- The Washington Times - Friday, March 23, 2001

Pennsylvania regulators yesterday reversed a 1999 decision requiring Verizon Communications Inc. to split into two companies to introduce more competition to the local-calling market.
The decision could affect the outcome of similar debates in Maryland, Florida, Illinois and New Jersey. Officials in those states are considering proposals modeled after Pennsylvania's September 1999 requirement that Verizon, which has a 90 percent share of that state's local-calling market, split into two companies.
Virginia could emerge as a new battleground state. AT&T; Corp. spokeswoman Claudia Jones yesterday said the company may file a petition asking state regulators to force the split of Verizon's Virginia operations into two.
"It's something we're looking into," she said.
In the areas of Virginia where it provides service, Verizon has 96 percent of the local-calling market, according to records filed with the Federal Communications Commission.
AT&T; is considering filing similar petitions in New York and New Hampshire.
Competitors, led by long-distance giant AT&T;, argue that splitting up Verizon is necessary to chip away at the company's monopoly.
Verizon applauded the Pennsylvania commission's ruling.
"They backed away from full structural separation, and that's very encouraging," Verizon spokesman Eric Rabe said. "The commission has stepped back from what we saw as a very dangerous idea."
Verizon argued splitting in two would cost it $1 billion initially and $300 million annually in additional operational expenses.
"We're not surprised. The Pennsylvania officials realized that structural separation was a dumb idea and could drive up costs to consumers," said Ken Johnson, spokesman for Rep. W.J. "Billy" Tauzin, Louisiana Republican and chairman of the House Commerce telecommunications, trade and consumer protection subcommittee.
With Pennsylvania's reversal yesterday, no state has a structural separation order in place.
In Pennsylvania, the state Public Utility Commission adopted a plan letting Verizon remain intact. Instead of endorsing a "structural separation," it approved a plan by a 5-0 vote that forces Verizon to make a "functional separation."
Verizon will be required to separate its wholesale and retail operations.
The retail business markets local phone service. The wholesale business operates the company's telecommunications equipment and connects phone calls.
Under terms of the Pennsylvania order, Verizon would have to give competitive local-calling providers the same access to its telephone system as it provides to its own retail business.
Verizon still can reject the order, but the utility commission could then demand the company split in two, the agency said in a statement.
Verizon competitors said the decision amounted to a bittersweet victory. While they hoped the state agency would uphold the 1999 separation order, the outcome wasn't a total defeat because the ruling is intended to restore competition.
"Half a loaf is better than none," said H. Russell Frisby Jr., president of the Competitive Telecommunications Association, a D.C.-based group of competitive local exchange carriers that market phone and Internet services.
Tom Mazerski, president and chief executive of competitive local exchange carrier Close Call America, of Kent Island, Md., said regulators indicated they are concerned about Verizon's potential anti-competitive behavior.
"I see this as not much of a change, but the signal to Verizon is that the state is keeping an eye on them," Mr. Mazerski said.
Pennsylvania Public Utility Commission Chairman John M. Quain said in a statement after the meeting that "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."
Competitors of the Baby Bells Verizon, created last June when Bell Atlantic Corp. bought GTE Corp.; SBC Communications Inc.; Qwest Communications; and BellSouth Corp. argue that separation is needed to overcome the Baby Bells' refusal to allow access to equipment that connects calls. Separation would also chip away at the Bells' local-calling monopoly, competitors argue.
They also argue that separation is needed to prevent the Baby Bells from remonopolizing or entering the market for long-distance calling service before they allow competition for local calling.
The continuing dispute over whether Verizon should be forced to separate its retail and wholesale operations isn't an indictment of the 1996 Telecommunications Act, but it is evidence that the "Bells have been dragging their feet in complying with the act," said Robert M. McDowell, assistant general counsel for the Competitive Telecommunications Association.
The Telecommunications Act requires Baby Bells to open access lines to competitors before they begin marketing long-distance service.
The law has been widely criticized for failing to lower rates by increasing competition. The average rate for local-calling service in urban areas in 1999 was 8 cents a month lower than it was in 1996, according to a Federal Communications Commission report issued in December.

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