Pa. State Court Backs Verizon Breakup

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Verizon Communications should be divided into separate wholesale and retail operations, the Pennsylvania Commonweath Court ruled.

Rejecting an appeal by the former Bell Atlantic Corp. and other telephone companies, the court upheld a September 1999 Pennsylvania Public Utility Commission order. Bell Atlantic and GTE Corp. merged in July to form Verizon.

Analysts were at a loss to determine what the court decision would mean in practical terms.

"We continue to disagree on the interpretation of the law on structural separation," said Sharon Shaffer, a Verizon spokeswoman in Pennsylvania. The company is reviewing the 140-page legal opinion and considering all available options, including trying to work out an amicable settlement, she added.

The Commonweath Court decision "is a good thing for telephone competition in Pennsylvania, and the nation, if it's upheld," Pennsylvania Cable and Telecommunications Association president Bill Cologie said.

The state PUC had attempted to craft a "global settlement" that would compel incumbent telephone companies to unbundle parts of their networks and set uniform prices for access to the plant by upcoming telephony providers. The idea was to encourage broadband facilities competition in the state.

When the PUC was unable to get the telephone companies to voluntarily settle, it consolidated various competitive dockets and imposed operating conditions.

Representatives for potential competitors, including the PCTA, urged the state regulators to set rate reductions and freezes. To prevent cross-subsidies and other anti-competitive activities, the interveners also asked the PUC to order a structural separation of Bell Atlantic's wholesale and retail divisions into separate companies.

The PUC, with one dissenting vote, ordered that separation. It also ordered the company to file tariffs on unbundled network elements and enhanced extended loops.

The agency also ordered telcos to publish prices for network interconnection services and wholesale discount rates.

State regulators called for the creation of a third party to administer a lifeline fund and create consumer education programs. Protected service rates were also frozen through 2003. The ruling also directs the companies to classify Internet calls as local transactions.

Bell Atlantic challenged the state regulators in court, claiming the PUC violated the company's due-process rights by not reopening separate dockets before issuing its settlement ruling.

The court disagreed with the telco and noted the settlement hearings had generated almost 10,000 pages of testimony. The PUC action did not violate constitutional rights or the agency's own procedural rules, the court said in its Oct. 24 ruling.

AT&T-Pennsylvania, which has been active in the unbundling efforts, praised the court for seeing through Verizon's "legal smokescreen."

AT&T called for an immediate test of Verizon's call-switching system to determine if there were any delays, lost services or other problems.

But one analyst noted the Telecommunication Act of 1996 specifies 14 criteria that incumbent telcos must meet to be judged competitive. The company may be able to argue that structural unbundling represents a 15th criteria, in violation of federal law, according to critics.

Meanwhile, Verizon's bid to enter the long-distance market in Massachusetts took a blow when the Justice Department ruled the RBOC had not met the competitive criteria to justify expansion of its lines of business there.

The Justice Department ruling, released Oct. 31, criticized Verizon's installation, quality of service and repairs of lines leased by competitive digital subscriber line vendors. The rates charged are discriminatory, based on standards set by state utility regulators in Massachusetts, according to the Justice Department ruling.

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