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FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of ) File
) File No. EB-03-
) Acct. No.
Verizon Telephone Companies, Inc. ) FRN
1. The Federal Communications Commission (the
``Commission'' or ``FCC'') and the Verizon telephone
companies (``Verizon'') hereby enter into this Consent
Decree for the purpose of terminating investigations into
whether Verizon complied with certain structural,
transactional, and nondiscrimination safeguards of section
272 of the Communications Act of 1934, as amended (``the
Act''),1 and sections 32.272 and 53.2033 of the Commission's
rules. These provisions apply to the relationship between
Verizon's Bell Operating Companies and its other incumbent
local exchange carriers, on the one hand, and Verizon's
separate long-distance affiliates, on the other.
2. For purposes of this Consent Decree, the following
definitions shall apply.
(a) The ``Commission'' means the Federal
Communications Commission and all of its bureaus
(b) ``Bureau'' means the Enforcement Bureau of the
Federal Communications Commission.
(c) ``Verizon BOCs'' means the former Bell Atlantic
Telephone Companies, and their successors and
(d) ``Verizon 272 Affiliates'' means Bell Atlantic
Communications, Inc. (d/b/a Verizon Long Distance),
NYNEX Long Distance Company (d/b/a Verizon
Enterprise Solutions), Verizon Global Networks,
Verizon Global Solutions Inc., Telecom New Zealand
USA Limited, Verizon Select Services, Inc., Codetel
International Communications Inc., TELUS
Communications, Inc., and TELUS Communications
(Quebec) Inc., and their successors and assigns
subject to section 272(b).
(e) ``Parties'' means Verizon and the Bureau.
(f) ``Order'' or ``Adopting Order'' means an order of
the FCC adopting the terms of this Consent Decree
without change, addition, or modification.
(g) ``Final Order'' means an order that is no longer
subject to administrative or judicial
reconsideration, review, appeal, or stay.
(h) ``Investigations'' means the investigations
commenced by the Commission concerning matters
raised in Verizon's unredacted biennial audit
reports filed by the independent auditor with the
Commission on February 6, 2002 and December 12,
(i) ``Effective Date'' means the date on which the
Commission adopts the Adopting Order.
3. Section 272 of the Act requires a Bell Operating
Company (``BOC'') that has received authority to provide in-
region interLATA telecommunications service pursuant to
section 271 of the Act4 to provide that service through a
separate affiliate. Section 272 also establishes certain
structural, transactional, and nondiscrimination safeguards
that govern the relationship between a BOC and its 272
affiliates. In addition, section 272 requires a BOC to
obtain a biennial audit to determine whether the BOC and its
affiliates have complied with the safeguards.5
4. The Commission authorized Verizon to provide in-
region interLATA service in New York effective January 3,
2000.6 Following that approval, and pursuant to section
272, the independent auditor filed its first biennial audit
report on June 11, 2001.7 The Bureau initiated an
investigation into the issues raised in the First Audit
Report. As a result, on September 8, 2003, the Commission
issued a Notice of Apparent Liability for Forfeiture to
Verizon for various apparent violations of section 32.27(c)
of the Commission's rules.8 The NAL proposed a forfeiture
of $283,000, pursuant to section 220(d) of the Act,9 and
admonished Verizon for apparent violations of section
272(b)(5) of the Act10 and section 53.203(e) of the
Commission's rules11 that had occurred outside the statute
of limitations.12 Verizon filed its response to the NAL on
October 8, 2003.13
5. During 2001 and 2002, the Commission authorized
Verizon to provide in-region interLATA telecommunications
service in several additional states.14 The independent
auditor filed its second biennial audit report on June 12,
2003.15 The Bureau initiated an investigation into some of
the issues raised in the Second Audit Report. Among other
things, the Second Audit Report disclosed the following: (1)
Verizon's non-regulated affiliate provided certain
operations, installation and maintenance (``OI&M'')
functions to a Verizon 272 Affiliate, and the 272 Affiliate
provided certain OI&M functions to a BOC affiliate;16 (2)
the BOC obtained pre-paid calling card services from the
Verizon 272 Affiliate without soliciting bids from other
qualified firms;17 (3) Verizon's service representatives did
not inform some customers of their right to choose a long-
distance carrier other than the Verizon 272 Affiliate;18 and
(4) Verizon did not properly and/or timely post certain
affiliate agreements on its website.19
6. The Parties agree and acknowledge that this Consent
Decree shall constitute a final settlement between Verizon
and the Commission of the Investigations. In consideration
for the termination of the Investigations in accordance with
the terms of this Consent Decree, Verizon agrees to the
terms, conditions, and procedures contained herein.
7. For purposes of settling the matters addressed in
these Investigations, Verizon agrees to take the actions
(a) No later than 60 days after the Effective Date of
the Consent Decree, Verizon will send a
communication to all employees involved with
section 272 contracts instructing them on the
requirements of section 32.27 of the Commission's
rules. Beginning not later than 60 days after the
Effective Date of the Consent Decree, where the
total aggregate annual value of a service provided
by a Verizon BOC to a section 272 affiliate that is
not required by section 272 to be made available to
third parties reaches the $500,000 threshold
contained in section 32.27, Verizon will perform a
comparison of fair market value to fully
distributed costs. Verizon will provide the
results of this analysis to the independent auditor
in the current and all future biennial section 272
audits. If Verizon should contend that an estimate
of fair market value can not be established by
Verizon and/or an independent third party for any
services, such as certain component parts of joint
marketing, that are offered by the Verizon BOCs to
their section 272 affiliates but that are not
offered to third parties, Verizon will report to
the independent section 272 auditor the reasons and
provide documentation of the results of Verizon's
and the independent third party's analyses.
(b) No later than 60 days after the Effective Date of
the Consent Decree, and annually thereafter,
Verizon will provide refresher instructions to
customer service representatives instructing them
on compliance with the equal access notification
requirements. Notification will be distributed
through a service alert (electronic reference
system or like communication).
(c) No later than 120 days after the Effective Date of
the Consent Decree, Verizon (1) will modify the
automated voice response unit to ensure that every
customer who is ordering new telephone service or
moving service to a new location within Verizon's
in-region service territory is notified before
being connected with a representative taking the
service order that the customer has a choice of
long distance providers and that a list of
providers is available; (2) will perform a sample
test every 180 days after the Effective Date of the
Consent Decree of the voice response unit to verify
that the equal access announcement is heard before
the customer is connected with a service
representative; and (3) will submit the results of
the tests to Verizon's Senior Vice President for
Regulatory Compliance within 15 days of the test.
(d) No later than 60 days after the Effective Date of
the Consent Decree, the Verizon section 272
affiliates that sell prepaid calling cards will
adopt procedures to prevent order forms from being
issued that would bill charges for prepaid calling
cards directly or indirectly to the Verizon BOCs
without a contract that was executed pursuant to
competitive bidding in accordance with the Verizon
BOCs' procurement guidelines. Verizon will inform
the section 272 employees responsible for filling
orders for prepaid calling cards that failure to
use the procedures required by this condition will
subject them to disciplinary action, with
increasing penalties for repeated violations.
(e) No later than 60 days after the Effective Date of
the Consent Decree, Verizon will update its web
posting procedures to include: (1) a template for
verifying the content of each posting, with
instructions that define fully distributed cost,
and (2) a requirement for a second person to review
each posting and certify completeness and accuracy
when the item is posted. No later than 90 days
after the Effective Date of the Consent Decree, and
annually thereafter, Verizon will retrain its web
posting teams on the revised web posting procedures
and implement the procedure described in clause (2)
of this subparagraph requiring review by a second
person when posting.
(f) No later than 60 days after the Effective Date of
the Consent Decree, Verizon will send targeted
communications to employees responsible for
establishing services between the 272 Affiliates
and the Verizon local exchange carriers and their
affiliates instructing them on the need to execute
a contract before providing service.
(g) Starting in the first full calendar year quarter
after the Effective Date of the Consent Decree, the
Verizon Section 272 contract posting teams will
submit a quarterly report to the Verizon Senior
Vice President for Regulatory Compliance describing
any services in the previous quarter that were
provided prior to the effective date of a contract.
This report will be completed on or before the 60th
day after the close of each quarter.
(h) The requirements of the remedial actions listed
above will expire on a state-by-state basis upon
sunset of the section 272 requirements pursuant to
section 272(f)(1) of the Act.
(i) The independent auditor shall review compliance
with the requirements herein in all future section
272 biennial audits.
8. In express reliance on the covenants and
representations contained herein, the Commission agrees to
rescind the NAL and terminate the Investigations.
9. Verizon will make a voluntary contribution to the
United States Treasury in the amount of $300,000 within 10
calendar days after the Commission Order adopting this
Consent Decree becomes final. Verizon must make this
payment by check, wire transfer or money order drawn to the
order of the Federal Communications Commission, and the
check, wire transfer or money order should refer to ``Acct.
No. 200332080014'' and ``FRN No. 0008988438.'' If Verizon
makes this payment by check or money order, it must mail the
check or money order to: Forfeiture Collection Section,
Finance Branch, Federal Communications Commission, P.O. Box
73482, Chicago, Illinois, 60673-7482. If Verizon makes this
payment by wire transfer, it must wire such payment in
accordance with Commission procedures for wire transfers.
10. The Commission agrees that, in the absence of new
evidence relating to incidents that Verizon has not
disclosed to the Bureau through the Effective Date of this
Consent Decree, the Commission will not use the facts
developed in these Investigations, or the existence of this
Consent Decree, to institute, on its own motion, any new
proceedings, formal or informal, or to take any actions on
its own motion against Verizon concerning the matters that
were the subject of these Investigations. The Commission
also agrees that, in the absence of new evidence relating to
incidents that Verizon has not disclosed to the Bureau
through the Effective Date of this Consent Decree, it will
not use the facts developed in the Investigations to
institute on its own motion any proceeding, formal or
informal, or take any action against Verizon with respect to
its basic qualifications, including its character
qualifications, to be a Commission licensee. Consistent
with the foregoing, nothing in this Consent Decree limits
the Commission's authority to consider and adjudicate any
formal complaint that may be filed pursuant to section 208
of the Communications Act, as amended, and to take any
action in response to such formal complaint.
11. Verizon waives any and all rights it may have to
seek administrative or judicial reconsideration, review,
appeal or stay, or to otherwise challenge or contest the
validity of this Consent Decree and the Order adopting this
Consent Decree, provided the Commission issues an Order
adopting the Consent Decree without change, addition, or
12. Verizon's decision to enter into this Consent
Decree is expressly contingent upon issuance of an Order
that is consistent with this Consent Decree, and which
adopts the Consent Decree without change, addition, or
13. In the event that this Consent Decree is rendered
invalid by any court of competent jurisdiction, it shall
become null and void and may not be used in any manner in
any legal proceeding.
14. If either party (or the United States on behalf of
the Commission), brings a judicial action to enforce the
terms of the Adopting Order, neither Verizon nor the
Commission shall contest the validity of the Consent Decree
or Adopting Order, and Verizon will waive any statutory
right to a trial de novo.
15. The parties agree that this Consent Decree is for
settlement purposes only and that it does not constitute an
admission, denial, adjudication on the merits, or a factual
or legal determination regarding any compliance or
noncompliance with the requirements section 272 and the
Commission's affiliate transaction rules.
16. Any violation of the Consent Decree or the
Adopting Order will constitute a separate violation of a
Commission order, entitling the Commission to exercise any
rights and remedies attendant to the enforcement of a
17. The Parties also agree that if any provision of
the Consent Decree conflicts with any subsequent rule or
order adopted by the Commission (except an order
specifically intended to revise the terms of this Consent
Decree to which Verizon does not consent) that provision
will be superseded by such Commission rule or order.
18. This Consent Decree may be signed in counterparts.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Jeffrey W. Ward
Senior Vice President¾Regulatory Compliance
147 U.S.C. § 272. Section 272 requires Bell Operating
Companies to provide certain types of competitive services,
principally long-distance services, through separate
affiliates and imposes various structural, transactional,
and nondiscrimination safeguards in the provision thereof.
247 C.F.R. § 32.27. Section 32.27 governs transactions,
such as the sale or transfer of assets, between regulated
and nonregulated affiliates, including Bell Operating
Companies and their separate long-distance affiliates
established pursuant to section 272 of the Act.
347 C.F.R. § 53.203. Section 53.203 imposes various
requirements for structural and transactional separation
between Bell Operating Companies and their separate long-
447 U.S.C. § 271.
5The Commission rules implementing the section 272 separate
affiliate safeguards are at sections 53.201-13, 47 C.F.R. §§
53.201-13. In addition, affiliate transactions are governed
by the Commission's accounting rules at section 32.27, 47
C.F.R. § 32.27, and are applied to a BOC's separate long-
distance affiliate pursuant to section 272(c)(2) of the Act
(requiring a BOC to account for transactions with its
separate long-distance affiliate according to principles
designated by the Commission).
6Application of Bell Atlantic New York for Authorization
under Section 271 of the Communications Act to Provide In-
Region, InterLATA Service in the State of New York, CC
Docket No. 99-295, Memorandum Opinion and Order, 15 FCC Rcd
3953, 4178, ¶ 455 (1999) (``Bell Atlantic New York Order''),
aff'd sub nom. AT&T Corp. v. FCC, 220 F.3d 607 (D.C. Cir.
7See Report of Independent Accountants on Applying Agreed-
Upon Procedures, CC Docket No. 96-150 (June 11, 2001);
Supplemental Report (June 18, 2001) (redacted version).
The independent auditor released an unredacted version of
the audit report to the public on February 6, 2002. See
Report of Independent Accountants on Applying Agreed-Upon
Procedures, CC Docket No. 96-150 (February 6, 2002) (``First
Audit Report'') (unredacted version). The Bureau invited
interested parties to file comments on the First Audit
Report. See Public Notice, Accounting Safeguards Under the
Telecommunications Act of 1996, CC Docket No. 96-150
(February 15, 2002); Comments of AT&T Corp on Verizon's
Section 272 Compliance Biennial Audit Report, April 8, 2002;
WorldCom Comments, April 8, 2002; Response of Verizon to
Comments on Biennial Section 272 Audit Report, June 10,
8See Verizon Telephone Companies, Inc., Notice of Apparent
Liability for Forfeiture, 18 FCC Rcd 18796 (2003) (``NAL'').
947 U.S.C. § 220(d). Section 220(d) provides, in relevant
part, that any carrier that fails or refuses to keep certain
accounts, records, and memoranda on the books and in the
manner prescribed by the Commission shall forfeit to the
United States the sum of $7,600 (formerly $6,600) for each
day of the continuance of each such offense.
1047 U.S.C. § 272(b)(5).
1147 C.F.R. § 53.203(e).
12Both section 272(b)(5) and section 53.203(e) require that
transactions between a BOC and its separate 272 affiliates
be reduced to writing and available for public inspection.
13Verizon Response to Notice of Apparent Liability for
Forfeiture, October 8, 2003.
14The Commission granted additional section 271 applications
to Verizon for service in Massachusetts, Connecticut,
Pennsylvania, Rhode Island, Vermont, Maine, New Jersey, New
Hampshire, Delaware, and Virginia.
15See Report of Independent Accountants on Applying Agreed-
Upon Procedures, EB Docket No. 03-200 (June 12, 2003)
(redacted version). The independent auditor released an
unredacted version of the audit report to the public on
December 12, 2003. See Report of Independent Accountants on
Applying Agreed-Upon Procedures, EB Docket No. 03-200
(December 12, 2003) (``Second Audit Report'') (unredacted
version). The Commission invited interested parties to file
comments on the Second Audit Report. See Section 272(d)
Biennial Audit of Verizon Communications, Inc., EB Docket
No. 03-200, Memorandum Opinion and Order, 18 FCC Rcd 25496,
25503 (2003); Comments of AT&T Corp. on Verizon's Second
Section 272 Compliance Biennial Audit Report, February 10,
2004; Response of Verizon to Comments on Second Section 272
Biennial Audit Report, March 5, 2004.
16Second Audit Report at A: 2, B: 3, B-1: 2.
17Id., at A: 30, B: 2.
18Id., at A: 61-62.
19Id., at A: 31-34, A: 42, A: 45-48.