Regulatory News - Verizon Takes Hits

Posted: 03/2001

Verizon Takes Hits
Company Still Standing Despite
Lawsuit, Separation Order
By Kim Sunderland

Verizon Communications Inc. (www.verizon.com)
recently received the kind of one-two punch that might knock a lesser competitor
to the canvas.

In Pennsylvania, the Public Utility Commission (PUC, http://puc.paonline.com)
is expected to order Verizon to separate its wholesale and retail operations.
Verizon plans to fight the issue in court.

Meanwhile, a class action lawsuit has been filed against Verizon on behalf of
the Bell’s own customers. The plaintiffs allege it took weeks and sometimes
months to get DSL high-speed Internet access installed.

Verizon acknowledges the delays, saying they have been caused by rolling out
a service, for which the demand has been great.

A company spokesman adds that, despite the delays, Verizon stands behind its
DSL offerings.

Wholesale/Retail

The Pennsylvania PUC believes splitting Verizon’s wholesale and retail
service operations will boost local telephone competition.

Verizon says the PUC doesn’t have the authority to require such a breakup,
and it is taking the issue to court.

Verizon argues that the PUC action would cost it $1 billion, while
threatening 7,600 Verizon jobs in the state. The company also says that the
PUC’s plan ignores growing competition in the state.

"This totally unwarranted action would stop a quick-moving industry in
its tracks–an industry that is critical to the future of our state,"
Daniel Whelan, Verizon’s president and CEO of Pennsylvania operations, said in a
statement.

But the regulators’ action has the blessing of the Competitive
Telecommunications Association (CompTel, www.comptel.org),
which lauds the structural separation idea.

"The only way to achieve true competition is through structural
separation," says H. Russell Frisby Jr., president of CompTel.

Verizon has made some suggestions in an effort to convince the PUC that
separation is unneeded. For example, in late December, the company and State
Sen. Vincent J. Fumo, D-Philadelphia, proposed a deal that included reducing the
rates Verizon would charge competitors for access to its network, as well as
breaking up its high-speed data transmission and Internet access services into
separate divisions.

The deal also would create a telecom economic development fund that state
lawmakers would oversee. Verizon agreed to pay into the fund, whenever the state
penalized it for failing to supply connection services to its competitors in a
timely manner.

But an administrative law judge shot down the proposal earlier this year,
saying the alternatives didn’t comply with the PUC’s order that Verizon submit a
plan for full structural separation.

If the PUC’s order stands, Verizon would have to begin a one-year transition
to create a separate, independent affiliate to offer retail phone service. The
separate wholesale and retail units would have to maintain independent books,
records and accounts. They also would have to employ separate officers,
directors and employees, according to the PUC.

"Full structural separation of Verizon’s wholesale and retail operations
is the best way to eliminate the discriminatory treatment that ATX and other
telecommunications carriers experience when purchasing facilities and services
from Verizon," says Thomas Gravina, senior vice president and COO of
business services for ATX Telecommunications Services Inc. (www.atx.com)–A
CoreComm Communications Inc. (www.core.com)
company.

"Verizon has fought this battle long enough," Gravina adds.
"It’s time to respect the wishes of the [Pennsylvania] commission and
consumers for more choice and greater competition in the market for local phone
service."

ATX, a Bala Cynwyd, Pa.-based competitor, had participated in the PUC’s
proceedings on structural separation.

Court Challenge

The class action lawsuit against Verizon was filed by Cohen, Milstein,
Hausfeld & Toll PLLC (www.cmht.com), a
Washington, D.C., and Seattle firm that specializes in class action law.

The suit alleges that Verizon signs up more than 3,000 new DSL customers per
day, even though it knows it can’t support that many new connections.

The complaint was filed Jan. 16, in the Superior Court of the District of
Columbia (www.dcsc.gov), on behalf of all
purchasers of the Verizon Online and Verizon DSL Access service.

Named in the suit are the parent company Verizon and Verizon Internet
Services Inc. (www.bellatlantic.net).

"Verizon guaranteed the availability of this service, with the exception
of regularly scheduled maintenance," according to a statement by Cohen
Milstein attorney Gary Mason. "Verizon customers, however, have not had
uninterrupted access to the Internet. To the contrary, Verizon customers have
experienced significant access disruptions and significant delays in obtaining
technical service."

The lawsuit seeks unspecified damages and a court ban on new Verizon DSL
connections until it resolves existing problems.

Lawrence Plumb, Verizon’s director of broadband media relations in northern
Virginia, says there are stresses and strains associated with rolling out a
"rapidly evolving and sophisticated technology," and that such
problems are nationwide for all players.

In fact, customers of SBC Communications Inc. (www.sbc.com)
and BellSouth Corp. (www.bellsouth.com)
have filed similar class action lawsuits.

The problem for the Bells is trying to get enough technical people out to
install DSL lines to meet customer demand, analysts say.

For example, Verizon installed 540,000 DSL lines by the end of 1999, compared
to fewer than 90,000 the prior year.

"We support DSL and we stand behind our service," Plumb says.

Despite these recent events, Verizon continues to seek state and federal
approvals to provide in-region long-distance services in several of its states.