BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF COLORADO

Docket No. 01B-493T

IN THE MATTER OF PETITION BY RUBY RANCH INTERNET COOPERATIVE ASSOCIATION FOR ARBITRATION PURSUANT TO SECTION 252(b) OF THE COMMUNICATIONS ACT OF 1934, AS AMENDED BY THE TELECOMMUNICATIONS ACT OF 1996, WITH QWEST CORPORATION REGARDING RATES, TERMS, AND CONDITIONS FOR INTERCONNECTION.

REBUTTAL testimony

of

WILLIAM R. EASTON

FOR

Qwest Corporation

JANUARY 24, 2002

WILLIAM R. EASTON

INDEX OF TESTIMONY

PAGE

I. Identification of Witness 1

II. Purpose of Testimony 2

III. Rights and Obligations Under the Telecommunications Act 2

IV. Insurance Issues 4

V. Cost Issues 9

VI. Summary/Conclusion 13

IDENTIFICATION OF WITNESS

Q. PLEASE STATE YOUR NAME, OCCUPATION, AND BUSINESS ADDRESS.

A. My name is William R. Easton. My title is Director - Wholesale Advocacy for Qwest Communications. My business address is 1600 7th Ave., Seattle, Washington.

Q. ARE YOU THE SAME WILLIAM EASTON WHO FILED DIRECT TESTIMONY IN THIS DOCKET?

A. Yes I am.

PURPOSE OF TESTIMONY

Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?

A. The purpose of my testimony is to discuss issues raised in the direct testimony of Carl Oppedahl filed on behalf of Ruby Ranch. Based on his testimony, Mr. Oppedahl appears to have a broad understanding of technology issues, but has several misconceptions about the insurance and regulatory issues in this proceeding. In my testimony I will clarify the issues around Ruby Ranch's rights and obligations under the Telecommunications Act of 1996 ("The Act") and discuss the misconceptions that Ruby Ranch has with regard to insurance requirements and the prices for unbundled network elements that were recently ordered by the Colorado Public Utilities Commission ("Commission").

RIGHTS AND OBLIGATIONS UNDER THE TELECOMMUNICATIONS ACT

Q. IN ITS PETITION FOR ARBITRATION RUBY RANCH REQUESTS ARBITRATION UNDER THE TELECOMMUNICATIONS ACT OF 1996 ("THE ACT"). IS RUBY RANCH A TELECOMMUNICATIONS CARRIER AS DEFINED IN THE ACT?

A. Not according to Mr. Oppedahl. In his testimony, at page 51, Mr. Oppedahl argues that Ruby Ranch is not a Competitive Local Exchange Carrier (CLEC) or telecommunications carrier and should not be bound by the requirements that the Act places on other telecommunications providers who wish to interconnect with the Qwest network.

This is one of the difficulties that Qwest has struggled with throughout the negotiations with Ruby Ranch. On the one hand, Ruby Ranch believes that it is entitled under the Act to interconnect with Qwest and have access to unbundled network elements, such as subloops, at wholesale prices. On the other hand, Ruby Ranch states that it is not a telecommunications provider and that Qwest's unbundled network element rates and insurance requirements, which apply to all other interconnection customers, should not apply to it. Ruby Ranch cannot have it both ways if it seeks to have the benefits of the Act, it must also assume the obligations that other interconnection customers are assuming, such as paying the Commission approved unbundled network element rates and providing insurance coverage.

Q. HOW HAS QWEST HANDLED THE ISSUE OF RUBY RANCH'S RIGHTS AND OBLIGATIONS UNDER THE ACT?

A. Throughout the negotiations Qwest has attempted to steer a middle course. Where possible, Qwest has attempted to meet Ruby Ranch's needs. If Ruby Ranch is not a telecommunication provider, Qwest has no obligation under the Act to provide Ruby Ranch with unbundled network elements. Yet Qwest has been willing to negotiate an interconnection contract with Ruby Ranch to access unbundled subloops at wholesale prices and, as I noted in my direct testimony, Qwest has made several concessions to Ruby Ranch. However, to charge Ruby Ranch different rates than Qwest charges other telecommunication carriers and to require no insurance would place Qwest in the untenable position of discriminating against the other carriers who are interconnecting with Qwest, an action clearly prohibited under the Act.

INSURANCE ISSUES

Q. HAS MR. OPPEDAHL ADEQUATELY CAPTURED QWEST'S INSURANCE CONCERNS IN HIS TESTIMONY?

A. No he has not. Mr. Oppedahl devotes a significant portion of his testimony to describing his belief that his proposed interconnection poses little technical risk to the Qwest network but fails to even mention Qwest's larger insurance concern the risk of injury to or damage by third parties. Several times during the negotiations it was explained to Mr. Oppedahl that this was a concern of Qwest, yet in his testimony Mr. Oppedahl insists on focusing solely on the issue of damage to the Qwest network.

Q. IN ADDITION TO THE WORK BEING PERFORMED BY QWEST AT RUBY RANCH, WOULD THE RUBY RANCH PROPOSAL REQUIRE ANY WORK BE DONE BY OR ON BEHALF OF THE COOP?

A. Yes. As Mr. Oppedahl discusses in his testimony, there will be work required to install the DSL access multiplexer (DSLAM), the installation of a 100 pair cable from the Qwest Field Connection Point (FCP) to the DSLAM and the connection of cable pairs to the FCP. In addition there will be ongoing maintenance work that must be performed from time to time.

Q. IS THERE ANY RISK INVOLVED IN THIS WORK?

A. There is risk in any kind of construction work. As Mr. Oppedahl acknowledges in his testimony at page 47 "anything is possible". In this case, there is risk both to Qwest's equipment, which the Coop will be connecting to, and also to the parties performing the work, be it a Coop volunteer or subcontractor. Despite everyone's best intentions, problems during construction or with Ruby Ranch's equipment could lead to someone being injured or killed.

Q. IS IT POSSIBLE THAT CLAIMS COULD BE BROUGHT AGAINST QWEST FOR SUCH ACCIDENTS?

A. Yes it is. Given Ruby Ranch's status as a non-profit cooperative with no assets and no insurance, there is an increased likelihood that Qwest would be involved in any potential claims.

Q. MR. OPPEDAHL ARGUES THAT THERE ARE A NUMBER OF STEPS THE COOP WILL TAKE TOWARD ELECTRICAL SAFETY, INCLUDING GROUNDING THE DSLAM IN A MANNER SPECIFIED BY ITS MANUFACTURER AND USING THE EQUIPMENT IN COMPLETE COMPLIANCE WITH THE MANUFACTURER'S INSTRUCTIONS. WILL SUCH ACTIONS ON THE PART OF THE COOP TOTALLY ELIMINATE RISK OF DAMAGE TO QWEST EQUIPMENT OR INJURY TO A THIRD PARTY?

A. No. Intentions and reality are often different things. Despite Qwest's extensive training and safety awareness programs, accidents do occur and field technicians do get injured. Qwest's Local Network Organization had nearly 1200 OSHA recordable injuries in 2001. This is why telecommunications firms must make provisions for insurance.

Q. DOES RUBY RANCH'S OFFER TO OBTAIN RELEASES FROM ALL OF ITS MEMBERS/SUBSCRIBERS, RELEASING QWEST FROM ANY LIABILITY ADEQUATELY PROTECT QWEST?

A. No. Such releases provide no protection against damage to Qwest's equipment and provide no protection against a third party suing Qwest. Ruby Ranch may argue that all initial work will be performed by Coop volunteers such as Mr. Oppedahl, a patent attorney, but cannot provide absolute assurances that subcontractors will not be used in the future to repair or maintain its equipment.

Q. MR. OPPEDAHL CITES EXAMPLES OF TWO TYPES OF SERVICE PROVIDED BY QWEST WHERE NO INSURANCE IS REQUIRED OF THE PURCHASER OF THE SERVICE. COULD YOU PLEASE DISCUSS WHY PLAIN OLD TELPHONE SERVICE (POTS) CUSTOMERS AND LOCAL AREA DATA SERVICE (LADS) CUSTOMERS ARE NOT REQUIRED TO PURCHASE INSURANCE COVERAGE?

A. Both POTS and LADS services are what are referred to as finished services that retail customers purchase based on rates established by retail tariffs that apply to those services. In contrast with interconnection customers, considered in the answer to the next question, Qwest provides all the services and related equipment POTS and LADS customers receive, and Qwest is responsible for the installation and maintenance of the equipment. Therefore, Qwest is responsible for all the insurable risks associated with its POTS and LADS-related services, and Qwest covers these risks by purchasing insurance. The cost of the equipment, services and insurance are all built into the retail rates POTS and LADS customers pay. That means there is no reason for those retail customers to carry their own insurance covering Qwest. Further, the fact that insurance is not required of POTS or LADS customers does not in any way imply that there is no risk associated with providing this service. Rather, because they are receiving finished services from Qwest, the insurance related to these services is included in the price of the service charged to the end user.

Q. MR. OPPEDAHL ALSO CITES THE EXAMPLE OF THE WILLOW BROOK METROPOLITAN DISTRICT WHICH HE STATES IS BUYING SUBLOOPS FROM QWEST WITHOUT THE INSURANCE REQUIREMENT THAT IS BEING ASKED OF RUBY RANCH. IS MR. OPPEDAHL CORRECT IN HIS UNDERSTANDING OF THE INSURANCE REQUIREMENT FOR THE SERVICES QWEST IS PROVIDING TO WILLOW BROOK?

A. No he is not. Qwest may not disclose a customer's confidential information so I need to be very careful what I say about Willow Brook. However, I can tell you that an interconnection agreement, which is a matter of public record, is required to purchase unbundled network elements such as subloops and that Willow Brook has no interconnection agreement with Qwest. If Willow Brook is a retail customer, as discussed in my previous answer, it is purchasing finished services from Qwest and there is no need for Willow Brook to carry its own insurance for the risks related to Qwest's services and equipment because the insurance costs are a part of the retail charges. If, on the other hand, Willow Brook were an interconnection customer, it would be providing its own part of the services and equipment needed to provide those services. In addition, it would be connecting its equipment with the Qwest network. It would also have personnel or contractors doing installation and maintenance who could be injured, could injure someone else, or could cause damage to property belonging to Qwest, third parties or the interconnecter's own customers. Therefore, as an interconnection customer, Willow Brook would be required to carry insurance to protect Qwest from the risks related to the customer's equipment and services. In addition, since Qwest is not insuring the risks for which the interconnection customer is responsible, the cost of insurance would not be included in the subloop rates the Commission has approved.

Q. DOES MR. OPPEDAHL'S TESTIMONY DEMONSTRATE THAT INSURANCE IS NOT AVAILABLE TO RUBY RANCH OR THAT IT IS COST PROHIBITIVE?

A. No it does not. Even Mr. Oppedahl concedes that he had at least one possible insurance option. As to the notion that such coverage is cost prohibitive, I would disagree. Mr. Oppedahl's figure of a $ 780 annual premium works out to approximately $ 6.50 per month for each Coop member, a figure that can hardly be considered cost prohibitive given the Coop's plan to provide wholesale prices to its members without the usual CLEC markup.

PRICING ISSUES

Q. WHAT IS RUBY RANCH'S POSITION WITH REGARD TO THE NON-RECURRING PRICES RELATED TO SUBLOOPS AND QUOTE PREPARATION?

A. Mr. Oppedahl argues that the prices are not reasonable because they are based on average costs rather than being based on the actual costs that will be incurred by Qwest to provide service specifically to Ruby Ranch.

Q. HOW DO YOU RESPOND?

A. Ruby Ranch's position demonstrates misconceptions about the regulatory process. Ruby Ranch is correct that the prices are not based on Ruby Ranch specific costs. Qwest's rates are based on the average cost of providing services to all CLECs, but this does not make them unreasonable. The Qwest cost studies were developed in compliance with FCC requirements that prices be based on a Total Element Long Run Incremental Cost (TELRIC) methodology, plus a reasonable allocation of joint and common costs.

Prices based on average costs, by their very nature, imply that some purchasers will pay rates that are above the actual cost of providing their service and some will pay rates that are below the actual cost of providing service. The alternative, to create prices unique to each CLEC, would be administratively prohibitive and would require Qwest to perform detailed TELRIC studies for each of the approximately 87 CLECs in the state of Colorado. It would also require this Commission to review the studies and resulting prices for each CLEC to determine if they are in compliance with the Act. Both of these endeavors would be terribly time consuming and inefficient.

Despite Mr. Oppedahl's claims at page 60 that "it seems all too likely that the QPF is the result of some rough guesses or political compromises in the SGAT process", this Commission has gone through a rigorous process in Docket No. 99A-577T to ensure that Qwest's rates are fair and reasonable. At the hearing, which took two weeks, the Commission received extensive testimony and considered a variety of evidence, including costing information provided by Qwest and other intervenors, and determined the rates that Qwest can charge for wholesale services. Ruby Ranch, on the other hand, with no supporting TELRIC cost studies or analysis, argues that these rates are not reasonable and puts itself in the position of determining what it claims are reasonable rates for Ruby Ranch.

Q. ON PAGE 60 MR. OPPEDAHL STATES THAT WITHIN THE LAST COUPLE OF WEEKS QWEST HAS DROPPED ITS QUOTE PREPARATION FEE BY $ 600 AND THAT "IT SEEMS REMARKABLE, OR EVEN SUSPICIOUS, TO LEARN THAT THE TASK OF PREPARING A QUOTATION SOMEHOW HAD ITS COSTS DROP IN A WAY THAT GAVE RISE TO EXACTLY SIX HUNDRED DOLLARS LESS IN THE PRICE". COULD YOU PLEASE COMMENT?

A. Once again Mr. Oppedahl is confused about the regulatory process. It is not Qwest who dropped the quote preparation fee, but rather this Commission. This reduction in price is based upon the Commission review in Docket No. 99A-577T that I just described.

Q. MR. OPPEDAHL QUESTIONS WHETHER THE QUOTE PREPARATION FEE WILL BE DEDUCTED FROM THE COST OF CONSTRUCTION. HOW IS THIS HANDLED?

A. The Quote Preparation fee will be deducted from the total cost of construction.

Q. IN HIS TESTIMONY MR. OPPEDAHL STATES THAT A REASONABLE NON-RECURRING CHARGE FOR PROVISIONING A SUBLOOP IS $27. DO YOU AGREE?

A. No. Mr. Oppedahl provides no TELRIC cost study as is required by the Act to substantiate his figure. It is not Ruby Ranch's role to determine what are reasonable rates. That is the role of this Commission.

Q. COULDN'T QWEST MAKE AN EXCEPTION FOR RUBY RANCH AND CHARGE A PRICE OTHER THAN WHAT THE COMMISSION HAS JUST DECIDED?

A. No. The Act and Colorado state regulations prohibit telecommunications carriers from discriminating among customers by charging different customers different rates for the same services or from discriminating among customers by charging different rates than the state commissions have approved. In addition, under 252(i) of the Act, known as the "opt in" provision, any rate Qwest offers Ruby Ranch must also be made available to any other CLEC seeking the same service. This provision offers CLECs the opportunity to "pick and choose" favorable terms provided to other CLECs in their interconnection agreements. If Qwest lowered rates for Ruby Ranch, every other CLEC that receives or wants the same service could opt into that lower rate. This would destroy Qwest's right under the Act to realize a reasonable return on its costs to provide that service to all CLECs because it would disregard both Qwest's average costs in providing those services and its costs to provide those services in the most expensive circumstances.

Q. WHY IS THIS DIFFERENT THAN THE EXCEPTION QWEST MADE FOR RUBY RANCH BY LOWERING ITS INSURANCE REQUIREMENTS?

A. The FCC's regulations regarding the implementation of the Act are silent with regard to insurance requirements but are very specific with regard to the methodology to be used in setting unbundled network element prices. As I stated earlier, these regulations require that unbundled network elements should be priced according to the TELRIC methodology, plus a reasonable allocation of joint and common costs. The only alternative to using average pricing is to develop and have this Commission review specific cost studies for each CLEC. Such an approach is clearly not feasible. In the absence of specific guidelines, insurance requirements are based on Qwest's business experience and judgment. Interestingly, I am not aware of another CLEC challenging the need for insurance.

SUMMARY AND CONCLUSION

Q. COULD YOU PLEASE SUMMARIZE YOUR TESTIMONY?

A. Although Mr. Oppedahl apparently has a broad knowledge of technology, he has a number of misconceptions around insurance risk and the regulatory requirements of the Act. With regard to insurance, Mr. Oppedahl writes page after page of reasons he believes there is little technical risk to the Qwest network, while ignoring the very real risk of injury to or damage by third parties. Qwest's proposed interconnection agreement reasonably addresses these risks by requiring a minimal level of insurance, which Ruby Ranch can obtain at a relatively low price. Ruby Ranch's pricing proposals ask the Commission to ignore the recent decision in Docket No. 99A-577T and the extensive review and analysis which went into it, and instead to substitute, without any supporting cost studies, what Mr. Oppedahl considers to be more reasonable prices. Allowing Ruby Ranch to use prices other than those ordered by the Commission places Qwest in the untenable position of discriminating against other CLECs in the state of Colorado. Ruby Ranch cannot have it both ways. If it wishes to be a wholesale customer of telecommunications services, it needs to accept the responsibilities of doing business as a wholesale customer. For these reasons, Qwest respectfully requests that Ruby Ranch's insurance and pricing objections be rejected and that the Commission approve and adopt Qwest's proposed interconnection agreement.

Q. DOES THIS CONCLUDE YOUR TESTIMONY?

A. Yes.