TCS Daily

Needed: Promise Keepers

By John Merline - July 2, 2002 12:00 AM

In a late June decision that passed by almost entirely without notice, the Federal Communications Commission decided to let Verizon get away with yet another broken promise. Verizon had asked the FCC to count $150 million it spent on Northpoint towards the terms of its merger agreement with GTE two years ago. In exchange for letting what was then called Bell Atlantic swallow up GTE, Verizon agreed to compete outside its own territory for local phone service.

It didn't just agree to it. In its first merger filing with the FCC back in October 1998, Bell Atlantic loudly boasted about the competitive benefits of the merger. It would, the filing said, "enable the combined company to attack the local markets of other Bell companies on a widespread and effective bases (sic)." The reason seemed clear enough. GTE was an anomaly in the old regional Bell system, with local service areas scattered throughout the country. That, Bell Atlantic proclaimed, would make the combined company able "to attack other Bell company strongholds across the country." The merger, it promised, would be "one of the best possible vehicles for achieving local competition under the 1996 (Telecommunications) Act."

The company made the same case publicly, with color-coded maps showing the various GTE islands that could serve as launching pads for invasion into other regional Bell territories. A press release dated December 23, 1998 claimed the merger would "produce dramatic pro-competitive benefits in every telecommunications market."

Two years after the merger was approved, however, Verizon is struggling to convince the FCC that it is satisfying the pathetically minimal competition requirements the FCC mandated in exchange for the merger. Under the agreement, all Verizon has to do to live up its bold promise is spend $500 million over three years on investments that are supposed to produce competition. But as the FCC noted in its June 20 decision, under the merger terms Verizon itself doesn't have to provide competitive local service, it just has to "invest in or contribute to a venture that provides such a service." As it turns out, it doesn't even have to do that. Verizon spent $150 million towards a merger plan with DLS provider Northpoint. But Verizon later backed out of the merger, and Northpoint went bankrupt. Thus no actual competition resulted. (Northpoint, in fact, has filed suit against Verizon, claiming that Verizon wrongfully terminated the merger deal and helped drive Northpoint into the ground.) This, according to Verizon and the FCC, counts as competing.

To be sure, Verizon is not the only baby Bell to fail to abide by promises of competition. SBC, when it was hustling for approval of its merger with Ameritech, boasted that it would be in 30 markets outside its traditional territory. That plan was quietly scuttled subsequent to the merger's approval. On top of this are the more than $1 billion in fines paid by local Bells for violating rules allowing competitors into their monopoly markets. Rather than pushing competition, the local Bells continue to hunker down in their regions.

All of it falls far short of the goals of the 1996 Telecommunications Act. The vision was that homeowners around the country could choose local and long distance phone service from AT&T, MCI, Sprint, Verizon, SBC, Bell South, Qwest, their local cable company and a variety of smaller competitors. That battle for consumers' dollars would drive prices down and service offerings up. It is a promise that still can be realized virtually overnight, if the Bells would live up to the promises they've made to the public and to the government.



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