Press Release

HARRISBURG, Pa. – Moving to break the industry logjam which has prevented consumers from reaping the benefits of local telephone competition, the state Public Utility Commission (PUC) today adopted a plan for the functional structural separation of Verizon Pennsylvania into wholesale and retail units.

This is to be accomplished, in part, by applying a strict code of conduct which would provide for non-discriminatory access to the phone system for Verizon’s retail arm and for Verizon’s competitors. The plan also contains provisions to reduce costs for competitors serving rural areas and to substantially increase the fines Verizon would have to pay for violating performance standards.

PUC Chairman John M. Quain said today’s plan strikes a workable balance between Verizon and its competitors who say full structural separation is the only way to hold Verizon accountable for its actions.

"A functional structural separation will be seamless for Verizon customers because they will never actually be moved to a new company," he said. "At the same time, a strong code of conduct and increased penalties tied to Verizon’s performance should be enough to convince competitors that this commission will not tolerate any discriminatory actions by Verizon.

"Our ruling today provides the fundamental cornerstone for the future of telephone competition in Pennsylvania," he said.

If Verizon does not accept the PUC plan, it will face the possibility of full structural separation and the breakup of the company in the Section 271 proceeding before the commission, where Verizon hopes to gain access to long distance markets.

The PUC made clear that with a functional structural separation, Verizon would continue to operate as one company but the wholesale and retail divisions would be required to operate at arms-length pursuant to a code of conduct. Until the code of conduct is finalized, the interim code of conduct adopted at the Global Order and upheld by the Commonwealth Court continues to apply. Full structural separation could have split Verizon into distinct companies housed in different facilities and would have prevented the sharing of computer equipment.

In addition to several conditions and requirements imposed on Verizon, today’s order also increases the fines Verizon must pay for failing to meet service standards for fulfilling orders. For every violation that lasts longer than 30 days but prior to 60 days, the fine will be increased by $1,000, from $2,000 to $3,000. For violations lasting longer than 60 days, the penalty will be increased by $1,000, from $4,000 to $5,000. The increased portion of the penalties will be paid to the PUC. Verizon submits a performance report every month to the PUC and a list of the penalties it has paid for the month.

The order also contains a provision to make it cheaper for competitors to serve rural areas, where competition is severely lacking. The cost to competitors to lease a standard loop will be lowered by 75 cents, or 4.4 percent, in Verizon’s Density Cell 4, which encompasses most rural areas in the state.

Quain stated that a functional structural separation approach should deliver the benefits of competition to customers sooner than a physical breakup because a physical breakup would be followed by years of costly lawsuits.

"After carefully reviewing the record in this case and examining all of the proposals, we believe this form of separation will enable us to efficiently and to expeditiously achieve what has been the ultimate goal of this commission since the passage of Chapter 30 of the Public Utility Code and the federal Telecommunications Act of 1996," he said. "That goal is to open the local telecommunications market to competition and to create more choices for Pennsylvania consumers."

Immediately following the 5-0 vote, Quain also sharply criticized Verizon for deliberately obstructing the structural separation proceedings that led to today’s decision and for trying to alarm the public with a campaign of misinformation.

Pointing to a blitz of advertising over the past weeks, Quain said that Verizon "has threatened the citizens and businesses of the Commonwealth with negative consequences and outcomes...far beyond the forseeable scope of the proceeding.

"As evidenced by the very content of its publications, Verizon did this to portray structural separation as leading to lost jobs and broad-based negative economic impact, while Verizon threatened to relegate Pennsylvania to virtual ‘backwater’ status in the Information Age," he added.

Quain also specifically identified a statement by Verizon in its appeal to the state Supreme Court to halt the PUC’s earlier actions in the Global Order. In that appeal, Verizon claimed that the very existence of the structural separation case was generating ‘a great deal of publicity,’ thereby increasing consumer confusion and driving away business customers.

"The profound irony of this incredible allegation is that the ‘great deal of publicity’ refers to Verizon’s own media campaign," he said. "In this sense, Verizon is like the mythical man who, after falsely shouting, ‘Fire!’ in a crowded theater, brings suit for the injuries he suffered in the resulting stampede."

Quain requested that the PUC Law Bureau initiate an order requiring Verizon to justify why the commission should not fine the company for its conduct. If Verizon fails to prove its case, Quain said the PUC should order the company to run an ad campaign to cure the damage it has caused and to contribute funds to a technology deployment fund. The ad campaign would be equal in dollars to the one Verizon has been running to stop its separation.

Quain and Commissioner Nora Mead Brownell, in a joint statement, also directed an inquiry into the scope of Verizon’s assertions about potential job losses and the level of infrastructure investment in Pennsylvania. Within 30 days, Verizon must provide to the PUC an itemized list of all advertising, public relations, lobbying and similar expenses related to the structural separation proceedings. It must also provide information from the last three years about its level of investment in Pennsylvania and each state that it provides local telephone service.

For additional press releases and more information about the PUC, visit our website at http://puc.paonline.com.