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2005AUG3I PM3:UI Robert P RECEIVED PUBLIC SFRV1CF. COMHISSION OSEC-FILES-ALBANY 2005AUG3I PM3:UI Robert P. Slevin Associate General Counsel Legal Department Verizon New York Inc. Room 3824 1095 Avenue of the Americas New York, NY 10036 Phone 212 395-6390 Fax 212 764-2739 [email protected] August 31, 2005 BY HAND Honorable Jaclyn A. Brilling Secretary New York State Public Service Commission Three Empire State Plaza Albany, New York 12223 Re: Case 05-C-0237 Dear Secretary Brilling: In accordance with the Notice Extending Time to Comment, enclosed please find an original and five (5) copies of the REDACTED version of Petitioners' Reply Comments on Department of Public Service Staff White Paper. REDACTED versions of this filing are being served on the Active Parties List in this proceeding. PROPRIETARY versions are being served on Judge Liebschutz and any party that signed and returned Exhibit 1 to the Protective Order, as subsequently amended. Respectfullv submitted. /^ Robert P. Slevin cc: Honorable Elizabeth A. Liebschutz (By Hand and By E-Mail) Active Parties List (By E-Mail) *** REDACTED VERSION,*** £D STATE OF" NEW YORK .ocr-FTES'M-9^ 0b PUBLIC SERVICE COMMISSION ' ^ 0.,. i fcW»- In the Matter of the Joint Petition of Verizon Communications Inc., and MCI, Inc. ) Case 05-C-0237 for a Declaratory Ruling Disclaiming Jurisdiction Over or, in the Alternative, for Approval of Agreement and Plan of Merger. PETITIONERS' REPLY COMMENTS ON DEPARTMENT OF PUBLIC SERVICE STAFF WHITE PAPER Of Counsel: SANDRA DilORIO THORN ROBERT P. SLEVIN SCO I 1 H„ ANGSTREICH 1095 Avenue of the Americas Kellogg, Huber Hansen, Todd New York, New York 10036 Evans & Figel, P.L.L.C. 212-395-6390 Sumner Square 1615 M Street, N.W., Suite 400 Counsel for Verizon Communications Inc. Washington, D.C. 20036 202-326-7900 LAURA GALLO 200 Park Avenue New York, New York 10166 212-519-4436 Counsel for MCI, Inc. Dated: August 31, 2005 l:\Ny\05-C-0237\Redactcd-MCIAcquisition_WhitePaper_RcplyComnienls_Master.doc TABLE OF CONTENTS Page I. PRELIMINARY STATEMENT 1 II. THE COMMENTS IN SUPPORT OF STAFF'S PRELIMINARY ANALYSES OF THE TRANSACTION'S EFFECT ON COMPETITION PROVIDE NO SUPPORT FOR ADOPTING ANY OF THE PROPOSED REMEDIES 4 A. This Transaction Will Not Reduce Competition For Mass-Market Customers 6 1. Stand-Alone DSL 9 2. Switching Among Intermodal Service Providers 11 3. Freezing MCI's Rates, Terms, And Conditions 12 B. This Transaction Will Not Reduce Retail Competition For Enterprise Customers 12 C. This Transaction Will Not Meaningfully Reduce The Significant Competitive Deployment And Availability Of Transport Facilities, Special Access Channel Terminations, Or High-Capacity Loops 16 1. There Is No Merit To Commenters' Claims That This Transaction Will Harm Competition For Transport Facilities, Special Access Channel Terminations, Or High-Capacity Loops 18 2. The Remedies That Staff Offered For Consideration And That Commenters Have Proposed Are Unnecessary And Should Not Be Adopted As Conditions To Approval 27 a. The Additional Remedies Commenters Have Proposed Are Unlawful 28 b. Freezing MCI's Rates, Terms, And Conditions 29 c. Extending Verizon Interconnection Agreements 30 d. Expanding Performance Measurements 32 e. Standardizing Rates, Terms, And Conditions For Verizon 33 f. Divestiture Of MCI's New York Fiber Network 34 HI. THE COMMENTS DO NOT JUSTIFY ADOPTION OF ANY RETAIL OR WHOLESALE SERVICE QUALITY REMEDIES 42 TABLE OF CONTENTS Page A. The Transaction Will Not Interfere With Retail Service Quality 42 1. There Is No Need To Adopt A Merger-Related Service Quality Plan 44 2. Commission-Mandated Capital Investment And Job Levels Are Unnecessary And Would Unduly Interfere With Verizon's Ability To Compete 46 3. The Commission Should Not Require Implementation Of Service Quality Audit Recommendations, In The Context Of This Transaction 49 B. Wholesale Service Quality 50 1. Reporting Of MCI's Service Quality 50 2. Reporting Of Commercial Agreement UNE-P Like Arrangements 52 3. Expanded List Of Metrics For Special Services And High Cap Loops 53 4. Integrity Of The Reporting Systems 54 IV. THE COMMENTS DO NOT JUSTIFY COMMISSION ACTION REGARDING VERIZON NY'S RATES, FINANCES OR OTHER ASPECTS OF OPERATION 55 A. There Is No Reason To Conduct a Rate Proceeding To Review Synergies 55 B. There Is No Reason To Address Speculation Regarding Future Sales Of Lines In This Proceeding 57 C. It Would Be Inappropriate And Unlawful To Condition Approval On A Commitment To Maintain Corporate Headquarters In New York 59 V. THE COMMENTS DO NOT SUPPORT THE WHITE PAPER'S CONCLUSION THAT THE COMMISSION HAS JURISDICTION TO APPROVE THE TRANSACTION WITH CONDITIONS 63 VI. CONCLUSION 63 *** REDACTED VERSION STATE OF NEW YORK PUBLIC SERVICE COMMISSION In the Matter of the Joint Petition of Verizon Communications Inc., and MCI, Inc. Case 05-C-0237 for a Declaratory Ruling Disclaiming Jurisdiction Over or, in the Alternative, for Approval of Agreement and Plan of Merger. PETITIONERS' REPLY COMMENTS ON DEPARTMENT OF PUBLIC SERVICE STAFF WHITE PAPER Verizon Communications Inc. ("Verizon") and MCI, Inc. ("MCI") (collectively, the "Petitioners") hereby submit these reply comments in response to the comments submitted by the other parties regarding the Department of Public Service Staff ("Staff) White Paper (the "White Paper").1 I. PRELIMINARY STATEMENT The merger of Verizon's and MCI's complementary strengths and assets will benefit customers of all sizes: 1 Petitioners r;ceived comments from the following parties: New York State Attorney General (the "AG"); Competitive Carrier Group (the "CCG"); Assemblyman Richard Brodsky and the NYS Assembly Committee on Corporations, Authorities and Commissions (the "Committee"); Communications Workers of America (the "CWA"); Qwest Communications Corporation ("Qwest"); Level 3 Communications, LLC ("Level 3"); PAETEC Communications, Inc. ("PAETEC"); NYS Consumer Protection Board ("CPB"); Conversent Communications of New York, LLC ("Conversent"); and Kevin M. Bronner, Ph.D. ("Brenner"). References to parties' comments are denoted as "[PARTY NAME] Comments at_." l:\Ny\05-C-0237\Redactcd-MClAcquisition_WhitePaper_RcplyComments_Masler.doc • Enterprise customers will benefit from the creation of a strong and stable facilities-based competitor that will be capable of providing a full range of communications services; • Governmental and National Security customers will benefit from the strengthening of an important technology and infrastructure provider that serves key governmental agencies; • Wholesale customers will benefit from the creation of a more efficient provider with a broader facilities reach; and o Mass market customers will benefit from the combination of MCI's Internet Protocol ("IP") network and expertise and Verizon's ongoing deployment of the most advanced broadband networks. Furthermore, the merger will not diminish competition in any market segment. While the White Paper raised concerns regarding the merger's impact on competition for enterprise, mass market, and special access customers, Petitioners demonstrated in their initial comments on the White Paper that those concerns are without merit: • The Commission has long recognized the enterprise segment as the most . competitive segment in the industry, and the combined company will be just one of many enterprise competitors, including not only U.S.-based earners, such as AT&T, Sprint, Qwest, Level 3, and XO, but also systems integrators like IBM, EDS, and Accenture, and global telecommunications providers such as France Telecom/Equant, British Telecom, and Deutsche Telecom; • In the mass market segment, MCI's business is in a continuing and irreversible decline, and MCI is no longer one of a small number of the most significant competitors. MCI made an independent business decision to shift its focus away from the mass market and to manage the decline of its mass market business long before entering into a merger agreement with Verizon. The most significant competition for mass market customers is now being and will be provided going forward by intermodal competitors such as cable, wireless, and VoIP providers; • In the interstate special access arena, MCI has deployed its limited fiber facilities to the most competitive areas of the state, as have other CLECs. MCI is rarely the only competitive special access option available. Furthermore, there is no credible argument that the transaction will have an impact on any alleged incentives for Verizon to discriminate in the provision of special access. In any event, the ongoing generic special access proceeding at the Federal Communications Commission (the "FCC") is the proper forum in which to air grievances regarding interstate special access, not this proceeding, and not before this Commission. Against this backdrop, a number of parties - most of whom filed comments on the Joint Petition in April - filed comments on the White Paper. The comments uniformly opposed the transaction and recommended harsh conditions, many of which are completely unrelated to the merger. Given their previously articulated positions, these parties not surprisingly parrot Staffs tentative conclusions, suggesting that they support the parties' own claims regarding the competitive impacts of the transaction. The parties either endorse adoption of the remedies proposed in the White Paper or insist upon even more stringent conditions designed to further their own narrow interests. As discussed in detail below, those comments provide no basis for accepting Staffs preliminary analyses
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