Bell Atlantic Pennsylvania Breakup to Cost Over $1 Billion

Bell Atlantic Pennsylvania Breakup to Cost Over $1 Billion

Company Quantifies Negative Impact of Gargantuan, Wasteful Forced Split

June 27, 2000


Harry Mitchell,

Sharon Shaffer,
215-963-6200 or 412-633-5574

HARRISBURG, Pa. - Splitting Bell Atlantic's Pennsylvania operations into two separate companies will cost at least $1 billion, will stop competition dead in its tracks, and delay customer savings on local and long distance rates, the company told the Public Utility Commission (PUC) late yesterday.

In a 100-plus page filing, Bell Atlantic laid out the steps and implications of the commission's unprecedented, unlawful breakup of the company into separate wholesale and retail operations.

"The forced separation of our company is a solution in search of a problem," said Daniel J. Whelan, president and CEO of Bell Atlantic - Pennsylvania. "It is prohibitively expensive. It's totally unnecessary. And it undoes much of the Ridge administration's efforts to make Pennsylvania a business-friendly state."

Split Will Cost $1 Billion, Harm Customers

Tearing Bell Atlantic in half will take two years to complete and several hundred millions of dollars a year to maintain after implementation. "Bell Atlantic's opponents would have the PUC levy one of the largest tax increases in Pennsylvania history - if not the largest - all on a single company via structural separation," said Whelan. "Unfortunately, consumers ultimately will have to bear the brunt of such a tax."

Whelan also worries about the impact of structural separation on the commonwealth's business climate.

"By handicapping Bell Atlantic, the pressure on competitors to provide better products and prices will end as their incentive to innovate dissipates," Whelan predicted. "The impact on thousands of small businesses will be felt as we are forced to recoup the cost of this gargantuan undertaking. Large companies will think twice about remaining in Pennsylvania as they contemplate the potential of spending hundreds of thousands of dollars more annually on telecommunications services."

Whelan pointed to a recent PUC report to the state legislature, which indicated that as of six months ago Bell Atlantic's competitors are using 1.6 million telephone numbers to serve local customers, a number that's likely significantly larger now. The current number of competitors - 150 - has increased tenfold over the last four years.

"These facts alone rebut unsubstantiated claims that competition is languishing," he said.

Split Will Slow Competition, Network Investment

Whelan also warned the PUC that forced separation would affect Bell Atlantic's long-standing commitment to continue reinvesting in the state and will thwart the legislature's progressive policies to ensure continued network modernization.

"Last year, for example, Bell Atlantic spent more than $1 billion on its Pennsylvania network," said Whelan. "Now we're faced with taking money that otherwise would be spent on fiber optics, digital switching and DSL (digital subscriber line) equipment and pouring it into an unproductive hole that will add absolutely nothing beneficial to Pennsylvanians' telecommunications service. In the end, the commission's Global Order could be a record-setting example of government-imposed waste."

Split is Duplicative, Harmful to Competitors

Cleaving Bell Atlantic's wholesale and retail operations will create a redundant system that could hamper the company's ability to serve competitors as well as retail customers, the filing said. Structural separation would require scores of computer programmers and engineers to dedicate thousands of hours to create two companies capable of serving as many as seven million lines and four million customers. By the time the company's work is done, Bell Atlantic's focus will shift from meeting wholesale customers' real needs to creating a series of superfluous, redundant systems that could slow, not hasten competition. And, in the time it takes to finish the PUC's grand plan, it could be rendered obsolete by a telecommunications industry and a series of regulations that are changing at the speed of light.

"There's a solution in place today," Whelan added. "Federal laws protect our competitors from the kind of behavior that worries the PUC," Whelan said. "The Telecommunications Act of 1996, which governs our industry, prohibits Bell Atlantic from discriminating against its competitors. The Act was written to promote local competition by regulating single, integrated companies like Bell Atlantic, not cutting them into half-entities that would result from this split. And the PUC's performance measurements and penalties add teeth to the federal law."

Whelan added that Bell Atlantic-Pennsylvania has offered local toll calling in competition with others for more than a decade without any claims of discriminatory treatment. Those competitors have flourished. "The numbers don't lie," Whelan said. "Competitors have captured almost a third of Bell Atlantic's-Pennsylvania's local toll business in this hotly contested market."

Needless Job Uncertainty, Frustration for Thousands of Pennsylvanians

Under the PUC's proposal, Bell Atlantic also will have to split its workforce, establish separate payroll and other human resources computer systems, create separate labor contracts, and occupy separate buildings.

The employees of each affiliate would have to process as many as 15,500 of the 18,800 service orders Bell Atlantic handles every day - once on the wholesale side, once on the retail side.

"The scale of work required is enormous, and does not even take into account the cost to Bell Atlantic of customer confusion, productivity losses and employee turnover that would result from full structural separation," Whelan said.

A Better Solution: Functional, Not Structural Separation

The Bell Atlantic filing proposes a far less radical, two-part solution that will guarantee that competitors can gain access to the network services they need:

      1. The PUC should require Bell Atlantic to continue to provide traditional telephone services, called "circuit-based" services, in Pennsylvania under the same internal wholesale/retail separation requirements the company meets today. "That system works for all competitors and customers, and it is fair," Whelan said. Moreover, all of Bell Atlantic-Pennsylvania's wholesale services to competitor customers are subject to the PUC's tough performance standards and remedies. "Those standards have teeth, and force us to pay substantial financial credits to CLECs if they receive poor service. We are prepared to adhere to these standards in serving our competitors," Whelan noted.

        2. Bell Atlantic's non circuit-based services, including data, would be provided by a separate subsidiary. Every interconnection or wholesale service the data affiliate needs from Bell Atlantic could be purchased from the company at arm's length, just like a competitor.

      Other parties will have an opportunity to comment on Bell Atlantic's filing, and hearings will be held in September. The PUC is expected to act on the filing by the end of the year.

      Bell Atlantic is at the forefront of the new communications and information industry. With more than 44 million telephone access lines and more than 20 million wireless customers worldwide, Bell Atlantic companies are premier providers of advanced wireline voice and data services, market leaders in wireless services and the world's largest publishers of directory information. Bell Atlantic companies are also among the world's largest investors in high-growth global communications markets, with operations and investments in 23 countries.