Click here for Adobe Acrobat version
Click here for Microsoft Word version

******************************************************** 
                      NOTICE
********************************************************

This document was converted from Microsoft Word.

Content from the original version of the document such as
headers, footers, footnotes, endnotes, graphics, and page numbers
will not show up in this text version.

All text attributes such as bold, italic, underlining, etc. from the
original document will not show up in this text version.

Features of the original document layout such as
columns, tables, line and letter spacing, pagination, and margins
will not be preserved in the text version.

If you need the complete document, download the
Microsoft Word or Adobe Acrobat version.

*****************************************************************



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

In re Application of              )
                                 )
GTE CORPORATION,                  )
Transferor,                       )
                                 )
AND                               )    CC Docket No. 98-184
                                 )
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:  March 11, 2003             Released:  March 13, 2003

By the Commission:

                        I.   INTRODUCTION

     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 
facilities.  

                         II.  BACKGROUND

     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 
requirements.  

     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    

                      III.      DISCUSSION

     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 
incumbent region.  

     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 
the condition. 

     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 
requirement.

     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 
Out-of-Region Markets.''26 

                      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 
described herein.


                              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,  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 
150 percent).
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 
Order'').
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 
OnePoint Letter'').
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 
precision.  
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.  
20 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 
added).
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 
added).