The FCC (www.fcc.gov) approved Verizon Communications Inc.’s (www.verizon.com) application to provide in-region, interLATA (local access and transport area) service originating in Massachusetts.
The federal agency said that its April 16 approval of Verizon's long-distance application promises substantial benefits for consumers in the form of new service providers, lower prices, tailored and bundled service packages, and better customer service.
The FCC, which said it applied the same standard it has developed and applied over the last several long-distance applications, now has approved BOCs in five states for in-region, long-distance service.
“Of the more than five years in which we have been responsible for implementing Section 271, we have adopted all five approval orders only in the last 16 months,” said FCC Chairman Michael K. Powell yesterday.
The Association for Local Telecommunications Services (www.alts.org) is disappointed with the FCC’s decision, claiming that Verizon is not in compliance with the Section 271 14-point competitive checklist and that its non-compliance has stymied competition in Massachusetts.
“Verizon has essentially been rewarded for ignoring the law and its obligations to open its market to competitors,” John Windhausen Jr., ALTS president, said in a statement. “Like a high school senior who has not yet learned to read, the FCC has given Verizon a ‘social promotion’ -- graduating a student simply because her time to graduate has come.”
Mark Cooper, director of research for the Consumer Federation of America (www.consumerfed.org), and Paul Schlaver, chairman of the Massachusetts Consumers' Coalition (www.massconsumers.org), also weren’t happy with the FCC’s decision.
“The FCC under new Chairman Michael Powell dealt a serious blow to residential telephone consumers nationwide … by approving Verizon's entry into Massachusetts' long distance market, after a process fraught with shenanigans,” Cooper and Schlaver said in a joint statement yesterday.
“Allowing Verizon to sell long-distance service before it has opened its monopoly service areas to alternative local service providers snuffs out any hope that a vigorously competitive telephone market will develop,” they said, adding that this approval means that “the FCC has significantly lowered the bar for long-distance entry.”
Cooper and Schlaver also don’t believe Massachusetts consumers will see the savings that consumers have experienced in New York and Texas since those local phone markets were opened to competition.
ALTS General Counsel Jonathan Askin said that the group’s members hope that the FCC’s order will acknowledge that deficiencies still exist in Verizon’s ability to provision unbundled network elements (UNEs) and services to its wholesale customers, a.k.a. the CLECs.
Chairman Powell, who voted along with two of his colleagues to approve the Sec. 271 bid (Commissioner Gloria Tristani dissented), did say yesterday that Verizon’s application “has some weaknesses.”
Powell said that the central concern with the application is the rate Verizon offers for switching, which he says “is clearly higher than those we have seen in some other states.”
Notwithstanding serious reservations about Verizon’s UNE pricing, Commissioner Susan Ness voted to approve the application “with some trepidation.”
“Enduring competition in the local market will only take root and thrive if we and our state colleagues rigorously pursue cost-based pricing,” Ness said. “Indeed, pricing is at the very core of the statutory framework Congress constructed to eliminate economic barriers to entry in all telecommunications markets. The use of a forward-looking methodology -- with a reasonable risk-adjusted return to incumbents -- promotes fair and efficient competition.”
Ness said that the FCC’s independent evaluation shows that the original switching rates adopted by the Massachusetts Department of Telecommunications and Energy (www.state.ma.us/dpu) were substantially higher than other states and not within a range of prices that would be consistent with forward-looking principles.
With average consumer usage, the per month costs for switching, transport and signaling would have been $21.68 in Massachusetts, more than double the rate in New York and more than 300 percent above the rates in numerous other states in Verizon’s territory and across the country, according to Ness.
“I would not have approved an application that was based upon such rates absent compelling evidence that switching costs in Massachusetts should differ so extraordinarily from those in other states,” she said.
Ness said that the FCC’s order permits Verizon to rely on current switching rates from New York -- a neighboring state with similar cost characteristics -- to prove compliance with the statutory requirements. She said she has “significant misgivings about this approach.”
The rates adopted in New York are several years old and are under active review by the New York State Department of Public Service (www.dps.state.ny.us) with a true up after it completes its review, Ness explained.
Since the FCC’s approval of Verizon’s New York application, other states have adopted switching rates that are significantly lower than those in New York.
“Reluctantly, I am compelled to support the decision to grant this application because the rates that were approved by the New York commission -- and evaluated by this commission -- are presently in effect and there is insufficient evidence in the record at this time to determine that those rates are inconsistent with forward-looking principles,” she said.
Ness said that the approval recognizes, however, that rates will evolve over time to reflect changed market conditions, new technologies and updated information on cost inputs. “Parties should be forewarned that they should not rely on outdated rates in future applications,” she advised.
Ness also said that she was troubled by the cost inputs used to set the loop rates in Massachusetts.
Commissioner Tristani said that Verizon hasn’t demonstrated compliance with Sec. 271. In particular, she said in her dissent that Verizon has not established that its switching rates are based on the forward-looking total element long run incremental cost (TELRIC) of providing a network element.
“The availability of [UNEs] at cost-based rates is an essential ingredient of a primary strategy for entering the residential market in Massachusetts,” Tristani said.
But the FCC’s task under the 14-point checklist is to ensure that whatever rates are offered are ‘cost-based’ and forward-looking, Powell said.
“In evaluating Sec. 271 applications, the commission does not conduct completely independent rate proceedings,” Powell said. “Thus, we are left to examine whether a state commission demonstrates intent and some ability to use the appropriate methodology, and whether the rates ultimately relied on in the application are within the range that a reasonable application of TELRIC principles would produce.”
In an ongoing state proceeding, if New York revises its rates downward after concluding that its prior determinations weren’t soundly cost-based, Powell said that neither Verizon nor anyone else could properly rely in future applications on the rates the FCC has already approved in its New York order without new substantiation.
“Furthermore, depending on the scope of the New York commission’s upcoming decision on rates, this commission might determine that Verizon has subsequently ‘ceased to meet [one] of the conditions required for [Sec. 271] approval,’ thereby empowering us to take remedial action under Sec. 271(d)(6),” Powell said.
Verizon filed its initial application for Sec. 271 authority for Massachusetts on Sept. 22, 2000, but withdrew it and re-filed an application on Jan. 16. Following is an FCC summary of the competitive activity for Massachusetts:
 Competitors serve more than 513,000 local telephone lines on a facilities basis.
 Competitors serve more than 93,000 unbundled loops.
 Competitors serve more than 238,000 business resold lines and more than 30,000 residential resold lines.
Since passage of the Telecommunications Act of 1996, the FCC has denied five long-distance applications, and now has approved applications for long-distance entry into five states. Currently, there is one pending long-distance application before the commission, that of SBC Communications Inc. (www.sbc.com) in Missouri. BellSouth Corp. (www.bellsouth.com) plans soon to file a bid to offer long-distance in Georgia.
The FCC emphasizes that Verizon must continue to comply with the Sec. 271 checklist requirements or face FCC enforcement action, including penalties or suspension of approval.
