Evaluation Of The United States Department Of Justice

August 1, 2002

Table of Contents

Index of Full Citations

Introduction and Summary

1. State Commission Proceedings

1. Delaware
2. New Hampshire

2. The Department's Evaluation

1. Delaware
2. New Hampshire

3. Conclusion

The United States Department of Justice ("Department"), pursuant to Section 271(d)(2)(A) of the Telecommunications Act of 1996⁽¹⁾ ("1996 Act"), submits this evaluation of the joint application filed on June 27, 2002 by Verizon New England Inc., Verizon Delaware Inc., Bell Atlantic Communications, Inc. (d/b/a Verizon Long Distance), NYNEX Long Distance Company (d/b/a Verizon Enterprise Solutions),Verizon Global Networks Inc., and Verizon Select Services Inc. to provide in-region, interLATA services in Delaware and New Hampshire.

This application to the Federal Communications Commission ("FCC" or "Commission") is Verizon's first for the states of Delaware and New Hampshire, and follows its successful applications for long distance entry in Massachusetts, Rhode Island, Vermont, and Maine, in its New England region, as well as successful applications for New Jersey, Pennsylvania, Connecticut, and New York.⁽²⁾ The Department concludes that Verizon has generally succeeded in opening its local markets in Delaware and New Hampshire to competition and recommends that the Commission approve Verizon's application for Section 271 authority in Delaware and New Hampshire, subject to satisfying itself as to the pricing issues mentioned below.

I. State Commission Proceedings

A. Delaware

The Delaware Public Service Commission ("Delaware PSC") has facilitated the development of competition in the local telecommunications markets by establishing carrier-to-carrier wholesale performance measurements⁽³⁾; conducting extensive pricing proceedings that established wholesale rates for unbundled network elements ("UNEs")⁽⁴⁾; and adopting a Performance Assurance Plan intended to ensure that an appropriate level of wholesale performance is maintained once Verizon's Section 271 application is approved.⁽⁵⁾

The Delaware PSC's review of Verizon's state Section 271 filing included an independent third-party test by PricewaterhouseCoopers ("PwC") designed to determine whether the operations support systems ("OSS") that Verizon uses in Delaware are the same as those it uses in Pennsylvania.⁽⁶⁾ PwC concluded that Verizon's assertions regarding the sameness of its "Delaware and Pennsylvania Operational Support Systems (specifically the pre-order, order, provisioning, maintenance & repair, relationship management infrastructure, and billing domains) and Performance Measures Calculations Process" are "fairly stated, in all material respects."⁽⁷⁾

The Delaware PSC has recommended that the FCC approve Verizon's Section 271 application.⁽⁸⁾

B. New Hampshire

The New Hampshire Public Utilities Commission ("New Hampshire PUC") has facilitated the development of competition in the local telecommunications markets by establishing carrier-to-carrier wholesale performance measurements, which incorporate improvements from New York and several other states⁽⁹⁾; conducting extensive pricing proceedings that established wholesale rates for UNEs⁽¹⁰⁾; and adopting a Performance Assessment Plan intended to ensure that an appropriate level of wholesale performance is maintained once Verizon's Section 271 application is approved.⁽¹¹⁾ In addition, the New Hampshire Commission is establishing a Rapid Response Process, modeled on that created by the Maine PUC, in order to resolve certain disputes between Verizon and CLECs more quickly than traditional dispute resolution processes would allow.⁽¹²⁾

The New Hampshire PUC's review of Verizon's state Section 271 filing included an independent third-party test by PricewaterhouseCoopers ("PwC") designed to determine whether the operations support systems ("OSS") that Verizon uses in New Hampshire are the same as those it uses in Massachusetts.⁽¹³⁾ PwC concluded that Verizon's assertions regarding the "sameness" of its "New England Region Operational Support Systems (specifically the pre-order, order, provisioning, maintenance & repair, relationship management infrastructure, and billing domains) and Performance Metrics Reporting" are "fairly stated, in all material respects."⁽¹⁴⁾

The New Hampshire PUC has recommended that the FCC approve Verizon's Section 271 application.⁽¹⁵⁾

II. The Department's Evaluation

In assessing whether the local markets in a state are fully and irreversibly open to competition, the Department looks first to the actual entry in a market.⁽¹⁶⁾ But the Department does not broadly presume that all three entry tracks -- facilities-based, unbundled network elements ("UNEs"), and resale -- are open or closed on the basis of an aggregate level of entry alone.⁽¹⁷⁾

A. Delaware

Together, according to Verizon's data, Verizon and CLECs serve a total of approximately 636,000 lines in Verizon's Delaware service area as of March 2002.⁽¹⁸⁾ Of the total lines in Verizon's service area in Delaware, 38.6 percent, or approximately 246,000 serve businesses, and 61.4 percent, or approximately 390,000 serve residential customers.⁽¹⁹⁾ For business and residential customers combined, Verizon estimates that CLECs using all modes of entry serve approximately 49,000 lines, or approximately 7.7 percent of all lines in Verizon's service area in the state.⁽²⁰⁾

Competitors have made some progress in penetrating the business market in Delaware. CLECs serve approximately 15.2 percent of all business lines in Verizon's Delaware's service area.⁽²¹⁾ CLECs serve approximately 10.3 percent of all business lines using their own facilities that are either connected directly to the customer premises or connected through loops leased from Verizon.⁽²²⁾ CLECs resell Verizon's services to serve approximately 3.5 percent of all business lines.⁽²³⁾ CLECs use the UNE-platform (a combination of loop, switch, and transport elements) to serve 1.3 percent of such lines.⁽²⁴⁾

By contrast, CLECs serve approximately 3.1 percent of all residential lines in Verizon's Delaware service area.⁽²⁵⁾ CLECs serve approximately 1.9 percent of all residential lines using facilities that are either connected directly to the customer premises or connected through loops leased from Verizon.⁽²⁶⁾ CLECs serve approximately 1.2 percent of all residential lines through resale, and less than one-one-hundredth of 1 percent of such lines by means of the UNE-platform.⁽²⁷⁾

The amount of entry by competitive facilities-based carriers serving business customers in Delaware and the absence of complaints regarding Verizon's fulfillment of its obligations to open its markets to that mode of entry lead the Department to conclude that opportunities to serve business customers via facilities are available there. The absence of complaints regarding the resale mode of entry indicates that opportunities to serve both business and residential customers through that mode are likewise available. Although there is significantly less competition to serve residential customers via facilities and to serve both business and residential customers via the UNE-platform, the Department does not believe that there remain any material non-price obstacles to competition in Delaware created by Verizon. Verizon has submitted evidence to show that its OSS in Delaware are the same as those that the Commission found satisfactory in Pennsylvania.⁽²⁸⁾ Moreover, there have been few complaints regarding Verizon's Delaware OSS in this proceeding.

The low levels of CLEC penetration of residential markets in Delaware and, in particular, the lack of entry by means of the UNE-platform, may reflect the higher UNE pricing that was in effect for most of the period preceding this application as opposed to the UNE prices on which the application is based. The Delaware PSC issued a pricing order that reduced certain UNE rates three weeks before Verizon filed this application.⁽²⁹⁾

The Department notes, however, complaints filed by commenters regarding UNE rates in Delaware,⁽³⁰⁾ and urges the Commission to examine these comments carefully in determining whether Verizon's prices are cost-based.⁽³¹⁾ As the Department has stated previously, "[b]ecause of the Commission's experience and expertise in rate-making issues . . . the Department will not attempt to make its own independent determination whether prices are appropriately cost-based."⁽³²⁾

B. New Hampshire

Together, according to Verizon's data, Verizon and CLECs serve a total of approximately 893,000 lines in Verizon's New Hampshire service area as of March 2002.⁽³³⁾ Of the total lines in Verizon's service area in New Hampshire, 35.5 percent, or approximately 317,000 serve businesses, and 64.5 percent, or approximately 576,000 serve residential customers.⁽³⁴⁾ For business and residential customers combined, Verizon estimates that CLECs using all modes of entry serve approximately 145,000 lines, or approximately 16.2 percent of all lines in Verizon's service area in the state.⁽³⁵⁾

Competitors have made significant progress in penetrating the business market in New Hampshire. CLECs serve approximately 33.8 percent of all business lines in Verizon's New Hampshire service area.⁽³⁶⁾ CLECs serve approximately 21.5 percent of all business lines using facilities that are either connected directly to the customer premises or connected through loops leased from Verizon.⁽³⁷⁾ CLECs resell Verizon's services to serve approximately 10.4 percent of all business lines.⁽³⁸⁾ CLECs use the UNE-platform (a combination of loop, switch, and transport elements) to serve 1.9 percent of such lines.⁽³⁹⁾

CLECs serve approximately 6.6 percent of all residential lines in Verizon's New Hampshire service area.⁽⁴⁰⁾ Facilities-based carriers serve approximately 6.3 percent of all residential lines.⁽⁴¹⁾ Indeed, most CLEC service to residential customers in New Hampshire is facilities-based, including that provided over the cable television facilities of AT&T Broadband.⁽⁴²⁾ CLECs serve approximately two-tenths of 1 percent all residential lines through resale, and less than one-tenth of 1 percent of such lines by means of the UNE-platform.⁽⁴³⁾

The amount of entry by competitive facilities-based and resale carriers serving business customers in New Hampshire and the absence of complaints regarding Verizon's fulfillment of its obligations to open its markets to these modes of entry, lead the Department to conclude that opportunities to serve business customers via the facilities-based and resale modes of entry are available there. Although there is significantly less competition to serve residential customers through all modes of entry and to serve business customers via the UNE-platform, the Department does not believe that there remain any material non-price obstacles to competition in New Hampshire created by Verizon. Verizon has submitted evidence to show that its OSS in New Hampshire are the same as those that the Commission found satisfactory in Massachusetts.⁽⁴⁴⁾ Moreover, there have been few complaints regarding Verizon's New Hampshire OSS in this proceeding.

The low levels of CLEC penetration of residential markets in New Hampshire and, in particular, the lack of entry by means of the UNE-platform, may reflect the higher UNE pricing that was in effect for most of the period preceding this application as opposed to the UNE prices on which the application is based. The New Hampshire PUC issued orders that reduced certain UNE rates within weeks of Verizon's filing of this application.⁽⁴⁵⁾

The Department notes, however, complaints from commenters regarding the resulting UNE rates in New Hampshire,⁽⁴⁶⁾ and urges the Commission to look carefully at these comments in determining whether Verizon's prices are cost-based.⁽⁴⁷⁾ As the Department has stated previously, "[b]ecause of the Commission's experience and expertise in rate-making issues . . . the Department will not attempt to make its own independent determination whether prices are appropriately cost-based."⁽⁴⁸⁾

III. Conclusion

The record in this matter suggests that Verizon has succeeded in opening its local markets in Delaware and New Hampshire to competition in most respects. The Department therefore recommends approval of Verizon's application for Section 271 authority in Delaware and New Hampshire, subject to the Commission's satisfying itself as to the pricing issues mentioned above.

August 1, 2002