Verizon Communications Inc. Section 272 Biennial Agreed Upon Procedures Report for the engagement period January 3, 2001 to January 2, 2003. (Redacted Version) TABLE OF CONTENTS Appendix A Procedures for Verizon Long Distance, Verizon Enterprise Solutions, Verizon Global Networks, Inc., Verizon Select Services Inc, and Verizon Global Solutions, Inc. Appendix B Procedures for CODETEL International Communications Inc., TELUS Communications Inc., TELUS Communications (Quebec) Inc., Compania Anonima Nacional Telefonos de Venezuela, and Telecom New Zealand USA Limited Appendix B-1 Procedures for Former GTE Section 272 affiliates, Step D Appendix C Follow-up Procedures on the Prior Engagement Appendix D Procedures for Subsequent Events Attachment A Objective VIII: Performance Measure Results Attachment B Objective VIII: Linear Graphs Attachment C Verizon’s Response to Comments on the Biennial Section 272 Report filed on June 2001 As part of Verizon’s response to the Follow-up Procedures on the Prior Engagement (Reference Appendix C), Verizon included their response, dated June 11, 2002, to comments on the Verizon Biennial Section 272 Reports filed by PricewaterhouseCoopers on June 11, 2001 and June 18, 2001. Attachment D General Standard Procedures for Biennial Audits Required Under Section 272 of the Communications Act of 1934, as Amended Attachment E Verizon’s Comments on the Verizon Biennial Section 272 Report filed on June 12, 2003 PUBLIC VERSION – REDACTED Appendix A enumerates the procedures performed in connection with the Bell Operating Companies (“Verizon BOC”)1 and Incumbent Local Exchange Carriers (“ILEC”)2 of Verizon Communications, Inc. (collectively referred to as the “Verizon BOC/ILEC” or the “Company” or “Management”), and the Section 272 affiliates3. Objective I: Affiliate Shall Operate Independently from the BOC 1. We inquired of management whether there have been any changes in the certificate of incorporation, bylaws, articles of incorporation, or the legal and/or “doing business as” (“DBA”) names, since the last engagement period (January 3, 2000 through January 2, 2001), for Verizon Long Distance (“VLD”), Verizon Enterprise Solutions (“VES”), Verizon Global Networks Inc. (“GNI”), and Verizon Select Services Inc. (“VSSI”). Management indicated that there have been no changes to the certificates of incorporation, to the bylaws, to the legal names, or to the DBA names for VLD, VES, GNI, and VSSI. We obtained and inspected the certificates of incorporation and bylaws for Verizon Global Solutions Inc. (“GSI”). We noted that GSI was established as a Delaware corporation separate from the Verizon BOC/ILEC. Management indicated that the Delaware General Corporation Law refers to the articles of incorporation as the certificates of incorporation. We obtained and inspected the certificates of incorporation, bylaws, and articles of incorporation for Verizon Long Distance, Virginia Inc. (“VLD-VA”), Verizon Enterprise Solutions, Virginia Inc. (“VES-VA”), and Verizon Global Networks, Virginia Inc. (“GNI- VA”). We noted that VLD-VA, VES-VA, GNI-VA, and VSSI-VA were established as Virginia corporations separate from the Verizon BOC/ILEC. We inquired of management and management indicated the following: “VLD-VA, VES-VA, GNI- VA, and VSSI-VA do not have their own books and records. These entities were never used and accordingly these entities never had any revenues or entered into any transactions, even though they were listed as parties on certain contracts.” 2. We obtained and inspected Verizon’s corporate entities' organizational charts as of September 30, 2002. We confirmed with legal representatives of the Verizon BOC/ILECs and of the Section 272 affiliates the legal, reporting, and operational corporate structure of the Section 272 affiliates. We obtained written confirmations from the legal representatives noting that: • VLD is owned by Verizon Communications Inc. 1 For the purposes of this document, Bell Operating Companies refers to Verizon New York, Inc., Verizon New England, Inc., Verizon – Washington, D.C., Inc., Verizon – Maryland, Inc., Verizon – Virginia, Inc., Verizon – West Virginia, Inc., Verizon – New Jersey, Inc., Verizon – Pennsylvania, Inc., Verizon – Delaware, Inc. 2 For the purposes of this document, Incumbent Local Exchange Carrier refers to Verizon California, Inc., Verizon Florida, Inc., Verizon Hawaii, Inc., Verizon Mid-States (Contel of the South, Inc.), Verizon Midwest (GTE Midwest, Inc.), Verizon North, Inc., Verizon Northwest, Inc., Verizon South, Inc., Verizon Southwest (GTE Southwest, Inc.), Verizon West Coast, Inc., Puerto Rico Telephone Company, The Micronesian Telecommunications Corp. (In addition, for the purpose of this engagement, Verizon Advanced Data Inc. (VADI), and Verizon Advanced Data Inc. – Virginia (VADI – VA) are to be treated as ILECs after the September 26, 2001 order, Bell Atlantic/GTE Merger, 16 FCC Rcd 16915 (2001.) 3 For the purposes of this document, the Section 272 affiliates are Bell Atlantic Communications, Inc. (d/b/a Verizon Long Distance), NYNEX Long Distance Company (d/b/a Verizon Enterprise Solutions), Verizon Global Networks, Inc., Verizon Select Services Inc. (formerly GTE Communications Corp.), and Verizon Global Solutions, Inc. PUBLIC VERSION – REDACTED Appendix A: 1 Appendix A • VES is owned by Bell Atlantic Worldwide Services Group, Inc., which in turn is owned by NYNEX Corporation, which is owned by Verizon Communications Inc. • GNI is owned by Verizon Communications Inc. • VSSI is owned by GTE Corporation, which in turn is owned by Verizon Communications Inc. • GSI is owned by Bell Atlantic International, Inc., which is owned by Verizon Investments Inc., which is owned by Verizon Communications Inc. For VLD-VA, VES-VA, GNI-VA, and VSSI-VA, management indicated the following: • “Verizon Long Distance, Virginia Inc. is a direct subsidiary of Bell Atlantic Communications Inc. • Verizon Enterprise Solutions, Virginia Inc. is a direct subsidiary of NYNEX Long Distance Company. • Verizon Global Networks, Virginia Inc. is a direct subsidiary of Verizon Global Networks Inc. • Verizon Select Services of Virginia Inc. is a direct subsidiary of Verizon Select Services Inc.” 3. We inquired of management which entities perform operations, installation and maintenance (“OI&M”) functions over facilities either owned or leased by each Section 272 affiliate. Management indicated the following: • VLD and VES do not own or lease any facilities. • GNI employees and third party contractors perform OI&M on facilities either owned or leased by GNI. • GNI employees, VSSI employees and third party contractors perform OI&M on facilities either owned or leased by VSSI. • GSI employees and third party contractors perform OI&M on facilities either owned or leased by GSI. We requested management’s definition and interpretation of OI&M functions and management indicated the following: “Verizon's management has included the following guidance in its Affiliate Transaction Policy. This guidance, which is based on paragraph 158 of FCC Docket 96-149, is Verizon’s definition of OI&M. Like the FCC’s order, Verizon's instructions for compliance with this requirement rely on the common meaning of the words in the FCC’s rules. Specific cases are reviewed by counsel. Under the 272 regulations, the FCC prohibits Verizon’s ILECs and any Verizon affiliate, other than another Section 272 affiliate, from performing operation, installation or maintenance (O, I or M) functions associated with switching or transmission facilities owned or leased by a Section 272 affiliate. An ILEC and Section 272 affiliate may not have joint ownership of transmission and switching facilities or the land and buildings where those facilities are located. A Section 272 affiliate may not perform operations, installation, or maintenance functions associated with switching or transmission facilities owned or leased by the ILECs.” We inquired of management and management indicated that Section 272 affiliates do not perform OI&M on facilities either owned or leased by the Verizon BOC/ILECs. Also, PUBLIC VERSION – REDACTED Appendix A: 2 Appendix A management indicated that Verizon BOC/ILECs and other affiliates do not perform OI&M functions on facilities either owned or leased by the Section 272 affiliates. 4. We inquired of management as to the existence of any research and development activities of the Verizon BOC/ILECs from January 3, 2001 through September 30, 2002 related to the Section 272 affiliates. Management indicated that the Verizon BOC/ILECs did not perform any research and development activities on behalf of the Section 272 affiliates. 5. We obtained the balance sheet and detailed fixed asset listing, including capitalized software, as of September 30, 2002 for VLD, VES, GNI, VSSI, and GSI. We compared the fixed asset balances in the balance sheets to the totals listed on VLD’s, VES’s, GNI’s, VSSI’s, and GSI’s detailed fixed asset listings and noted the following: • For VLD, we noted that the fixed asset amount in the balance sheet is $1,826,108 more than the total amount on the detailed fixed asset listing. We inquired of management and management indicated the difference is due to amounts for capitalized labor and construction in progress (“CIP”) included in the balance sheet. Management indicated that CIP assets reflect assets not yet placed in service. • For VES, we noted no differences. • For GNI, we noted that the fixed asset amount in the balance sheet is $86,887,299 more than the total amount on the detailed
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