OCT 2 7 2000 Yoff^Ofl Joseph A

Verizon New York Inc. 1095 Avenue of the Americas e NY 10036 37 th FS PUBLIC SERVICE COMMISSION fel 212 395-6509 RECFJ^Ei Fax 212 768-7569 OCT 2 7 2000 yOff^Ofl Joseph A. Post Regulatory Counsel

October 23, 2000

Honorable Janet Hand Deixler Secretary New York State Public Service Commission Three Empire State Plaza Albany, New York 12223

Re: Case 00-C-1487: Reply Comments of Verizon Communications Inc. and NorthPoint Communications Group, Inc.

Dear Secretary Deixler

Initial comments in opposition to the Verizon/NorthPoint merger were submitted by

AT&T, Covad, Choice One, NAS, and MetTel. In large part, these comments mirror plead-

ings submitted by those parties in the pending FCC proceeding for approval of the merger.1

Covad and NAS merely filed copies of their FCC comments; and although AT&T prepared a

separate set of comments for this Commission, those comments draw heavily on (and include a

copy of) AT&T's FCC submission. None of the comments raise any issues that are specific to

New York. Our point is not to accuse these parties of laziness, or lack of originality, but rather

to point out that they — like Verizon and NorthPoint — believe that there are no issues pre-

Joint Application of NorthPoint Communications, Inc. and Verizon Communications/or Authority Pur- suant to Section 214 of the Communications Act of 1934. as Amended, To Transfer Control of Blanket Authorization To Provide Domestic Interstate Telecommunications Services as a Non-Dominant Carrier, CC Docket No. 00-157.

C:\TEMP\Reply_Comments.doc Honorable Janet Hand SBde October 23,2000 sented by this merger in New York that differ in any degree from the issues that are currently being reviewed by the FCC.

In fact, some of the parties raise explicitly interstate issues that can be addressed only by the FCC. AT&T, for example, argues that a merger of New York operations will have

"spillover" effects in other jurisdictions outside of the Verizon footprint; and Covad argues that this Commission's requirements concerning migration from virtual collocation to cageless collocation arrangements should be imposed on Verizon operating companies in other states. This is not to say that these positions have any merit —as is shown below, they manifestly do not — but it is clear that the FCC is the body that is best suited to resolve them. The proposed transaction is, of course, also being reviewed by the United States Department of Justice, which, like the FCC, can bring a multistate perspective to bear in its review.

In light of these considerations, in the absence of any public interest concerns or alleged competitive harms that are unique to this State, and in view of the extensive review already being conducted — from a multi-jurisdictional perspective — by the FCC, it would be appropriate for this Commission simply to approve the merger.2

2 Such an approach would also be consistent with the Commission's consistent recognition of the relaxed standard of review applicable to corporate transactions affecting the control of non-dominant carriers See, e.g.. Case 00-C-0866, Jow/ Petition ofTalk.com, Inc. and Access One Communications Corp. For Ap- proval of a Proposed Transfer of Ownership and Control (June 30,2000 Memorandum to the Commission from the Office of Communications, approved as recommended and so-ordered by the Commission effective July 21,2000); Case OO-C-0687, Joint Petition of Listing Services Solutions, Inc. and Metromail Cor- poration For Authority to Complete a Corporate Merger. Acquire Shares and Property, and Issue Debt (June 5,2000 Memorandum to the Commission from the Office of Communications, approved as recommended and so-ordered by the Commission effective July 3,2000). The Commission should decline to discriminate against this transaction by applying a different standard of review than it has consistently applied in the past.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand fl^ler October 23,2000

* * *

Whatever role this Commission chooses to play in the review of the transaction, it is

clear that the arguments presented in the CLECs' initial comments are totally without merit

Many of the comments raise issues relating to line sharing and xDSL-compatible loops that are

totally unrelated to the merger, and that have received or are receiving ample attention in other

Commission proceedings. Only AT&T presents any detailed analysis of the alleged competitive

harms that will supposedly be caused by the merger, and that analysis is specious — clearly

aimed not at preserving competition among DSL providers, but rather at protecting entrenched

cable modem providersyrow effective DSL competition. Of course, it is ironic that these sup-

posedly "pro-competitive" arguments are proffered by AT&T, the largest operator of closed

cable systems, which already controls the single largest cable modem provider (Excite@Home),

and which has vigorously resisted opening its systems to multiple ISPs.3 Such arguments from a

company that is basing its entire corporate survival on a strategy of maintaining its dominance in the delivery of advanced services into customers' homes should be rejected out of hand.

As we show below, none of the commenting CLECs has identified any competitive harm that would result from the merger, or has refuted the Petitioners' showing that the merger

See, e.g.. Applications for Consent to the Transfer of Control of Licenses, MediaOne Group, Inc., Trans- feror, to AT&T Corp. Transferee, CS Docket No. 99-251 (FCC filed Sept. 17,1999) (claiming that "forced access will not provide more consumer choice."); see also T. Wallack, Change Takes Hold at Excite, San Francisco Chronicle, July 17,2000, at El (quoting Excite@Home Chairman and CEO George Bell: "We have exclusive contracts (with our cable partners) through the year 2002 We have a regulatory environment where the forced-access issue has diminished in scope and scale.... In sum, the market conditions that we face over the next two years are enviable and may never come again.").

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C:\TEMF\Reply_Comments.doc Honorable Janet Hand flBcler October 23, 2000 will create substantial public interest benefits. For the reasons set forth below, in the Petition, and in Verizon's initial comments, the merger should be approved expeditiously.4

A. AT&T's Comments

1. Contrary to AT&T's Claims, The Merger Will Generate Sub- stantial Public Interest Benefits

NorthPoint and Verizon demonstrated in their Petition that this transaction will produce significant pro-competitive (and pro-consumer) benefits. The key source of tiiose benefits is the fact that the merger will enhance the ability of the merger partners to offer an effective competitive alternative to existing cable modem providers. It is particularly significant that that alterm- tive will be an open system.5

AT&T launches a two-pronged attack on this demonstration: it claims that it and other cable incumbents already face enough competition, and it claims that in any event the merger will not give the merger partners any competitive abilities that they do not already enjoy as separate parties. In both respects, AT&T is wrong.

* * *

The claim that cable operators already face sufficient competition ignores the fact that closed cable systems control approximately three-quarters of the residential broadband access

4 Because of the substantial overlap between the issues presented here and those that are being considered by the FCC, we are attaching to these reply comments, and incorporating herein by reference, a copy of the reply comments (and attachments) that NorthPoint and Verizon filed with the FCC. The FCC comments, and the declarations that accompanied them, amplify and document many of the points outlined below.

Most cable operators have signed exclusive contracts with one of the two dominant cable Internet access providers — Excite@Home or Road Runner — that are not scheduled to expire for 18-24 more months.

C:\TEMP\Reply_Comments.doc Honorable Janet Hand MKler October 23,2000

subscribers (or at least three times as many residential broadband subscribers as DSL). And by

the end of this year, cable modem service is expected to be available to many more households

than DSL — 70 percent more, according to one source.6

Indeed, AT&T itself, through Excite@Home, has nearly six times the number of resi-

dential subscribers as NorthPoint and Verizon combined.7 And well over one million of these

customers will be connected to AT&T's own closed cable systems by year's end8 All of this

led AT&T's Excite@Home recently to proclaim that, "even after the meiger of NorthPoint's

and Verizon's digital subscriber line businesses, the 'new' NorthPoint will not be larger, meas-

ured in either number of subscribers or revenue generated from subscribers, than Ex-

cite@Home," and that "Excite@Home's 'footprint' is larger than that claimed by North-

Point/Verizon.'9

6 See C. Crouch, Broadband Is Coming at High Speed, PC World, Oct. 12,2000 ("By the end of this year, 41 percent of U.S. households will have access to cable modem service but only 24 percent will have access to digital subscriber line."). The FCC has noted that, by the end of 2000, the largest cable companies "will have upgraded systems that cover at least 61 million (80%) households." D. Lathen, Bureau Chief, Cable Services Bureau, Broadband Today, A Staff Report to William E. Kennard, Chairman, Federal Communica- tions Commission, on Industry Monitoring Sessions Convened by Cable Services Bureau at 27 (Oct 1999).

AT&T recently extended its control over Excite@Home, thus solidifying its ability to control access on cable networks other than its own. See Excite@Home Press Release, Excite@Home Announces New Board and Completion of Partner Distribution Agreements, AT&T Assumes 74 Percent Voting Stake, Aug. 28,2000 (as a result of restructuring, AT&T will gain, "on a fully diluted basis, approximately 25 percent of the economic interest in Excite@Home and 74 percent of the voting interest, as compared to the 24 percent economic interest and 56 percent voting interest AT&T had previously").

8 See Morgan Stanley Dean Witter, AT&TBIS 3Q00 Preview at 3, Oct. 4,2000 ("Morgan Stanley AT&T Report").

See Letter from Lewis Rose, Arent Fox, Counsel for Excite@Home, to Steven Gorosh, Executive Vice Presi- dent and General Counsel, NorthPoint, and Bill Barr, Executive Vice President and General Counsel, Veri- zon (Aug. 23,2000).

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand iSRler October 23,2000

Whatever incursions Direct Broadcast Satellite may have made into the entrenched ca-

ble monopolies, the mere existence of DBS and other alternatives does not reduce the impor-

tance of competition from DSL providers in the provision of broadband services to the home.

* * *

AT&T is also wrong when it claims that the combination of NorthPoint's and Verizon's

xDSL businesses will not produce a more effective competitor to the cable incumbents and thus

give rise to the public interest benefits to content providers, ISPs, and consumers that were

identified in the Petition. The transaction will give NorthPoint the capital and other resources that it badly needs but currently lacks in order to sustain its current operations, and to expand these operations into new customer segments (particularly residential) and geographic areas.

"While AT&T tries to mischaracterize this as a "Ming firm defense," the real point is that a transaction that enhances and accelerates the ability of the parties to compete against incumbent service providers is in the public interest.10 Moreover, the transaction will provide Verizon with an immediate and extensive out-of-region presence, an expanded product portfolio to serve

10 See, e.g., Application of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communications Corporation to WorldCom, Inc., Memorandum Opinion and Order, 13 FCC Red 18025, H 199 (1998) (identifying as public interest benefit "merged entity['s]" ability "to expand its operations and enter into new local markets more quickly than either party alone could absent the merger"); 5ee also Applications for Consent to the Transfer of Control of Licenses and Section 2 J 4 Authorizations from MediaOne Group, Inc., To AT&T Corp., Memorandum Opinion and Order, 15 FCC Red 9816, H 160 (2000) ("AT&T/Media One Order"); Application of GTE Corporation and Bell Atlantic Corporation For Consent to Transfer Control of Domestic and International Sections 214 and 310 Authorizations and Application to Transfer Control of a Submarine Cable Landing License, Memorandum Opinion and Or- der, FCC 00-221, CC Docket No. 98-184, \ 262 (rel. Jun. 16,2000) ("5e// Atlantic/GTE Order"); Applica- tions for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from Tele- Communications, Inc. to AT&T Corp., Memorandum Opinion and Order, 14 FCC Red 3160, ^ 147-48 (1999) ^A T&T/TC1 Order'r).

C:\TEMP\Reply_Comments.doc Honorable Janet Hand MKler October 23,2000

business customers that it currently lacks, and a jump-start to Verizon's separate data affiliate by infusing it with the added technical capabilities and entrepreneurial management team of the current NorthPoint.

The ability to develop a video product is especially important in order to remain competitive with the likes of AT&T, which already is able to offer a bundled service package that includes video and broadband access along with other telecommunications services.1' As

AT&T itself concedes, video is an important part of the product "bundle" that consumers in- creasingly seek to purchase from a single source.12 AT&T has claimed that "content distribution

... needs to be a feature of the network,"13 and in fact AT&T's Excite@Home recently announced new video services to be offered in connection with its cable Internet access services.

In this context, NorthPoint's Blast! Technology is key to Verizon's ability to confront cable modem providers head-on.

AT&T nonetheless claims that Blast! technology is not "unique" and that Verizon could obtain similar content delivery services from "numerous" other "content delivery companies,"

11 Cf. AT&T-MediaOne Merger Prospectus, Schedule S-4, at II-5 (SEC filed Aug. 27,1999) ("MediaOne Group believes that the combined company's ability to offer customers 'one-stop shopping' for all of their video entertainment, information, Internet and communication needs will be a significant advantage to AT&T following the merger AT&T also has a strong marketing presence in many of the local markets in which MediaOne Group operates, and utilizing the capabilities of AT&T's marketing force along with the bundling of various service offerings could provide operating efficiencies as well as improved customer acquisition.").

12 See AT&T Press '9jt\tz.s&, AT&T Broadband to Introduce Uniform Pricing and Packaging of Digital Cable Products, Aug. 15,2000 ("[Ujnifying AT&T Digital Cable's offerings will form a foundation from which to offer multiple products — including interactive services, high-speed cable Internet access and digital phone service — bundled together as they continue to be deployed nationwide.").

C:\TEMP\Reply_Comments.doc Honorable Janet Hand HKler October 23,2000

such as Akamai, Digital Island, Sun Microsystems, and Inktomi.I4 But that simply misses the

point. As an initial matter, the Commission's merger-review standard does not require parties

to show that their merger is the only way to achieve the benefits that will result; only that the

merger, on balance, will further the public interest15 In addition, the simple feet is that none of

the alternative companies fiom which AT&T claims Verizon could obtain content delivery pro-

vides a content delivery platform integrated with a broadband access network like North-

Point's. In other words, none can offer the same kind of efficiently integrated video content and

distribution network that cable modem providers like AT&T's Excite@Home use."

The merger will also promote DSL/cable competition by giving Verizon and NorthPoint

the necessary scale to attract video content providers. As the FCC has recognized, in order to

(continued) 13 Kathleen B. Earley, Vice President, AT&T Internet Services, Living on the Edge: Network the New Econ- omy, Speech, As Delivered to Spring Internet World, Los Angeles, CA, Apr. 7,2000.

Significantly, AT&T in effect concedes by pointing to these alternatives that Blast! and other similar technologies are technologically capable of providing a true competitive threat to cable.

15 See, e.g.. Applications of NYNEX Corporation and Bell Atlantic Corporation For Consent to Transfer Control ofNYNEX Corporation and Its Subsidiaries, Memorandum Opinion and Order, 12 FCC Red 19985, H157 (1997) {"Bell Atlantic/NYNEX Order") (public interest test satisfied when "transaction on balance will enhance and promote, rather than eliminate or retard, competition"); see also AT&T/MediaOne Order ^ 160 ("We recognize that, were they not to merge, MediaOne and AT&T, acting independently or in contractual arrangements with each other and other service providers, may achieve some of the same public benefits promised by the merger.").

16 See, e.g.. At Home Corp., Form 10-K/A (SEC filed Apr. 28,2000) ("We use leading caching technologies to store data close to our customers, thereby reducing redundant data requests from the public Internet and improving network efficiency We believe that this infrastructure represents an efficient means of providing broadband services over HFC networks and creates an opportunity to extend beyond residential HFC to non-HFC broadband platforms such as digital subscriber lines (DSL) and wireless.").

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand I^lQer October 23,2000

be viable, a programming network needs to be able to reach 15-20 million subscribers.17 Un-

less DSL providers — individually or collectively — reach this threshold, the programmers will

be unable to reach the kind of scale necessary to develop innovative new forms of programming

content that are tailored to this medium. Moreover, in order for an individual DSL provider to

attract content on competitive terms, it needs to achieve a certain minimum scale that, based on

experience in the cable industry, may well be between three and six. million subscribers. This

transaction will enable the new NorthPoint to reach the three-million level within two years,

which neither company alone would do.

* * *

Totally apart from the public interest benefits that will result from more effective compe-

tition between DSL providers and cable modem providers, the merger will also create public

interest benefits by lodging the combined entities' DSL business in a "most separate" separate

subsidiary. Among other things, the new NorthPoint will be 45-percent owned by independent

shareholders, will have a board that includes independent directors, and will have a management

team led by the current NorthPoint and focused uniquely on the broadband access business.

This goes well beyond the structural separation provisions that are required for Verizon's ad-

vanced services affiliate by the Bell Atlantic-GTE merger conditions.

See also Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992; Horizontal Ownership Limits, Third Report and Order, 14 FCC Red 19098, H 42 (1999) ("[F]or purposes of this analysis, we will assume that a new programmer needs 15 million subscribers in order to have a reasonable chance to achieve economic viability.").

C:\TEMP\Reply_Comments.doc Honorable Janet Hand HBder October 23,2000

The FCC has already held that the existing separate affiliate structure 'Vill greatly accelerate competition in the advanced services market,"18 and enhance the ability to monitor the development of broadband competition through regulatory benchmarking.19 These findings belie the claims of AT&T (and of Covad) that structural separation is of no value. The even greater separateness here will provide still further assurances.

2. Contrary to AT&T's Claims, The Merger Will Have No Signifi- cant Anticompetitive Impact

As demonstrated in the Application, the combination of NorthPoint's and Verizon's complementary xDSL businesses will have no countervailing adverse impact on competition.

This is true both because, as new entrants into the broadband access business, the applicants have focused primarily on offering complementary services to different customers using different technologies, and because they face intense competition from the dominant cable incumbents and a myriad of other actual and potential competitors.

AT&T —joined by a few other commenters — argues that the transaction will reduce competition in some segments of the telecommunications marketplace because it will remove one competitor from the broadband access business. But, as demonstrated in the Petition,

NorthPoint and Verizon are merely two among many new entrants for broadband access serv-

18 Bell Atlantic/GTE Merger Order \ 262.

• Id. \ 131; see also Applications of Ameritech Corp., Transferor, and SBC Communications Inc.. Trans- feree, For Consent to Transfer Control, Memorandum Opinion and Order, 14 FCC Red 14712 (1999) {"SBC/Ameritech Order"), H 363 & n. 674.

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C:\TEMP\Reply_Comments.doc ; Honorable Janet Hand DeRlerD•e October 23,2000 ices. Thus, the removal of either NorthPoint or Verizon cannot plausibly be said to eliminate one of a limited number of significant market participants.

AT&T, however, claims that the transaction will harm its ability to compete for local voice services by depriving it of critical partnering opportunities with NorthPoint.20 Even though it has spent billions to become the dominant provider of broadband access services, AT&T now claims that it will be unable to compete for voice customers unless it can provide a bundle of "voice and data over a single line" (using unbundled network element platforms). According to AT&T's contorted theory, this transaction limits its ability to offer such a bundle because it reduces by one the number of data CLECs that AT&T supposedly could partner with in Veri- zon's territory. This claim is particularly absurd coming from AT&T.

First, AT&T is living proof that there are many ways to provide broadband access as part of a competitive service bundle. AT&T, of course, is already the dominant provider of broadband access, although it refuses to allow any competitors to provide voice, data, or any combination thereof on its network This dominance and exclusivity allows AT&T to sell its own broadband access service as part of a bundled service package that includes voice and video as well. Indeed, AT&T openly proclaims that its "preferred strategy for entering local markets is through use of its own facilities," and that this "strategy was a primary factor behind

20 AT&T attempts to buttress the argument by claiming that Verizon has improperly prevented the implementation of line-splitting, which it regards as vital to such partnering. The extended discussion of line splitting merely rehashes arguments that have already received full consideration in Case 00-C-0127 and that are now before the Commission for a final ruling. (The Commission announced that it will shortly issue a line splitting order.) In any event, this merger proceeding is not the appropriate forum in which to challenge the scope of line-splitting requirements.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand Ruder October 23,2000

AT&T's purchase of TCI and MediaOne."21 AT&T already provides both data and voice te-

lephony over a large and rapidly increasing portion of its own cable network,22 already has joint-

marketing agreements with Cablevision and Time Wamer (for AT&T to sell telephone service

where Cablevision or Time Wamer is the cable incumbent),23 already has acquired an interest in

the country's largest data CLEC, and is rolling out its own fixed wireless services. AT&T's

only real complaint appears to be that it has not yet completely cornered the market for broadband access.

In any event, there are many technologies that are being used to provide residential broadband access, giving voice CLECs numerous options for broadband access partners. For example, voice-based CLECs could, as AT&T does, partner with cable operators, myriad other CLECs that provide DSL service, MMDS providers, satellite providers, or others.

Second, voice-based CLECs can either provide DSL themselves or obtain it from othr ers. As the FCC has recognized, new competitors are able to deploy their own DSL facilities, and are guaranteed all of the other ingredients they need for entry through the Commission's

21 Opposition of AT&T Corp. at 9, Application by Bell Atlantic New York for Authorization Under Section 271 of the Communications Act to Provide Jn-Region, InterLATA Service in the State of New York, Memorandum Opinion and Order (FCC filed Oct. 16,2000).

22 As of June 30,2000, 73 percent of AT&T's broadband plant had been upgraded to at least 550 MHz, with the majority of the network upgraded to 750 MHz. In addition, 63 percent of the broadband video plant was two-way capable as of the end of the second quarter. See AT&T, AT&T Group Earnings Commen- tary, Mid-Year 2000, (July 25,2000).

23 See AT&T Press Release, .drdcT'a/irf Cablevision to Create High-Value Telecommunications Bundle for New York Metropolitan Area Customers, Feb. 23,2000; AT&T Press Kt\cz&t, AT&T And Cablevision Systems Corporation Unveil Plans To Give Customers "Something Extra," May 4,2000; AT&T Press Release, A T&Tand Time Warner Cable Announce Joint Marketing Agreement, Mar. 7,2000.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand Wtder October 23, 2000

UNE Remand Order, Line Sharing Order, and collocation orders.24 Widespread entry in

Verizon's region confirms that competition has taken root in the last 12 months alone, at least

20 earners that focus on providing DSL services have begun operating in Verizon's region, or

have announced plans to do so.25 And, while not as readily susceptible to measurement, tradi-

tional voice CLECs have announced that they are deploying their own DSL facilities in increas-

ing numbers.

Entry barriers for AT&T itself are particularly low. Like other traditional CLECs,

AT&T already has extensive collocation arrangements in place in Verizon's region26 And many

of these central offices are already equipped to provide DSL service.27 Moreover, in many

central offices in which it has collocation, AT&T has obtained substantially more than the stan-

dard 100 square feet AT&T could, therefore, easily install its own DSLAMs. Or it could

See, e.g.. In the Matter of Inquiry Concerning the Deployment of Advanced Telecommunications Capa- bility to All Americans in a Reasonable And Timely Fashion, and Possible Steps To Accelerate Sucfy De- ployment Pursuant to Section 706 of the Telecommunications Act of 1996, CC Docket No. 98-146, Second Report, 2000 FCC LEXIS 4411 (rel. August 21,2000) {"Second Advanced Services Report"), H 196 ("The availability of unbundled network elements and line sharing has spurred tremendous investment in DSL deployment.").

25 AT&T's complaint that, "because the Commission eliminated DSLAMs from the list of network elements subject to unbundling, competitive LECS do not have the option of leasing that equipment from Verizon," is therefore both untrue and irrelevant. DSLAMs were never on the list of UNEs. They were excluded precisely because the FCC found that "advanced services providers are actively deploying facilities to offer advanced services such asxDSL across the country," and because "Competitive LECs and cable companies appear to be leading the incumbent LECs in their deployment of advanced services." Implementa- tion of the Competition Provisions of the Telecommunications Act of 1996, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, 15 FCC Red 3696, ^ 307 (1999).

26 See New Paradigm Resources Group, CLEC Report 2000, AT&T Carrier Profile at 25-27.

27 See id.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand^lxler October 23,2000

share the CO space it is warehousing with other DSL providers, reducing their costs of entry

fimher still.

Third, because AT&T cannot deny the existence of numerous new DSL entrants, or the

fact that it could provide DSL itself, AT&T argues instead that there are only three existing na-

tional DSL-only providers from which it could obtain DSL facilities on a nationwide basis, and

that the merger will eliminate one of these providers. But this simply ignores the fact that the

overwhelming majority of NorthPoint's existing facilities — the facilities that AT&T claims it

desperately needs to be able to serve mass-market customers over a single line — are SDSL

facilities that are designed for business applications, and that do not support line sharing with voice services.28 And AT&T never proves that there are only three DSL providers with whom it could partner in any event On the contrary, numerous DSL providers other than Covad,

Rhythms, and NorthPoint, are rapidly expanding their operations across the country. As the

FCC has found, "competition is emerging, rapid buildout of necessary infrastructure continues, and extensive investment is pouring into this segment of the economy.', »S9

See, e.g.. Deployment of Wireline Services Offering Advanced Telecommunications Capability and Im- plementation of the Local Competition Provisions of the Telecommunications Act of 1996, Third Report and Order in CC Docket No. 98-147, Fourth Report and Order in CC Docket No. 96-98,14 FCC Red 20912, H 34 (1999) ("The larger business market tends to favor robust, high-capacity, symmetrical forms of xDSL, such as SDSL. These types of xDSL are not compatible with voice service provided over the same line in a line sharing arrangement, because they utilize the whole loop frequency spectrum.").

29 Second Advanced Services Report^ 6; see also AT&T/MediaOne Order ^117 ("With regard to choice among broadband access providers, there is evidence that ILECs, CLECs, and other competitive providers are aggressively rolling out alternative broadband technologies, notwithstanding cable's early lead in the nascent broadband area.").

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C:\TEM P\Reply_Comments.doc Honorable Janet Hand wider October 23, 2000

Fourth, even aside from the many other flaws in its argument, AT&T never proves that

its ability to compete would be impaired if it had to deal with multiple DLECs rather than just

one. AT&T merely claims that "the costs of partnering with numerous DSL providers are pro-

hibitive," based on nothing more than an unsupported assertion by its own product manager.

Yet, as described above, AT&T itself already has multiple partners and already operates its

own vast broadband cable network (and fixed wireless network), which obviates the need for

AT&T to deal with multiple data CLECs to provide nationwide broadband access and voice

services. In contrast, if AT&T's claims were credited, the effect would be to deny ISPs access

to the national open broadband network that this transaction will help create, and to hamper

their ability to compete with AT&T's closed cable systems. That feet provides insight into

AT&T's real motivations here.

* * *

AT&T also misapplies the FCC's so-called "spill-over" theory to argue that the merger,

by giving Verizon an out-of-region DSL presence, will "increase Verizon's incentives to dis-

criminate against rival advanced services providers" within Verizon's region. Whatever the

merits of this "spill-over" theory in the context of previous mergers, the FCC has made clear

that it applies only where an incumbent LEC expands the footprint over which it operates as an

incumbent. It does not apply where, as here, an ILEC expands its footprint by operating as a

competitive entrant outside its traditional local service territory.30 In short, because this case

30 Qwest Communications International Inc. and US West, Inc., Applications for Transfer of Control of Domestic and International Sections 214 and 310 Authorizations and Application to Transfer Control (continued) - 15 -

C:\TEMP\Reply_Comments.doc Honorable Janet HandWcder October 23,2000

"will not result in a larger footprint for [any] incumbent LEC " "the merged entity does not face

the same increased incentives to discriminate" that would make the spill-over theory applica-

ble.31

Moreover, while this transaction in no way increases Verizon's incentives to discrimi-

nate, the FCC has already concluded, as noted above, that the combination of NorthPoint's and Verizon's DSL businesses in a separate affiliate helps to protect against any risk of discrimination against competitive LECs that may already exist. And here, the fact that the new

NorthPoint will be even more separate than what the Commission has deemed sufficient can only further allay any concerns regarding discriminatioa

B. Covad's Comments

In a particularly strident pleading, Covad argues that a variety of conditions must be in- posed on the merger. In doing so, it makes allegations of past anticompetitive conduct by Veri- zon that are meritless and that in any event have been or are being addressed in other forums; seeks regulatory changes that have no relationship to the merger at issue here; and seeks to open a second fiont on issues that have already received the Commission's attention in other proceedings. Its proposed conditions should be rejected.

1. Covad argues that the structural separation proposed for the combined DSL operations is insufficient to protect against anticompetitive conduct Since Verizon is proposing

(continued) of a Submarine Cable Landing License, Memorandum Opinion and Order, 15 FCC Red 5376 (2000) ("t/5 West/Qwest Order"), ^ 41.

31 Af.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand jflber October 23, 2000

to increase the existing degree of separation, Covad's claim that more separation is required is

obviously not a complaint about the merger as such, but about the status quo. As such, it has.

no place in this proceeding. In any event, the FCC has already rejected Covad's claim that

what it characterizes as "true structural separation," but what is really a complete divestiture,

should be required.32

2. Covad also claims that "concrete and specific" provisioning intervals and re-

porting requirements, more stringent than currently imposed, should be required Again, this

merger proceeding clearly is not the appropriate forum to consider national performance stan-

dards." This Commission has already extensively considered the intervals issue in the context of

Case 00-C-0127. And Verizon already is subject to extensive performance reporting require-

ments, both under the terms of existing state requirements and under the terms of die Bell Atlan-

tic/GTE Merger Conditions.34 More fimdamentally, performance standards have no relevance

to the competitive position of Covad and other DLECs relative to NorthPoint and/or VAD.

3. Covad also argues for the imposition of a variety of OSS-related requirements.

The only one of these various claims that even arguably relates to this transaction is the claim

that other carriers should have access to the same OSS capabilities as the new NorthPoint.

Because the new NorthPoint will be operated as a separate affiliate of Verizon that provides

advanced services, however, Verizon is already required under the terms of the BellAtlan-

32 Bell Atlantic/GTE Order U 263.

33 See A T& T/TCI Order \ 43; Bell Atlantic/NYNEX Order H 210.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand wider October 23,2000

tic/GTE Order to do precisely that35. Covad's other OSS-related claims relate to issues that

are already addressed by existing law or that have been or are being considered in other pro-

ceedings.

4. Covad claims that Verizon must commit to provide the same broadband service

offering as SBC is providing in "Project Pronto." Again, Covad's arguments have nothing to do

with this transaction and cannot be considered here. In any event, Covad ignores the fact that

the authority that the FCC granted SBC to provide a broadband service offering through its fo-

cal telephone companies (and the conditions that go with it) apply only when and where SBC

chooses to provide service through integrated line cards in its remote terminals that are owned

by the local telephone companies.36 In addition, ILEC obligations with respect to loops provi-

sioned over digital loop carrier are the subject of a recent notice of proposed rulemaking at the

FCC.37

5. Covad argues that Verizon should be required to allow CLECs to migrate vir-

tual collocation arrangements to cageless arrangements. This claim: (a) is unrelated to the

merger, (b) has already been ruled upon, with respect to the operations of Verizon New Yoric,

(continued) 34 See Bell Atlantic/GTE Order Ji 279-84.

35 Ai 1)260-72.

36 See Ameritech Corp., Transferor and SBC Communications, Inc. Transferee for Consent to Transfer Con- trol of Corporations Holding Commission Licenses and Lines Pursuant to Sections 214 and 310(d) of the Communications Act and Parts 5, 22, 24, 25, 63, 90, 95 and 101 of the Commission's Rules, Second Memorandum Opinion and Order ^ 5 (rel. Sept. 8,2000).

37 See Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Fifth Notice of Proposed Rulemaking ^ 118, CC Docket No. 96-98 (rel. Aug. 10,2000).

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Inc., by this Commission, and thus solely relates to operations in other states that are beyond

this Commission's jurisdiction; and (c) is being addressed, on a multistate basis, in a pending

FCC rulemaking38.

6. Covad claims that "fiesh look" requirements should be imposed in connection

with the merger. Where it has been applied, however, the "fresh look" doctrine is premised on

the existence of a dominant provider and its transition to a competitive environment, and thus

has no application here.39 Verizon is not a dominant provider of advanced services to either

residential or business customers. In any case, Verizon's customers are being transferred to a

most separate affiliate, which was designed to divorce Verizon's advanced services business

from any advantage Verizon might have by virtue of its status as an incumbent LEC.

7. Finally, Covad asks the Commission to require Verizon and NorthPoint to

submit their ''asset transfer, employee, master service, and joint marketing policies" for comment

and review prior to merger approval. However the purpose of this proceeding is to review a

merger, not to examine every aspect of the conduct of NorthPoint's business before and after

the merger. The key regulatory requirements governing the relationships between new Northh

Point and Verizon are set forth in the advanced services structural separation requirements that

have already received extensive regulatory attention. Since the details of those documents have

3 See Comments of Covad Communications Co. at 36-38, CC Docket Nos. 96-98 & 98-147 (FCC filed Oct 12 2000)

See, e.g., Local Exchange Carriers' Rates, Terms, and Conditions for Expanded Interconnection Through Physical Collocation for Special Access and Switched Transport, Second Report and Order, 12 FCC Red 18730, ^ 14 & n.42 (1997).

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no bearing on the Commission's review of the merger, Covad's effort to obtain access to highly

sensitive information regarding the activities of competitors such as NorthPoint and Verizon should be rejected.

C. Choice One's Comments

Choice One describes the problems it has encountered obtaining copper loops to serve particular customers and in connection with "hot cuts" of loops used to provide data services. It asks that Verizon be required not to discriminate in favor of NorthPoint with respect to such matters. Whatever Choice One's concerns my be, they should be ameliorated by this merger, since as a result of the merger, NorthPoint's operations will become subject to the structural separation and non-discrimination requirements currently governing the relationships between the Verizon incumbent local exchange carriers and Verizon Advanced Data Inc. The merger will not give rise to a need for any more stringent degree of separation, although the Petitioners'

"most separate" subsidiary proposal will provide such additional protection in any event

To the extent that Choice One's comments go beyond nondiscrimination issues and ask for changes in Verizon's hot cut or other procedures, they should be rejected as beyond the scope of this proceeding.

D. NAS's Comments

NAS argues that Section 6.5(a) of the Merger Agreement would permit Verizon to ab- sorb the new NorthPoint's collocation costs, and that Section 1.1(b), by excluding certain data and other assets from transfening to the new NorthPoint, could likewise lead to cost shifting.

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C:\TEMP\RepIy_Coniments.doc Honorable Janet Hand nmlex October 23,2000

Section 6.5(a) involves NorthPoint's pre-merger sublease of certain collocation space

from Verizon's existing affiliate. This arrangement cannot involve cost-shifting, since the affili-

ate's collocation space has been leased pursuant to Verizon's publicly available tariffs. And in

any event, NorthPoint will reimburse Verizon's affiliate for these subleases. Section 1.1 like-

wise involves a transaction between NorthPoint (here, the new NorthPoint) and Verizon's ex-

isting affiliate, so it too cannot lead to cost-shifting. This section provides that assets used exclu-

sively for Verizon's existing DSL business will be transferred to the new NorthPoint, and Sec-

tion 1.1(b), about which NAS specifically complains, merely reinforces this by providing that

assets not used exclusively for the DSL business will remain in the affiliate.

NAS also suggests that the Commission should require assurances that the new North-

Point will share rack space with a Verizon ELEC only to the extent feat the new NorthPoint sub-

scribes to the DLEC's virtual collocation offering. The new NorthPoint has no plans to share

rack space with a Verizon ILEC, and, were it to do so, it would be on nondiscriminatory terras

pursuant to the merger conditions.

NAS argues that Section 6.5(b) of the Merger Agreement, involving the transfer of

leaseholds of non-central office space from Verizon's existing affiliate to the new NorthPoint,

will give the new NorthPoint exclusive rights to occupy Verizon ILEC premises outside of the

central office, and will allow Verizon to cross-subsidize collocation costs. To the contrary, by

precluding transfers of leases that would trigger a nondiscrimination obligation. Section 6.5(b)(i) prohibits the transfer of leases of ILEC real estate, thereby avoiding precisely the type of claim

that NAS makes. As for the alleged cross-subsidization of collocation space, this provision in- - 21 -

C:\TEM P\Reply_Coinments.doc Honorable Janet Hand Wbder October 23, 2000 volves the transfer of non-central office space — general office space and the like — not collocation space. Moreover, the provision contemplates a transaction between the new NorthPoint and the existing affiliate, so it again cannot give rise to cost-shifting.

E, MetTel's Comments

MetTel raises the rather bizarre concern that after the merger it might have to deal with

NorthPoint to obtain network elements that it had previously obtained ftom Verizon New York

Inc. It apparently bases this concern on T] 15 of the Verizon/NorthPoint Petition in this proceeding, which states that

The new NorthPoint will be a fer more separate affiliate of Verizon than is necessary to satisfy any regulatory requirement CLECs will be able to opt-in to interconnection agreements between NPC and Verizon New York. Moreover, the creation of a "most separate" separate affiliate will provide added assurance to all competing DSL providers that they are receiving non-discriminatory treatment fiom Verizon New York. [Emphasis supplied]

The emphasized language, of course, refers to a means by which CLECs could enter into an interconnection agreement with Verizon New York, Inc. by adopting an agreement en- tered into between Verizon New York and new NorthPoint. It does not require MetTel to enter into interconnection agreements with NorthPoint.

* * *

None of the parties has offered any sound reason for finding that the merger would have any significant anticompetitive effects that would outweigh its substantial public interest benefits.

Their arguments are meritless, and for the reasons set forth in the Petition, in our initial comments, and herein, the merger should be approved.

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ly submitted,

cc: All Active Parties (E-mail and U.S. mail) Robert T. Mulig, Esq. [[email protected]] Mr. Dennis Taratus [[email protected]] Mr. Frederick Sistarenik [[email protected]] Mr. John Coleman [john_coleman@dps,state.ny.us] Mr. Richard Schuler [[email protected]] Mr. Maynard Bowman [[email protected]] Mr. Thomas D'Ambrosia [[email protected] Mr. Brian Summers [[email protected]] Mr. Wayne Brindley [[email protected]]

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