The Final CWA Petition To Rehear Verizon Incentive Plan (VIP)
Communications 80 Pine Street, 37th Floor Morton Bahr LawrenceMancino

Workers of America New York, New York 10005 President Vice President
AFL-CIO, DISTRICT 1 212-344-2515 District 1
Fax: 212-425-2947

…………………………………………………………………………………………………………………………

OFFICE OF THE VICE PRESIDENT

August 29, 2002
Honorable Janet H. Deixler
Secretary
New York State Public Service Commission
Three Empire State Plaza
Albany, NY 12223-1350

Re: Case 00-C-1945

Dear Secretary Deixler:
Enclosed please find an original and twenty-five (25) copies of the Communications Workers of America’s Petition for Rehearing Case 00-C-1945. The Commission’s Order Instituting Verizon Incentive Plan that was issued and effective on February 27, 2002. This petition is being sent to parties by e-mail without the attachments and by U.S. mail with attachments.

Respectfully submitted,

Kenneth R. Peres, Ph.D.
CWA District One Research Director
cc: Active Parties

Introduction 1

II. The VIP Fails to Deter Verizon’s Reduced Investment in Work Force
and Infrastructure And Fails to Serve the Public Interest 5

Downsizing Threatens Verizon’s Competitors Despite Provisions

of the VIP 7

Verizon’s Practices Erode Network Reliability and Increase Risks to

Public Safety and Security Despite the Provisions of the VIP 11

i. Increased Risk to New York’s E911 System 12

ii. Decreased Network Reliability and Increased Risk of

"Network Events" 16

Downsizing Affects Economic Development Adversely 18

Workforce Reductions Were Announced Soon After The

Implementation of the VIP’s Relaxed Service Standards 20

Downsizing Will Have A Significant Deleterious Impact on Verizon’s Network Infrastructure and Service Quality Performance 21

Verizon Operations Report Admits That the Reduction in Force

Poses Significant Risks to the Public 21

Downsizing Degrades Verizon’s Central Office and Switch Equipment 23

Downsizing Reduces Verizon’s Installation and Repair Performance 25

Downsizing Leads to the Further Deterioration of Outside Plant 27

Poor Condition of Outside Plant Facilities 27

Lack of Preventive Maintenance 28

Significantly Reduced Rehabilitation & Capital Program 29

Band Aid Fixes to Long Term Problems 29

The Effect of the 2002 Downsizing on Outside Plant is Similar

to the Crisis Situation During the Early 1990s 31

IV. Past Experience Has Proven That Significant Reductions In Force
Adversely Affect Service Quality And Network Infrastructure 32
V. Conclusion 37
Attachment 1: Verizon Operations Report
Attachment 2: Verizon’s Deteriorating Infrastructure – Examples from Manhattan,
Brooklyn, Queens, Bronx, Westchester, Nassau, and Staten Island
NEW YORK STATE
PUBLIC SERVICE COMMISSION
------------------------------------------------------x
Proceeding on Motion of the Commission
to Consider Cost Recovery by Verizon and
to Investigate the Future Regulatory Case 00-C-1945
Framework
------------------------------------------------------x
PETITION OF THE COMMUNICATIONS WORKERS OF AMERICA FOR REHEARING
I. INTRODUCTION
On February 27, 2002, the Public Service Commission (PSC) issued the Order Instituting Verizon Incentive Plan (VIP). The PSC adopted the VIP – in part – because it believed it would protect the public interest.

We find the terms and provisions of the Joint Proposal, in the context of our wholesale rate decision issued in January 2002, to provide a proper balancing of the interests of customers, competitors, the incumbent, and the economic development of New York State to produce just and reasonable rates with a guarantee of safe and adequate service… and… to create the framework and conditions to allow and encourage all forms of competition in New York. (emphasis added).

However, the conditions under which the PSC made these statements have been altered radically. The VIP may not be able to guarantee "safe and adequate service" or "encourage … competition."
In May, Verizon New York, Inc. (Verizon) announced that it would reduce its work force by more than 2,000 non-management employees. This reduction in force could include the layoff of all or some of these workers as early as September 2002. This downsizing occurs after Verizon had already reduced its force by approximately 3,000 workers through early retirement and attrition since the end of 2001. Thus, after the latest cuts, Verizon will have reduced its non-management workforce by almost 5,000 workers or 15.5% over an eight-month period and by 6,780 or 20% over a 20-month period.
The critical issue facing consumers, businesses, the general public and the PSC is that this particular reduction in force entails a significant decrease in the construction, maintenance, monitoring, testing and rehabilitation of the company’s infrastructure. The major consequences of these actions include the following:
·       Increasing risks to public health, safety and security due to the rising probability of network outages and the understaffing of the E911 system –particularly sensitive concerns given September 11, 2001;
·       Eroding competition due to the deterioration of Verizon’s infrastructure upon which competitors – especially resellers – depend and a decline in the quality of services delivered to wholesale as well as retail customers; and
·       Adversely affecting economic development especially in relation to the deterioration of the company’s network infrastructure.
The Communications Workers of America, AFL-CIO (CWA) bases these conclusions on two new sets of information. First, following the reduction in force announcements CWA came into the possession of an internal Verizon document entitled "Northeast Network Operations: 2002 Budget Initiatives: Executive Summary" (the Verizon Operations Report included as Attachment A). This report identifies the cost saving initiatives associated with Verizon’s reduction in force and admits that the impacts will have "significant risks and consequences" for the public.
CWA also interviewed a number of company technicians who corroborated the fact that the initiatives described in the Verizon Operations Report are being implemented and are having an adverse impact already. The interviewed technicians who work in the company’s central offices, network operational centers, and the field are qualified especially to report on the company’s initiatives and their impacts. The combination of the Verizon Operations Report and the interviews verify the components of the reduction in force and identify the immediate and long-term impacts on both the public and Verizon’s network infrastructure.
Based on this new information, the CWA requests that the PSC rehear Case 00-C-1945, the Verizon Incentive Plan, or in the alternative, open a new proceeding to investigate the impact of Verizon’s reduction in workforce and capital expenditures on public health, safety and security, competition, service quality and economic development. The Commission should also require Verizon to produce the full Verizon Operations Report and any other similar documents; the detailed budgets for 2002 and 2003 and any internal evaluations of the impacts on the company’s infrastructure and service quality; and current forecasts for 2003.
We recognize that this petition is filed beyond the 30-day period specified in the Public Service Law. However, the law allows the PSC some discretion.

After an order has been made by the commission… application [for rehearing] must be made within 30 days after the service of such order, unless the commission for good cause shown shall otherwise direct; and the commission shall grant and hold such a rehearing if in its judgment sufficient reason therefore be made to appear [emphasis added].

The PSC should grant the petition because the new information was only available after the 30-day period for filing a petition for rehearing had lapsed. During the proceeding, Verizon did not publicly share with any of the parties to the case the fact that it would reduce its workforce significantly much less recognize the consequences of such an action. This downsizing was announced in May, significantly beyond the end of the thirty-day period. CWA obtained the Verizon Operations Report weeks after the downsizing was announced. Finally, the CWA was only able to determine that Verizon was actually implementing the initiatives associated with the downsizing after interviewing the technicians over the past few months.
This entire set of new information provides a firm rationale for the PSC to order a rehearing because it could alter the basis upon which the PSC – and other parties – reached their decisions in this case. Verizon’s ability to implement the reduction in force while recognizing its significant deleterious impacts calls into question the ability of the VIP to protect public health, safety and security; encourage competition; enhance economic development; and insure the adequacy of the company’s infrastructure and its staffing levels.
Under the VIP, the PSC reserved the authority to act if it determines that

… intervening circumstances have such a substantial impact as to render… this Plan unreasonable, unnecessary or insufficient for the continued provision of safe and adequate service by Verizon-New York. Should the Commission exercise this authority, Verizon has the right to withdraw from this Plan.

A rehearing would provide the PSC with the evidence to determine if CWA is correct in its assertion that the downsizing will compromise the company’s ability to provide "safe and adequate service." If the PSC decides not to rehear the VIP, then in the alternative, it should open a new proceeding. It is critical that the PSC addresses the specific risks to the public interest posed by Verizon’s reduced investment in workforce and infrastructure.

II. THE VIP FAILS TO DETER VERIZON’S REDUCED
INVESTMENT IN WORKFORCE AND INFRASTRUCTURE
AND FAILS TO SERVE THE PUBLIC INTEREST
Verizon assured the PSC that the VIP’s objectives and penalties would protect the quality of services and levels of investment required to maintain the company’s infrastructure.

… the purpose of the service quality provisions of the [Verizon Incentive] Plan is to provide a bulwark against service deterioration from the current appropriate service quality levels.

Furthermore, the company stated that the pressures of competition would insure high quality service.

… the Joint Proposal reflects the fact, which this Commission has long recognized, that competitive forces rather than regulation can and should be relied on to discipline the market and the industry, and to create better, more targeted, and more flexible incentives for improving service, choice and prices.

The company also stated that the condition of the company’s network and outside plant would ensure efficient and reliable service now and in the future.

the substantial capital investments that Verizon NY made in network and outside plant improvements over the course of the PRP will ensure continued service efficiency and reliability in the future.

In its summation, the company urged the PSC to approve the VIP.

This Plan assures that customers will have access to high-quality services at affordable prices, providing customers stability and continuity for the term of the Plan. At the same time, the Plan provides Verizon NY with the flexibility it needs to compete in today’s market and with the incentives to continue to invest in New York.

The staff of the Department of Public Service also reassured the PSC that the VIP would protect service quality and infrastructure.

The Retail Service Quality and Infrastructure components of the Plan

ensure that Verizon will not be able to sacrifice good service quality to recover its competitive losses and/or enhance its earnings.

The Commission approved the VIP, in part, based on such assurances and a review of the record generated during the proceeding.

Based on the evidence in this record, we adopt the terms of the Verizon Incentive Plan contained in the Joint Proposal.

Unfortunately, the VIP provisions for service quality benchmarks and penalties, infrastructure investment and the supposed stimulus of competition have not deterred Verizon from implementing a reduction in force that includes cutbacks in monitoring, testing, construction, preventive maintenance and plant rehabilitation.
Verizon’s practices contradict the promises and statements Verizon made during the VIP. Verizon is aware that its reduction in force poses very significant risks to the public. Verizon calls this "risk management." The Verizon Operations Report admits that its planned reduction in force will result in the following:
·       "significant risks and consequences" to the public;
·       "insufficient resources will be available to meet requirements…"
·       "increase the risk of a Network Event [the failure of a switch] during higher traffic periods"; and
·       "significantly increase the probability of multiple Network Events at the same point in time [t]hus making resolution of such events more difficult than they are today."
Verizon’s practices increase risks to public safety and security, reduce service quality, erode system reliability, and threaten competition.

A. The Downsizing Threatens Verizon’s Competitors Despite the Provisionsof the VIP

Verizon faces a relatively high level of competition in New York. Competitive Local Exchange Carriers (CLECs) serve approximately 3.3 million access lines in New York or approximately 27% of Verizon’s local access market. In its VIP testimony, Verizon specifically referred to the supposed beneficial impact of competition. "The most obvious reason why competition will force Verizon NY to maintain good service quality is that it will lose customers to its competitors if it does not." This scenario assumes the somewhat idyllic view of competition contained in many textbooks: a significant amount of competition between many different firms such that no one firm can dominate the market will generate high quality and low priced goods and services. However, recent events demonstrate that the actual functioning of unregulated or even partially regulated markets – such as the energy and telecommunications industries – can fail to achieve the policy expectations that are based on theory.

Verizon’s actions following the VIP contradict Verizon’s assurances given during the VIP. Since the VIP was approved it has become clear that Verizon is instituting a downsizing policy that, by its own admission, degrades services and network reliability.

Our plan will require reducing commitments to other Departments, lowering Provisioning on time Objectives and Increasing Repair Time Commitments as well as other time and work reducing actions. We can and will meet our Budget requirement, however it will dramatically alter the way we have done business in the past. The ability to provide timely service at all cost will not be in the realm of possibility any longer.

The above actions pose a medium risk to the Network with an expected increase in FCC reportable and Customer Complaints… These actions will significantly increase the probability of multiple Network Events at the same point in time. Thus making resolution of such events more difficult than they are today.

Verizon has implemented practices that reduce service quality despite the existence of the highest level of competition in the history of the local New York telephone market.
Verizon is responding to the market place by eroding service quality and directly hurting its competitors. As will be detailed in the next part of this Petition, Verizon is cutting support services in its Wholesale division, increasing installation and repair times, reducing facilities needed for repairs and installations, increasing the probability of network events, and even degrading the company’s engineering prints. These actions will punish Verizon’s competitors. The CLECs rely on Verizon’s services in order to stay in business. Most of the competitors lease portions of Verizon’s network (called unbundled network elements or UNEs) at wholesale rates and combine them with their own equipment to offer services to their retail customers. These CLECs also rely on Verizon to complete installations and make repairs if a problem arises in Verizon’s network. Even the CLECs that have their own switches (facilities based carriers) rely on Verizon’s UNEs in order to lease a distribution network to connect their customers to their switches. Thus, all CLECs are dependent on the condition of Verizon’s network to be able to provide basic local telephone service.

Verizon can benefit from these cutbacks because they hurt the CLECs in three ways. First, the quality of wholesale services delivered to the CLECs will suffer making it more difficult for the competitors to conduct their business in a profitable manner.

Second, Verizon’s cutbacks ironically can provide the motivation for CLEC customers to return to Verizon. As will be explained in Part III, Verizon’s cutbacks in workforce and construction result in poorer service quality delivered to CLEC customers. However, these customers do not know that Verizon, not the CLEC, actually provides these services. After all, the CLEC markets itself as the service provider and the customer pays the CLEC for the services. The CLEC’s reliance on Verizon is hidden from view. Thus, when service deteriorates, the customer blames the CLEC. Poorer service could, at some point, motivate the customer to return to Verizon – not knowing that Verizon’s service is, most likely, just as bad.

Finally, the general erosion of Verizon’s service creates another somewhat perverse benefit. As a condition for its entry into the long distance market, Verizon must provide "parity," the same quality of service to its wholesale customers as to its retail customers. By reducing service to all customers, Verizon’s downsizing allows it to retain its position in the long distance market at the same time that it cuts internal costs and hurts the competition. Yet, the monetary sanction provisions of the Verizon Performance Assurance Plan (PAP) would not deter such service degradation so long as the CLEC customers receive a level of service equivalent to that provided to Verizon’s retail customers.

Verizon’s current attitude towards the threat of competition is illustrated by its decision to place limits on its "winback" program. This program was designed to recapture and retain former customers that had moved to the CLECs. Previously, Verizon made a point of providing "gold plated" service to the customers – especially large businesses – that returned to Verizon from a competitor. Indeed, the "winback" program was focused on these customers to make sure they were satisfied. This was a rational response by Verizon to competition. Now, as indicated in the Verizon Operations Report, the "winback" services delivered to these customers are being curtailed. The threat of competition clearly is not forcing Verizon to maintain service quality to the customers that have proved most sensitive to competition.

The Verizon Operations Report along with reports from technicians in the field show that the company has decided that the pressures to reduce costs are stronger than any regulatory or competitive incentives to improve service. The Verizon Operations Report specifically identifies "Budget Targets for 2002" as the driving force behind the downsizing even though there will be an "increase in work volume." Thus, just a few short months after the adoption of the VIP, competition and the possibility of penalties have failed to induce Verizon to provide the resources needed to maintain or improve service. The company’s practice of budget cuts has overwhelmed the promised beneficial impact of competition and VIP penalties. Verizon’s practices already have called into question staff’s belief that the VIP will "ensure that Verizon will not be able to sacrifice good service quality to recover its competitive losses and/or enhance its earnings."

Verizon’s Practices Erode Network Reliability And Increase Risks To

Public Safety and Security Despite the Provisions of the VIP

The VIP established a series of service quality benchmarks and penalties to insure that Verizon would provide high quality service over a three-year period. The service quality benchmarks are based on annual averages to be reviewed twelve months after the plan is adopted (February 28, 2003) at which time any penalties would be assessed. In this sense, the VIP is reactive, not proactive. The VIP review process may be too late especially considering the risks to public health, safety and security posed by Verizon’s reduction in force. Once trained workers have been severed from the company, any subsequent rehiring efforts would not remedy degraded service quality in a timely manner. New hires would lack the experience and training possessed by the workers who had been severed. Thus, assuming that the VIP service quality sanctions were triggered at the end of the first year of the plan, poor service would continue to plague customers over the second year - even if the company attempted to hire more workers.

The VIP requires Verizon to file annual construction budgets that identify service-related investments and meet with staff on an annual basis to provide an overview of its construction budget with emphasis on service quality improvements and increased network reliability. The VIP also requires Verizon to inform the PSC staff of its intention to implement practices or standards related to network reliability consistent with "post-9/11 best practices" and to cooperate in the development of data concerning service outages.
These VIP "informational" requirements may not be sufficient to protect public health, safety and security given the risks associated with Verizon’s downsizing. The "Description of Cost-saving Initiatives" contained in the Verizon Operations Report concludes with the following ominous statement:

These actions will significantly increase the probability of multiple Network Events at the same point in time. Thus making resolution of such events more difficult than they are today (emphasis added).

The VIP mandated annual review of construction budgets would not provide the detail needed to determine the actual condition of the company’s outside plant, central offices and switches. Yet, it is crucial that the PSC gather such detail in order to protect the public proactively against the risks associated with Verizon’s "cost saving initiatives."
Unfortunately, the consequences of such Network Events are much greater now than before September 11, 2001. If allowed to continue, the deterioration of Verizon’s network at this time could prove deadly.

i. Increased Risk to New York’s E911 System
The VIP’s protection against the failure of the E911 system and switch outages may not be adequate. Under the VIP, Verizon will have to pay $100,000 for each major service interruption that results from Verizon having an "actual level of diversity less than the level Verizon certifies annually as existing in the Signaling 7 (SS7) or Enhanced 911 (E911) networks" after July 1, 2002. However, the prospect of such a penalty did not stop Verizon from instituting cost saving initiatives that "significantly increase the probability of Multiple Network Events at the same point in time thus making resolution of such events more difficult than they are today." Furthermore, the possibility of a VIP penalty is not preventing Verizon from cutting the workforce needed to properly monitor the E911 equipment so that it will function properly and be fixed quickly. The deleterious impact on E911 has been corroborated by technicians and internal company e-mails, as will be discussed later in this petition. Clearly, Verizon’s practices are not consistent with the VIP’s directive that Verizon "… assure reliability, consistent with post-9/11 best practices."

Both CWA technicians and internal Verizon memos reveal how the company’s reduction in force poses, in the words of the Verizon Operations Report, "significant risks and consequences" for the public. E911 is an enhanced version of the 911 Emergency Hotline. With E911, the police operator who answers the line not only hears the voice at the other end but can also read the name and address of the caller on her computer terminal.
The primary equipment that enables New Yorkers to have E911 service is owned and maintained by Verizon. It consists of two switches either of which is capable of handling all the 911 calls. The advanced E911 computer equipment enables the following:

·       The city can interact with the E911 system, such as putting in emergency messages and "viewing" the operators who are answering the 911;
·       The answering operator can read the "E" or "enhanced" part of the 911 system, which indicates who is calling and the address of the telephone being used without the caller having to speak; and
·       A technician is able to manually change the calls from the Brooklyn switch to the switch in Manhattan should the need arise.

The E911 system is housed in three locations: two have switches that direct the 911 calls to the police operators. The two switches have technicians on hand only from 8:00 AM to 12:00 Midnight. The third location is the Automatic Identification Unit (AIU) equipment at 375 Pearl Street in Manhattan. Prior to June 1, 2002 a central office technician was assigned on site to monitor and maintain the AIU equipment at 375 Pearl Street. Since June 1, in response to the downsizing, Verizon removed the technician from the AIU equipment. The responsibility for that equipment is now with a technician assigned to an office located on Broad Street – a twenty-minute walk from Pearl Street.

To make matters worse, the AIU equipment cannot be monitored for problems from a remote location, as can most other Verizon switches. Verizon will only know about a failure after the police report the problem to the company. Then, to fix the problem, a technician must be dispatched from Broad Street. The technicians at Broad Street have not received any special training on the 911 system, which differs from the equipment upon which they usually work. Thus, an outage could mean that 911 will no longer be "enhanced" – if the caller cannot speak, emergency services will not be able to send aid. Further, no worker will be present to fix any problem immediately because a technician will have to be dispatched from an office 20 minutes away.
Internal company documents reveal that E911 has experienced problems since the company decided to reduce E911 staffing levels on June 1. An e-mail sent on June 14, 2002 stated the following:

As discussed, recent organizational changes that have moved responsibility for the AIUs that serve NYPD 9-1-1 to the network field group have complicated our ability to respond [to] these high priority troubles for this [NYPC] customer.

Earlier today, the AIU service on the Manhattan side went into an "unknown state" at approximately 9:20 am. A field dispatch to the Pearl St. AIU location took more than 30 minutes. Personnel had to travel to Pearl from another location. Until recently, maintenance responsibility for the AIU resided with a network group located in the Pearl St. building. Dispatch was almost immediate in the past.

I’ve asked the managers of both the old and new groups to advise their management that the NYPD is extremely irate with the additional time required to get our people in place to switch their service to backup.

I’m told Inspector Gangone of the NYPD is calling for a meeting for an explanation [emphases added].

Past experience shows that such lack of staffing can be fatal. On Super Bowl Sunday in 1999, the Brooklyn 911 switch went down because the facility lost electricity. One man died, even though technicians were able to restore service within thirty minutes. When the switch crashed, the City responded by moving all its operators to One Police Plaza. However, the 911 calls were still going to the empty operator stations in Brooklyn.
·       A technician trained in the 911-system was working that shift. She was able to manually move the calls to One Police Plaza. That function could only be performed through the computers at 375 Pearl Street.
·       No calls went through 911 for thirty minutes. Should 911 go down again, Verizon will not have the technicians on hand to repair the problem within thirty minutes. Indeed, it will take at least 20 minutes for a technician to even begin to work on the problem because the technician assigned to the equipment is located at another office. The lack of monitoring will create additional delays because Verizon cannot notify the technicians until the company is alerted by the New York City Police that there is a problem in the first place.
·       The technicians assigned to handle the 375 Pearl Street equipment since June 1, 2002 have not been trained in 911. A technician without specific 911 training could not resolve a problem as quickly as the trained, experienced technician did in 1999.

If the E911 computers and machinery work perfectly all the time, then Verizon will have managed the risks posed by downsizing and saved money. However, computers and machinery require constant maintenance and monitoring. Without properly trained technicians to monitor and maintain its E911 equipment, Verizon is putting the health, safety and lives of New Yorkers at risk.

ii. Decreased Network Reliability and Increased Risk of "Network Events"
The Verizon Operations Report repeatedly refers to the increasing risk of a "Network Event." Such Network Events can be caused by the failure of a switch in the Central Office or by cable failures in the field.
In the first six months of 2002, Verizon reduced its capital expenditures by $803 million or 56% compared to the first six months of last year. Due to cuts in construction budgets and workforce, Verizon basically has abandoned both its rehabilitation and preventive maintenance programs. Furthermore, the company has directed technicians to fix only those problems for which they were dispatched and to ignore any other problems that they may notice. The company also has reduced the "mechanized analyses and tracking tools" previously available. For example, the Verizon Operations Report specifically refers to a cost initiative to "Reduce Audit and Preventive Maintenance Routine Frequency." The Report also states that "if work is for [a] non-revenue producing function or not funded by the Capital Program it will not be performed" and that the "engineering program will halt." By allowing its outside plant to deteriorate further, Verizon will impact service quality adversely. During a 1990 proceeding, Staff offered detailed testimony revealing the correlation between deteriorating conditions of the company’s outside plant and declining service quality.

CWA represented technicians explained how Verizon has increased the risk of a failure of a switch and provided a recent example of such an outage. The equipment that provides dial tone and enables the customer to direct the call by dialing a telephone number is called a "switch." Each switch handles three or four exchanges that contain 30 – 40,000 telephone lines. The switches are located in a field central office. In the past, technicians were assigned to the field central offices to monitor, maintain, and upgrade the system as well as to provide service to new customers.

The reliability of the entire system was ensured by duplication. Each switch is internally duplicated. If one section of the switch does not function, the other or duplicate section provides service. In the past, monitoring was also duplicated. The switches were monitored directly at the field central office as well as remotely at a Network Operations Center.

Verizon’s downsizing is undermining the system of network reliability. As previously explained, Verizon is no longer providing the technicians or the funding to repair the duplicate sections of its switches. Verizon also is removing technicians from its field central offices. After the August 1 downsizing, technicians might not be present at the field central offices even during high traffic periods from 8:00 AM to 5:00 PM. If no one is manning the central office when a switch problem occurs, then the technicians at the remote monitoring center will be relied upon to notice the problem. If the problem cannot be fixed remotely through software, then a technician will have to be dispatched to the location.

The consequences of Verizon’s policy of understaffing already have been revealed. On May 24, 2002, a "Network Event" occurred in Manhattan because Verizon refused to properly staff the 36^th Street Central Office. Previously, two technicians were assigned to perform such tasks as switch upgrades. One technician would conduct the upgrade and the other would monitor the switch. In this way, a problem would be caught before the switch could crash. Verizon is no longer taking such precautions because of its reduction in force. During the 12:00 midnight to 8:00 AM shift on May 24^th Verizon assigned only one technician to perform a software upgrade on the switch located at the 36^th Street Central Office. The switch crashed while the technician was performing the upgrade. As a result, 40,000 customers did not have telephone service for 13 hours. This outage would not have occurred had Verizon properly staffed the switch.

C. Downsizing Affects Economic Development in New York Adversely
The critical importance of a high quality telecommunications network and services is not difficult to imagine. The flow of commerce depends on the ability of companies and consumers to be able to use phones to transact business and make routine appointments. Verizon’s downsizing with the associated cost cutting initiatives will affect adversely the quality of the entire telecommunications system and the specific quality of installation and repair services. The downsizing increases the probability of the number, frequency and duration of network failures. Time, of course, is money. Many businesses will not be able to make money during the time their phone lines are not functioning because of network outages, poor outside plant conditions, the lack of facilities or longer waits for installations and repairs.

Employers are doubly affected by a decline in service performance. First, increased amounts of staff time will be spent dealing with installation/repair problems and decreased productivity and/or sales as a result of communications systems that are unavailable. Second, productivity is reduced when workers feel they must use office time to deal with the hassle of installation delays or service quality problems related to their home line. Indeed, an increasing number of businesses rely on the ability of employees to telecommute, including the ability to make voice, data, and facsimile communications from home without productivity being diminished by worse telephone service.

Even employees who do not telecommute are increasingly expected to have access to sophisticated telecommunications equipment at home so that once home from work they can check data and transactions being made in their employer’s international markets in time zones on the other side of the globe. Furthermore, business location decisions are influenced by the quality of a community’s infrastructure that includes the condition of its telecommunications system and the availability of telecommunications services.
The degradation of Verizon’s network infrastructure and service quality caused by downsizing will be felt across the entire state’s economy. Missed repair appointments, the lack of timely installation of additional lines, or increased service outages will create economic problems beyond those experienced by individual businesses and residential consumers. The success of New York’s economic development depends in part on the quality of our telecommunications infrastructure and services. Verizon’s downsizing places that economic development at risk.

D. Workforce Reductions Were Announced Soon After The Implementation
of the VIP’s Relaxed Service Quality Standards
Verizon’s reduction in force should be understood in the context of the VIP’s change of the service quality standards and penalties applied to Verizon. From September 1995 through February 2002, Verizon’s service quality performance was evaluated according to specific standards contained in the Performance Regulation Plan (PRP). For the three-year period starting in March 2002, Verizon will be evaluated according to the service quality standards contained in the VIP. In many important instances, the VIP standards are less stringent.
Verizon reduced its workforce commitments soon after the more "relaxed" VIP standards became effective. For example, technicians reported that Verizon immediately reduced the size of the workforce assigned to Sundays after the VIP eliminated Sundays and holidays from the calculation of the "out-of-service over 24 hour" standard. Technicians even stated that managers boasted that the reduction in the Sunday workforce was the direct result of Verizon’s "victory" in having the PSC adopt the VIP. Verizon also announced its intention to abolish 175 operator jobs after the VIP eliminated the "directory assistance answer time performance" standard.
Finally, the VIP’s change in performance levels may also have had an impact on Verizon’s decision to reduce significantly the number of workers assigned to capital construction, preventive maintenance and plant rehabilitation. The VIP objective for Customer Trouble Report Rate was set at a level that allows Verizon to incur 1,445,344 more customer trouble reports than last year before any VIP penalty would be imposed. This represents a 49% increase in customer trouble reports over the 2001 level.

III. DOWNSIZING WILL HAVE A SIGNIFICANT DELETERIOUS
IMPACT ON VERIZON’S NETWORK INFRASTRUCTURE
AND SERVICE QUALITY PERFORMANCE

A. Verizon Operations Report Admits That The Reduction in
Force Poses Significant Risks to the Public
The Verizon Operations Report states that the goal of the reduction in force plan is to "reduce expenses" and "meet budget targets for 2002." Verizon acknowledges that these goals are difficult to meet because "work volume will continue to grow but at a slower rate." The company recognizes the problem created when a reduction in force is implemented in the face of an increase in work volume.

Our ability to handle a continued increase in work volume while we reduce Force will require a different approach as to how and when we perform work and what work will actually be completed. Our [reduction in force] plan will require reducing commitments to other Departments, lowering Provisioning on time Objectives and Increasing Repair Time Commitments as well as other time and work reducing actions.

We can and will meet our Budget requirement, however it will dramatically alter the way we have done business in the past. The ability to provide timely service at all cost will not be in the realm of possibility any longer.

The Verizon Operations Report contains a section entitled "Description of Cost Saving Initiative[s]" that itemizes fourteen initiatives and identifies the following specific impacts:
·       "Increases risk of and frequency of Network Events." This impact refers to the failure of a switch. Each time a switch goes down approximately 40,000 customers are without service.
·       "Longer Outages. The company admits that 40,000 customers will spend more time without service each time a switch fails.
·       "Lengthens the time between equipment inspections and Preventive Maintenance activities." The company recognizes that a reduction in testing and maintenance will increase the probability of network events.
·       "MTTR Increase." This impact refers to an increase in the "mean time to repair" (MTTR), i.e., the average time it takes a technician to repair a problem with a customer’s service.
·       "Increase ‘no facilities’ conditions. The Verizon Operations Report states that the company will not have the specific "facilities" such as copper pairs that are needed to install a new line or repair a trouble; in other words, technicians will not be able to complete their work for customers;
·       "Customer complaints." The company recognizes that poor service will lead to more complaints by customers.
·       "Lower Provisioning on time performance." This refers to an increase in the time it takes to install or "provision" new service.
·       "Backlog Increase." The company admits that the downsizing will result in an increasing backlog of uncompleted installation orders so that customers will have to wait longer.
·       "Billing Rebates." The company recognizes that it will have to rebate more money to customers because it will take much longer to fix out-of-service troubles.
·       "lower Performance Results. " The company admits that the downsizing will erode customer service across the board.

The CWA interviewed a number of technicians around the state to determine whether the Verizon Operations Report was a valid description of actual company initiatives and their impacts. The interviewed technicians included central office technicians who maintain and operate the company’s equipment in the central offices such as the switches that reroute all voice and data traffic; frame administrators who oversee the connections that link customers sending and receiving voice or data communications over the network; construction technicians who install and replace the outside cables and other equipment that carry data and voice traffic from the company switches to the home or business; and field technicians who install and repair telephone service for customers.
These technicians affirmed that each of the 14 initiatives itemized in the Verizon Operations Report are being implemented. Both the Verizon Operations Report and the reports from the technicians conclude that Verizon’s reduction in force substantially increases risks to the public and the entire Verizon infrastructure. The following sections will describe in more detail the components of Verizon’s cost saving initiatives and their impact on the company’s inside plant, outside plant and overall installation and repair performance.

B. Downsizing Degrades Verizon’s Central Office and Switch Equipment
Verizon is not performing necessary maintenance work because of the reduction of the workforce. CWA-represented technicians explained the impact of a number of the "cost saving initiatives" listed in the Verizon Operations Report.

·       Verizon is reducing "audits and preventive maintenance." Frequent testing and preventive maintenance of the company’s infrastructure are required to keep a complex telecommunications system running efficiently and regularly. However, Verizon is cutting back. For example, Verizon no longer repairs the major reliability system built into a switch. Each switch has duplicate sides to insure that it will continue to function even when one side goes down. However, Verizon is not fixing the duplicate system. It is not repairing the side of the switch that fails, as long as the other side functions. This practice, among others, "increases risk of frequency of network events [switch outages] [emphasis added].

·       In the past, technicians performed tests and other activities that could cause switch outages during "safe time" windows in the middle of the night when traffic was relatively light so that an outage would cause the least disruption to service. Now, Verizon plans to perform such work outside of these "safe time" windows so that it does not have to staff the midnight to 8:00 AM shift. Verizon admits that the reduction of "safe time" windows "increase[s] risk of a "network event" during higher traffic periods [emphasis added]."
·       Verizon is deferring activities that are required to keep its network running smoothly and regularly. In the past, Verizon made sure that its equipment was running in a balanced manner so that specific circuits were not regularly running high traffic. Circuits tend to burn out more often if they regularly run high traffic. Such "office balancing" is not being practiced. Verizon also is deferring other important maintenance work. For example, previously workers would either rehabilitate old cable or put customers onto new cable during off-peak hours. Now, workers are directed to put customers on new cable only after the existing cable deteriorates to such an extent that reported troubles increase significantly.
·       Verizon is not staffing the Central Offices with frame administrators. Field technicians increasingly rely on frame administrators to locate the facilities needed to install a line – a vital service given the company’s chronic deficiency of good copper pairs. By understaffing the frame administrator position, Verizon forces customers to wait a longer for installations.
·       Verizon does not clean up the frames in many of its central offices. Frame administrators cannot reach a customer’s telephone line in some Central Offices because there are too many wires wrapped around the frame. Technicians refer to some of these conditions as "waterfalls" because the unnecessary wires are profuse and free flowing. This condition exists because Verizon eliminated the "disconnect team" – those frame administrators who removed all of the dead wires to prevent this condition. Now, thousands of useless wires prevent good service.
·       The company has cut overtime expenses and eliminated "call outs for minor alarms and non-service affecting troubles." In the past, the company would call out workers (call off-duty workers to return to work) as needed to address problems caused by "minor" alarms and such non-service affecting troubles as preventive maintenance. Such "call-outs" would insure that minor alarms would not turn into major switch outages. The Verizon Operations Report admits that this initiative to end call outs increases the duration of outages and repair times and leads to more customer complaints.

C. Downsizing Reduces Verizon’s Installation and Repair Performance
CWA technicians confirmed the Verizon Operations Report’s explanation that other "cost saving initiatives" associated with the downsizing will increase the amount of time it takes for technicians to install new service or repair troubles on existing lines.

·       Eliminate "Demand Work" from Construction. Previously, technicians and/or engineers would place new orders, called Demand Work, when faced with a shortage of "facilities" – the copper pairs needed to connect the office or home with Verizon’s network. The company has now eliminated demand work due to the downsizing and associated cost saving initiatives. Instead of constructing new facilities, the company is forcing technicians and customers to wait until existing facilities become available. This cost saving initiative "increase[s] ‘no facilities’ conditions" [emphasis added]. Technicians report that this initiative is exacerbating the current crisis level scarcity of clean copper pairs causing even further delays in the installation or repair of customer lines.
·       Records related to installations and repairs are not being properly maintained. In the past, the company invested in a huge program to update records. Now the company is cutting such investments. The Verizon Operations Report states that "if work is for non-revenue producing function[s] or not funded by the Capital Program [which has been significantly reduced] it will not be performed" [emphasis added]. The company admits that under this initiative the "Engineering Program will stop." Consequently, the engineering prints that identify the location of cables, facilities, and manholes will be corrupted. These work prints comprise a schematic of the company’s network and inform technicians about the location of cables, facilities, feeders, manholes, etc. Technicians rely on these work prints to properly and efficiently install or repair service.
·       Verizon has eliminated installation commitments for 8:00 AM. Previously, customers were given 8:00 AM commitments to make sure access lines were installed in the morning. Now, the company is making commitments starting two hours later at 10:00 AM. This new practice "will adversely effect… on time provisioning" i.e., installation [emphasis added].
·       There will be a "backlog increase" of uncompleted installations. This is the direct result of understaffing, lack of facilities, and poor record keeping.
·       The company is reducing "support on switched access services" in its Wholesale, Enterprise, and Business/Retail divisions." Support services include those workers in central offices who assist field technicians in their duties to install lines or fix troubles. Verizon is now reducing the number of technicians who test and trouble shoot the switch to determine the location of a trouble. It should be noted that the Wholesale Division oversees the services delivered to the company’s competitors, called Competitive Local Exchange Carriers or CLECs, which rely on Verizon’s network.
·       The company formerly gave customers a commitment to repair troubles within 24 – 48 hours and to install service within 5 business days. However, as part of the downsizing, these commitments are being extended out in time. CWA has received reports that the company is giving installation commitments of up to 4 weeks to customers.
·       Verizon will no longer provide services for "hot cuts" and "win backs" before 8:00 AM or after 5:00 PM. "Hot cuts" refer to those instances where CLECs have won over former Verizon customers and need to have the access line transferred to their switch without interrupting service. "Winback" refers to former CLEC customers who have returned to Verizon. Previously, Verizon prioritized service to the "hot cuts" and the "win backs." Now, services for these customers will be provided only within the 8:00 AM to 5:00 PM window. The Verizon Operations Report states that this cutback in service will result in "customer complaints."
·       Verizon admits that insufficient resources will be available for Customer Services (field operations) and the Network Operations Centers that control the switches. The Verizon Operation Report succinctly states that, as a result of the cost saving initiatives "… insufficient resources will be available to meet requirements" [emphasis added]. In other words, Verizon’s overall ability to service its customers from both the switch and the field will be impaired. The Verizon Operations report describes the impact of this company practice as "lower Performance results."

D. Downsizing Leads to the Further Deterioration of Verizon’s Outside Plant
CWA technicians report that Verizon has not invested enough capital to maintain its outside plant at a level that can reasonably be expected to meet the needs of the company’s customers. Outside plant comprises the equipment necessary to provide telephone service to the customer from the central office including such items as poles, cables, terminal boxes and wires. Specifically, Verizon is not replacing defective plant, maintaining existing plant, or supplying enough facilities to fix on-going problems.

Instead of fixing problems Verizon relies on short-term, stopgap solutions. In many areas, Verizon’s outside plant is inadequately protected from the weather, rodent damage or vandalism. For example, the company will cover a cable splice or terminal with a plastic tarp instead of a proper weather sealed enclosure. Another popular band-aid is that rather than provide a clean copper pair to install a new line or replace a defective pair, the company instead will use a special device to "split" an existing pair that serves one customer so that it now can serve up to eight separate customers. Though these temporary fixes may save money in the short term, they generate many more problems over time as will be discussed below. The cuts in Verizon’s construction budget and the transfer of the technicians who previously built and restored the outside facilities exacerbate the already deteriorating condition of the company’s outside plant.

i. Poor Condition of Outside Plant Facilities.
In 2002, Verizon has cut its construction budget significantly. In the first half of 2002, Verizon reduced its capital expenditures by $803 million or 56% compared to the first half of last year. Verizon also has transferred many workers out of construction across the entire state. In many instances, Verizon has halted construction work. CWA represented technicians from around the state are beginning to catalogue the poor condition of Verizon’s outside plant. Attachment 2 contains just a few examples of the deteriorating condition of Verizon’s outside plant in Manhattan, the Bronx, Brooklyn, Queens, Nassau, Staten Island and Westchester. CWA is in the process of collecting data from other Locals around the state. Problems identified by technicians so far include the following:
·       Cross boxes and terminals are in poor condition and, in some cases exposed to the weather and passers-by thus presenting a possible health and safety hazard for the public, let alone damage to the company’s equipment.
·       Aerial cables can be unlashed, i.e., not secured so that they represent a potential health and safety hazard.
·       Splices often are covered with rubber boots that are prone to leaks, rodent damage and vandalism that increase the risk of cable failures.
·       The increasingly rare replacement of poles, cables and terminals creates safety hazards and increases the possibility of cable failures.
·       Terminals hang off poles creating safety hazards and increasing the risk of cable failures.
·       Cables are placed but not spliced. In these cases, engineers wrote up new jobs, construction placed the cable but the company refused to assign workers to complete the job thus increasing the risk of cable failure for customers who needed the new cable in the first place.
·       An increasing backlog of pending construction work orders since more and more blocks and cables need to be replaced.
·       The lack of clean pairs forces workers to remove only the defective part of a pair and replace it with copper from somewhere else which destroys the continuity of the pair and makes it less efficient, durable and reliable.

ii. Lack of Preventive Maintenance.
Preventive maintenance is important to maintain the integrity of the company’s network. It minimizes the effects of accelerated wear on physical plant due to exposure to the environment through routine use. The Staff of the Department of Public Service has long recognized that "To be successful, a major component of a preventive maintenance program must include the expeditious repair or replacement of poor plant conditions… The preventive maintenance programs a utility undertakes must address problems found in the field not only in a reactive manner but also through a proactive approach to minimize future problems."

The Verizon Operations Report states that the company’s reduction in force plan will "reduce... preventive maintenance" and "lengthen the time between equipment inspections and preventive maintenance activities." Verizon’s downsizing will not allow for the "expeditious repair or replacement of poor plant conditions" that, as previously mentioned, Staff described as a criterion for a successful preventive maintenance program. In fact, technicians report that they have been directed to stop conducting proactive preventive maintenance and fix problems only after they occur. Such policies could prove disastrous when combined with the problems associated with switches and central offices that were previously discussed.

iii. Significantly Reduced Rehabilitation & Capital Program.
Rehabilitation programs allow the company to reduce long-term maintenance costs and improve the quality of service to its customers. Technicians report that Verizon significantly cut its capital construction budgets and basically shut down rehab activity including the block rehab program. Indeed, technicians report that they have been directed to stop conducting any proactive maintenance in their daily duties and to fix problems only after they occur.

iv. Band Aid Fixes to Long Term Problems.
Verizon does not supply enough clean copper pairs to enable technicians to properly install new customer lines or replace defective pairs on existing customer lines. Instead of supplying clean copper pairs, Verizon utilizes a "short term" technological fix in order to get customers back in service quickly. The technology involves installing a special piece of equipment called an AML (asynchronous multi-line) or DAML (digital asynchronous multi-line). The AML/DAML splits in half an existing copper pair that services one customer so that it can service two customers at the same time. With an AML/DAML the company can use an existing pair rather than replace the defective pair or install a new pair. The AML/DAML saves the company money because it does not have to incur the expense of obtaining clean copper pairs or running new cable.

However, the AML/DAML quick fix causes many problems. The AML/DAML technology adversely affects customers because it can compromise the use of faxes and modems. In addition, many AML/DAML boxes are in poor condition and not properly covered so that wires are exposed (see Attachment 2). This represents a hazard to workers and customers because the AML/DAMLs run on 135 volts.

AML/DAMLs also cannot support DSL service. This not only deprives customers of an important and ever more popular service but it also deprives the company of an important source of revenue. This is especially ironic since Verizon uses the decline in revenue as a rationale for its downsizing. Yet, in this case, Verizon’s own shortsighted decisions have reduced its revenue stream. Also, competitors seeking to provide DSL to Verizon’s voice customers via line sharing cannot do so where an AML/DAML exists on a customer’s loop. Use of these temporary fixes therefore interferes with CLEC efforts to compete with Verizon in the DSL market.

AML/DAMLs were initially considered to be a temporary fix. The technology allowed the company to get customers back in service quickly and to buy some time to install clean copper pairs later. However, Verizon has transformed a temporary fix into a long-term practice. CWA Locals report a significant number of AML/DAMLs: 50,000 in the Bronx, 30,000 in Brooklyn and 8,000 in Nassau County.

v. The Effect of 2002 Downsizing on Outside Plant Is Similar to the Crisis

Situation During the Early 1990s

The current state of affairs is reminiscent of the scenario in the early 1990s. At that time, a "moratorium" enabled NYNEX (the former parent of the local New York Telephone Company) to divert money to its unregulated operations. The resulting lack of investment in rehabilitation and plant maintenance led to a significant degradation of the company’s infrastructure. At that time, the staff of the Department of Public Service recognized the problems.

Staff claims that the company has not devoted enough resources to

rehabilitating those [outside plant] facilities (which connect subsribers’ Premises with the company’s local central offices), and staff also faults outside plant maintenance.

The condition of the company’s plant eroded to such an extent that in 1992 the Department of Public Service conducted an "Audit of New York Telephone’s Outside Plant Operations." The audit reiterated staff’s position that the poor condition of outside plant was due to a lack of resources devoted to plant rehabilitation and preventive maintenance. For example, the audit referred to the lack of an adequate number of trained workers assigned to the Rehab program.

To implement the Rehab program and at the same time perform quality assurance and conduct preventive maintenance, New York Telephone [NYT] must allocate an adequate number of qualified, trained personnel to these activities. Staff observed several indications that a lack of human resources in both the engineering and construction workforces may be hindering these outside plant activities… the Company had an insufficient number of engineers to effectively implement the company’s capital program… Furthermore, the quality of contractor engineering was often poor… NYT also experienced staffing and quality problems with the Company’s craft workforce.

Compounding this potential problem was the fact that during the audit, the Company instituted two workforce reduction programs. As a result of these programs, NYT’s management workforce was cut by 5% and the craft workforce was reduced by 8%.

The situation reached such a crisis that in 1996, the PSC required the company to invest $1 billion over five years to fix these problems and improve the infrastructure as a condition for PSC approval of the Bell Atlantic-NYNEX merger.
In 2002, Verizon is resurrecting the same failed strategy as it reduces its workforce and cuts its construction budgets to such an extent that maintenance and rehab programs are barely functioning, if at all.

IV. PAST EXPERIENCE HAS PROVEN THAT SIGNIFICANT REDUCTIONS IN FORCE ADVERSELY AFFECT SERVICE QUALITY AND NETWORK INFRASTRUCTURE

Over the past seven months, Verizon New York has reduced its non-management force by more than 4,000 workers through early incentive packages and attrition. Verizon still is in the process of eliminating the rest of the 2,000 jobs it identified in May. When this downsizing stage is finished, Verizon will have reduced its New York workforce by approximately 5,000 or 15.5% over eight months and by 6,750 or 20% over 20 months.
The phone company has a poor track record with such large reductions in its work force. In 1990, the company, then called NYNEX, reduced its workforce by 3,200 workers or 8%. This reduction in force also was accompanied by a significant deterioration of the company’s infrastructure. The staff of the Department of Public Service repeatedly warned the Commission about the deleterious impact of such downsizing in its testimony in Case 90-C-0191 and its 1992 Outside Plant Audit. Notwithstanding staff’s warnings and management’s promises to improve the situation, the company continued to reduce its investments in workforce and infrastructure. Over the five-year period extending from December 1990 through December 1995, the company reduced its non-management workforce by 5,000 or 15%.

The company provided a familiar rationale for its reduction in force. In January 1994, the chairman of NYNEX, William Ferguson, made the following statements:

NYNEX has to continue to drive our costs down in order to be able to compete in this increasing competitive market…

The re-engineering will save NYNEX $1.7 billion a year by the end of the program in 1996.

I recognize that this is painful for all the people of NYNEX… There is simply no alternative to the success of our business. This reduction in force is the result of dramatic changes in technology, customer needs, and public policy.

By 1995, the adverse affects of the downsizing on service quality and network infrastructure reached such a critical point that the PSC took action. The PSC mandated the following initiatives in order to make sure the company increased its workforce and investment in infrastructure.
·       The Performance Regulation Plan included a series of penalties to be levied against Verizon if it failed to attain specified service quality targets. In the first year of the PRP (September 1995 through August 1996) Verizon had to pay $71.5 million in penalties because it failed to reach its service quality targets.
·       As a condition of the Bell Atlantic-NYNEX merger, the PSC required the company to make a commitment to "hire between 750 and 1,000 additional employees prior to December 31, 1997, for the purpose of addressing service quality problems…"
·       As another condition of the Bell Atlantic-NYNEX merger, the PSC required the company to make a commitment to "invest an additional $1 billion in service-related infrastructure improvements over the next five (5) years, including at least one-half of the amount within the next two (2) years on capital projects to improve service quality throughout New York State, particularly in areas where service quality is currently most significantly below standards."
In 1996 and 1997 the company increased its non-management force by 4,200 workers. Service quality performance only started to improve after the company increased its workforce and infrastructure investments. As a result, the company’s PRP penalties decreased dramatically.
Just as in the early-1990s, the company now is seeking to rationalize the downsizing by referring to economic conditions and increased competition.

…competition. technological/product substitution… structural changes in the telecommunications industry… and regulatory actions… adversely affect the company’s business condition, reduce demand for the company’s services, revenues and workload, and directly reduce the need for employees.

Despite such claims Verizon NY still obtained more than $4 billion in revenue and $174 million in operating income for the first half of 2002 and paid $32 million in dividends to its parent company Verizon Communications, Inc.
Management is optimistic about the overall prospects for Verizon Communications and its consolidated operations. Ivan Seidenberg, the CEO of Verizon, stated the following.

Due to the long-term strength of our business model, Verizon is uniquely positioned to mitigate the effects of technology substitution and competition that have produced an ongoing, anticipated shift in our traditional revenue base.

The solid foundation that Verizon has built on operational excellence and execution continues to withstand these turbulent times.

Despite such optimism, Verizon NY is now implementing the same shortsighted policy as it did in the early-1990s in order to save a fraction of a cent on the dollar. CWA has estimated that the elimination of 2,000 jobs will save the company approximately $42 million for the balance of 2002 or just 0.5% of Verizon New York’s projected 2002 revenue of $8 billion.
Verizon’s management apparently has not learned the lessons of its ill-fated downsizing of the 1990s. These lessons were clear enough for the Wall Street Journal to use the company’s downsizing as an illustration of "dumbsizing."

Even greater than the rehiring expense is the blight on Nynex’s reputation for customer service – right when its core market is opening up to competition for the first time. ‘Their past reputation for customer service is their key competitive advantage,’ says Joe Kraemer, a management consultant at the A. T. Kearney subsidiary of Electronic Data Systems Inc. in Roslyn, Va. ‘But they’ve put all that at risk just to gain a few cents per share in a given quarter. It’s just plain dumb’ [emphasis added].

A Nynex spokesman acknowledges that customer service has suffered from the cutbacks and says the company is now hiring hundreds of workers to improve it. ‘Did we make some mistakes in offering our early-out program prematurely?’ says Arnie Eckelman, its executive vice president for quality. ‘In some cases, yes. But it was based on an assumption that service demand wouldn’t grow as fast as it has.’ [emphasis added]

The company created many service quality and infrastructure problems when it reduced its workforce by almost 20% from 1990 through 1995. Similar problems can be expected following its current workforce reduction of almost 20% over a much shorter 19-month period. This particular reduction in force especially is troubling because it is associated with decreases in construction, preventive maintenance, rehabilitation, and the monitoring and testing of the company’s network infrastructure. Just as in the mid-1990s, the downsizing places the company’s own well being at risk from PSC penalties, labor shortages, rehiring costs, and damage to its own competitive reputation by eroding the quality of services delivered to its customers. More importantly, the current reduction in force places the public at risk because of the increasing probability of switch failures, the erosion of the company’s outside plant, reduced service quality performance, and adverse impacts on competition and economic development. While Verizon’s management may be willing to take the risks associated with the reduction in force, the PSC should not.

V. CONCLUSION
In regard to telephone companies, the ultimate objective of the PSC is to insure safe and adequate service at reasonable cost to the public. The Public Service Law states that each telephone corporation must provide adequate facilities and instrumentalities to provide service in the State of New York.

Every… telephone corporation shall furnish and provide with respect to its business such instrumentalities and facilities as shall be adequate and in all respects just and reasonable [emphasis added].

In addition, the PSC is charged with the power to make sure that a telephone company provides adequate service that is safe and secure for the public.

The Commission shall have general supervision of all… telephone corporations… and the manner in which their lines and property are leased, operated or managed, conducted and operated with respect to the adequacy of and accommodation afforded by their service and also with respect to the safety and security of their lines and property… [emphasis added].

Following the Public Service Law, the PSC approved the VIP because it determined that it promoted the public interest.

Based upon the evidence in this record, we adopt the terms of the Verizon Incentive Plan contained in the Joint Proposal. We find the Plan will result in the continued provision by Verizon of safe and adequate service at just and reasonable rates, and that its terms will significantly enhance the conditions for local telecommunication competition in New York.

However, this Petition offers new evidence that was neither made part of the VIP proceeding’s record nor available publicly within 30 days of the VIP proceeding. The new evidence demonstrates that Verizon’s downsizing and associated cost saving initiatives produce significant – and admitted – risks to public health and safety, network reliability and security, competition, service quality performance, and the condition of outside plant. The new evidence calls into question the basis upon which the PSC determined that the VIP would provide safe and adequate service and enhance competition and economic development.

The PSC should grant this Petition and rehear Case 00-C-1945 or, in the alternative open a new proceeding in order to determine the impact of Verizon’s reduction in workforce and capital expenditures on public health, safety and security, competition, service quality and economic development. The Commission should also require Verizon to produce the full Verizon Operations Report and any other similar documents; the detailed budget for 2002 and 2003 and any internal evaluations of the impacts on the company’s infrastructure and service quality; and current forecasts for 2003.

The consequences of inaction could be substantial. Verizon management has instituted practices with substantial public risks. For example, any deterioration of network reliability in this day and age increases the public security risks affecting the lives of millions of New Yorkers. Yet, the company admits that its practices "will significantly increase the probability of multiple Network Events at the same point in time thus making resolution of such events more difficult than they are today." Technicians have also detailed the ways in which company practices are compromising system reliability including understaffing and cutbacks in monitoring, testing, rehabilitation, and preventive maintenance of the company’s switches, other equipment and outside plant.

Verizon management calls its policy "risk management." In this case, the private decisions of Verizon’s management are placing the public interest at risk. The PSC should not accept the same risks as Verizon. The PSC is the only public agency charged with the responsibility of protecting citizens against the risks that Verizon is forcing them to assume. Recent events have illustrated how the public was forced to bear significant costs when regulatory agencies overseeing energy, telecommunications, and securities have allowed private firms to take substantial public risks. The PSC should grant this petition so that it can develop a complete record in this case and utilize all the available evidence to determine whether the VIP adequately protects the public interest.

Respectfully submitted,
Kenneth R. Peres, Ph.D.
Research Director, CWA District One
80 Pine Street, 37^th Floor
New York, NY 10005
E-Mail: [email protected]
Dated: August 29, 2002