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Before the
               Federal Communications Commission
                     Washington, D.C. 20554



In the Matter of


Verizon Petitions for Pricing Flexibility for
Special Access and Dedicated Transport Services 


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CCB/CPD Nos. 00-24, 00-28 



                  MEMORANDUM OPINION AND ORDER

Adopted:    March 13, 2001              Released:    March 14, 2001

By the Chief, Common Carrier Bureau:


                      I.introduction.
1.In this order, we grant two Verizon petitions for flexibility in the pricing of access services
provided by an incumbent local exchange carrier (LEC).  In its first petition, Verizon seeks both Phase I
and/or Phase II relief in certain metropolitan service areas (MSAs) and non-MSA areas for access
services provided by former Bell Atlantic telephone companies.  In its second petition, Verizon seeks
similar relief for access services provided by former GTE telephone operating companies. 
                      II.Background.
3.     To recover the costs of providing interstate access services, incumbent local exchange
carriers (LECs) charge interexchange carriers (IXCs) and end users for access services in accordance
with our Part 69 access charge rules.  The Commission has long recognized that it should allow
incumbent LECs progressively greater flexibility in the pricing of access service as they face increasing
competition for the provision of these services.  In the Access Reform First Report and Order, the
Commission adopted a market-based approach to access charge reform, pursuant to which it would relax
restrictions on incumbent LEC pricing as competition emerges.  At that time, the Commission deferred
resolution of the specific timing and degree of pricing flexibility to a future order.  Subsequently, in the
Access Reform Fifth Report and Order, the Commission provided detailed rules for implementing the
market-based approach, pursuant to which price cap LECs would receive pricing flexibility in the
provision of interstate access services as competition for those services develops. 
4.     The pricing flexibility framework the Commission adopted in the Access Reform Fifth
Report and Order grants greater flexibility to price cap LECs as competition develops, while ensuring
that:  (1) price cap LECs do not use pricing flexibility to deter efficient entry or engage in exclusionary
pricing behavior; and (2) price cap LECs do not increase rates to unreasonable levels for customers that
lack competitive alternatives.  In addition, the reforms were designed to facilitate the removal of services
from price cap regulation as competition develops in the marketplace, without imposing undue
administrative burdens on the Commission or the industry. 
5.     In keeping with these goals, the Commission established a framework for granting price cap
LECs greater flexibility in the pricing of interstate access services once they make a competitive
showing, or satisfy "triggers," to demonstrate that market conditions in a particular area warrant the relief
at issue.  Relief is granted in two phases and on an MSA basis.  
6.     Phase I Pricing Flexibility.  A price cap LEC that obtains Phase I relief is allowed to offer,
on one day's notice, contract tariffs and volume and term discounts for those services for which it
makes a specific competitive showing, so long as the services provided pursuant to contract are removed
from price caps.  To protect those customers that may lack competitive alternatives, a price cap LEC
receiving Phase I flexibility must maintain its generally available price cap constrained tariffed rates for
these services.  To obtain Phase I relief, a price cap LEC must meet triggers designed to demonstrate
that competitors have made irreversible, sunk investments in the facilities needed to provide the services
at issue.  In particular, to receive pricing flexibility for dedicated transport and special access services
other than channel terminations, a price cap LEC must demonstrate that unaffiliated competitors have
collocated in at least 15 percent of the LEC's wire centers within an MSA or collocated in wire centers
accounting for 30 percent of the LEC's revenues from these services within an MSA.  In both cases, the
price cap LEC also must show, with respect to each wire center, that at least one collocator is relying on
transport facilities provided by a transport provider other than the incumbent LEC.  
7.     Higher thresholds apply for obtaining Phase I pricing flexibility for channel terminations
between a LEC end office and an end user customer.  A competitor collocating in a LEC end office
continues to rely on the LEC's facilities for the channel termination between the end office and the
customer premises, at least initially, and thus is more susceptible to exclusionary pricing behavior by the
LEC.  In that case, a price cap LEC must demonstrate that unaffiliated competitors have collocated in at
least 50 percent of the LEC's wire centers within an MSA or collocated in wire centers accounting for 65
percent of the LEC's revenues from these services within an MSA.  Because competition is likely to
develop first for those services that carry traffic between points of high traffic concentration, the
Commission set a lower threshold for the channel terminations between a LEC serving wire center and an
IXC POP.  Therefore, a price cap LEC seeking pricing flexibility for channel terminations between a
LEC wire center and an IXC POP must demonstrate that unaffiliated competitors have collocated in at
least 15 percent of the LEC's wire centers within an MSA or collocated in wire centers accounting for 30
percent of the LEC's revenues from these services within an MSA.  In adopting these collocation
triggers, the Commission required that the LEC exclude from its calculations both collocation in which
transport is provided by the incumbent LEC pursuant to tariff and collocation that relies upon unbundled
transport leased from the incumbent LEC. 
8.     Phase II Pricing Flexibility.  A price cap LEC that receives Phase II relief is allowed to offer
dedicated transport and special access services free from the Commission's Part 69 rate structure and
Part 61 price cap rules.  The LEC, however, is required to file, on one day's notice, generally available
tariffs for those services for which they receive Phase II relief.  To obtain Phase II relief, a price cap
LEC must meet triggers designed to demonstrate that competition for the services at issue within the
MSA is sufficient to preclude the incumbent from exploiting any individual market power over a
sustained period.  To obtain Phase II relief for dedicated transport and special access services other than
channel terminations, a price cap LEC must demonstrate that unaffiliated competitors have collocated in
at least 50 percent of the LEC's wire centers within an MSA or collocated in wire centers accounting for
65 percent of the LEC's revenues from these services within an MSA.  Again, higher thresholds apply
for obtaining Phase II pricing flexibility relief for channel terminations between a LEC end office and an
end user customer.  To obtain such relief, a price cap LEC must demonstrate that unaffiliated competitors
have collocated in at least 65 percent of the LEC's wire centers within an MSA or collocated in wire
centers accounting for 85 percent of the LEC's revenues from these services within an MSA.  For the
reasons discussed with respect to Phase I pricing flexibility, a price cap LEC seeking pricing flexibility
for channel terminations between a LEC serving wire center and an IXC POP must demonstrate that
unaffiliated competitors have collocated in at least 50 percent of the LEC's wire centers within an MSA
or collocated in wire centers accounting for 65 percent of the LEC's revenues from these services within
an MSA.  
9.     We note that a finding that a carrier has satisfied our pricing flexibility rules, made in the
context of our access charge rules, has no bearing on any questions regarding  such carrier's compliance
with the requirements of section 271 of the Communications Act.  We further note that this Order's
findings are based solely upon the record before us and that the Commission is not precluded from
revisiting any competitive review in a separate 271 proceeding.
     X.   DISCUSSION
11.    In its November Petition, Verizon seeks pricing flexibility relief for certain special access
and transport services in numerous MSAs and non-MSAs.  It seeks end user channel termination Phase
I relief in 12 MSAs and Phase II relief in 11 MSAs.  It seeks special access and dedicated transport
Phase I relief in four MSAs and the non-MSA study area in the State of Maryland and Phase II relief in
37 MSAs and non-MSA areas. 
12.    In its December Petition, Verizon again seeks pricing flexibility for certain special access
and transport services.  It seeks end user channel termination Phase I relief in one MSA; special access
and dedicated transport Phase I relief in one MSA; and, special access and dedicated transport Phase II
relief in three MSAs. 
13.    AT&T, WorldCom, and OnFiber challenge Verizon's November Petition on several
grounds.  Some of the issues raised by commentators, however, are simply challenges to the pricing
flexibility rules as set forth in the Fifth Access Reform Report and Order.  For example, AT&T argues
the rules grant pricing competition without a showing of meaningful competition.  As the Commission
has previously stated in the BellSouth Pricing Flexibility Order, these issues are not properly raised in
these proceedings.  AT&T and MCI raised these issues on appeal to the D.C. Circuit, which affirmed the
Commission's approach to pricing flexibility.  We will not reconsider these issues here. 
14.    Beyond these untimely, collateral attacks on the Pricing Flexibility Order, commenters
allege that Verizon in its November Petition has failed to meet the pricing flexibility requirements set
forth in the rules.  They argue that Verizon has failed to provide data for the revenue portion of the
pricing flexibility test broken down by wire center, as opposed to MSA.  Without such a breakdown,
they allege it is impossible to determine whether Verizon satisfies the pricing flexibility tests. Further,
AT&T alleges that Verizon in its petition erroneously identified AT&T as a collocator that employs non-
Verizon entrance facilities.   Only the United States Telecom Association supports Verizon's November
Petition.
15.    Verizon, in its Reply, argues that the Access Reform Fifth Report and Order only requires
identifying revenue percentage broken down by MSA, not wire-center.  Verizon concedes that in 13 wire
centers cited in the November Petition AT&T is not employing non-Verizon entrance facilities.  Verizon
argues, however, that even granting AT&T's point, it still meets the collocation and revenue
requirements, with the exception of one MSA, Monmouth NJ, which it withdrew from its petition. 
Verizon also submitted revised data, claiming that it still satisfied our pricing flexibility benchmarks in
the other disputed MSAs.
16.    Only AT&T filed comments in opposition to the December Petition.  Again, AT&T
challenges the pricing flexibility rules as insufficiently probative of competition, particularly in suburban
and rural areas, and argues against our revenue aggregation rules.  AT&T also claims that Verizon's
petition is unclear on two points: whether the competitive transport facilities it relies upon are entrance
facilities or interoffice transport and whether collocators use transport facilities owned by a party other
than the LEC, (i.e., UNE transport). 
17.    As noted above, pricing flexibility will be granted upon the satisfaction of certain
competitive showings.  An incumbent LEC bears the burden of proving that it has satisfied the applicable
triggers for the pricing flexibility it seeks for each MSA.  In the Access Reform Fifth Report and Order,
the Commission set forth two means of satisfying this burden.  First, the incumbent may show the
following:  (1) the total number of wire centers in the MSA; (2) the number and location of the wire
centers in which competitors have collocated; (3) in each wire center on which the incumbent bases its
petition, the name of at least one collocator that uses transport facilities owned by a provider other than
the incumbent to transport traffic from that wire center; and (4) that the percentage of wire centers in
which competitors have collocated satisfies the trigger the Commission adopted with respect to the
pricing flexibility sought by the incumbent LEC.  Alternatively, the incumbent may show:  (1) the total
base period revenues generated by the services for which the incumbent seeks relief in the MSA for
which the incumbent seeks relief; (2) in each wire center on which the incumbent bases its petition, the
name of at least one collocator that uses transport facilities owned by a provider other than the incumbent
to transport traffic from that wire center; and (3) that the wire centers in which competitors have
collocated account for a sufficient percentage of the incumbent's base period revenues generated by the
services at issue within the relevant MSA or non-MSA area to satisfy the trigger the Commission adopted
with respect to the pricing flexibility sought by the incumbent LEC. 
18.    In both of its petitions, Verizon chose the latter alternative for identifying MSAs that qualify
for pricing flexibility relief. In both petitions, Verizon identified wire centers having at least one
collocator that uses a non-Verizon transport provider in the following manner: (i) billing records were
consulted to identify collocators currently billed for cable space and cable support structure services
required for parties using their own or a third party's fiber for transport and (ii) if billing records did not
indicate collocation, but collocators were known to be present, Verizon conducted a physical
inspection.  
19.    In its November Petition, Verizon divided its revenue, as extracted from its billing system,
between dedicated transport/special access revenue and end user channel termination revenue.  Once
revenue had been so divided, each wire center was assigned to an MSA or non-MSA area. In New York
and New England, billing records were available at the circuit level.  This allowed identification of the
yearly revenue data relevant to the pricing flexibility rules, i.e. revenue from channel terminations to a
serving wire center as well as channel mileage.  
20.    In the mid-Atlantic states, such data was not readily available.  Verizon, therefore, relied
upon two databases: the CABIS (Carrier Access Billing Inquiry System) and CARD (Carrier Access
Revenue Data) to calculate the relevant revenue data.  The CABIS databases covers September 1999
through November 1999.  Its data provided ratios for each particular wire center that compared end-user
channel termination revenue to total channel termination revenue for each wire center.  These ratios were
then multiplied by the yearly revenue data from the CARD database to calculate yearly end user channel
termination revenue figures for each wire center.  This was repeated for channel terminations going to a
POP, and a similar approach was used to allocate channel mileage revenue.  Unidentified revenue was
allocated to wire centers in the same proportion as the identifiable revenue.  Verizon lists the MSAs and
non-MSA areas that satisfy the revenue requirements, and the wire centers that satisfy the collocation
requirements. 
21.    In its December Petition, Verizon employed similar methods to demonstrate compliance with
our pricing flexibility rules.  It obtained billing information from actual 1999 billing details for all
circuits.  Verizon could assign the individual revenue elements of its channel terminations so that it
could determine the revenue allocations for channel termination associated with the carrier POP serving a
wire center and/or end user's wire center.  In order to allocate mileage revenue, however, Verizon relied
upon October 2000 billing data from its Carrier Access Billing System (CABS) from which it extracted a
ratio comparing the mileage revenue for a particular wire center to the total mileage for all wire centers.
These ratios were then applied to total mileage revenue from CABS to obtain 1999 mileage revenue for a
particular wire center.  Unidentified revenue was allocated to wire centers in the same proportions as
the identifiable revenue.  As with the November Petition, Verizon lists the MSAs and non-MSA areas
that satisfy the revenue requirements, and the wire centers that satisfy the collocation requirements. 
22.    Based upon a review of the information submitted we conclude that Verizon has satisfied its
prima facie burden of demonstrating that it has met the applicable triggers for each of the various
services and MSAs for which it requests relief.  Specifically, we find that Verizon's revenue methods
adequately demonstrate adherence to the pricing flexibility rules.
23.    Commenters argue that Verizon has failed to satisfy the tests that these rules mandate.  In
both the November and December Petitions, commenters claim Verizon has failed to provide data for the
revenue portion of the pricing flexibility test broken down by wire center, as opposed to MSA.  They
allege that, without such a breakdown, it is impossible to determine whether Verizon satisfies the pricing
flexibility tests.  Further, AT&T alleges that Verizon erroneously identified AT&T as a collocator with
non-LEC transport for selected wire centers cited in their petition. 
24.    AT&T also argues that Verizon failed to meet the pricing flexibility tests in two ways in the
December Petition.  First, AT&T argues that it is unclear whether the competitive transport facilities
Verizon relies upon in meeting the pricing flexibility triggers are entrance facilities or interoffice
transport.  AT&T also argues that it is not clear whether Verizon has properly adhered to the pricing
flexibility rules that at least one collocator in each cited wire center must be using transport that is owned
by a party other than the LEC.  Further, AT&T again complains that Verizon submitted data aggregated
by MSA, not wire center. 
25.    We have reviewed Verizon's revenue allocation methodology and the data provided by
Verizon in both the public and confidential versions of its petition and find that Verizon has met the
requirements stated in Section 1.774 of the Commission's rules.  As we concluded in the BellSouth
Petition Order, the Commission's rules do not require that Verizon report revenue data at the wire center
level.  We, however, repeat the caution stated in the BellSouth Petition Order directed to future filers of
pricing flexibility petitions that lack of data aggregated at the wire center level could provide a potential
problem, if the Commission were to determine that one of the wire centers did not meet the collocation
requirements.  If the data is aggregated above the wire center level, and the Commission rejects non-
revenue evidence with respect to a particular wire center, the Commission would not have the data
necessary to determine whether the remaining wire centers in the MSA provide the necessary revenue to
meet the trigger.  Accordingly, by aggregating the data at a level above the wire center level, the
incumbent LEC runs the risk that it would have its petition rejected if, upon examination by the
Commission, it was determined that it had relied on a wire center that does not qualify under the
Commission's rules.
26.    AT&T also faults Verizon for erroneously identifying AT&T as a collocator with non-LEC
transport for selected wire centers cited in its November Petition.  Verizon concedes that it had
misidentified AT&T as a collocator in 13 sites. Verizon concedes that these 13 wire centers did not
satisfy our rules.  In its reply, however, it submitted revised data on an MSA-level, showing that
removing these wire centers from the petition only affects the qualifications of one MSA,
Monmouth NJ, but that all other MSAs continue to meet the pricing flexibility benchmarks. Verizon
then withdrew its petition for Monmouth NJ from its petition.    By filing adjusted MSA-level data,
Verizon has met its burden.
27.    Finally, we do not find "ambigu[ous]" Verizon's December Petition.  We find it clear the
Verizon relies upon entrance facilities as its competitive transport facilities and that its stated collocators
use transport owned by a party other than a LEC.  As Verizon made clear in its reply, "the only
collocators that were counted [as using transport owned by a party other than a LEC] used a non-Verizon
transport provider." 
IV.    ORDERING CLAUSES. 
25.    Accordingly, IT IS ORDERED, pursuant to Section 1.774 of the Commission's Rules, 47
C.F.R.  1.774, and the authority delegated by Sections 0.91 and 0.291 of the Commission's Rules, 47
C.F.R.  0.91 and 0.291, and the Access Reform Fifth Report and Order, that the two (2) petitions filed
by Verizon ARE GRANTED to the extent detailed herein.  

                         FEDERAL COMMUNICATIONS COMMISSION
                              
                              
                              Dorothy T. Attwood
                              Chief, Common Carrier Bureau
                                                         APPENDIX A
                                
          SERVICES QUALIFYING FOR PRICING FLEXIBILITY
                                
Verizon-East

Special Access Basket 
Metallic
Telegraph
Voice Grade
WATS Access Line
Program Audio
Video
Wideband Analog
Wideband Data
DDS 
DS1
DS3
SONET Services
Fiber Distributed Data Interface (FDDI)
Internet Protocol Routing Service (IPRS)
Facilities Management Service (FMS)
Enterprise Service  

Trunking Basket
Metallic
VG
DS1
DS3
SONET Services
Facilities Management Services (FMS) 

Verizon-West

Special Access Basket
Metallic
Telegraph
Voice Grade
WATS Access Line
Program Audio
Video Connect
Wideband Analog
Wideband Data
DDS
Fractional T1 (FT1)

                           APPENDIX A
                                
        QUALIFYING SERVICES SEEKING PRICING FLEXIBILITY
(Continued)

European T1 (ET1)
MetroLAN
DS1
DS3
FiberConnect
SONET Services 

Trunking Basket 
Metallic
VG
Fractional T1 (FT1)
DS1
DS3
SONET Services