COMMISSION In the Matter of the Pricing ) Proceeding for Interconnection, )DOCKET NO. UT-960369 Unbundled Elements, Transport and ) Termination, and Resale ) -----------------------------------) ) In the Matter of the Pricing ) Proceeding for Interconnection, )DOCKET NO. UT-960370 Unbundled Elements, Transport and ) Termination, and Resale for ) U S WEST COMMUNICATIONS, INC. ) -----------------------------------) ) In the Matter of the Pricing ) Proceeding for Interconnection, )DOCKET NO. UT-960371 Unbundled Elements, Transport and ) Termination, and Resale for ) VOLUME 10 GTE NORTHWEST INCORPORATED ) Pages 227 - 514 -----------------------------------) A hearing in the above matter was held at 9:30 a.m. on July 8, 1997, at 1300 South Evergreen Park Drive Southwest, Olympia, Washington before Commissioners RICHARD HEMSTAD and WILLIAM R. GILLIS and Administrative Law Judge TERRENCE STAPLETON. The parties were present as follows: GTE NORTHWEST INCORPORATED by RICHARD E. POTTER, Associate General Counsel, 1800 41st Street, (5LE) Everett, Washington 98201 and JOHN WILLIAMS, MARK AUSTRIAN, and BRIAN FARLEY, Attorneys at Law, 3050 K Street NW, Suite 400, Washington D.C. Cheryl Macdonald, CSR Court Reporter APPEARANCES (Cont'd.) SPRINT COMMUNICATIONS COMPANY, L.P., by CAROL MATCHETT, Attorney at Law, 1850 Gateway Drive, Seventh Floor, San Mateo, California 94404-2467. U S WEST COMMUNICATIONS, INC., by EDWARD SHAW and LISA ANDERL, Attorneys at Law, 1600 Bell Plaza, Room 3206, Seattle, Washington 98191 and JOHN M. DEVANEY, Attorney at Law, 607 14th Street NW, Suite 800, Washington, D.C. 20005-2011. AT&T COMMUNICATIONS, by DANIEL WAGGONER, Attorney at Law, 2600 Century Square, 1501 Fourth Avenue, Seattle, Washington 98101 and SUSAN D. PROCTOR, Attorney at Law, 1875 Lawrence Street, Suite 1575, Denver, Colorado, 80202. MCI COMMUNICATIONS and MCImetro, by BROOKS HARLOW, Attorney at Law, 4400 Two Union Square, 601 Union Street, Seattle, Washington 98101 and ROBERT W. NICHOLS, Attorney at Law, 2600 Broadway, Suite 200, Boulder, Colorado 80302. FRONTIER TELEMANAGEMENT and SHARED COMMUNICATION SERVICE, INC., by SARA SIEGLER MILLER, (via bridge), Attorney at Law, 2000 NE 42nd, Suite 154, Portland, Oregon 97213. UNITED TELEPHONE COMPANY OF THE NORTHWEST and SPRINT CORPORATION, by SETH LUBIN, General Counsel/Secretary, 902 Wasco Street, Hood River, Oregon 97031. WITA, by RICHARD A. FINNIGAN, Attorney at Law, 2405 Evergreen Park Drive SW, Suite B-1, Olympia, Washington 98501. TRACER, by ARTHUR A. BUTLER, Attorney at Law, 601 Union Street, Suite 5450, Seattle, Washington 98101-2327. THE WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION STAFF, by GREGORY J. TRAUTMAN and SHANNON E. SMITH, Assistant Attorneys General, 1400 South Evergreen Park Drive Southwest, Olympia, Washington 98504-0128. APPEARANCES (Cont'd.) FOR THE PUBLIC, ROBERT MANIFOLD, Assistant Attorney General, 900 Fourth Avenue, Suite 2000, Seattle, Washington 98164. I N D E X WITNESS D C RD RC EXAM MERCER 238, 367 CORNELL 254, 395 FASSETT 290, 413 KLICK 491 EXHIBITS MARKED ADMITTED 1-41 233 1, 2, 4, 5-8 235 C-9, 29-31 235 CC-32, CC-33 235 34-41 235 P R O C E E D I N G S JUDGE STAPLETON: Let's be on the record. The Commission has set time and place for evidentiary hearings in the matter of the pricing proceeding for interconnection, unbundled elements, transport and termination and resale in docket Nos. UT-960369, 960370, 960371. We're convened in Olympia, Washington on Tuesday, July the 8th before Commissioners Dick Hemstad, William Gillis, and Administrative Law Judge Terrence Stapleton. In anticipation of our first panel of witnesses, the Commission has marked for identification as Exhibit No. 1 the direct testimony of Nina Cornell, including Exhibit NWC-1. For Exhibit No. 2 is the rebuttal testimony of Nina Cornell. Exhibit No. 3 is a document introduced by U S WEST in anticipation of the cross-examination of Dr. Cornell. Exhibit No. 4 for identification is a prefiled rebuttal exhibit of John Donovan dated January 9, 1997. Exhibit No. 5 for identification is the direct testimony dated February 21, 1997 of Dean Fassett. Exhibit No. 6 is the direct testimony dated March 28, 1997 including exhibits DRF-1 and DRF-2 for Mr. Fassett. Mr. Fassett's rebuttal testimony dated April 25, 1997 is marked Exhibit No. 7 and his supplemental reply testimony dated June 20, 1997 is marked as Exhibit No. 8. Exhibit DRF-3 to that supplemental testimony is marked as Exhibit No. C-9. Exhibits No. 10 through 27 are a variety of exhibits to be introduced during the cross-examination of this panel by GTE Northwest. MR. WAGGONER: Mr. Stapleton, I might just point out that there was also an Exhibit 28. JUDGE STAPLETON: I'm sorry, there was. Those exhibit numbers for the GTE cross exhibits again are Exhibit No. 10 through Exhibit No. 28. The direct testimony of John Klick dated February 21, 1997 has been marked as Exhibit No. 29. Direct testimony of March 28, 1997 of Mr. Klick is Exhibit No. 30. Rebuttal testimony dated April 25, 1997 including JCK-1, 2, 3 and 4 is marked as Exhibit No. 31. The supplemental direct testimony dated June 13, 1997 including attachments JCK-1 and 2 is marked as Exhibit CC-32. The supplemental reply testimony dated June 20, 1997 including exhibits JCK-A and JCK-B is marked as Exhibit 33. The prefiled testimony of Dr. Mercer dated January 9, 1997 including attachments which are marked as Exhibit AT&T/13, Exhibit AT&T/15, appendix A, B and C will be marked as Exhibit No. 34. I'm sorry, Exhibit No. 34 also includes a document marked as Exhibit AT&T/29, Exhibit AT&T/42, Exhibit AT&T/43, the hearing transcript from November 5, 1996 in docket No. UT-960307. Exhibit No. 35 is a CD ROM of the Hatfield model release 3.0 and model description dated February 7, 1997. Dr. Mercer's Exhibit No. 36 is the direct testimony of John Klick including pages 26 through 33 dated February 21, 1997 including the exhibits JCK-1A, JCK-1B, JCK-2. Dr. Mercer's Exhibit No. 37 is his supplemental testimony of John Klick dated March 6, 1997 including Exhibit JCK-3 and 4. Exhibit No. 38 is a document entitled User Guide Hatfield Model Release 3.1. Exhibit No. 39 is Dr. Mercer's direct testimony dated March 28, 1997. Exhibit No. 40, Dr. Mercer's rebuttal testimony, dated April 27, 1997, which includes exhibits RAM-1, 2, 3, with appendix A and B, Exhibit No. 4 and 5, and the supplemental reply testimony dated June 20, 1997 of Dr. Mercer is marked as Exhibit No. 41. (Marked Exhibits 1 - 41.) Will the panel please rise and raise your right hand. Whereupon, NINA CORNELL, JOHN KLICK, DEAN FASSETT, ROBERT MERCER, having been first duly sworn, were called as witnesses herein and were examined and testified as follows: JUDGE STAPLETON: Mr. Waggoner, are these your witnesses? MR. WAGGONER: Yes, they are. Your Honor, I would assume at this time we would just have each one of the witnesses introduce themselves briefly and then offer the witnesses for cross-examination. Perhaps we could begin with Dr. Mercer and then work towards Mr. Klick. JUDGE STAPLETON: Thank you. MR. MERCER: My name is Robert A. Mercer. I'm the president of Hatfield Associates, Inc. We're located at 737 - 29th Street, Suite 200, Boulder, Colorado 80303. MR. FASSETT: I'm Dean Fassett. I'm the owner of Adirondack Telcom Associates and I am representing AT&T and MCI. MS. CORNELL: My name is Nina W. Cornell. I'm an economic consultant and my address is 1290 Wood River Road, now unfortunately misnamed by the Post Office as 1290 Road 4DT, very euphonius, Meeteetse, Wyoming 82433. MR. KLICK: My name is John C. Klick, K L I C K. I'm president of Klick, Kent and Allen, Inc. located at 66 Canal Center Plaza, Suite 670, Alexandria, Virginia 22314. MR. WAGGONER: Your Honor, my understanding is that there has been no objection to any of the testimony or exhibits offered through these witnesses that you just listed. Therefore, at this time would you wish us to dispense with the traditional offering of testimony and simply indicate that that is offered by stipulation? JUDGE STAPLETON: Yes, if you would, please. MR. WAGGONER: Yes. Then we are offering through stipulation the testimony that has been premarked as Exhibits 1, 2 and 4 for Dr. Cornell; Exhibits 5, 6, 7, 8 and C-9 for Mr. Fassett; Exhibits 29, 30, 31, CC-32, CC-33 for Mr. Klick; Exhibits 34, 35, 36, 37, 38, 39, 40 and 41 for Dr. Mercer. JUDGE STAPLETON: Thank you. Those exhibits are admitted into the record. (Admitted Exhibits 1, 2, 4, 5 - 8, C-9, 29 - 31, CC-32, CC-33, 34 - 41.) MR. WAGGONER: My understanding now, Your Honor, is that the witnesses are available for cross-examination by the parties. JUDGE STAPLETON: Let's begin. Commission staff, do you have any questions for this panel? MS. SMITH: No. JUDGE STAPLETON: Mr. Manifold. MR. MANIFOLD: No. JUDGE STAPLETON: Mr. Butler. MR. BUTLER: Your Honor, would it be possible for me to go after U S WEST and GTE? I think that would cut down on more of the questions I intended to ask. JUDGE STAPLETON: I'm going to have to ask you, if you're going to speak you will have to grab a microphone. Sorry about the shuffling, but people in the audience cannot hear you. That's all right. I understand that you would like to follow U S WEST and GTE both? MR. BUTLER: Yes. JUDGE STAPLETON: All right. Mr. Finnigan. I'm sorry, we'll get back to you. Mr. Lubin, would you like to address questions to this panel, please. MR. LUBIN: Actually, I had a question I had asked yesterday, and I'm not sure if this is the time to do it. Cross-examination questions on criticisms of BCPM, which is not slated for today, it's slated for Thursday, and I am trying to decide whether the bench would like to hear that cross today or would like to hear it concurrent with the presentation of the model. MR. WAGGONER: Just to indicate, we had understood that Mr. Klick would be available on the day that BCPM is discussed to be cross-examined about his criticism of the BCPM model. JUDGE STAPLETON: Did you have questions other than of Mr. Klick on the BCPM? MR. LUBIN: Some directed towards Mr. Mercer. JUDGE STAPLETON: Why don't we go ahead and take those questions now. MR. LUBIN: Okay. Your Honor, I also have a question about some of the exhibits that GTE handed out earlier. I wanted to use one of their exhibits, and that hasn't been made part of the record yet. JUDGE STAPLETON: They've not been admitted, but they've been marked so you can refer to them and ask the witness to refer to them as well. MR. LUBIN: Okay. CROSS-EXAMINATION BY MR. LUBIN: Q. Good morning, Mr. Mercer. My name is Seth Lubin. I represent United Telephone Company of the Northwest, and I have a few questions based on your testimony. In your rebuttal testimony on page 2 you have commentary based on Mr. Kruse's analysis of the Hatfield model and BCPM, and you state that his results show that the Hatfield model did a better job than BCPM. Are you basing that on just Mr. Kruse's results or anything that you have done independently? A. No. I'm primarily reflecting on his testimony there. Q. On page 13 of the testimony, on line 14, you state that the treatment afforded rural areas in the Hatfield model is markedly different than the BCPM model. Can you explain to me how the Hatfield model deals with rural areas differently? A. Yes. In the Hatfield model rural census block groups identified in the model as corresponding below density of lines per square mile is treated by assuming that there are clusters of population that are not contiguous with each other but that instead are dispersed in the CBG, depending on the particular census block group, the population unit that is the basis of the model derived from Census Bureau data. Depending on the nature of the census block group, there are either two or four population clusters surrounded -- as the model proceeds -- surrounded by the remaining set of people who are not part of those clusters but who are distributed along roads and have to be served by cable along those roads, which, I might comment, represents a considerable amount of cable in those rural CBGs. By contrast, what BCPM does is take all of the population which is assumed to be located within 500 feet of the roads that they have calculated in some way that's never completely clear but calculated the number of road miles, assume everybody is located within a certain distance of those roads, calculates an effective area that basically looks like the length of the road times a thousand feet, 500 feet on each side, and then takes all that population and pulls it together and puts it all in the middle of the census block group instead of being distributed out along the census block group. So it starts from a premise, which is not an unreasonable premise, which is that people are located close to roads but then proceeds to do this collection of all those people together in the middle of a census block group. So the end effect of that is that whereas in the Hatfield model the population clusters are distributed and not located at the center of the census block group and in addition population is still along roads with a lot of cable required to reach them, in BCPM they're all concentrated in the middle of the census block group. That's the basis of the statement. Q. So the Hatfield model assumes that there are clusters of towns as opposed to rural routes? A. It actually assumes both. It says that some fraction of the population is concentrated in towns and the remainder are distributed along roads so it makes provision for both kinds of population location. Q. But where there are no towns and there are just rural roads and people living off of those routes the Hatfield model assumes the town? A. The Hatfield model assumes that there is a town, yes, in each quadrant of the census block group. "Town" is perhaps a euphemism. The right term in the model and the way the model proceeds is that there's a clustering of the population at some point. The amount of that clustering, incidentally, is user-adjustable. It is an input to the model. It is set right now based on the average national experience, which I believe, subject to check, is not that different for the state of Washington, the indication that we have from statistical abstracts as to the fraction of rural population that's located on farms and therefore presumably not in clusters in towns or whatever, however else you might refer to the clusters. Q. The use of the term "clusters" is a surrogate for towns or villages or something where you are not dealing with independent dwellings or large acreage farms; isn't that correct? A. It's an indication, yeah, that people are bunched together. The reason I don't use the term "towns" is if you look at for instance the Rand McNally Atlas they identify what are called "named places." Named places often mean places that are not officially a town. They're not incorporated as such. They're sometimes not even treated by the post office as such, but there's well known Jockey Hollow or whatever other name you might associate where there's a grouping of people. So I'm really drawing that distinction. Generally you might think of these as towns but the point is it's some assumption other than the fact that the people are uniformly distributed throughout the census block group which is not our experience as being the typical case. Q. Is it correct to say that the Hatfield model places a cap on the size of the lots to be wired at three acres? A. Only in the population clusters themselves. The assumption is that where population is clustered it will be located on lots that are three acres in size. That is sufficient