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


In re Application of             )
                                )
GTE CORPORATION,                 )
Transferor,                      )    CC Docket No. 98-184
                                )
AND                              )
                                )
BELL ATLANTIC CORPORATION,       )
Transferee,                      )
                                )
For Consent to Transfer Control  )
of Domestic and International    )
Sections 214 and 310             )
Authorizations and Application   )
to Transfer Control of a 
Submarine Cable Landing License


                              ORDER

   Adopted:  September 8, 2003          Released:  September 11, 
2003

By the Commission:


                          INTRODUCTION

     1.   In this order, we approve $175.1 million in out-of-
region expenditures, including $73.8 million in facilities 
expenditures, as counting toward Verizon Communications, Inc.'s 
(``Verizon's'') compliance with the out-of-region expenditure 
requirements of the Bell Atlantic/GTE Merger Order.1  That order 
required Verizon to spend $500 million toward services that 
compete with incumbent local exchange carriers (LECs) outside 
Verizon's region, including at least $250 million on facilities-
based competitive service in out-of-region markets.2  Adding the 
expenditures approved here to those approved in prior orders, we 
have approved a total of $567.9 million in expenditures toward 
the out-of-region expenditure requirements, including $251.4 
million on facilities, which would fulfill the out-of-region 
investment requirements of the Bell Atlantic/GTE Merger Order.3

                           BACKGROUND

     2.   The Bell Atlantic/GTE Merger Order requires Verizon to 
spend $500 million to provide ``Competitive Local Service'' 
outside its territory within three years of the closing of the 
merger (i.e., by June 30, 2003).4  The Bell Atlantic/GTE Merger 
Order defines Competitive Local Service as ``traditional local 
telecommunications services that compete with like services 
offered by incumbent LECs, provision of advanced services to the 
mass market, and resale.''5  To encourage the growth of 
facilities-based competition, the Merger Conditions require 
Verizon to spend at least half of the total requisite amount 
(i.e., $250 million) ``to construct, acquire, lease, use, 
obtain, or provide facilities, operating support systems, or 
equipment that are used to serve customers in Out-of-Region 
Markets (`Facilities Expenditure').''6  Verizon may use the 
other half of its out-of-region expenditures to ``acquire 
customers for Competitive Local Service in those Out-of-Region 
Markets (`Customer Acquisition Expenditure').'' 7  If Verizon 
does not establish that it has met these requirements during the 
three-year period ending June 30, 2003, it must pay the U.S. 
Treasury 150 percent of the difference between what it spent and 
what it was required to spend.8

     3.   This order is one in a series of decisions reviewing 
whether Verizon's expenditures satisfy the out-of-region 
expenditure requirements of the Bell Atlantic/GTE Merger Order.  
On November 20, 2001, the former Common Carrier Bureau held that 
Verizon satisfied $297.4 million of the out-of-region 
expenditure requirements, including $113.4 million towards the 
Facilities Expenditure requirement, with its purchase of 
OnePoint Communications Corp. (``OnePoint'').9  On June 24, 
2002, the Commission approved Verizon's request to count $90.5 
million of its investment in NorthPoint Communications Group, 
Inc. (``NorthPoint'') toward the out-of-region requirements, 
including $50.2 million towards the Facilities Expenditure 
requirement.10  Most recently, on March 13, 2003, the Commission 
approved $13.95 million of Verizon's synchronous optical network 
(``SONET'') and switched voice expenditure 

toward the Facilities Expenditure requirement.11  Thus, prior to 
Verizon's current requests, we had determined that Verizon spent 
a total of $401.85 million, including $177.55 million for 
facilities, towards the $500 million out-of-region expenditure 
requirements.12  

     4.   In this order, we rule on Verizon's requests to count 
the following investments toward the Merger Order requirements:

     $142.8 million in expenditures, including $ 42.0 million in 
     facilities expenditures, by Verizon Avenue (formerly 
     ``OnePoint'');13

     classification of $13 million of investment in NorthPoint's 
     computers and software, originally approved as customer 
     acquisition expenditures, to further qualify as facilities 
     expenditures;14

     $32.3 million in expenditures, including $31.8 million in 
     facilities expenditures, for SONET investments.15

In addition, we rule on Verizon's request to reduce the $90.5 
million NorthPoint expenditures that were previously approved to 
$81.4 million, to reflect the fact that some of the NorthPoint 
investment that had been approved was actually attributable to 
NorthPoint's international investments.16

                           DISCUSSION

     5.   To qualify as an out-of-region expenditure, Verizon's 
spending must have been ``to provide services, including resale, 
that compete with traditional local telecommunications services 
offered by incumbent local exchange carriers or Advanced 
Services to the mass market.''17  In addition, those 
expenditures must have been made to provide such services 
outside the former Bell Atlantic and GTE Service Areas.18  We 
approve all of Verizon's requests as described at paragraph 4, 
except that we reject Verizon's request to further classify $13 
million in NorthPoint-related expenditures as facilities 
expenditures because Verizon has not sufficiently established 
that the NorthPoint spending related to facilities investment.    

Verizon Avenue

     6.   We approve Verizon's request to qualify an additional 
$142.8 million in out-of-region expenditures, including $42 
million in facilities expenditures, by Verizon Avenue.  As noted 
above, Verizon acquired OnePoint on December 15, 2000, and 
renamed the entity ``Verizon Avenue.''  Verizon Avenue provides 
high-speed Internet and voice services, including local voice 
service, to apartment buildings, condominiums, and cooperative 
properties, both in and out-of-region.19  Verizon Avenue also 
provides advanced services through its high-speed Internet 
service and local service that compete with traditional local 
telecommunications services.20  

     7.   Verizon contends that between January 1, 2001 and March 
31, 2003, Verizon Avenue spent $142.8 million to provide 
Competitive Local Service in out-of-region markets.21  Verizon 
Avenue's total out-of-region spending included state-specific 
fixed assets, centralized software fixed assets, state-specific 
expenses, centralized operating expenses, and pre-paid marketing 
payments.22  These five categories are discussed below.

     8.   State-specific fixed assets.  According to Verizon, 
between January 1, 2001 and March 31, 2003, Verizon Avenue spent 
$11.2 million on fixed assets in out-of-region markets, of which 
$10.3 million qualifies as facilities expenditures.23  Verizon 
lists the following types of spending in this category:  Digital 
Service Line Access Modules (``DSLAMs'') and related network 
equipment installed in customer multiple dwelling units 
(``MDUs''); network equipment and facilities used at Verizon 
Avenue Data Points of Presence (``DPOPs''); outside plant and 
capitalized labor to survey, install, and maintain DSLAM and 
DPOP network equipment; and capitalized ``gateway'' operations 
support systems (OSS) software used by Verizon Avenue to 
interface with various incumbent LECs in order to provide 
competitive local service.24  

     9.   Verizon has provided a summary of these fixed-asset 
expenditures between January 1, 2001 and March 31, 2003, broken 
down by state and region.25  Verizon has also provided detailed 
spreadsheets for each state, itemizing each expenditure by its 
exact date, amount, vendor, and whether it qualifies as a 
facilities expenditure.26  Based on our review of these detailed 
documents itemizing Verizon's expenditures, we agree that the 
expenditures qualify as out-of-region expenditures and that 
Verizon Avenue spent $11.2 million on fixed assets in out-of-
region markets, and that $10.3 million of this amount counts 
towards the Facilities Expenditure requirement.

     10.  Centralized software fixed assets.  Verizon contends 
that between January 1, 2001 and March 31, 2003, Verizon Avenue 
purchased $4.9 million in software to run network operations.27  
The software assets include:  Primus Knowledge Systems OSS 
software, used for provisioning process flows and 
troubleshooting problems with network systems; Micromuse Netcool 
OSS software, which provides network surveillance for the 
Network Operations Center; Bridgewater Widespan DSLAM and 
Ethernet switch provisioning software and high speed Internet 
provisioning software; Nightfire ``gateway'' software for 
interconnection with various incumbent LECs; Network Tech 
Dispatch software used for provisioning and repair functions; 
and lab network software used for testing to ensure data packets 
flow through the network properly.28

     11.  Verizon must allocate these expenditures between in-
region and out-of-region states because the expenditures were 
for centralized assets.  To do so, Verizon uses a ``passings'' 
allocator, under which the number of customer units ``passed'' 
by Verizon Avenue represents the potential customer base for 
Verizon's services.29  For example, when Verizon equips all of 
the units in a building for its services, all of the units in 
that building are considered passed.30  According to Verizon, 
Verizon Avenue uses passings as a cost allocator for centralized 
assets and expenses because it accurately reflects the cost of 
providing service in each area. 31

     12.  We have evaluated the passings allocator by comparing 
it against two other allocation methods.  We have compared it 
with (1) allocating on the basis of the number of customers 
served within the state and (2) allocating based on the fixed 
assets in each state.  Based on our review, we find that the 
total costs allocated through the passings allocator are similar 
to the total costs allocated using the number of customers or 
the state-specific fixed assets.  Therefore, for purposes of 
this proceeding, we conclude that the passings allocator 
provides a reasonable approach to allocating Verizon Avenue's 
centralized costs to out-of-region markets.

     13.  Using the passings allocator, Verizon attributes $2.6 
million of Verizon Avenue's centralized software assets to 
serving out-of-region markets because the software in question 
relates to OSS used to serve customers in such markets and was 
spent in conjunction with the provision of competitive local 
service.32  Verizon further contends that $1.5 million of these 
software assets also qualifies as facilities expenditures.33  
Verizon has provided a detailed spreadsheet, listing and 
describing 



each piece of software, its date of purchase, its asset 
identification number, and its acquisition price.34  Based on 
our review of this detailed documentation provided by Verizon, 
we agree that these expenditures qualify as out-of-region 
expenditures and we approve Verizon's request to count both the 
$2.6 million out-of-region expenditures and the $1.5 million 
facilities expenditures toward satisfaction of the out-of-region 
expenditure requirements.

     14.  State-specific expenses.  Verizon contends that between 
January 1, 2001 and March 31, 2003, it had $46.2 million in 
expenses in out-of-region states.35  These expenses, which 
include cost of goods sold, employee salaries and benefits, 
taxes and fees, marketing and promotional expenses, payments for 
resale of local voice service, and building rent and leases, 
were booked on each state's expense ledger.36  In support of its 
claim, Verizon has provided a summary and a state-specific 
accounting for each expense, including amounts, dates, 
descriptions, accounting codes, and eligibility as a facilities 
expenditure.37

     15.  According to Verizon, $5.5 million of these expenses 
qualifies as facilities expenditures because they were incurred 
to ``lease,'' ``use,'' or ``provide'' Verizon Avenue's 
facilities and network equipment.38  Verizon lists the following 
as facilities expenditures:  leasing costs for network 
facilities to transport Internet traffic; leasing costs for 
space and power at Verizon Avenue's DPOPs; DPOP expenses as well 
as payments to outside companies to monitor DPOP sites; 
technician costs to connect a subscriber to Verizon Avenue 
DSLAMs and troubleshoot subscriber connection problems; and 
expenses by field technicians who maintain and operate Verizon 
Avenue's facilities and equipment.39  Based on our review of 
this comprehensive submission, we find that these expenditures 
qualify as out-of-region expenditures.  We approve the proposed 
$46.2 million as out-of-region expenditures, including $5.5 
million in facilities expenditures.

     16.  Centralized operating expenses.  Verizon contends that 
it incurred $79.8 million in centralized expenses, including 
$24.7 million in facilities expenditures, allocable to out-of-
region markets between January 1, 2001 and March 31, 2003.  
According to Verizon, these expenses were incurred by four of 
Verizon Avenue's centralized departments:  Network Services, 
Provisioning, Customer Care, and Central Dispatch.40  Verizon 
has provided a detailed description of the duties of each of 
these departments.  Verizon also has accounted for each 
department's expenses, breaking down the spending by in-region 
and out-of-region states, as well as whether a given expenditure 
qualifies as a facilities expenditure.  As with the centralized 
software fixed asset category, Verizon has used a ``passings'' 
allocator to determine the portion of spending attributable to 
serving out-of-region markets.41  Based on our review of 
Verizon's detailed descriptions, we agree that these 
expenditures qualify as out-of-region expenditures.  We approve 
the proposed $79.8 million as out-of-region expenditures, 
including $24.7 million as facilities expenditures.  

     17.  Pre-paid marketing payments.  Between January 1, 2001 
and March 31, 2003, Verizon Avenue paid $3.0 million in fees or 
commissions to building developers and owners in exchange for 
marketing agreements.42  Verizon contends that these 
expenditures are out-of-region expenditures because they were 
made in the course of providing Competitive Local Service in 
out-of-region markets.43  In support of its claim, Verizon has 
provided a state-by-state accounting of these payments, listing 
the relevant period of time, account name, accounting code, and 
balance.44  Based on our review of Verizon's state-by-state 
accounting, we agree that these expenditures qualify as out-of-
region expenditures.   

NorthPoint

     18.  NorthPoint was a competitive LEC that provided 
wholesale symmetric digital subscriber line (``DSL'') services 
to Internet service providers.45  Under the terms of the 
Verizon/NorthPoint merger agreement, Verizon was to provide $800 
million in cash and assets to NorthPoint in exchange for a 55 
percent interest in NorthPoint.46  Verizon's initial payment 
under the agreement was $150 million.  Verizon subsequently 
terminated the agreement with NorthPoint, and NorthPoint entered 
Chapter 11 bankruptcy proceedings.47

     19.  In the NorthPoint Order, the Commission approved 
Verizon's request to count $90.5 million, including $50.2 
million for facilities, of its NorthPoint investment as an out-
of-region expenditure.48  We concluded that Verizon's 
expenditure was a ``contribution to, or investment in, [a] 
venture'' that provides Advanced Services to the mass market.49  
We also found that Verizon's method of allocating the total 
NorthPoint expenditure into out-of-region and facilities 
categories was consistent with the method the Common Carrier 
Bureau approved in its OnePoint decision.50   We concluded that 
Verizon's expenditure constituted an investment in NorthPoint, 
and that Verizon itself was not required to provide the 
Competitive Local Service for the investment to count as an out-
of-region expenditure.51  

     20.  Proposed reduction in qualifying amount of NorthPoint 
investment.  Following questions from Enforcement Bureau staff, 
Verizon proposed a $9.1 million reduction of the previously 
approved NorthPoint out-of-region expenditures to account for 
NorthPoint investments in international joint ventures, which do 
not qualify as out-of-region expenditures under the Merger 
Order.52  Verizon derived the $9.1 million figure, in part, by 
applying to its NorthPoint investment an international joint 
venture allocator53 in addition to its previously approved out-
of-region allocator.54  Verizon applied these allocators to two 
categories of investment related to the joint ventures: Long-
Term Investments and Computers and Software.55  The shares of 
international investment for each category were $5.8 million,56 
and $1 million,57 respectively.  The $9.1 million proposed 
reduction also includes a $2.3 million reduction in OSS services 
provided to NorthPoint's international joint ventures, which was 
recorded in Amounts Due from Affiliated Companies.58  These 
amounts owed to NorthPoint from international joint ventures do 
not qualify as spending to provide services within the United 
States.  Based on our review of these calculations, we find 
Verizon's proposed adjustment to be reasonable.  We, therefore, 
accept Verizon's adjustment, thereby reducing the total 
NorthPoint-related approved out-of-region expenditures from 
$90.5 million to $81.4 million.59  

     21.  Proposed classification to facilities expenditures.  
Verizon contends that we should further classify $13 million of 
the out-of-region expenditure that it spent for NorthPoint's 
computers and software assets as facilities expenditures.60  
Subsequently, Verizon proposed an allocator to allocate a 
portion of the computer and software assets to NorthPoint's 
international ventures.61  As described below, we find that 
Verizon has not adequately established that these expenditures 
were facilities-related.  This disallowance does not, however, 
affect our conclusion that Verizon has fulfilled the out-of-
region requirements of the Bell Atlantic/GTE Merger Order.

     22.  In support of its request to consider NorthPoint 
spending against the Facilities Expenditure requirement, Verizon 
relies entirely on an undated, unattributed spreadsheet obtained 
``[d]uring NorthPoint's bankruptcy proceedings'' that Verizon 
``revised to include descriptions of the particular 
software.''62  Verizon contends that this spreadsheet lists more 
than 5,000 line items for software and software development 
work.63  According to Verizon, the company reviewed each line 
item on the spreadsheet to determine the nature and type of each 
asset.  Based on this review, Verizon asserts that NorthPoint 
used $67.5 million of the software or software development work 
for OSS, network maintenance, network monitoring, provisioning 
network management, mapping tools for deployment, or interface 
software that enabled NorthPoint's ISP customers to process 
orders. 64  

     23.  Verizon's assertions are based solely on the above-
described revised version of the NorthPoint software asset 
account, with no additional evidence to support its claim.  As 
an initial matter, Verizon has not shown, through a declaration 
or otherwise, who created this spreadsheet and when it was 
created, information that is critical in evaluating its 
reliability.  Nor has Verizon offered any independent support 
for its claim, or described the method by which it determined 
that a given software expense was a facilities-based 
expenditure.65



     24.  On a related point, even if we assume that the 
spreadsheet accurately reflects NorthPoint's software asset 
account, Verizon has not identified which of the 5000-plus 
entries qualifies as facilities expenditures.  For example, the 
entries for ``Consulting Services'' and ``Management Consulting 
Services'' may be for software development work for OSS, as 
Verizon contends, or they may be for something entirely 
unrelated to facilities.  We cannot accept Verizon's conjecture 
that all the consulting services listed were for OSS.  We 
therefore conclude that Verizon has not demonstrated at this 
time that $67.5 million of the software or software development 
work listed in Exhibit 11 is a facilities expenditure.

     25.  Verizon also asks to further classify certain computer 
assets as facilities expenditures on the basis of an undated, 
unattributed list of ``NorthPoint Communications Fixed Assets by 
Location As of December 31, 2000''66 and declaration of Celia 
Engman, Executive Director, Implementation and Support, Verizon 
Online/Broadband,67  These documents, however, do not 
demonstrate that all of the listed NorthPoint computers were 
facilities expenditures.  Ms. Engman was Verizon's lead 
representative on the NorthPoint merger transition team.68  As 
such, her responsibilities included evaluating NorthPoint's DSL 
operations, particularly NorthPoint's Information Technology 
Systems.69  Ms. Engman states that NorthPoint maintained a 
state-of-the-art facility in Emeryville, California, that such 
facility was the nucleus for NorthPoint's DSL network, that 
Verizon has a document that states that $30.7 million of 
NorthPoint assets are computers located in the Bay Area, and 
that, in her opinion, the computers would likely have been used 
to operate NorthPoint's DSL network, run its OSS, and support 
other facilities or network-related purposes.  

     26.  But Ms. Engman's declaration has several conspicuous 
omissions.  Ms. Engman, who does not appear to have even 
reviewed the fixed asset spreadsheet,70 does not state that 
NorthPoint actually had $30.7 million of computers.  Nor does 
Ms. Engman allege that the computers listed in the spreadsheet 
actually ran NorthPoint's OSS, or even that those computers were 
the same computers she saw on her visits to the NorthPoint 
facility.  Ms. Engman does not provide the dates of her visits 
to the NorthPoint data center; her visits may have been long 
before December 31, 2000.  Moreover, even if we assume that 
Verizon has provided us an accurate list of NorthPoint fixed 
assets on December 31, 2000, we cannot conclude, based on 
Verizon's submission, that all of the computers listed in 
Exhibit 12 were facilities expenditures.  

     27.  For the above reasons, we find that Verizon has not 
demonstrated that $13 million of the NorthPoint investment, 
approved in the NorthPoint Order as an out-of-region 
expenditure, should qualify as facilities expenditures.  We need 
more than Verizon's conjecture to determine whether these 
NorthPoint assets were facilities expenditures.    

SONET 

     28.  In the SONET Order, the Commission found that Verizon's 
SONET investment provided a  ``service[], including resale, that 
compete[s] with traditional local telecommunications services 
offered by incumbent local exchange carriers.''71  The 
Commission also found that although all of the SONET 
expenditures addressed in that order were for facilities, only a 
portion was physically located out-of region.72  We stated that 
in the absence of any customer use data, physical location is a 
reasonable basis for allocating investment.  Accordingly, we 
approved the portion of the investments that was physically 
located out-of-region, and denied Verizon's request to count the 
in-region portion toward satisfaction of the merger condition.73 

     29.  Verizon now asserts that additional portions of its 
expenditures in the Dallas, Los Angeles, and Seattle areas were 
for SONET facilities that are physically located out-of-region.  
Verizon has asked to count these additional amounts toward its 
out-of-region expenditure requirements.74  In support of its 
request, Verizon has provided summary information, as well as 
detailed charts, demonstrating that the capital expenditures and 
associated expenses from November 2001 through March 2003 were 
for SONET investments physically located out-of-region.75  Based 
on Verizon's detailed charts, we agree that these expenditures 
qualify as out-of-region expenditures.  We approve Verizon's 
request to count an additional $32.3 million in out-of-region 
expenditures, including $31.8 million in facilities,76 toward 
satisfaction of its out-of-region commitments.

                        ORDERING CLAUSES

     30.  Accordingly, IT IS ORDERED, pursuant to sections 1-4, 
201-205, 214, 251, 303(r), and 309 of the Communications Act of 
1934, as amended, 47 U.S.C.  151-154, 201-205, 214, 251, 
303(r), and 309, that Verizon Communications, Inc.'s requests to 
count its NorthPoint, SONET, and Verizon Avenue expenditures 
toward satisfaction of Condition XVI of the Bell Atlantic/GTE 
Merger Conditions ARE GRANTED IN PART as described herein.

     31.  IT IS FURTHER ORDERED, pursuant to sections 1-4, 201-
205, 214, 251, 303(r), and 309 of the Communications Act of 
1934, as amended, 47 U.S.C.  151-154, 201-205, 214, 251, 
303(r), and 309, that Verizon's Contingent Petition for 
Extension of Time, filed on June 12, 2003, IS DISMISSED AS MOOT.

                              FEDERAL COMMUNICATIONS COMMISSION



                              Marlene H. Dortch                  
Secretary


_________________________

1 GTE Corporation, Transferor, and Bell Atlantic Corporation, 
Transferee, for Consent to Transfer Control of Domestic and 
International Sections 214 and 310 Authorizations and Application 
to Transfer Control of a Submarine Cable Landing License, 
Memorandum Opinion and Order, 15 FCC Rcd 14032 (2000) (Bell 
Atlantic/GTE Merger Order, Bell Atlantic/GTE Merger Conditions, 
or Merger Conditions).  The merger conditions are in Appendix D 
of the Merger Order.  
2 Bell Atlantic/GTE Merger Order, 15 FCC Rcd at 14182,  319 
(Appendix D, 15 FCC Rcd at 14319,  44-45).
3 We note that in this order, as in previous orders approving 
expenditures, our findings are based on Verizon's representations 
as to the character of the investments and the amounts actually 
spent.  Verizon's compliance with the out-of-region expenditure 
requirements of the Merger Conditions  is subject to examination 
in an annual independent audit.  See Bell Atlantic/GTE Merger 
Order, 15 FCC Rcd 14190-93,  336-341 (Appendix D, 15 FCC Rcd at 
14327-28,  56).  Should it be determined in such an audit, or 
otherwise, that Verizon did not actually make the expenditures 
described here, or that the expenditures were not as described by 
Verizon in the record here, nothing in this order precludes a 
finding that Verizon has not satisfied the Merger Conditions.
4 See Bell Atlantic/GTE Merger Order, 15 FCC Rcd at 14182,  319 
(Appendix D, 15 FCC Rcd at 14318-19,  43).
5 Id.
6 Bell Atlantic/GTE Merger Order, 15 FCC Rcd at 14182,  319 
(Appendix D, 15 FCC Rcd at 14319,  44-45).  The amounts 
included in the facilities expenditure must be spent in 
conjunction with:  (1) the provision of Competitive Local 
Service; (2) the provision of other telecommunications services; 
or (3) investments in, or contributions to, ventures that provide 
Competitive Local Service activity in Out-of-Region Markets by 
those ventures.  Id. 
7 Id.  
8 See id., 15 FCC Rcd at 14182-83,  320 (Appendix D,15 FCC Rcd 
at 14319,  46).  
9 See Letter from Carol Mattey, Deputy Chief, Common Carrier 
Bureau, Federal Communications Commission to Jeffrey Ward, Senior 
Vice President - Regulatory Compliance, Verizon, 16 FCC Rcd 20315 
(2001).  OnePoint provided bundled voice, data, and video 
services to residents of apartment buildings and condominiums.  
See Letter from Patricia E. Koch, Assistant Vice President, 
Federal Regulatory, Verizon to Dorothy Attwood, Chief, Common 
Carrier Bureau, Federal Communications Commission at 1 (May 17, 
2001).  
10   See GTE Corporation, Transferor, and Bell Atlantic 
Corporation, Transferee, for Consent to Transfer Control of 
Domestic and International Sections 214 and 310 Authorizations 
and Application to Transfer Control of a Submarine Cable Landing 
License, Order, 17 FCC Rcd 12271 (2002) (``NorthPoint Order'').  
11   See GTE Corporation, Transferor, and Bell Atlantic 
Corporation, Transferee, for Consent to Transfer Control of 
Domestic and International Sections 214 and 310 Authorizations 
and Application to Transfer Control of a Submarine Cable Landing 
License, Order, 18 FCC Rcd 4813 (2003) (``SONET Order'').
12   SONET Order, 18 FCC Rcd at 4813,  1.
13   See Letter from Marie Breslin, Director, Federal Regulatory, 
Verizon to Maureen Del Duca, Chief, Investigations and Hearings 
Division, Enforcement Bureau, Federal Communications Commission 
(Apr. 11, 2003) (``Verizon April 11, 2003 Letter''); Letter from 
Marie Breslin, Director, Federal Regulatory, Verizon, to Diana 
Lee, Investigations and Hearings Division, Enforcement Bureau, 
Federal Communications Commission (May 9, 2003) (correcting its 
figures for state-specific fixed asset expenditures submitted in 
the April 11, 2003 filing) (``Verizon May 9, 2003 Letter''); 
Letter from Marie Breslin, Director, Federal Regulatory, Verizon, 
to Maureen Del Duca, Chief, Investigations and Hearings Division, 
Enforcement Bureau, Federal Communications Commission (May 27, 
2003) (``Verizon May 27, 2003 Letter'').  
14   Verizon April 11, 2003 Letter at 2.  Initially, Verizon 
specifically excluded a request for a facilities credit for the 
NorthPoint computer and software assets and stated that it might 
provide additional details in a future filing requesting 
facilities treatment.  See Letter from Dee May, Verizon to 
Dorothy Attwood, Chief, Common Carrier Bureau, Federal 
Communications Commission, at 9-10 & note 12. (Feb. 7, 2002) 
(``Verizon February 7, 2002 Letter'').
15   Letter from Marie Breslin, Director, Federal Regulatory, 
Verizon, to Maureen Del Duca, Chief, Investigations and Hearings 
Division, Enforcement Bureau, Federal Communications Commission 
(Apr. 30, 2003) (``Verizon April 30, 2003 Letter''); Letter from 
Marie Breslin, Director, Federal Regulatory, Verizon, to Maureen 
Del Duca, Chief, Investigations and Hearings Division, 
Enforcement Bureau, Federal Communications Commission (May 15, 
2003) (``Verizon May 15, 2003 Letter'').  See Verizon April 30, 
2003 Letter at 1.  
16   See Letter from Marie Breslin, Director, Federal Regulatory, 
Verizon to Maureen Del Duca, Chief, Investigations and Hearings 
Division, Enforcement Bureau, Federal Communications Commission 
(Jun. 9, 2003) (``Verizon June 9, 2003 Letter'').
17   See Bell Atlantic/GTE Merger Order, 15 FCC Rcd at 14182,  
319 (Appendix D, 15 FCC Rcd at 14318-19,  43).
18   Id.  The Merger Conditions define the Bell Atlantic and GTE 
``Service Areas'' as the states and service areas in which the 
various former Bell Atlantic and GTE affiliates had incumbent 
local exchange operations as of January 27, 2000.  Id., 15 FCC 
Rcd at 14263.
19   See Verizon April 11, 2003 Letter at 3.
20   See Verizon April 11, 2003 Letter at 3-4.
21   The April 11 submission covered spending between January 1, 
2001 and June 30, 2002, and the May 27 filing covered spending 
between July 1, 2002 and March 31, 2003.  Verizon has stated that 
it reserves the right to detail additional spending and 
investments in later filings.  Verizon May 27, 2003 Letter at 1, 
note 2.
22   See Verizon April 11, 2003 Letter, Exhibit 1; Verizon May 
27, 2003 Letter, Exhibit 1.
23   Verizon April 11, 2003 Letter at 5-6; Verizon May 27, 2003 
Letter at 2.
24   Verizon April 11, 2003 Letter at 5-6; Verizon May 27, 2003 
Letter at 2.
25   Verizon April 11, 2003 Letter, Exhibit 2, Verizon May 27, 
2003 Letter, Exhibit 2.
26   Verizon April 11, 2003 Letter, Exhibit 3; Verizon May 27, 
2003 Letter, Exhibit 3
27   See Verizon April 11, 2003 Letter at 6; Verizon May 27, 2003 
Letter, Exhibit 3. 
28   See Verizon April 11, 2003 Letter at 6; Verizon May 27, 2003 
Letter at 3.
29   Id.
30   See Verizon April 11, 2003 Letter at 4-5.
31   See Verizon April 11, 2003 Letter, Exhibit 4; Verizon May 
27, 2003 Letter, Exhibit 4.  
32   See Verizon April 11, 2003 Letter at 6; Verizon May 27, 2003 
Letter at 3.
33   See Verizon April 11, 2003 Letter at 6; Verizon May 27, 2003 
Letter at 3.
34   Verizon April 11, 2003 Letter, Exhibit 5; Verizon May 27, 
2003 Letter, Exhibit 5.
35   See Verizon April 11, 2003 Letter at 7; Verizon May 27, 2003 
Letter at 3.
36   Verizon April 11, 2003 Letter at 7; Verizon May 27, 2003 
Letter at 3.
37   Verizon April 11, 2003 Letter, Exhibits 6-7; Verizon May 27, 
2003 Letter, Exhibits 6-7.
38   See Verizon April 11, 2003 Letter at 7; Verizon May 27, 2003 
Letter at 3.  The Bell Atlantic/GTE Merger Order defines 
``Facilities Expenditure'' as money used not only to 
``construct,'' ``acquire,'' and ``obtain'' facilities and 
equipment, but also money spent to ``lease,'' ``use,'' or 
``provide'' them.  Merger Conditions, 15 FCC Rcd at 14319,  44.  
39   Verizon April 11, 2003 Letter at 7; Verizon May 27, 2003 
Letter at 3.
40   See Verizon April 11, 2003 Letter, Exhibits 8-9.  Exhibits 8 
and 9 are Verizon's summaries of Verizon Avenue's 2001 and first-
half of 2002 out-of-region allocations for these centralized 
expenses, organized by functional department and by state, based 
on Verizon Avenue's expense records.  These two exhibits also 
include the monthly passings percentages used by Verizon Avenue 
to allocate these expenses to each individual state. Id.  See 
also Verizon May 27, 2003 Letter, Exhibits 8-9 (Verizon summaries 
of Verizon Avenue's second-half of 2002 and first-quarter of 2003 
out-of region allocations for these expenses.)
41   See Verizon April 11, 2003 Letter at 8-9; id. at Exhibits 8-
9.  See also Verizon May 27, 2003 Letter at 4; id. at Exhibits 8-
9.
42   See Verizon April 11, 2003 Letter at 9; Verizon May 27, 2003 
Letter at 4.
43   See Verizon April 11, 2003 Letter, Exhibit 10; Verizon May 
27, 2003 Letter, Exhibit 10.  Exhibit 10 is a summary of these 
pre-paid marketing payments, by state, based on Verizon Avenue's 
asset ledgers.
44   Verizon April 11, 2003 Letter, Exhibit 10; Verizon May 27, 
2003 Letter, Exhibit 10.
45   According to the NorthPoint Communications Group, Inc. Form 
10-Q filed for the quarterly period ending September 30, 2000, at 
p. 4: ``NorthPoint Communications, Inc. was formed in May 1997 to 
provide high speed network and data transport services, allowing 
network service providers, including Internet service providers, 
broadband data service providers and long distance and local 
phone companies (collectively, network service providers or NSPs) 
to meet the rapidly increasing information needs of small and 
medium-sized businesses, people who work in home offices and 
telecommuters.''
46   See Verizon February 7, 2002 Letter at 7-8.
47   See id. at 8.
48   See NorthPoint Order, 17 FCC Rcd at 12273,  5.  
49   Id.
50   Id.
51   See id., 17 FCC Rcd at 12273,  6.
52   Verizon June 9, 2003 Letter at 1-3; Bell Atlantic/GTE Merger 
Conditions, Appendix D, 15 FCC Rcd at 14318-19,  43.  
53   See Verizon June 9, 2003 Letter at 1-2.  Verizon reviewed 
NorthPoint's public filings (Year 2000 Form 10-Q Reports) and 
determined that NorthPoint invested $37.7 million in two joint 
ventures that NorthPoint established in Canada and Europe.  See 
id. at 2; id., revised Exhibit 14.  Verizon concluded that ``it 
appears from the public filings that the $37.7 million in 
investments was included in the $51 million line item for `Long-
Term Investments' on NorthPoint's third-quarter 2000 balance 
sheet, which Verizon used to allocate its NorthPoint 
investment.''  See id. at 1.  Verizon proposes that we use an 
international joint venture allocator of 6.4% to reduce the 
previously approved $90.5 million NorthPoint-related out-of-
region investment.  See id. at 2. The 6.4% international joint 
venture allocator is the ratio of the $37.7 million joint venture 
investment to NorthPoint's total assets of $588.2 million.  See 
id. at 2.
54     The Commission previously approved the out-of-region 
allocator of 60.25% in the NorthPoint Order.  See NorthPoint 
Order, 17 FCC Rcd at 12272-73,  4 (describing the out-of-region 
allocator as ``about 60%'').
55   See Verizon June 9, 2003 Letter at 2.  
56   See id. at 2.  Verizon derived the $5.8 million by applying 
the international joint venture allocator of 6.4% and the out-of-
region allocator of 60.25% to Verizon's previously approved $150 
million investment in NorthPoint (6.4% x 60.25% x $150 million).  
See id., revised Exhibit 14.
57   The ratio of the Computers and Software balance of $112.9 
million to NorthPoint's total assets of $588.2 million is 19.2%.  
See id., revised Exhibit 14.  Verizon applied this 19.2% and the 
international joint venture allocator of 6.4% to the $150 million 
NorthPoint investment (19.2% x 6.4% x $150 million), resulting in 
$1.8 million.  See id.  Verizon then subtracted from the $1.8 
million the associated adjustment to Accumulated Depreciation and 
Amortization ($.25 million) for the Computers and Software line 
item attributed to the international investment, resulting in 
$1.6 million.  See id.  Finally, Verizon applied the out-of-
region allocator of 60.25% to the $1.6 million, resulting in $1 
million.  See id.
58   See id. at 2.  The Amounts Due from Affiliated Companies 
balance in NorthPoint's third-quarter 2002 balance sheet was 
$15.1 million.  See id., revised Exhibit 14.  The ratio of the 
$15.1 million to NorthPoint's total assets $588.2 million is 
2.5%.  Id. at 2; id., revised Exhibit 14.  Verizon applied this 
2.5% and the 60.25% out-of-region allocator to the $150 million 
(2.5% x 60.25% x $150 million), resulting in $2.3 million.
59   The reductions of $5.8 million in the Long-Term Investments, 
$1 million in the Computer and Software, and $2.3 million in the 
Amounts Due from Affiliated Companies line items total to $9.1 
million.  We note that the NorthPoint facilities-related spending 
(for network equipment and collocation) that we previously 
approved is not affected, since it is unrelated to these 
international joint ventures.
60   Verizon derived the $13 million figure by first comparing 
its asserted amount of facilities-related computer and software 
spending by NorthPoint ($98.2 million) with the total amount of 
NorthPoint computers and software spending, as described in the 
NorthPoint Order ($113 million).  Verizon then applied this 
percentage (87%) to the amount of its $150 million investment in 
NorthPoint related to computers and software ($28.8 million) to 
determine how much of its overall investment went to facilities-
related computers and software investment ($25 million).  Verizon 
then subtracted accumulated depreciation ($3.4 million), and 
multiplied the resulting figure ($21.6 million) by the out-of-
region allocator approved by the Commission in the NorthPoint 
Order (60.25%), thereby determining the out-of-region amount of 
the facilities-related computer and software.  That figure is $13 
million. 
61   In its June 9, 2003 letter, Verizon proposed an allocator of 
6.4% (the percentage of the $33.7 million international 
investment over the total assets on NorthPoint's third-quarter 
2000 balance sheet) that would allocate approximately $0.8 
million of the $13 million figure for operations support systems 
and related services to international joint ventures.  See 
Verizon June 9, 2003 Letter at 2-3.
62   See Verizon April 11, 2003 Letter at 11-12.  
63   See id. at 11.
64   See id.
65   To substantiate the claims for out-of-region expenditures 
for the Verizon Avenue and SONET expenses, Verizon submitted 
detailed spreadsheets listing all such expenses.  Verizon's 
claims for the Verizon Avenue and SONET out-of-region 
expenditures can be audited as part of Verizon's annual merger 
conditions compliance audit.  The spreadsheet containing a list 
of NorthPoint's software asset account, on the other hand, does 
not provide sufficient detail to determine whether the software 
listed would qualify as a facilities expense.  Verizon cannot 
demonstrate whether such software assets were for facilities or 
non-facilities.  Without the necessary detail, supporting 
documentation, or access to verify such assets, this information 
cannot be audited.
66   Verizon April 11, 2003 Letter, Exhibit 12.
67   Verizon April 11, 2003 Letter, Exhibit 13 (``Engman 
Declaration'').
68   Engman Declaration at  2.
69   Id.
70   Ms. Engman states ``I am informed that Verizon has obtained 
a document that lists NorthPoint's fixed assets by location as of 
December 31, 2000, including its computer inventory.  I am also 
informed that $30.7 million of the computers identified on this 
list are shown as located in the San Francisco Bay Area.''  
Engman Declaration at  5.
71   SONET Order, 18 FCC Rcd at 4815,  7.
72   Id.  Verizon states that it uses the SONET facilities to 
provide special access and transport services that compete with 
local incumbents' special access and transport services.  Id.  
``The SONET facilities are comprised of fiber rings and 
associated equipment located in Los Angeles, Seattle, and Dallas.  
Verizon is an incumbent LEC in each city, and the fiber rings 
straddle the line between the Verizon incumbent territories and 
those of other incumbent LECs.''  Id., 18 FCC Rcd at 4814-15,  
4.  The Commission found that the condition's language and 
purpose require exclusion of the in-region portion, ``given that 
in-region customers [also] use the facilities, e.g., to 
communicate with other in-region customers.''  See id., 18 FCC 
Rcd at 4816,  10.
73   Id.  The Commission approved capital expenditures during 
July 1, 2000 and October 31, 2001, for the SONET investments 
physically located out-of-region.
74   See Verizon April 30, 2003 Letter at 1 (for spending between 
November 2001 and December 2002); Verizon May 27, 2003 Letter at 
1 (for spending between January 2003 and March 2003).  Exhibit 1, 
as attached to the Verizon April 30, 2003 Letter and the Verizon 
May 27, 2003 Letter, is a general summary of Verizon's 
expenditures in all three cities, divided into capital 
expenditures and expenses.  Verizon derived the capital 
expenditures from work orders from Verizon's Capital Program 
Management System (``CPMS'') which detail capital costs, tracked 
by location; Verizon derived the expenses from its accounts 
payable and internal tracking systems.  Verizon April 30, 2003 
Letter at 2-3.  
75   Exhibit 2, attached to the Verizon April 30, 2003 Letter and 
the Verizon May 27, 2003 Letter, is a summary of Verizon's Dallas 
area capital spending, organized by physical location and work 
order; Exhibit 3 contains detail for the Dallas operating 
expenses, which include collocation and rental fees, lease 
payments, and operating expenses by employees who manage the 
Dallas network; Exhibit 4 is a summary of the Los Angeles area 
capital spending, organized by physical location and work order; 
Exhibit 5 contains detail for the Los Angeles operating expenses, 
which include collocation and rental fees, lease payments, and 
operating expenses by employees who manage the Los Angeles 
network; Exhibit 6 is a summary of the Seattle area capital 
spending, organized by physical location and work order (includes 
spending for one work order from February 2001 that was not 
included in the previous filing); and Exhibit 7 contains detail 
for the Seattle operating expenses, which include collocation and 
rental fees, lease payments, and operating expenses by employees 
who manage the Seattle network.
76   Exhibit 8, as attached to the Verizon April 30, 2003 Letter 
and the Verizon May 27, 2003 Letter, is a summary of the 
expenditures to modify the OSS in order to accommodate the out-
of-region customers in Dallas, Los Angeles, and Seattle.