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Federal Communications Commission
Washington, D.C. 20554
In re Application of )
GTE CORPORATION, )
AND ) CC Docket No. 98-184
BELL ATLANTIC CORPORATION, )
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
Adopted: March 11, 2003 Released: March 13, 2003
By the Commission:
1. In this Order, we approve in part Verizon
Communications Inc.'s (``Verizon'') request to count $20.292
million of its SONET and switched voice expenditure toward its
out-of-region expenditure requirements under the Bell
Atlantic/GTE Merger Conditions.1 Specifically, we approve $13.95
million of the $20.292 million Verizon requests. We therefore
find that Verizon has thus far spent a total of $401.85 million
toward the merger condition, including $177.55 million in
2. To encourage Verizon to enter other incumbent local
exchange carriers' (``incumbent LEC'') regions and compete for
local customers, the Bell Atlantic/GTE Merger Order requires the
company to spend $500 million to provide ``Competitive Local
Service'' outside its incumbent territory within three years of
the closing of the merger (i.e., by June 30, 2003).2 The Merger
Conditions define ``Competitive Local Service'' as ``services,
including resale, that compete with traditional local
telecommunications services offered by incumbent local exchange
carriers or . . . Advanced Services to the mass market.''3 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 service customers
in Out-of-Region Markets'' (``Facilities Expenditure
Requirement'').4 Verizon may use the other half to acquire
customers for Competitive Local Service in those Out-of-Region
Markets (``Service Expenditure Requirement'').5 These two
mandatory expenditures constitute Verizon's out-of-region
expenditure commitments. If Verizon does not satisfy these
requirements by June 30, 2003, it must pay the U.S. Treasury 150
percent of the difference between what it spent and what it was
obligated to spend.6
3. On June 24, 2002, the Commission approved Verizon's
February 7, 2002 request to count $90.5 million of its investment
in Northpoint Communications Group, Inc. toward the out-of-region
requirements, including $50.2 million toward the Facilities
Expenditure Requirement.7 Previously, the former Common Carrier
Bureau found that Verizon satisfied $297.4 million of the
condition, including an expenditure of $113.4 million for
facilities, with its purchase of OnePoint, a DSL provider.8
Thus, to date the Commission or the staff has determined that
Verizon has spent a total of $387.9 million, including $163.6
million for facilities, towards the two out-of-region
4. In Verizon's February 7, 2002 proposal, it asked that
an additional investment of $20.292 million qualify to help
satisfy the out-of-region requirements. In particular, Verizon
asserts that it spent $18.192 million on synchronous optical
network (``SONET'') investment and $2.1 million on switched voice
services in Los Angeles, Seattle, and Dallas.9 Verizon asserts
that all this investment should qualify as facilities
expenditures.10 The SONET facilities are comprised of fiber
rings and associated equipment located in the three cities.11
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.12 As a result, portions of the
rings and associated equipment lie within Verizon's incumbent
region. The Commission did not make a decision on this
investment in the Northpoint Order; instead it deferred judgment
to a later date.13
5. The first issue here is whether Verizon spent the
$20.292 million ``to provide services . . . that compete with
traditional local telecommunications services offered by
incumbent local exchange carriers . . . .''14 The second issue
is whether such investment may count toward the out-of-region
requirements if it is physically located within Verizon's
6. We approve $13.95 million of Verizon's request to count
$20.292 million of its SONET and switched voice expenditure
toward its out-of-region expenditure condition. Specifically, we
approve $11.85 million of Verizon's proposed $18.192 million
SONET investment and all of Verizon's proposed $2.1 million in
switched voice investment. We find that the remaining SONET
investment (i.e., $6.342 million) does not qualify as ``out-of-
region'' because it is physically located in Verizon's incumbent
region. Therefore, we deny Verizon's request to count it toward
III.A. SONET Investment
7. We find that Verizon's SONET investment provides a
``service, including resale, that compete[s] with traditional
local telecommunications services offered by incumbent local
exchange carriers.''15 Verizon states that it uses the SONET
facilities to provide special access and transport services that
compete with the local incumbents' special access and transport
services.16 For the customers actually and potentially served by
the portions of the fiber rings located outside Verizon's
incumbent region, Verizon provides alternatives to the
incumbents' traditional special access and transport services.
We also find, based on Verizon's showing, that all of the SONET
expenditures are for facilities.17
8. We decline, however, to count all Verizon's SONET
investment toward the condition. In its previous filings,
Verizon proposed, and the former Common Carrier Bureau agreed, to
allocate its investment based on the percentage physically
located outside Verizon's incumbent region.18 Verizon argues
that we should not use this approach here.19 We conclude,
however, that in the absence of any alternative methodology or
data, physical location is a reasonable basis for allocation in
light of past practice.
9. Verizon states that, unlike the OnePoint case, ``100%
of the investment is being used for out-of-region services.''20
Even crediting this statement as true, it does not change our
conclusion. First, while it may be true that all the investment
can, at any given time, be used to complete communications from
out-of-region customers, it is also true that the same facilities
can be used to complete communications originating from in-region
customers, either to other in-region customers or out-of-region
customers. The fact that all the ring facilities can be used to
provide out-of-region services does not change the fact that all
the facilities could also be used to provide in-region services.
Thus, Verizon's argument does not support a decision that all the
investment should count toward satisfaction of the out-of-region
requirement. Second, although it admits that the facilities
serve in-region customers, Verizon has not proposed a method for
dividing the investment between in-region and out-of-region based
on the customers served, or on any other basis for that matter.
In the absence of a better method than Verizon's proposal simply
to allocate all investment to out-of-region, and based on the
Common Carrier Bureau's previous approach, we find allocation
based on physical location to be reasonable.
10. In a related argument, although the merger condition
does not specify a methodology to allocate Verizon's investment
between in-region and out-of-region, Verizon states that all its
SONET investment should qualify because the investment ``is
designed'' to provide services to out-of-region customers.21 We
disagree with Verizon that its intent governs satisfaction of the
condition. Instead, we find that the condition's language and
purpose require that we exclude some of the investment given
Verizon's statement that in-region customers use the facilities,
e.g., to communicate with other in-region customers.22 The text
of the condition requires Verizon to spend its funds ``to provide
[Competitive Local Service] outside the [Verizon] Service Areas
, within the United States.''23 In the absence of any customer
use data, physical location is a reasonable basis for allocating
the investment. As a result, we deny Verizon's request to count
the in-region investment toward satisfaction of the condition.
11. Verizon states that $11.85 million of its SONET
investment lies outside its incumbent region.24 We therefore
conclude that Verizon spent $11.85 million towards its out-of-
region commitment, including the facilities expenditure
III.B. Switched Voice Expenditure
12. We find that the $2.1 million Verizon spent on switched
voice investment qualifies as an out-of-region expenditure. We
find that the investment is ``traditional'' local service under
the Merger Conditions because it is voice service. Further,
Verizon represents that all the investment is located outside its
incumbent territory.25 Finally, the investment, for which
Verizon received rights-to-use switching capacity, qualifies as a
facilities expenditure because it was made ``to construct,
acquire, lease, use, obtain, or provide facilities, operating
support systems, or equipment that are used to serve customers in
IV. ORDERING CLAUSE
13. 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's request to count its SONET and
switched voice expenditures toward satisfaction of Condition XVI
of the Bell Atlantic/GTE Merger Conditions IS GRANTED IN PART as
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
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, CC
Docket No. 98-184, Memorandum Opinion and Order, 15 FCC Rcd
14032, 14182, ¶ 319, Appendix B, ¶¶ 43-48 (2000) (``Bell
Atlantic/GTE Merger Order,'' ``Bell Atlantic/GTE Merger
Conditions,'' or ``Merger Conditions''). The condition requires
Verizon to spend $500 million toward services that compete with
incumbent LECs outside Verizon's region.
2 Bell Atlantic/GTE Merger Order at Appendix D, ¶ 43.
3 Bell Atlantic/GTE Merger Order at Appendix D, ¶ 43.
4 See Bell Atlantic/GTE Merger Order at Appendix D, ¶¶ 44-45.
5 See Bell Atlantic/GTE Merger Order at Appendix D, ¶ 43.
6 See Bell Atlantic/GTE Merger Order at Appendix D, ¶ 46. For
example, if Verizon spends no more between now and July 1, 2003,
it would owe the U.S. Treasury $147.225 million ($98.15 million X
7 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,
CC Docket No. 98-184, 17 FCC Rcd 12271 (2002) (``Northpoint
8 See Letter from Carol Mattey, Deputy Chief, Common Carrier
Bureau, to Jeff Ward, Senior Vice President - Regulatory
Compliance, Verizon, 16 FCC Rcd 20315 (Nov. 20, 2001) (``CCB
9 See Letter from Gordon Evans, Vice President, Federal
Regulatory, Verizon, to Marlene Dortch, Secretary, Federal
Communications Commission, filed in CC Docket No. 98-184 (May 24,
2002) (``Verizon May 24, 2002 Letter''). In its initial
proposal, Verizon stated that the total for the SONET investment
is $18.2 million. In a subsequent filing, Verizon stated that
the total is $18.192 million. See Letter from Gordon R. Evans,
Vice President, Federal Regulatory, Verizon, to Marlene Dortch,
Secretary, Federal Communications Commission, filed in CC Docket
No. 98-184, at 3 (Jan. 16, 2003) (``Verizon January 16, 2003
Letter''). We use the $18.192 million amount here for more
10 See Verizon May 24, 2002 Letter.
11 See Verizon January 16, 2003 Letter at 1-2. Verizon states
that the investment includes ``fiber, fiber rings, nodes, and
state-of-the-art switching equipment, including dense wave
division multiplexing (DWDM) and synchronous optical network
(SONET) devices.'' Id. Verizon states that the equipment is
designed to ``supply local high-speed data telecommunications
services interconnecting out-of-region customer locations with
other customer-designated sites.'' Id.
12 See id. at 2.
13 See Northpoint Order, 17 FCC Rcd at 20316, n.11.
14 Bell Atlantic/GTE Merger Order at Appendix D, ¶ 43.
15 Bell Atlantic/GTE Merger Order at Appendix D, ¶ 43.
16 See Letter from Gordon Evans, Vice President, Federal
Regulatory, Verizon, to Anthony Dale, Assistant Chief,
Investigations and Hearings Division, Enforcement Bureau, Federal
Communications Commission, filed in CC Docket No. 98-184, at 2
(July 19, 2002).
17 See Verizon January 16, 2003 Letter at 2 (noting that Verizon
previously filed with the Commission, on a confidential basis,
``samples of detailed work orders describing the work performed''
and ``concept diagrams that reflect the general outline of the
networks''). This filing is persuasive evidence that Verizon
spent the money on construction or acquisition of the facilities,
not customer acquisition.
18 See CCB OnePoint Letter; ¶ 3 supra; Verizon January 16, 2003
Letter at 2, n.4.
19 See id.
21 See id. at 1.
22 Verizon's statement that in-region customers use the
facilities does not contradict another Verizon statement that it
uses ``100%'' of the facilities to serve out-of-region customers.
The facilities are configured in a ring straddling the geographic
line between Verizon's incumbent region and the regions of other
incumbents. Customers are arrayed on the ring, both in-region
and out-of-region. As a result, the entire ring is used for
communications that originate with out-of-region customers, e.g.,
an out-of-region customer sends data to an in-region customer
that can be sent either direction around the ring. Similarly, an
in-region customer can send data to out-of-region customers using
any part of the ring. Thus, the entire ring can be used for
service for an out-of-region customer in one transmission and an
in-region customer in another.
23 Bell Atlantic/GTE Merger Order at Appendix D, ¶ 43 (emphasis
24 See Verizon January 16, 2003 Letter at 3.
25 See id. at 1.
26 Bell Atlantic/GTE Merger Order at Appendix D, ¶ 44 (emphasis