Pennsylvanians Lose if Verizon Is Forced To Split into Two Separate Companies

HARRISBURG, Pa. -- Pennsylvania would lose ground to other states if the state Public Utility Commission (PUC) adopts an unprecedented recommendation made today by a commission administrative law judge to split Verizon into two separate operations, the company said.

For consumers, such a radical action by the PUC would slow deployment of the latest technology for data and Internet access. Splitting the company in two would lead to higher telecommunications prices for Pennsylvanians and threaten approximately 7,600 jobs throughout the state, the company said.

In reacting to the judge's recommendation, Verizon Pennsylvania President Daniel J. Whelan said, "This totally unwarranted action would stop a quick-moving industry in its tracks, an industry that is critical to the future of our state.

"We respectfully disagree with the judge's assertions that Verizon did not comply with the PUC's order in this proceeding, particularly with respect to assessing the costs of a full structural separation," said Whelan.

In extensive testimony before the judge over the past few months, Verizon presented a compelling case -- irrefuted by opponents -- that the implementation of full structural separation of the company in Pennsylvania would cost more than $1 billion in the first year and an additional $300 million annually in ongoing costs. These costs would include developing and maintaining separate, duplicative computer systems for ordering, installing and repairing phone services; separating and assigning employees to one of the two companies, and creating new methods and procedures for the separated companies.

Splitting Verizon in two would divert funding that otherwise would be spent on network modernization and service improvements in Pennsylvania. Verizon has invested more than $3 billion in its Pennsylvania telecommunications network over the past three years.

"Structural separation costs -- which would range from $60 to $80 a year per phone line -- ultimately would be paid by all businesses and consumers in the state," said Whelan. "These additional costs would hamper Pennsylvania's business development and retention efforts.

"It would be a slap in the face of all Pennsylvanians to impose wasteful, unnecessary costs that would prevent the enhancement of our telecommunications infrastructure and increase phone bills," he said.

Full structural separation also would endanger Pennsylvania jobs, according to a senior official of the Communications Workers of America (CWA). In testimony filed in the case, CWA District 13 International Vice President Vincent J. Maisano said, "A decision to fully separate the company could destroy approximately 7,600 high-paying, family sustaining jobs."

Structural separation would needlessly increase the uncertainty in the telecommunications marketplace as Verizon physically splits into separate retail and wholesale operations. "Forced structural separation can have very negative consequences, as we're seeing in California, where that state's regulatory commission imposed such a requirement on the power industry," said Whelan. "The PUC in Pennsylvania took a more progressive approach by not mandating involuntary structural separation of this state's power industry.

"The PUC should follow that model in the telecommunications industry as well," he said. "No one wants to see the type of troubles California is experiencing in its power industry come to Pennsylvania's telecommunications industry."

Competition Flourishes in Pennsylvania Today

Structural separation is not needed for local telecommunications competition to grow in Pennsylvania. Local competition is thriving in Pennsylvania today. "In a recent report, the Federal Communications Commission noted that Pennsylvania is one of the most competitive states in the country for local phone competition," said Whelan. In Pennsylvania:

• More than 670,000 telephone customers are served by competitors (220,000 via competitors' leasing of Verizon's lines on a wholesale basis, and 450,000 via competitors' own lines and networks.)
• Nearly 20 million telephone numbers have been assigned to competitors. In addition, the PUC reported that competitors had more than 1.6 million working telephone numbers as of October 1999. "That number certainly has increased in the 14 months since then," said Whelan.
• Verizon has 164 PUC-approved agreements with competitors to link its network with theirs for local service.
• Verizon has more than 310,000 trunk lines that link its network with those of competitors, and Verizon has 1,700 arrangements in which competitors' communications equipment is collocated in Verizon's switching offices.
• Competitors have access to 85 percent of Verizon's residential lines and 91 percent of its business lines in Pennsylvania through these collocation arrangements.
• Verizon computer systems process about 3,300 local service requests each day from 85 competitors -- about 18 percent of similar requests that Verizon receives at its own business offices.

The judge's recommendation made no mention of the wealth of evidence on the record regarding the current level of competition in the state.

"Dismemberment of Verizon will not further the PUC's goal to increase telecom competition in Pennsylvania," said Whelan. "The only way to gain the benefits of full competition is to allow Verizon to offer long-distance service to Pennsylvanians. It's the only step that will bring AT&T and WorldCom out of the courtroom and onto the streets to compete for Pennsylvanians' local phone service."

Consumers in New York and Texas currently enjoy these benefits because Verizon and SBC Communications are competing vigorously for long-distance customers in those states, and AT&T and WorldCom are offering customers local service there. Now that SBC has received FCC approval to provide long-distance service in Kansas and Oklahoma, consumers in those states will soon enjoy the same benefits.

"These states have realized the full competition envisioned in the Telecommunications Act of 1996 without splitting their largest local phone companies into two separate operations," said Whelan. "What better proof is there of the irrelevance of full structural separation in Pennsylvania?"