Good morning Chairman Inouye, Vice Chairman Stevens, and members of the Committee.  My name is Ted Schremp and I am Senior Vice President and General Manager of Telephone at Charter Communications, Inc. (“Charter”).  From the company’s headquarters in St. Louis, Missouri, I direct and oversee all operational and business matters concerning Charter’s provision of residential and commercial voice services. 

Thank you for the opportunity to appear before you to testify on an issue of real importance to millions of consumers and businesses across the United States, and one which is central to the continued viability of competition in the local voice services market.  As explained in greater detail below, Charter believes that clear and consistent, as well as improved, number porting policies are essential to ensuring greater competition among providers of local voice services.  For that reason, Charter greatly appreciates the Committee’s efforts to review these issues in this hearing, and its ongoing efforts to enhance competition in the marketplace.

 

Charter is a broadband communications company with over sixteen thousand (16,000) employees and approximately 5.7 million customers in twenty-nine (29) states.  Our broadband network passes 11.7 million homes, to which we offer a full range of advanced broadband services, including digital cable programming, broadband Internet access, advanced broadband cable services and telephone service.  Charter Telephone® is delivered via Charter’s subsidiary, Charter Fiberlink, primarily utilizing an Internet Protocol-enabled platform run over the cable company’s privately managed hybrid fiber coax network. 

As of our last public filing, Charter Telephone® served nearly six hundred thousand (600,000) primarily residential customers in eighteen (18) states, including nine (9) before this committee: California, Massachusetts, Minnesota, Missouri, Nevada, South Carolina, Oregon, Texas, and Washington.  Charter will continue to roll out our competitive voice service in additional markets this year.  Expanding the reach and scope of our voice offerings throughout our service area is one of our highest priorities, and we have invested hundreds of millions of dollars to date.  As a result, Charter Telephone® is currently available to over 7.3 million homes within our service territory, and we expect that number to continue to increase over the next 18 months.

Our customers are different than those of most of the other major cable operators, but as Senators on this Committee, you know them well.  They are predominantly located in less densely populated regions of the country, including many suburban, exurban, and rural areas.  Accordingly, many of the largest markets for Charter’s voice services are what some people in the industry classify as “Tier II” and “Tier III” markets, for example: Worcester Massachusetts, Kennewick Washington, St. Cloud and Mankato Minnesota, Greenville/Spartanburg South Carolina, and Slidell Louisiana.  Charter also offers service in eastern Missouri, including the greater St. Louis metropolitan area, the location of our corporate headquarters.

In these markets, we are aggressively rolling out voice services in competition with the incumbent local exchange carriers; often providing the first real facilities-based competitive alternative to many residential consumers.  And, because many of these markets are in less densely populated regions, Charter is often the only competitive alternative.  

 

Across all of our markets, the response to our offerings has been very positive, as consumers are attracted to Charter by the innovative product offering, cost savings, and the convenience of obtaining all of their communications services from a single provider.  Our research indicates that we save the average consumer 20% or more on their monthly telephone bill.  New customers can sign up for Charter’s unlimited nationwide service for as low as $29.99 per month, which provides substantial savings to our customers as compared to most traditional telephone service providers.  In addition, Charter provides meaningful value added services such as call waiting, caller ID, call forwarding, etc.  And, of course, Charter’s service has always provided full E911 calling functionality.  The savings and value of our service can be further enhanced by bundling with Charter’s digital cable and broadband Internet services, for as low as $99.97 per month.

Because Charter is aggressively deploying its voice communications service to tens of thousands of potential new customers in new markets it relies heavily on the number porting process to compete with the incumbent providers in those markets.  In fact, Charter engages in approximately thirteen thousand (13,000) number porting transactions every week.  Unfortunately, in the course of those porting transactions Charter experiences a fall out rate of over fifteen percent (15%).  This rate translates to over 150 rejected orders every day where the customer is at risk of losing dial tone when a port cannot be cancelled or rescheduled as a result of lack of carrier cooperation.  As such, Charter is acutely aware of the value of efficient and effective porting procedures, and the very real costs incurred (including operational costs, loss of revenue, and particularly customer frustration and dissatisfaction) when porting procedures are undermined or disregarded by other providers.

In addition, when ports take an unreasonably long time to complete,  it is extremely difficult for Charter to compete  in those carriers’ service territories because a subscriber wishing to move to Charter’s service, and port its numbers to Charter, must sometimes wait for as long as two weeks before they can switch providers.  When faced with the response that “it will take two weeks before we can begin to provide you service using the same phone number” many subscribers simply decline to continue the process and remain with the incumbent provider. 

Even despite these hurdles, our experience demonstrates that consumers are craving voice competition.  Market research bears this out.  For example, one recent study by Microeconomic Consulting and Research Associates, Inc. (“MICRA”) estimates that 23.7 million households will subscribe to cable digital phone services by the year 2011.  In addition, the MICRA study demonstrates that based on the competitive rates offered by many cable-telephony providers, the provision of competitive cable-provided voice services could result in annual benefits to the economy of $1.3 billion in 2007, climbing to $3.2 billion in 2011.  The sum of these potential benefits, according to the MICRA study, for the five year period is $11.2 billion.[1]  And according to a 2006 J.D. Power report, cable voice customers are saving over $10 a month on their bills.[2]  In short, cable-provided voice services are fulfilling Congress’ original vision of a robust and competitive residential voice services market.  It is no surprise, then, that the cable industry trade association, the NCTA, estimates that as of the first quarter of 2007 the cable industry is providing digital phone service to 10.8 million customers.

 

But as our daily experience demonstrates, this progress could be so much better.  Indeed, the emergence of a truly competitive market for local voice services is conditioned, in large part, on the continued development and implementation of a national number porting policy that is clear, effective, and applied consistently to all covered providers. 

This is, of course, a well established fact that Congress has long recognized.  But the devil is in the implementation details.  Indeed, during its work leading up to enactment of the pro-competitive Telecommunications Act of 1996, Congress noted that the inability of consumers to retain their telephone numbers when changing local service providers undermines the development of local competition.  Thus, by specifically imposing the statutory obligation on all local exchange carriers to “provide … number portability in accordance with requirements prescribed by the Commission”[3] in the 1996 Act, Congress has already recognized the critical importance of establishing a fundamental number porting duty on all LECs, both incumbents and new entrants.

As a result, Congress removed a significant barrier to competition by ensuring that consumers can change carriers without having to give up their existing telephone numbers.  That simple function –the ability to retain your telephone number when moving from one provider to another—is a key feature for most consumers and an essential tool to any competitive provider.  The FCC itself has noted that the absence of number portability functionality “likely would deter entry by competitive providers of local service because of the value customers place on retaining their telephone numbers.”[4]  In implementing its rules to effectuate Congress’ mandate of uniform number porting obligations, the FCC specifically cited evidence that customers would be reluctant to switch carriers if they were required to change telephone numbers.  Specifically, the FCC found that to the extent that customers are reluctant to change service providers due to the absence of number portability, demand for services provided by new entrants will be depressed.  That, in turn, would discourage entry by new competitive providers and thereby frustrate the pro-competitive goals of the 1996 Act.[5]

These findings illustrate the fact that effective number porting is critical because the ability to retain telephone numbers gives customers greater flexibility in evaluating the quality, price, and variety of services they choose to purchase.  As a result, customers are empowered to respond to competitive price and service changes without having to change their telephone numbers.

 

While the policies established by Congress and the FCC to date have been beneficial, the implementation of additional principles would further enhance the competitive landscape, and ultimately benefit consumers.  These principles revolve around the goal of ensuring timely and efficient porting processes for all providers.  Specifically, Charter believes that implementation of the following principles would be critical steps to achieve that goal: (1) ensure that number porting occurs as quickly and efficiently as possible, based upon the delivery of only that information which is absolutely necessary to complete a porting request; (2) require all wireline providers to continue providing dial tone service if a port request is not, or cannot be, completed at the scheduled time; and (3) reaffirm that wireline providers may not recover any number portability costs via interconnection charges, administrative service order fees, port fees, or other “add-ons” to interconnection charges to other providers. 

Based upon the practical experience Charter has gained by competing in multiple residential voice services markets, we are confident that these principles, if implemented, would further Congress’ goal of reducing barriers to entry and accelerating competitive entry to the business and residential voice marketplaces.  For that reason, Charter has already filed comments with the FCC urging the Commission to take actions necessary to implement these principles.

First, incumbent telephone companies often require requesting providers, including Charter, to complete complicated service “order forms” that require numerous data points, many having little –if anything– to do with the processes necessary to port a telephone number.  This creates barriers to efficient porting and, by extension, obstructs facilities-based competition by entities like Charter.  By requiring competitors to provide data that is often unrelated to porting, the incumbents have created a process which leads to an increase in the number of port requests that are rejected, not completed, or that require rescheduling.  There is no reasonable explanation or justification for requiring all of the information in these order forms.  Accordingly, when incumbent providers request such information it raises the question of whether they are simply using the porting process to delay, or deny, port requests by competitors in order to delay market entry by competitors like Charter.  If so, such activity raises competitor and consumer costs, creating real barriers to effective facilities-based competition.  For these reasons Charter believes that port requests must be validated, and completed, after the competitive provider supplies the minimum necessary information to complete the port, generally the name, address, and phone number of the subscriber.

 

In addition, although the FCC has established that all wireline providers must complete port requests within four business days, many providers do not.  Those providers that are unable or unwilling to complete the porting interval within that window are often CLECs, non-RBOC incumbents, or CLECs associated with ILECs that operate in less densely populated areas of the country.  Many carriers in this group take well over four days to return a firm order commitment date resulting in a time line of anywhere between five and twelve business days to complete a port request.  Therefore, another important principle that could benefit competitors and consumers is that all wireline carriers, no matter their size or position in the market, must complete wireline-to-wireline ports within four business days, when requested by another provider, consistent with existing FCC rules.

Second, there are some instances when a port request is scheduled to occur, but for one reason or another the request can not be completed because of an operational or customer issue.  When a port request can not be completed before 5 P.M. on the day of the scheduled port, some providers will simply terminate service to the subscriber rather than wait for the port to be completed at a later time.  When this happens Charter is able to provide service on an emergency basis to make sure that the subscriber will continue to have access to voice services while the port is completed; however, a new number must be assigned to that customer and dial tone is typically interrupted for one or more days.  This policy of simply terminating service upon the scheduled port date, regardless of whether the number has actually been ported, and even with an emergency installation of service using an alternate phone number, creates significant problems for the affected subscribers.  This entire process leaves the customer with the impression that Charter (rather than the incumbent who caused the issue) is to blame for a loss of service, and unnecessarily puts the subscriber in harms way by denying consumers access to basic local voice services for a period of time.  Thus, all providers should adopt a policy of not terminating numbers from their switch for at least forty-eight (48) hours after the scheduled port request is completed.  This would ensure that customers do not lose service, or access to their telephone number, in the event that a port can not be completed on the scheduled date.

Finally, in addition to the practices described above, several carriers continue to attempt to impose carrier-to-carrier charges, fees, or “add-ons” to such charges, for completing customer requests to port a number from the carrier’s network to Charter’s network.  Although the FCC has repeatedly ruled that carriers must recover the costs of number portability via tariffed end user charges, rather than via charges on competing carriers, several incumbent carriers continue to ignore those rulings and act in blatant disregard of the FCC’s directives. Some providers attempt to mask these charges, and claim that they are associated with the recovery of “administrative costs” related to porting, despite the fact that these actions clearly cover costs associated with completing port requests.  Accordingly, another principle essential to continuing the competitive benefits of efficient number porting is the notion that incumbent LECs may not recover any costs associated with porting via any charge, fee, or add-ons to interconnection charges to other providers.

In conclusion, implementation of these principles would further the establishment of fair and efficient number porting processes for competitive providers.  Such processes are necessary because there are essentially no market forces in place to provide incentives to incumbent providers to develop efficient porting practices.  Because incumbent providers are currently losing far more customers than they are gaining, they have no market-based incentive to implement efficient processes to port numbers to competitive providers such as Charter. 

 

Implementation of these principles will further enable competitive providers like Charter to increase existing efforts to provide competitive voice services in many smaller, and more rural markets, to the benefit of both consumers and businesses in such markets.    

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