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Bakersfield and Sacramento, CA (June 25, 2005) – Arrival Communications CEO, Tony DiStefano, recently testified before a California Senate panel convened to evaluate the impacts of the SBC/ATT and Verizon/MCI mergers on telecommunications competition in California. The panel was held on June 21 st before the Senate Committee on Energy, Utilities and Communications and was chaired by committee chairwoman Senator Martha Escutia. DiStefano, who has held senior executive positions at leading national telecommunications and energy companies, testified that the mergers were “an unfortunate but inevitable result of decisions made by the Federal Communications Commission and the courts”. DiStefano reminded the Committee that telecommunications competition had brought meaningful price reductions to California’s small and medium businesses and cautioned that the merger could lead to a reversal of that trend- particularly in less well served markets throughout the Central Valley and along California’s Central Coast- unless necessary safeguards were established by the California Public Utilities Commission. The full text of DiStefano’s prepared testimony appears below.

Position Paper on SBC/AT&T Merger
Much has been said and written about the impending mergers between SBC and AT&T on the one hand and Verizon and MCI on the other. Generally, the case “for” the mergers centers on global competitiveness and infrastructure investment. The case “against” the mergers has to do with job cuts and the rich getting richer. I would like to offer a more local perspective, brought to you by the CEO of a company that is headquartered in the Central Valley. I’m neither for nor against these mergers. I think that they are regrettable, but in some ways are inevitable given recent decisions made by the FCC and the courts as the 1996 Telecommunications Act approaches its tenth anniversary. I do, however, think that these mergers will harm the Valley’s economy if they are allowed to take place unconditionally. The California Public Utilities Commission has the right to impose conditions to these mergers and I think it is vital that they do so. I will explain my reasoning below.

Our economy is driven by small and medium sized businesses. Nationwide these businesses account for the vast majority of new job creation and that is even more true throughout the Central Valley. Our cities are not home to the headquarters of Fortune 500 companies. They are home to companies with, for the most part, two to two hundred employees. And our businesses need access to a variety of telecommunications providers in order to compete effectively against larger competitors in distant markets. I was recently at a Chamber of Commerce presentation and sat next to the general manager of a ladder manufacturing facility located here. Not surprisingly, his biggest competitors are abroad (in China) and he needs every edge he can get in order to compete. And that’s the problem with these mergers.

By their very nature they reduce the number of competitive choices available to local businesses. That would not be much of a problem if we were in Los Angeles, San Francisco or even Sacramento all of which have an abundance of viable alternative providers of business-class telecommunications services. But that is not the case here in the Valley. By definition less competition means fewer competing solutions for a small business’s problems…and, higher prices. Look at how long distance prices plummeted as SBC and AT&T fought for market share between 2003 and 2005. With AT&T and MCI gone, the benefits of competition will only continue if the remaining competitive telecommunications providers stay healthy.

Competitive telecommunications providers like my company, Arrival Communications, have built our own networks, but we have not strung local wires from phone poles. We rely on SBC and Verizon for wholesale access to their poles and wires in order to connect our networks to our customers.

The process for determining wholesale access rates (i.e. the prices paid for access) under the 1996 Telecommunications Act is mind-numbingly complex and is administered by the various state PUCs.

Historically, as in the recently completed California wholesale rate proceeding, the suppliers square off against the customers to produce evidence, experts and testimony in a process which drags on for years and which costs tens of millions of dollars. For example, in the wholesale rate proceeding which concluded on September 23rd of last year, AT&T and MCI (the two largest wholesale customers in the state) fought tooth and nail against SBC to argue their case before the CPUC.

The ATT/SBC and MCI/Verizon mergers will affect competition in two ways. First, there will be fewer choices as a direct result of MCI and AT&T being absorbed by Verizon and SBC. Second, the remaining competitive carriers do not have a fraction of the resources required to fight these immense regulatory battles. Without the likes of AT&T and MCI alongside us, they stand to get out-muscled in the lengthy, costly proceedings currently required to establish wholesale rates in markets where there are no competitive alternatives for wholesale access.

The cost to businesses in the Central Valley is a very real one. Businesses in these markets have few competitive telecommunications providers available for their voice and data needs. Cable is not an option, nor is wireless, VOIP or satellite. Competitive Carriers are a very real option- so long as they have continued wholesale access without crushing regulatory requirements.

These mergers present an opportunity for a solution. The CPUC should adopt price-cap regulation for wholesale rates (as have been in place for retail telephone rates since 1989) as a condition to the approval of the ATT/SBC and MCI/Verizon mergers. This position has been advocated by CALTEL (the competitive carrier industry association) in its merger filings with the CPUC. This type of solution would eliminate the need for costly, uncertain proceedings and mitigate the loss of AT&T and MCI as the two largest wholesale customers in the state.

Let me close by noting that this proposal does not conflict with the retail deregulation currently under consideration by the CPUC. Rather, it complements it by beginning to move wholesale rates down the same path (rate base regulation leading to price-cap regulation leading to free markets) as the situation evolves. Thanks for the opportunity to present my views on this.

Tony DiStefano
Chairman and CEO, Arrival Communications

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