Verizon Told to Split in PA

Former Baby Bell ordered to run separate units for wholesale and individual customers in Pennsylvania—a requirement that spares the company from a more costly breakup. Learn what ISPs can expect from Verizon.

by ISP-Planet Staff [March 24, 2001]

The state Pennsylvania Public Utility Commission voted unanimously this week to allow Verizon Communications Inc. to remain intact in exchange for treating rivals that lease its lines the same way it treats its own retail business serving Verizon customers. If the company rejects the order, a full breakup might be required, the state regulatory agency said in a statement.

Pared parts
Pennsylvania is among several states considering steps to break up a local phone companies to stimulate local competition, prompted by demands from competitors. Verizon has said that creating different companies, as first proposed in 1999, would have cost $1 billion.

John M. Quain, the PPUC chairman, said a functional structural separation would be seamless for Verizon customers because they would never actually be moved to a new company.

"At the same time, a strong code of conduct and increased penalties tied to Verizon's performance should be enough to convince competitors that this commission will not tolerate any discriminatory actions by Verizon, " Quain added.

In addition to several conditions and requirements imposed on Verizon, the PPUC order also increases the fines Verizon must pay for failing to meet service standards for fulfilling orders. For every violation that lasts longer than 30 days but prior to 60 days, the fine will be increased by $1,000, from $2,000 to $3,000. For violations lasting longer than 60 days, the penalty will be increased by $1,000, from $4,000 to $5,000. The increased portion of the penalties are to be paid directly to the PUC. Verizon submits a performance report every month to the PUC and a list of the penalties it has paid for the month prior.

Break up or break down
Under the order, Verizon, which was created by the merger of Bell Atlantic and GTE, may use the same computer equipment and sites to serve both wholesale and individual customers, with the wholesale unit required to give rivals the same access to its lines as provided to Verizon's retail unit.

If Verizon does not accept the PUC plan, it will face the possibility of full structural separation and the breakup of the company in the Section 271 proceeding before the commission, where Verizon hopes to gain access to long-distance markets.

Verizon put an entirely different spin on the PPUC ruling. In a statement to the press, Verizon officials said that Pensylvannia's regulators "apparently reject the concept of structural separation."

"The commission recognized that dividing Verizon Pennsylvania into two separate entities—one to sell wholesale services and one to sell retail services—is unwarranted," said Daniel J. Whelan, president and CEO of Verizon Pennsylvania. "There are, however, a number of provisions that could be troublesome. The motion is a complex document, which we must closely review before commenting in detail."

Verizon argued vigorously before the agency and in state courts that the PUC's proposal to carve Verizon Pennsylvania into separate wholesale and retail companies would cost nearly $1 billion, increase phone prices and cast a pall of confusion over local telecommunications akin to the 1984 breakup of AT&T.

Ma Bell blamed
AT&T lobbied heavily in favor of cleaving Verizon Pennsylvania in two. In the end, Verizon officials said it was forced to respond to AT&T's advertising blitz, designed to keep Verizon out of the long-distance business and limit consumer choice in Pennsylvania.

The PPUC's take on Verizon's advertising blitz on the state did not blame AT&T for misinforming citizens and fear mongering—Quain blamed Verizon. Immediately following the 5-0 vote, Quain also sharply criticized Verizon for deliberately obstructing the structural separation proceedings that led to today’s decision and for trying to alarm the public with a campaign of misinformation.

"Verizon has threatened the citizens and businesses of the Commonwealth with negative consequences and outcomes...far beyond the forseeable scope of the proceeding," Quain said.

“As evidenced by the very content of its publications, Verizon did this to portray structural separation as leading to lost jobs and broad-based negative economic impact, while Verizon threatened to relegate Pennsylvania to virtual ‘backwater’ status in the Information Age,” Quain added.

ISP repercussions
Industry analysts anticipate that Verizon will check the PPUC ruling by violating the order and testing it in court. Few believe that at the end of the day, Verizon would comply with the PPUC order.

In the meantime, Internet service providers will likely continue to receive shoddy service from Verizon when securing new T1 and T3 lines, or contract do DSL service via collocation at Verizon's Central Offices.

Verizon recently started to leverage ISPs toward contracting for OC-3 pipies if they want to continue offering digital subscriber line service through the Eact Coast carrier.

According to Daryl Schoolar, a strategic analyst at online research company Cahner's Instat, the move to require ISPs such a large amount of bandwidth is likely the result of the recent failures by DLECs, but he said there are plenty of other companies with which ISPs can reach wholesale agreements.

"It could be very well that Verizon is raising the bar to limit the whole approach of small ISPs who wholesale Verizon service and to make sure that those who do approach them are more comfortable financially," Schoolar said. "But from a small ISP point of view, there are still ton's of different companies they can get a backbone connection with like the DLECs, they can go to WorldCom, they can go to Cable & Wireless and they can go to AT&T."

—End