Wholesale Rates Proposed by PUC Judge Would Impede Real Telecom Competition in Pennsylvania

HARRISBURG, Pa. -- The wholesale rates proposed by a state Public Utility Commission (PUC) administrative law judge would create phony telecommunications competition, with Verizon subsidizing its competitors, the company said late yesterday in a PUC filing.

The proposed wholesale rates would be paid by competitors who lease parts of Verizon's network, called unbundled network elements (UNEs), to serve their own customers.

Wholesale rates set below what it actually costs Verizon to provide service also would dampen network investment by Verizon or other companies that build their own networks, Verizon said in the filing.

Verizon filed exceptions to the judge's recommendation to the PUC in its examination of wholesale rates and also refuted numerous claims raised by competitors in the proceeding.

In his recommendation, the judge instructed Verizon to recalculate a number of the wholesale rates using his specific input. After Verizon recalculated the rates as directed by the judge, several competitors complained that both the current and proposed rates were too high for them to compete in Pennsylvania.

"The facts simply don't support competitors' claims, " said Debra Berry, director-regulatory planning for Verizon Pennsylvania. "Competitors already serve more than 1.2 million lines in Pennsylvania, and that number is sure to grow as a result of the PUC's education program to inform customers of their telecom choices. The governor, the PUC and the Federal Communications Commission all recognize that the commonwealth's telecom market is flourishing."

In fact, one company, Talk America, last week announced it is offering Pennsylvania consumers and small businesses several very competitive local-calling plans. "Talk America considers Pennsylvania to be one of its most important markets," said Berry. "A Talk America representative explained that eight states, including Pennsylvania, have utility commissions that have set UNE rates at reasonable levels."

Verizon also refuted some companies' claims that the current and proposed wholesale rates are higher than Verizon's retail rates, making it impossible for competitors to succeed. "It's a fact that retail rates for dial tone, particularly for residential customers, do not cover Verizon's actual cost to provide service. Verizon must make money in this case by selling features such as Caller ID, Call Waiting and Three-Way Calling," said Berry.

"Competitors must do the same thing," she said. "The FCC found that some competitors in Pennsylvania have a 30-percent margin over Verizon's wholesale rates in the state's residential market. That margin is even higher for businesses."

In its filing, Verizon supported the judge's decision to continue to use Verizon's model for recurring costs and to reject "an unprincipled AT&T/WorldCom model that generates ridiculously low rates less than half the level of the current rates."

"While the judge's recommendations provide a good foundation for the commission to begin to set new wholesale rates, some proposed rates are significantly below what it costs Verizon to actually provide the services, and the recommendation provides no useful guidance at all in certain areas," said Berry.

Verizon noted that a number of the judge's recommendations are flawed and should be rejected by the PUC, including:

• The dismissal of Verizon's cost model for non-recurring, or one-time, charges -- even though that model has been accepted by every state commission that has considered it.

• The disallowance of many of the company's DSL (digital subscriber line)-related costs, even though the PUC and FCC previously have permitted them to be recovered.

• A number of erroneous findings that result in below-cost wholesale rates for certain unbundled elements of Verizon's network.

• Changes to certain financial information -- such as cost of capital and annual factors -- used to calculate wholesale rates.

The commission is expected to rule on UNE rates later this year.

Verizon Communications (NYSE:VZ) is one of the world's leading providers of communications services. Verizon companies are the largest providers of wireline and wireless communications in the United States, with 133.8 million access line equivalents and approximately 29.6 million wireless customers. Verizon is also the largest directory publisher in the world. With more than $67 billion in annual revenues and nearly 248,000 employees, Verizon's global presence extends to more than 40 countries in the Americas, Europe, Asia and the Pacific. For more information on Verizon, visit www.verizon.com.

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