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 collo- cation 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 trans- action 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 be- ing conducted — from a multi-jurisdictional perspective — by the FCC, it would be appropri- ate 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 effec- tive 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 recom- mended and so-ordered by the Commission effective July 3,2000). The Commission should decline to dis- criminate against this transaction by applying a different standard of review than it has consistently ap- plied in the past. - 2 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 envi- ronment where the forced-access issue has diminished in scope and scale.... In sum, the market condi- tions that we face over the next two years are enviable and may never come again."). - 3 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 competi- tive 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 com- ments, 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.