIMONY OF H. RUSSELL IRVIN, I11 QUESTION: What is your name and occupation? My name is H. Russell Irvin, 111. I am the President and CEO of Gateway Telecom LLC, dba Stratuswave. QUESTION: What is Stratuswave? Stratuswave is a facilities-based competitive local exchange carrier (CLEC) operating in Verizon territories in the State of West Virginia. Stratuswave serves customers in Wheeling and other markets in West Virginia. QUESTION: Why has Stratuswave intervened in this case? In the Petition for this Docket, Verizon has asked that to deregulate the sale of business lines in West Virginia. Stratuswave takes exception to this proposal for the reasons discussed herein. QUESTION: What are those reasons? First, Stratuswave takes exception to the Verizon s assertion that West Virginia is SG competitive that it needs to deregulate the sale of business lines. Consider the neighboring states like Maryland and Virginia, which have large cities with significantly more business customers and business lines. I believe there is major competition in these states and yet none of these states has deregulated business lines. One only has to look at the relative revenues for Verizon versus all of the CLECs to see that all of us together have put nothing more than a mild dent in Verizon s business in the state. I also question how much of the competition that Verizon has stated is facilitybased compared to some form of resale? Many competitors are selling to businesses 2

4 using traditional resale or else the remnants of what was once called UNE-P, but that is now contractual. In these arrangements, Verizon still has a significant revenue stream and such lines should not be considered as competitive lines. Rather, I think they are wholesale lines where Verizon still gets the bulk of the revenue. Further, a large percentage of the other competitive lines are using Verizon loops. Verizon needs to be straightforward with this Commission about how much revenue Verizon gets from competition. QUESTION: Are you concerned about unfair tactics by Verizon? Yes. It is my firm belief that the vast majority of business customers change to CLECs because of service issues, and not price issues. CLECs offer one service that Verizon does not offer - we will go talk to small businesses and get to know them and their operations. We help them find solutions that fit their needs rather than just shuttle them off to a tariff like Verizon does. CLECs offer modest discounts, but we need to be able to make a profit on every customer. I fear that Verizon will use the ability to offer business discounts to try to put CLECs out of business in the state. While customers will change to CLECs for service reasons, they will probably stay with Verizon if Verizon can offer very large discounts. My fear is that Verizon will offer prices below its costs and the costs of the CLECs (which are typically higher). Since many facility-based CLECs also rely on Verizon loops to provide business service, then loop price reductions ought to be considered along with any ability to offer cheaper business loops. It would be very easy for Verizon to price below the CLECs cost, since CLECs most significant cost is often the Verizon loop. To unfetter only one half of the equation will be a disaster for CLECs. However, if the Commission were to 3

5 lower loop prices, then this might be workable. Perhaps loop prices ought to vary with the level of competition rather than by geographic areas. Areas where Verizon lowers prices ought to see a corresponding lowering of loop costs. If this Commission really wants to stimulate competition, then lower loop costs. QUESTION: Will Verizon 's proposal help business customers in West Virginia? Deregulating lines will not help the vast majority of business customers in the state. Verizon is not going to lower prices to customers who have not been approached by a CLEC. The vast majority of customers in the state today still use Verizon for business services. Verizon is not going to make a wholesale lowering of business rates just because it has the ability to do so. Customers who live where there are no facility-based CLECs are not going to get lower rates from Verizon. Only customers in direct competition for service will see any benefit from this. QUESTION: What do you believe Verizon 's real goal is? Verizon's real goal here is to lower the return for CLECs to force them out of the state. I would rather see the Commission lower rates for every business customer rather than let Verizon selectively attack CLECs. All CLECs ask for is a fair opportunity to compete. If Verizon is allowed to lower rates, probably below costs, whenever they run into a competitor, then in the long run, customers won't benefit. In the long run, the competitors will fade away and Verizon will move rates back to where they were before they were regulated, if not higher. Facility-based CLECs are not making wildly high profits like Verizon. Most are just keeping their heads above water. The Commission allows Verizon to selectively edge CLECs out of the market, then granting Verizon this ability will have no long-term benefit to businesses in the state. Competition 4

6 is working today in the state, as witnessed by this filing. However, if the Commission is not careful, they could undo all of the benefits that competitors have brought to customers in the state. QUESTION: What do you recommend that the Commission do? My advice is to tread very carehlly. If it s not broken, don t fix it. 5

7 CERTIFICATE OF SERVICE I, Mark E. Kauffelt, counsel for Gateway Telecom, LLC, dba StratusWave Communications, do hereby certify that I have served the foregoing Direct Testimony of H. Russell Urvin, III by depositing a true ccpy thereof in the United States Mail, First Class postage prepaid, addressed as follows: J. David Fenwick, Esquire Goodwin & Goodwin, LLP P.O. Box 2107 Charleston, WV Patrick Pearlman, Esquire Public Service Commission of WV Consumer Advocate Division 700 Union Building 723 Kanawha Blvd., E. Charleston, WV, Lisa Wansley-Layne, Esquire Public Service Commission of WV P.O. Box 812 Charleston, WV this the 28 h day of June,