Residential Consumers and Businesses to be Hit by Substantial Increases in Monthly Telecom Bills

This just in from the anti-forbearance guys. The whole study is available at http://www.xo.com/QSI_Study_FF102907.pdf —LLFCC

WASHINGTON--(BUSINESS WIRE)--Verizon’s bid for local deregulation will trigger $2.4 billion in higher charges for customers in six major mid-Atlantic and Northeastern cities if granted by the Federal Communications Commission (FCC), finds a new study by leading market research organization, QSI Consulting.

The QSI Study, “An Analysis of Verizon’s Petition for Forbearance: A Quantification of the Impact of Forbearance,” presents the first in-depth examination of the damage that would result from a grant of Verizon’s petitions for forbearance from the pro-competitive local loop and transport unbundling obligations of the 1996 Telecom Act.

QSI tracks the chain reaction of economic harm that would result from forbearance in six cities targeted by Verizon for regulatory forbearance: New York, Philadelphia, Boston, Pittsburgh, Virginia Beach and Providence.

The study shows that once Verizon is freed from requirements to provide unbundled network elements (UNEs), competitive carriers will be forced to purchase these essential “last mile” facilities at much more costly rates. Facing 200%-300% price increases from Verizon, competitors will have to choose between passing these higher charges on to customers, changing their business models, or vacating markets.

Across the six markets, Verizon’s $2.4 billion hit on consumers will range from $85 million annually in the smallest market, Providence, to nearly $1.4 billion per year in metropolitan New York. According to QSI, businesses and residential consumers could see rate increases of 17% - 28%. The increase in annual expenditures on telecom services will average $114 per household.

The following chart shows the overall cost increase per market, and the new, higher charges that will be paid annually by households if Verizon’s forbearance requests win approval.

The QSI Study findings on the impact of Verizon’s forbearance petitions drew strong reactions from consumer advocates and competitive telecom operators.

Gigi B. Sohn, president and co-founder of Public Knowledge, said, “The FCC should concentrate its efforts on bringing more competition and lower prices to consumers. As this study shows, an FCC action to approve Verizon’s petition would result in less competition and higher prices. That is exactly the wrong policy for the Commission to pursue.”

Sohn added: “As recent events have shown, large telecommunications companies with intimidating market power believe they can conduct business any way they please – from deciding which text messages should be approved to shutting down customer services for no apparent reason. Granting this petition would only encourage more of that type of behavior.”

Heather Gold, senior vice president-external affairs at XO Communications said, “Forbearance is bad news for competitors and worse news for businesses and residential ratepayers. The QSI analysis provides indisputable proof that Verizon can and will raise wholesale rates to competitors, making it uneconomic for competitive carriers to provide service in the six affected markets. It will be difficult to continue serving many customers, who will lose the benefits of service innovation and competitive rates.”

The QSI Model

The QSI Study was commissioned by XO Communications, a leading provider of competitive telecommunications services, and is supported by Covad, Cavalier, CompTel, Integra, McLeodUSA and Nuvox. QSI Consulting was selected to conduct the study based on the company’s experience and objectivity in providing market research services to all sectors of the communications industry, including incumbent and competitive telecoms, cable companies, wireless operators, electric utilities, and state public service commissions.

Using publicly-available demand data, the QSI Study focused on the impact of a grant of forbearance in the following three markets:

1. Mass market (measured by residential and single line business switched access lines);

2. Enterprise market (measured by multi-line switched access lines); and

3. High-speed broadband Internet market.

QSI collected Verizon’s current UNE and special access recurring rates for key network elements, such as local loop and transport. QSI then calculated the difference between UNE-based and special-access based rates for various network element combinations under which end-user markets in the study are typically served.

The QSI Study presents the following conclusions:

Forbearance Will Immediately Induce Upward Pressure on Wholesale Prices. If the FCC grants Verizon’s petitions, Verizon will no longer be required to make its loop and transport network elements available at current rates. Verizon, like other incumbents, has advocated that competitors obtain these network elements out of Verizon’s special access tariffs instead. Because there are few, if any, economically-viable alternatives to Verizon’s loop and transport facilities, this means that competitors will face higher wholesale prices. Wholesale Price Increases Will Induce Retail Price Increases. Forbearance will create a classic “price squeeze,” leading competitors to either exit markets or pass on higher charges to customers. Higher retail prices would inevitably ensue as the elimination of retail competitors would diminish competition and enable the remaining competitors, Verizon and the cable companies, to more easily engage in coordinated interaction – at the expense of consumers.

The QSI Study is available at http://www.xo.com/QSI_Study_FF102907.pdf