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

Verizon New York Inc. 1095 Avenue of the Americas New York, NY 10036 37th Floor Tel 212 395-6509 Fax 212 768-7569

Joseph A. Post Regulatory Counsel

October 23, 2000

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 for 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. til :f} l'.> cy I-VT ,.„n C:\TEMP\Reply_Coimnents.doc Honorable Janet Hand Deixler October 23, 2000

sented by this merger in New Yoik that differ in any degree from the issues that are currently

being reviewed by the FCC.

hi 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 transaction is, of course, also being reviewed by the United States Department of Justice, which, like the FCC, cm 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 die FCC, it would be appropriate for this Commission simply to approve the merger.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(H)-C-0866, Joint 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. andMetromail 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_Commente.doc Honorable Janet Hand Deixler October 23, 2000

* * *

Whatever role this Commission chooses to play in die 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 providers/row effective DSL competition. Of course, it is ironic that these s\p- 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 dehvery of .idvanced 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

3 See, e.g.. Applications for Consent to the Transfer of Control of Licenses. MediaOne Group, Inc., Trans- feror, to AT&T Corp. rra/w/eree.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 E1 (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 ilie 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.").

C:\TEMP\Reply_Coinments.doc Honorable Janet Hand Deixler 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 those 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 fded 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.

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

subscribers (or at least three times as many residential broadband subscribers as DSL). And by the end of flii:? 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 residential 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 end.8 All of ihis led AT&T's Iixcite@Home recently to proclaim that, "even after the merger 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.Si. 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&T BIS 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 Deixler October 23, 2000

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

ble monopolies, die 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 die 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 mischaiacterize this as a "failing firm defense," the real point is that a trans-

action that enhances and accelerates the ability of the parties to compete against incumbent

service providers1, 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

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 Older, 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"); see also Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from MediaOne Group. Inc., To AT&T Corp., Memorandum Opinion and Order, 15 FCC Red 9816,1160 (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) ^Bell Atlantic/GTE Order"); Applica- tions for Consent So 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, Hf 14748 (1999) {"AT&T/TCWrder").

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

business customers lhat it currently lacks, and a jump-start to Verizon's separate data affiliate

by infusing it wth 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 com-

petitive with die 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." As

AT&T itself concedes, video is an important part of the product "bundle" that consumere 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@Horae recently an-

nounced new video services to be offered in connection with its cable Internet access services.

In tins context, NorthPoint's Blast! Technology is key to Verizon's ability to confront cable mo-

dem providers head-on.

AT&T nonetheless claims that Blast! technology is not "unique" and that Verizon could

obtain similar content dehvery services from "numerous" other "content dehvery companies,"

1 Cf. AT&T-MecliaOne 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.").

See AT&T Press Release, AT&T Broadband to Introduce Uniform Pricing and Packaging of Digital Cable Products, Aug. 15,2000 ("[U]nifying 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 Deixler October 23, 2000

such as Akamai, Digital Island, Sun Microsystems, and Inktomi.14 But that siirply misses die 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 die merger, on balance, will further the public interest15 In addition, the simple fact is that none of the alternative companies fiom which AT&T claims Verizon could obtain content dehvery provides a content dehvery 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) 133 Kathleen B.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.

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

See, e.g.. Applications of NYNEX Corporation and Bell Atlantic Corporation For Consent to Transfer Control of NYNEX Corporation and Its Subsidiaries, Memorandum Opinion and Order, 12 FCC Red 19985, H 157 (1997) ^BellAtlantic/NYNEXOrder") (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 inftastructure 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 Deixler October 23,2000

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

less DSL proviiders — 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 tlie cable industry, may well be between three and six million subscribers. This transaction will enable the new NorthPoint to reach die 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 competition 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, vdll 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 advanced 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 thit; analysis, we will assume that a new programmer needs 15 million subscribers in order to have a reasonable chance to achieve economic viability.").

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C:\TEMP\Reply_Coinments.doc Honorable Janet Hand Deixler October 23,2000

The FCC has already held that Ihe existing separate affiliate structure "will greatly ac-

celerate competition in the advanced services market,'"8 and enhance the ability to monitor the

development of broadband competition through regulatory benchmarking." 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 WUl Have No Signifi- cant Anticompetitive Impact

As demonstrated in the Application, die 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-

n Bell Atlantic/GTE Merger Order \ 262.

1 W. H 133; see also Applications ofAmeritech 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\ReplyjCoinments.doc Honorable Janet Hand Deixler 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 abihty to compete for local

voice services by depriving it of critical partnering opportunities with NorthPoint20 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 (iata over a single line" (using unbundled network element platforms). According to AT&T's contorted theory, this transaction limits its abihty 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

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 fiill 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 Deixler 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 Warner (for AT&T to sell telephone service where Cablevision or Time Warner 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 others. 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 In-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&J,AT&T Group Earnings Commen- tary, Mid-Year 2000, (July 25,2000).

See AT&T Press Release, AT&T and Cablevision to Create High- Value Telecommunications Bundle for New York Metropolitan Area Customers, Feb. 23,2000; AT&T Press Release, AT& TAnd Cablevision Systems Corporation Unveil Plans To Give Customers "Something Extra," May 4, 2000; AT&T Press Release, AT&T and Time Warner Cable Announce Joint Marketing Agreement, Mar. 7,2000.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand Debder 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 carriers 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, traditional voice CLECs have announced that they are deploying their own DSL facilities in increasing 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 region.26 And many of these cental 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 standard 100 square feet AT&T could, therefore, easily install its own DSLAMs. Or it could

24 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 Such 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"), \ 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 as xDSL 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, CLECReport 2000, AT&T Carrier Profile at 25-27.

11 See id.

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

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

further 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.'8'

28 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 A dvanced Services Report \6;see also AT& T/MediaOne Order U 117 ("With regard to choice among broadbsind 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:\TEMP\Reply_Comments.doc Honorable Janet Hand Deixler 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 fact 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 Veiizon an out-of-region DSL presence, will "increase Verizon's incentives to (In- 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 apphes 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 Hand Deixler October 23, 2000

"will not result in a larger footprint for [any] incumbent LEG," "the merged entity does not face the same increased incentives to discriminate" that would make die spill-over theory applica-

ble.3'

Moreover, while this transaction in no way increases Verizon's incentives to discriminate, 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 discrimination.

B. Covad's Comments

In a piirticularly strident pleading, Covad argues that a variety of conditions must be imposed 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 front 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 itisufficient 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) ("US West/Qwest Order"), Tl 41.

31 Id.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand Deixler 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 reporting requinanents, more stringent than currently imposed, should be required. Again, this merger proceeding clearly is not the appropriate forum to consider national performance standards." 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 requirements, both under the terms of existing state requirements and under the terms of the Bell Atlan- tic/GTE Merger Conditions.34 More fundamentally, 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-

* Bell Atlantic/GTE Order 1263.

33 See AT&T/TCI Order f 43; Bell Atlantic/NYNEX Order \ 210.

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C:\TEMP\Reply„Coimnents.doc Honorable Janet Hand Deixler October 23, 2000

tic/GTE Order to do precisely that33. 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 virtual 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 York,

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

35/rf. 11260-72.

6 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).

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

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 rulemakmg58.

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

die 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 adv£intage Verizon might have by virtue of its status as an incumbent LEG.

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 North-

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

38 See Comments of Covad Commimications 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, H 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 Veruxm 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 nise 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 piroceeding.

D. NAS's Comments

NAS {irgues 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 transferring to the new NorthPoint, could likewise lead to cost shifting.

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C:\TEMP\Reply_Comments.doc Honorable Janet Hand Deixler 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 likewise 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 ILEC only to the extent that 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 terms

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 mjw 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:\TEMP\Reply_Coinments.doc Honorable Janet Hand Deixler 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 from Verizon New York

Inc. It apparently bases this concern on 115 of the Verizon/NorthPoint Petition in this proceeding, which states that

The new NorthPoint will be a far more separate affihate 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 from 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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C:\TEMP\Reply_Coinments.doc Honorable Janet Hand Debder October 23, 2000

Respectfully submitted, ffr^ rf- f^-fA.s.) 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 [[email protected]] Mr. Richard Schuler [[email protected]] Mr. Maynard Bowman [[email protected]] Mr. Thomas D'Ambrosia [[email protected]$] Mr. Elrian Summers [[email protected]] Mr. Wayne Brindley [[email protected]]

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