**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | WC Docket No. 04-246         |
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| Petition for Waiver              | ** |                              |
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| of Pricing Flexibility Rules     | *  |                              |
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| for Fast Packet Services         | ** |                              |
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| Petition for Forbearance Under   | *  |                              |
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| 47 U.S.C. Section 160(c)         | ** |                              |
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| from Pricing Flexibility Rules   | *  |                              |
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| for Fast Packet Services         | ** |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted: September 22, 2005 Released: October 14, 2005**

By the Commission: Commissioners Copps and Adelstein concurring and
issuing separate statements.

# INTRODUCTION

1.  In this Order, we waive certain requirements under our price cap
    rules and regulations to allow Verizon to exercise pricing
    flexibility for advanced services that rely on packet technology
    similar to the pricing flexibility that it has for other special
    access services.[^1] Specifically, this waiver grants Verizon Phase
    I pricing flexibility for these services where it already has
    qualified for Phase I or II pricing flexibility for other special
    access services. It further allows Verizon to apply for Phase II
    pricing flexibility for these packet-based advanced services in the
    same areas by satisfying the competitive triggers set forth in our
    pricing flexibility rules.

# Background

2.  Verizon asks us to waive certain rules governing pricing flexibility
    for price cap local exchange carriers (LECs). Following passage of
    the Telecommunications Act of 1996,[^2] the Commission adopted the
    *Pricing Flexibility Order*, which established a framework for
    granting price cap LECs flexibility in the pricing of certain
    interstate access services as competition for those services
    develops.[^3] This pricing flexibility is available only for certain
    access services that are subject to price cap regulation.[^4]
    Pursuant to rules established in the *Pricing Flexibility Order*,
    carriers may qualify for pricing flexibility for specific services
    in two phases by satisfying certain competitive showings designed to
    demonstrate that market conditions in a particular Metropolitan
    Statistical Area (MSA) warrant the relief they seek.[^5]

3.  The Commission also established a procedure for new services to
    qualify for pricing flexibility. Section 69.729 of the Commission's
    rules enables a LEC to gain pricing flexibility for a new service
    not yet incorporated into a price cap basket by demonstrating in a
    pricing flexibility petition that the new service "would be properly
    incorporated into one of the price cap baskets and service bands for
    which the price cap LEC seeks pricing flexibility."[^6] Paragraph
    173 of the *Pricing Flexibility Order* separately explains how a
    price cap LEC may gain pricing flexibility for a new service if that
    service falls within a price cap basket and service band for which
    the LEC already has been granted pricing flexibility. In that case,
    the LEC may demonstrate in its annual access tariff filing that the
    new service would properly be incorporated into a price cap basket
    or service band for which the carrier previously was granted pricing
    flexibility.[^7]

4.  On June 25, 2004, Verizon filed a petition asking us to waive
    section 69.729 of the Commission's rules and paragraph 173 of the
    *Pricing Flexibility Order*.[^8] Verizon requests that the
    Commission "waive . . . its rules that currently prevent \[it\] from
    exercising the same degree of pricing flexibility for advanced
    packet switched broadband services . . . other than DSL . . . that
    it already can exercise with respect to traditional special access
    services in areas where the Commission has previously granted
    pricing flexibility for those services."[^9] Through its petition,
    Verizon seeks the right to exercise pricing flexibility for certain
    services that use packet technology (which it refers to as "fast
    packet" or advanced services) in areas where it has been granted
    flexibility for other special access services.[^10] Verizon asserts
    that, to respond to competition effectively, it requires the
    flexibility to offer individually negotiated contracts for these
    advanced services and to adjust prices, as it deems necessary, for
    different customer and market segments.[^11]

5.  The advanced services at issue in Verizon's petition originally were
    offered through its telephone companies and these services were
    subject to price cap regulation.[^12] As a condition of the Bell
    Atlantic/GTE merger, however, the Commission ordered Verizon to
    offer its advanced services through a separate advanced services
    affiliate until such time as specified in the sunset provisions of
    the merger order.[^13] Thus, in 2001, Verizon began transferring
    these services to a separate affiliate to comply with this
    condition. When Verizon's affiliate, Verizon Advanced Data Inc.
    (VADI), offered the advanced services, they were not subject to
    price cap regulation, which applies only to Bell Operating
    Companies, GTE, and other LECs electing such regulation.[^14] In the
    *ASCENT* decision, issued later that year, the United States Court
    of Appeals for the District of Columbia Circuit ruled that incumbent
    LEC affiliates, such as VADI, were successors or assigns of
    incumbent LECs under section 251(h) of the Act.[^15] Under the terms
    of the *Bell Atlantic/GTE Merger Order*, Verizon had the right to
    reintegrate the affiliate with its operating company if a court
    issued such a ruling.[^16]

6.  Verizon chose to reintegrate its affiliate and sought permission to
    expedite the sunset of the separate affiliate requirements and
    transfer the services back to its telephone company.[^17] On
    September 26, 2001, the Common Carrier Bureau granted Verizon's
    request, finding that reintegration of these assets on an
    accelerated basis was in the public interest and noting that the
    *ASCENT* decision would, in any event, have caused the separate
    affiliate condition to terminate automatically in January 2002.[^18]
    For the last four years, Verizon has sought and obtained limited
    waivers of section 61.42(g) of the Commission's rules with respect
    to the assets transferred from VADI to Verizon.[^19] That rule
    provides that new services must be included in the first annual
    price cap tariff filing following completion of the base period in
    which they are introduced.[^20] Although Verizon has sought and
    obtained waivers to keep its advanced services out of price caps, it
    nevertheless has to comply with other pricing regulation such as
    filing tariffs with cost support.[^21]

7.  In June 2004, Verizon filed the instant petition seeking to exercise
    pricing flexibility for these advanced services, which have not been
    incorporated into price caps and, as such, are ineligible for
    pricing flexibility.[^22] Verizon asserts that BellSouth has
    incorporated comparable advanced services into its price cap
    offerings and subsequently received pricing flexibility for these
    services.[^23] Verizon also notes that SBC, which offers advanced
    services through its separate affiliate, is also able to exercise
    pricing flexibility for comparable services.[^24] Verizon contends
    that a waiver is justified given its unique circumstances.[^25] More
    specifically, Verizon argues that, because its advanced services
    were transferred from VADI back to Verizon and have been temporarily
    excluded from price caps as a result of waivers, it has been unable
    to exercise pricing flexibility under the Commission's rules.[^26]
    According to Verizon, because advanced services are more competitive
    than special access services, for which it has already made the
    requisite competitive showings, it should not be required to put
    advanced services into price caps or make any additional
    market-by-market competitive showings.[^27] Verizon contends that
    its previous grants of pricing flexibility for special access
    services justify extending the same relief to its advanced
    services.[^28]

# DISCUSSION

8.  The Commission may waive its regulations for good cause shown.[^29]
    In general, the waiver request must demonstrate special
    circumstances warranting a deviation from the general rule, and that
    such a deviation will serve the public interest. [^30] For the
    reasons discussed below, we conclude that good cause exists to
    permit Verizon to exercise pricing flexibility for advanced services
    that rely on packet technology similar to the pricing flexibility
    relief that it has for other special access services.[^31] We thus
    grant a waiver enabling Verizon to exercise Phase I pricing
    flexibility for these services where it already has qualified for
    Phase I or II pricing flexibility for its special access services.
    That is, we waive sections 1.774, 69.709, 69.711, and 69.727 of the
    Commission's pricing flexibility rules for these packet-based
    services. [^32] Where Verizon has not yet qualified for pricing
    flexibility, it may include these advanced services in any future
    pricing flexibility petitions, but it must support such petitions
    with data regarding its advanced services and must satisfy the
    competitive showings set forth in our rules.[^33] However, we deny
    Verizon's request to the extent it seeks a waiver of section 69.729
    of the Commission's rules and paragraph 173 of the *Pricing
    Flexibility Order*[^34] because both of these rules apply to pricing
    flexibility for new services and do not apply here.[^35]

9.  We find that the waiver we grant serves the public interest because
    it promotes competition for advanced services, resulting in more
    choices and better prices for customers. We also conclude that the
    administrative and regulatory burdens associated with requiring
    Verizon to satisfy an additional competitive showing for Phase I
    relief outweigh the benefits of such a showing.

10. The advanced services at issue, which Verizon offers through Tariff
    20, are purchased by enterprise customers that require fast-packet
    applications to transmit their own data.[^36] According to Verizon,
    these services are generally made up of packet switching equipment
    and facilities, such as Frame Relay or ATM switches, which reach the
    end user through a special access line connection.[^37] These two
    parts combine to form a high capacity data network.[^38] Because
    Verizon's advanced services are dedicated facilities that enable an
    end-user customer to connect two or more of its locations, they are
    special access services.[^39] The special access line consists of a
    "channel termination" facility between the end user and the Verizon
    office serving the end user (such as a Local Serving Office or a
    Frame Relay/ATM Serving Office), and may include a dedicated
    transport facility between Verizon's offices (such as between a
    Local Serving Office and a Frame Relay/ATM Serving Office).[^40]
    Under the *Pricing Flexibility Order*, higher thresholds apply for
    obtaining Phase I or II relief for channel terminations between an
    end-user customer and a LEC's office serving that end user, than
    apply to other special access facilities (also referred to as
    non-channel terminations).[^41] Verizon's advanced services utilize
    a channel termination facility between the end user and Verizon's
    office serving that end user, and the equivalent of non-channel
    termination facilities provide the rest of the service.

11. In weighing whether to require independent competitive showings
    under the pricing flexibility rules for the services at issue, we
    find that the administrative burdens and delay imposed by such a
    showing are not in the public interest.[^42] The *Pricing
    Flexibility Order* sought to eliminate administrative burdens and
    delays in providing pricing flexibility through showings
    demonstrating a sufficient competitive presence to warrant
    relief.[^43] Although competitors do not have to rely on Verizon's
    packet switching to provide their own advanced services to
    customers,[^44] AT&T argues that it and other competitors must
    purchase special access channel termination facilities from Verizon
    to reach the end-user customer.[^45] Packet switching providers such
    as AT&T purchase Verizon\'s special access facilities as inputs to
    their own retail advanced services. In particular, these providers,
    and Verizon itself, already use channel termination and interoffice
    facilities purchased out of tariffs other than Tariff 20.[^46] This
    proceeding does not give Verizon any additional authority to change
    prices for these facilities. Moreover, as discussed further below,
    Verizon has satisfied the competitive showings and thus has already
    demonstrated that a sufficient competitive presence warrants a grant
    of pricing flexibility for these facilities.[^47] These facilities
    are also offered in Tariff 20, the tariff at issue in this
    proceeding.[^48] Therefore, requiring Verizon to satisfy a separate
    competitive showing for the channel termination and interoffice
    facilities offered under Tariff 20 for the provision of advanced
    services would serve no additional purpose and is unnecessary for
    Phase I relief.[^49] Such a duplication of work here would merely
    create undue administrative and regulatory burdens and result in a
    waste of resources.

12. According to AT&T, the principal risk to competition occurs because
    Verizon controls the access facilities that AT&T uses to provide its
    own retail advanced services.[^50] Specifically, AT&T claims that
    the grant of a waiver could result in discriminatory pricing by
    Verizon that is anticompetitive and causes a "price squeeze."[^51]
    AT&T disputes the competitive nature of the advanced services
    marketplace[^52] and asserts that Verizon has not shown that the
    markets for the services at issue are competitive.[^53] AT&T argues
    that the Commission should not grant pricing flexibility here
    "because the Bells' market behavior following grants of pricing
    flexibility for traditional special access services confirms the
    noncompetitive nature of special access markets."[^54]

13. AT&T's complaints essentially restate allegations that special
    access rates are anticompetitive, which AT&T has already raised in a
    petition for rulemaking that the Commission is addressing through
    the *Special Access NPRM*.[^55] The Commission recently opened this
    proceeding and is considering comments to resolve these and related
    issues. For example, the Commission recognized the increased
    importance of special access services because they may serve as a
    key input for many IXC service offerings, and it will examine the
    regulatory framework that should apply to special access
    charges.[^56] The Commission will also consider whether the
    available marketplace data support maintaining, modifying, or
    repealing the Commission's pricing flexibility rules for special
    access services.[^57] At the same time that the Commission initiated
    this rulemaking proceeding, it found that there was insufficient
    record data to justify imposing a moratorium on pricing flexibility
    applications, and accordingly, denied AT&T's request for such a
    moratorium. Likewise, here we reject AT&T's arguments that challenge
    special access rates, and whether the *Pricing Flexibility Order*
    adequately "test\[s\] for the presence of price-constraining
    competition."[^58] The Commission is establishing a comprehensive
    record in the *Special Access NPRM*, which will enable it to assess
    any "price squeeze" issues and whether action is necessary to ensure
    that rates for special access services remain just and
    reasonable.[^59] Thus, the *Special Access NPRM* is the appropriate
    proceeding to address AT&T's arguments concerning special access
    competition and rates.[^60] In any event, AT&T poses a
    fact-intensive, highly contentious allegation that turns on economic
    analysis, but it offers no significant data or analysis to support
    its assertion. Accordingly, we find that AT&T has not presented
    sufficient evidence in this proceeding to establish a price squeeze.

14. We likewise decline to resolve AT&T's arguments regarding the
    competitive nature of the packet-switching market in this
    proceeding, as such a complex analysis is better suited to
    rulemaking proceedings such as the *Dom/Non-Dom NPRM* where, indeed,
    such issues are already clearly before the Commission.[^61] We
    further disagree with commenters that contend the grant of a waiver
    here could act to prejudge future policies as to whether advanced
    services should be accorded "non-dominant" regulatory treatment in
    the pending *Dom/Non-Dom NPRM.*[^62] A request for pricing
    flexibility relief differs from a request for "non-dominant"
    treatment. Pricing flexibility relief, as the Court of Appeals
    stated, "is narrower in reach."[^63] The *Pricing Flexibility Order*
    specifically states that even the greatest pricing flexibility
    relief that is granted under Phase II "will not grant incumbent LECs
    all the regulatory relief . . . afford\[ed\] to non-dominant
    carriers."[^64] The Commission's pricing flexibility policy is based
    on a desire to avoid administratively burdensome proceedings in
    making determinations about competition and to provide a bright-line
    rule to guide the industry.[^65] Thus, as the court noted, a grant
    of pricing flexibility does not require "a painstaking analysis of
    market conditions such as that which is required when a LEC seeks
    classification as a non-dominant carrier."[^66] Indeed, this kind of
    comprehensive market analysis is being conducted in the *Dom/Non-Dom
    NPRM* and will assist the Commission in determining the overall
    regulatory treatment of advanced services. Further, as Verizon
    recognizes, the relief that it requests here "is also only interim
    in nature. There are other ongoing . . . proceedings to determine
    how these and other broadband services will be treated going
    forward."[^67] Therefore, our grant of a waiver to allow Verizon
    limited pricing flexibility relief based on the record here is not
    intended in any way to detract from a full and fair consideration of
    whether advanced services should receive broader "non-dominant"
    regulatory treatment in the future.[^68]

15. Finally, we believe that the waiver that we grant in this proceeding
    will not harm the policies underlying our price cap and pricing
    flexibility rules. The price cap system, adopted in 1990, was
    designed to replicate some of the efficiency incentives present in
    competitive markets and to act as a transitional regulatory
    mechanism en route to full competition.[^69] The Commission
    established the pricing flexibility framework to permit price cap
    LECs greater pricing flexibility as greater competition
    develops.[^70] The policy underlying Phase I pricing flexibility is
    to allow incumbent LECs to respond to competition as it develops,
    while at the same time using the price cap mechanism to guard
    against unreasonable rate increases for those customers that do not
    yet have competitive alternatives.[^71] Although Phase I relief for
    special access services is designed to provide incumbent LECs with
    greater flexibility in lowering prices for particular customers, our
    Phase I pricing flexibility rules require price cap LECs to continue
    to offer special access services at generally available tariffed
    rates that are subject to price caps.[^72] These rates are
    constrained by price cap regulation to protect customers without
    competitive alternatives.[^73] Accordingly, this safeguard works as
    intended if services are subject to price caps before becoming
    eligible for Phase I pricing flexibility. Although Verizon's Tariff
    20 rates are not subject to price caps and thus are not constrained
    by price cap regulation, we are confident that our policy to protect
    customers without competitive alternatives will not be harmed.
    Verizon's Tariff 20 rates are subject to Part 61, subparts E and F
    of the Commission's rules.[^74] These rules provide analogous
    protection against unreasonable rate increases by requiring carriers
    that seek rate increases to justify such increases by providing cost
    and other supporting data in the tariff review process.[^75] We note
    that Verizon bases its petition on its contention that the advanced
    services market is competitive and, in particular, on its need to be
    able to offer lower rates to meet competition.[^76] Accordingly if,
    after it enters into contracts for these same services on more
    favorable terms, Verizon should seek to raise its generally
    available tariffed rates for its advanced services, such a filing
    would be reviewed with particular scrutiny.

16. We also conclude that our waiver does not undermine the rationale
    underlying the competitive showings required under our pricing
    flexibility rules. Those rules require incumbent LECs to meet
    competitive showings based on collocation and transport data in
    order to protect competition from exclusionary behavior by these
    carriers.[^77] In the *Pricing Flexibility Order,* the Commission
    determined that satisfaction of the Phase I triggers in an MSA
    demonstrates that competitors have made irreversible, or "sunk,"
    investment in the facilities needed to provide the services at issue
    in the MSA.[^78] The Commission used collocation of competitors'
    equipment in incumbent LEC wire centers as a proxy for
    competition.[^79] Here, Verizon argues that it has previously
    qualified for pricing flexibility for its special access services in
    certain areas by satisfying the competitive showings, and that it
    should, therefore, receive the pricing flexibility for advanced
    services in the same areas.[^80] By satisfying the Phase I triggers,
    Verizon has demonstrated that competitors have made irreversible
    investment in the facilities needed to provide special access
    services in the markets at issue. Accordingly, we find that Verizon
    demonstrates that sufficient competition exists to warrant pricing
    flexibility for its advanced services in those markets.

17. We note that Verizon requests that, as part of any waiver, it be
    able to exercise pricing flexibility for "\[a\]ll future new
    services using packet-based technology that will be introduced in
    FCC Tariff No. 20."[^81] The waiver granted herein extends to any
    new advanced services that Verizon may introduce in this tariff in
    the future for the MSAs where it has qualified for or seeks pricing
    flexibility. Specifically, these services will be eligible for
    treatment as "new services" within the meaning of rule 69.729 and
    paragraph 173 of the *Pricing Flexibility Order*.[^82]

18. We are persuaded, however, that a competitive showing is necessary
    for Phase II relief. We have previously noted that decisions to
    grant or withhold pricing flexibility must weigh relative costs and
    benefits.[^83] Any competitive harms resulting from our grant of
    Phase I relief do not outweigh the potential benefits of promoting
    competition though this relief. The costs are relatively small
    because, as discussed above, safeguards prevent unreasonable rate
    increases. A price cap LEC that receives Phase II relief, however,
    may offer qualifying services free from the Commission\'s Part 69
    rate structure and Part 61 price cap rules.[^84] Although it must
    continue to make the services generally available through tariffs,
    its rates are not regulated under Parts 61 or 69.[^85] Because we
    rely on the Phase II triggers to demonstrate that competition for
    the services at issue within the MSA is sufficient to preclude the
    incumbent from exploiting any individual market power over a
    sustained period, it would not be in the public interest to waive
    these triggers without requiring a separate competitive showing for
    Verizon's advanced services.[^86] Thus, because we waive the general
    requirement that these services be in price caps before being
    eligible for pricing flexibility, Verizon may, in a subsequent
    proceeding, apply for Phase II pricing flexibility for the services
    at issue in the areas where it already has qualified for pricing
    flexibility for special access services by satisfying the applicable
    competitive triggers for its advanced services.

# ORDERING CLAUSEs

19. Accordingly, IT IS ORDERED that, pursuant to authority contained in
    sections 1, 2, 4(i), 4(j), and 201-205 of the Communications Act of
    1934, as amended, 47 U.S.C. §§ 151, 152, 154(i), 154(j), 201-205,
    and section 1.3 of the Commission's rules, 47 C.F.R. § 1.3,
    Verizon's petition for waiver of section 69.729 of the Commission's
    rules, 47 C.F.R. § 69.729, and paragraph 173 of the *Pricing
    Flexibility Order,* 14 FCC Rcd at 14310, paragraph 173, IS DENIED,
    as set forth herein.

20. IT IS FURTHER ORDERED that, pursuant to authority contained in
    sections 1, 2, 4(i), 4(j), and 201-205 of the Communications Act of
    1934, as amended, 47 U.S.C. §§ 151, 152, 154(i), 154(j), 201-205,
    and section 1.3 of the Commission's rules, 47 C.F.R. § 1.3, the
    *Pricing Flexibility Order* requirement that a service must be in
    price caps before it is eligible for pricing flexibility IS WAIVED
    with respect to the advanced services offered under Verizon's F.C.C.
    Tariff 20, as set forth herein.

21. IT IS FURTHER ORDERED that, pursuant to authority contained in
    sections 1, 2, 4(i), 4(j), and 201-205 of the Communications Act of
    1934, as amended, 47 U.S.C. §§ 151, 152, 154(i), 154(j), 201-205,
    and section 1.3 of the Commission's rules, 47 C.F.R. § 1.3, waiver
    of sections 1.774, 69.709(b), 69.711(b), and 69.727(a) of the
    Commission's rules, 47 C.F.R. §§ 1.774, 69.709(b), 69.711(b), and
    69.727(a), IS GRANTED to the extent necessary to allow Verizon to
    exercise Phase I pricing flexibility with respect to the advanced
    services offered under Verizon's F.C.C. Tariff 20, as set forth
    herein.

22. IT IS FURTHER ORDERED that, pursuant to authority contained in
    sections 1, 2, 4(i), 4(j), 10, and 201-205 of the Communications Act
    of 1934, as amended, 47 U.S.C. §§ 151, 152, 154(i), 154(j), 160,
    201-205, the proceeding with respect to Verizon's petition for
    forbearance IS TERMINATED in light of its withdrawal of that
    petition.

23. IT IS FURTHER ORDERED, that, pursuant to authority contained in
    sections 1, 2, 4(i), 4(j), and 201-205 of the Communications Act of
    1934, as amended, 47 U.S.C. §§ 151, 152, 154(i), 154(j), 201-205,
    and section 1.103(a) of the Commission's rules, 47 C.F.R. §
    1.103(a), this Order IS EFFECTIVE upon release.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

    Secretary

**CONCURRING STATEMENT OF\
COMMISSIONER MICHAEL J. COPPS**

Re: *Petition for Waiver of Pricing Flexibility Rules for Fast Packet
Services; Petition*

*for Forbearance Under 47 U.S.C. Section 160(c) from Pricing Flexibility
Rules*

*for Fast Packet Services*, Memorandum Opinion and Order (WC Docket

No. 04-246)

I support today's Order. I believe it is an acceptable outcome in light
of the D.C. Circuit's decision in *ASCENT* and Verizon's subsequent
reintegration of its advanced services affiliate back into its operating
company. I limit my support to concurring, however, because I believe
that full resolution of these issues requires that the Commission
complete its open proceeding examining special access services and
pricing flexibility.

**CONCURRING STATEMENT OF\
COMMISSIONER JONATHAN S. ADELSTEIN**

Re: *Petition for Waiver of Pricing Flexibility Rules for Fast Packet
Services; Petition*

*for Forbearance Under 47 U.S.C. Section 160(c) from Pricing Flexibility
Rules*

*for Fast Packet Services*, Memorandum Opinion and Order, WC Docket

No. 04-246 (Sept. 22, 2005).

In this Order, we grant Verizon flexibility in pricing certain packet
switched services consistent with its existing flexibility for other
special access services. I support this waiver based on the current
record but note that this order should not be read to prejudge the
Commission's on-going review of the special access pricing rules and
pricing flexibility regime. In the Commission's comprehensive rulemaking
addressing these issues, we have sought comment on whether the
Commission's special access framework accurately targets relief to the
development of interstate special access competition. I look forward to
addressing these issues with my colleagues as expeditiously as possible.

[^1]: According to Verizon, these services are generally made up of
    packet switching equipment and facilities, such as Frame Relay or
    ATM switches, which reach the end user through a special access line
    connection, but Verizon excludes DSL services from its request.
    *See* Verizon Petition for Waiver to Allow It to Exercise Pricing
    Flexibility for Advanced Services Where the Commission Has Granted
    Relief for Traditional Special Access Services, WC Docket No.
    04-246, at 1 (filed June 25, 2004) (Verizon Waiver Petition) (citing
    47 C.F.R. § 69.729; *Access Charge Reform*, CC Docket Nos. 96-262,
    94-1, 98-157, CCB/CPD File No. 98-63, Fifth Report and Order and
    Further Notice of Proposed Rulemaking, 14 FCC Rcd 14221, 14310,
    para. 173 (1999) (*Pricing Flexibility Order*), *aff'd*, *WorldCom,
    Inc. v. FCC*, 238 F.3d 449 (D.C. Cir. 2001)). Verizon filed its
    petition on behalf of the affiliated local telephone companies of
    Verizon Communications Corp. Verizon's waiver petition was filed
    simultaneously with a petition, in the alternative, asking the
    Commission to forbear from enforcing section 69.729 of the
    Commission's rules and paragraph 173 of the *Pricing Flexibility
    Order.* Verizon subsequently withdrew that petition. Letter from Dee
    May, Vice President - Federal Regulatory, Verizon, to Marlene H.
    Dortch, Secretary, Federal Communications Commission, WC Docket No.
    04-246 (filed Sept. 22, 2005).

[^2]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56.
    The 1996 Act amended the Communications Act of 1934, 47 U.S.C. § 151
    *et seq.* We refer to these Acts collectively as the "Communications
    Act" or the "Act."

[^3]: *Pricing Flexibility Order*, 14 FCC Rcd at 14225, para. 3.

[^4]: *See generally* *id*. at 14224 n.1; 47 C.F.R. §§ 69.709(a),
    69.711(a), 69.713(a) (listing services for which LECs may seek
    pricing flexibility). Not all services offered by price cap LECs are
    in price caps. Upon the adoption of price cap regulation in 1990,
    the Commission excluded some services from this system of
    regulation. *Policy and Rules Concerning Rates for Dominant
    Carriers,* CC Docket No. 87-313, Second Report and Order, 5 FCC Rcd
    6786, 6810, paras. 191-97 (1990) (*LEC Price Cap Order*), Erratum, 5
    FCC Rcd 7664 (Com. Car. Bur. 1990), *modified on recon*., 6 FCC Rcd
    2637 (1991)*, aff'd sub nom. National Rural Telecom Ass'n v. FCC*,
    988 F.2d 174 (D.C. Cir 1993).

[^5]: *See generally* 47 C.F.R. § 1.774; 47 C.F.R. Part 69, Subpart H
    (Pricing Flexibility Rules). To obtain Phase I relief for interstate
    special access and dedicated transport services other than channel
    terminations between a LEC end office and an end user's customer
    premises, a price cap LEC must demonstrate that unaffiliated
    competitors have collocated in at least 15 percent of the LEC's wire
    centers within an MSA or collocated in wire centers accounting for
    30 percent of the LEC's revenues from these services within the MSA
    and that at least one of these collocators is using competitive
    transport facilities. 47 C.F.R. § 69.709(b); *see Pricing
    Flexibility Order*, 14 FCC Rcd at 14234-35, para. 24. To obtain
    Phase II relief for these services, the trigger thresholds are
    unaffiliated collocation in 50 percent of the LEC's wire centers or
    in wire centers accounting for 65 percent of the LEC's revenues from
    these services within the MSA and at least one collocator using
    competitive transport. 47 C.F.R. § 69.709(c); *see Pricing
    Flexibility Order*, 14 FCC Rcd at 14235, para. 25. Higher thresholds
    apply for obtaining Phase I or II relief for channel terminations
    between a LEC's end office and an end user customer. 47 C.F.R. §§
    69.711(b), (c).

[^6]: 47 C.F.R. § 69.729(a). Carriers must, nevertheless, satisfy
    pricing flexibility triggers for "new" end user channel termination
    services. *See* 47 C.F.R. § 69.729(b).

[^7]: *Pricing Flexibility Order*, 14 FCC Rcd at 14310, para. 173.

[^8]: *See* Verizon Waiver Petition at 1 (citing 47 C.F.R. § 69.729;
    *Pricing Flexibility Order*, 14 FCC Rcd at 14310, para. 173).

[^9]: Memorandum of Points and Authorities in Support of Verizon's
    Petition for Waiver of Pricing Flexibility Rules and Contingent
    Petition for Forbearance at 1 (Verizon Memorandum).

[^10]: The petition applies to the following services: Frame Relay,
    Asynchronous Transfer Mode Cell Relay, Internet Protocol-Virtual
    Private Network, Transparent Local Area Network, and Exchange Access
    Switched Multi-Megabit Data Services. *See* *id*. at 1, 14,
    Attachment B; Letter from Joseph Mulieri, Vice President - Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, Federal
    Communications Commission, WC Docket No. 04-246 (filed June 8, 2005)
    (Verizon June 8 *Ex Parte* Letter).

[^11]: Verizon Memorandum at 7, 12; Verizon Reply Comments at 14-15,
    Declaration of Thomas F. Maguire at paras. 6-12.

[^12]: *See* Letter from Joseph Mulieri, Vice President - Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, Federal
    Communications Commission, WC Docket No. 04-246, at 4 (filed June
    27, 2005) (Verizon June 27 *Ex Parte* Letter).

[^13]: *Application of GTE Corporation, Transferor, and Bell Atlantic
    Corporation, Transferee, 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,* CC Docket No. 98-184, Memorandum Opinion and Order, 15 FCC
    Rcd 14032, 14038-39, para. 5; 14265-89, App. D (2000) (*Bell
    Atlantic/GTE Merger Order*).

[^14]: *See* Verizon Memorandum at 2-3; 47 C.F.R. § 61.41; *LEC Price
    Cap Order,* 5 FCC Rcd at 6818-21, paras. 257-84.

[^15]: *Association of Communications Enterprises v. FCC*, 235 F.3d 662
    (D.C. Cir. 2001) (*ASCENT*); 47 U.S.C. § 251(h).

[^16]: *Bell Atlantic/GTE Merger Order*, 15 FCC Rcd at 14153, para. 265.

[^17]: Letter from Gordon R. Evans, Vice President, Federal Regulatory,
    Verizon, to Dorothy Attwood, Chief, Common Carrier Bureau, CC Docket
    No. 98-184 (filed May 1, 2001). The Bell Atlantic/GTE merger, which
    was completed on June 30, 2000, created Verizon Communications.

[^18]: *Application of GTE Corporation, Transferor, and Bell Atlantic
    Corporation, Transferee, for Consent to Transfer Control of Domestic
    and International Section 214 and 310 Authorizations and
    Applications to Transfer Control of a Submarine Cable Landing
    License,* CC Docket No. 98-184, Order, 16 FCC Rcd 16915, 16918,
    para. 6 (Com. Car. Bur. 2001). The Common Carrier Bureau became the
    Wireline Competition Bureau in 2002 as part of organizational
    changes at the Commission. *See generally Establishment of the Media
    Bureau, the Wireline Competition Bureau and the Consumer
    Governmental Affairs Bureau*, Order, 17 FCC Rcd 4672 (2002). The
    separate affiliate condition automatically terminated nine months
    after the date of a final and non-appealable judicial decision
    determining that the separate advanced services affiliate is a
    "successor or assign" of the incumbent. *Bell Atlantic/GTE Merger
    Order*, 15 FCC Rcd at 14288-89, App. D, para. 11.c.

[^19]: *E.g.,* Verizon Petition for Waiver of the Price Cap Rules,
    WCB/Pricing File No. 02-16 (filed Nov. 30, 2001); *see also Petition
    for Waiver of the Commission's Price Cap Rules For Services
    Transferred from VADI to the Verizon Telephone Companies*,
    WCB/Pricing File No. 05-17, Order, 20 FCC Rcd 8900, 8901, para. 3
    (Wireline Comp. Bur. 2005) (*2005 Waiver Order*) (and orders cited
    therein).

[^20]: 47 C.F.R. § 61.42(g).

[^21]: *See* 47 C.F.R. Part 61, Subparts E & F.

[^22]: *See* Verizon Waiver Petition at 1 (citing 47 C.F.R. § 69.729;
    *Pricing Flexibility Order*, 14 FCC Rcd at 14310, para. 173).

[^23]: Verizon Memorandum at 10; Verizon Reply at 19 n.29 (citing,
    *inter alia*, *BellSouth Petition for Pricing Flexibility for
    Special Access and Dedicated Transport Services,* CC Docket No.
    01-22, Memorandum Opinion and Order, 16 FCC Rcd 18174, 18181, para.
    15 (2001)).

[^24]: Verizon Memorandum at 10. Although SBC has not been granted
    pricing flexibility for its provision of similar services, SBC was
    granted forbearance from our tariffing rules in connection with its
    provision of advanced services through a separate affiliate. *See
    generally Review of Regulatory Requirements for Incumbent LEC
    Broadband Telecommunications Services*, CC Docket No. 01-337,
    Memorandum Opinion and Order, 17 FCC Rcd 27000 (2002). An SBC
    petition pending before the Commission requests relief similar to
    the relief Verizon seeks here. *See* SBC Communications Inc.
    Petition for Waiver of Section 61.42 of the Commission's Rules, WC
    Docket No. 03-250 (filed Dec. 9, 2003). In comments supporting
    Verizon's petition, SBC requests that any relief granted to Verizon
    "be extended to all dominant LECs offering advanced services that
    rely on packetized technology." SBC Comments at 2. We intend to
    address SBC's petition separately.

[^25]: Verizon Waiver Petition at 3; Verizon Memorandum at 13.

[^26]: Verizon Memorandum at 13-14; Verizon June 27 *Ex Parte* Letter at
    1-2.

[^27]: *See* Verizon Memorandum at 7-12; Verizon June 27 *Ex Parte*
    Letter at 3-4.

[^28]: Verizon Memorandum at 5-7.

[^29]: 47 C.F.R. § 1.3.

[^30]: *Northeast Cellular Telephone Co. v. FCC*, 897 F.2d 1164, 1166
    (D.C. Cir. 1990) (citing *WAIT Radio v. FCC*, 418 F.2d 1153, 1159
    (D.C. Cir. 1969)).

[^31]: As an initial matter, we find it unnecessary for Verizon to first
    include these services in price caps before they are eligible for
    pricing flexibility. As described in paras. 5-6, *supra,* the
    advanced services at issue were removed from price caps for reasons
    unrelated to whether such services belong there. The Bureau has
    granted waivers keeping these services out of price caps because the
    appropriate regulatory treatment of advanced services is a question
    currently before the Commission in pending rulemaking proceedings
    such as those initiated by the *Dom/Non-Dom NPRM* and the *Special
    Access NPRM*. *See generally Review of Regulatory Requirements for
    Incumbent LEC Broadband Telecommunications Services,* CC Docket No.
    01-337, Notice of Proposed Rulemaking, 16 FCC Rcd. 22745 (2001)
    (*Dom/Non-Dom NPRM*); *Special Access Rates for Price Cap Local
    Exchange Carriers,* WC Docket No. 05-25, RM-10593, Order and Notice
    of Proposed Rulemaking, 20 FCC Rcd 1994 (2005) (*Special Access
    NPRM*). We find that these procedural circumstances should not act
    to preclude Verizon from obtaining pricing flexibility for these
    services.

[^32]: Specifically, we waive the requirement that services must be in
    price caps to be eligible for pricing flexibility for Phase I and II
    relief and the following rules as applicable to Phase I relief: 47
    C.F.R. §§ 1.774 (requiring petitions for pricing flexibility to
    include collocation and wire center data by MSA and to "show that
    the price cap LEC has met the relevant thresholds"), 69.709(b)
    (establishing Phase I triggers for special access services other
    than channel terminations), 69.711(b) (establishing Phase I triggers
    for channel terminations between LEC end offices and the customer
    premises), and 69.727(a) (to the extent that it requires price cap
    LECs to satisfy Phase I triggers).

[^33]: *See, e.g.*, 47 C.F.R. § 1.774; 47 C.F.R. Part 69, Subpart H.

[^34]: 47 C.F.R. § 69.729; *Pricing Flexibility Order*, 14 FCC Rcd at
    14310, para. 173.

[^35]: *See* 47 C.F.R. § 61.3(x) (defining a new service as one that was
    "not previously offered by the carrier involved and that enlarges
    the range of service options available to ratepayers"). The
    Commission affords special treatment for new services for a period
    of six to 18 months during which time the carrier develops demand
    data to enable it to incorporate the service into a price cap index.
    *LEC Price Cap Order*, 5 FCC Rcd at 6825, para. 319; *see* 47 C.F.R.
    § 61.42(g). In this case, the services at issue have been available
    for years. Verizon June 8 *Ex Parte* Letter at 1.

[^36]: Verizon Reply at 8 n.13.

[^37]: *See* Verizon Memorandum at 11; Verizon Reply at 1; Verizon June
    27 *Ex Parte* Letter at 3. Verizon's rate elements for Frame Relay
    and ATM packet switching include a user network interface (UNI) port
    and access line, a UNI port only, a permanent virtual connection,
    and a network-to-network interface (NNI) port only. Letter from
    Joseph Mulieri, Vice President - Federal Regulatory, Verizon, to
    Marlene H. Dortch, Secretary, Federal Communications Commission, WC
    Docket No. 04-246 at 2-3, 5, Attach. A, page 9, Attach. B, page 1
    (filed Aug. 4, 2005) (Verizon Aug. 4 *Ex Parte* Letter). Verizon
    states that AT&T does not purchase these rate elements in Tariff 20
    to provision AT&T packet-switched services. *See, e.g.,* Verizon
    Reply at 1.

[^38]: Verizon June 27 *Ex Parte* Letter at 3.

[^39]: There are two basic categories of access services: switched
    access services and special access services. Switched access
    services use local exchange switches to route originating and
    terminating toll calls. *See Pricing Flexibility Order*, 14 FCC Rcd
    at 14226, para. 8. Special access services, on the other hand, do
    not use local switches; instead they employ dedicated facilities
    that run directly between the end user and the interexchange carrier
    (IXC) point of presence (POP) or between two end-user locations.
    *See id.* A POP is the physical point where an IXC connects its
    network with the LEC network.

[^40]: *See* Verizon Aug. 4 *Ex Parte* Letter at Attach. B, page 1; *see
    also Pricing Flexibility Order*, 14 FCC Rcd at 14278, para. 100.

[^41]: *Pricing Flexibility Order*, 14 FCC Rcd at 14278, 14299-300,
    paras. 100, 150.

[^42]: To make a new competitive showing for the advanced services,
    Verizon would have to re-gather collocation data and re-prove
    satisfaction of the triggers under our rules for each of the MSAs at
    issue. Verizon Memorandum at 8 ("To achieve this, Verizon would have
    to, among other things, survey collocation in hundreds of offices,
    re-generate substantial amounts of revenue data, and serve all of
    its collocators with notice of this process."). Then, Verizon would
    have to file additional pricing flexibility petitions. These
    petitions would be subject to an administrative process that takes
    more than 90 days. *See* 47 C.F.R. § 1.774(f). Commission staff
    would have to review the petitions and determine whether the data
    provided by Verizon satisfy the pricing flexibility rules. Thus we
    disagree with the New Jersey Ratepayer Advocate's contention that
    there is no evidence of undue administrative burden or delay. New
    Jersey Ratepayer Advocate Comments at 3.

[^43]: *Pricing Flexibility Order*, 14 FCC Rcd at 14267, 14274, paras.
    83, 94.

[^44]: *See Review of the Section 251 Unbundling Obligations of
    Incumbent Local Exchange Carriers,* CC Docket No. 01-338,
    *Implementation of the Local Competition Provisions of the
    Telecommunications Act of 1996,* CC Docket No. 96-98, *Deployment of
    Wireline Services Offering Advanced Telecommunications Capability*,
    CC Docket No. 98-147, Report and Order and Order on Remand and
    Further Notice of Proposed Rulemaking, 18 FCC Rcd 16978, 17321-23,
    paras. 537-39 (2003), Errata, 18 FCC Rcd 19020 (2003), *vacated and
    remanded in part, affirmed in part, United States Telecom Ass'n v.
    FCC*, 359 F.3d 554 (D.C. Cir.), *cert. denied*, 125 S. Ct. 313
    (2004).

[^45]: AT&T Opposition at 19-21.

[^46]: An access line is the equivalent of an end user channel
    termination and may include interoffice facilities. Access lines may
    be purchased out of Verizon's other interstate access tariffs such
    as, depending upon the customer location, Tariff F.C.C. No. 1 or 11.

[^47]: *See infra* para. 16.

[^48]: *See supra* para. 10 & n.Error: Reference source not found.

[^49]: We note, however, that, to the extent that Verizon defines its
    advanced service as an end-to-end service and seeks pricing
    flexibility for the entire service, Verizon must have qualified for
    Phase I or II relief for *both* the channel termination and
    non-channel termination parts in all MSAs in which the service is
    provisioned in order for each part of the end-to-end service to
    qualify for pricing flexibility.

[^50]: AT&T Opposition at 19-24; AT&T Reply at 6-7.

[^51]: AT&T Opposition at 20-21 ("\[Verizon's\] ability to charge
    special access rates that are multiples of their forward-looking
    costs creates the textbook opportunity for a price squeeze against
    competitors dependent on special access services as an input. Access
    to last-mile transmission facilities is a 'necessary input' for a
    broad array of local and long distance business services, including
    advanced, high speed packet-based services. Verizon can create an
    anticompetitive price squeeze by charging rivals a greater margin
    for access than the ILEC earns on its own integrated end-user
    services, and thereby deter efficient competitive supply of the
    retail service."). AT&T claims that "Verizon is seeking to ensure
    that it can squeeze its retail competitors at both the wholesale
    level (by increasing input costs) and at the retail level (by
    selectively reducing retail prices for particularly important
    accounts)." *Id.* at 21; *see also* AT&T Reply at 6-7.

[^52]: AT&T Reply at 6-7.

[^53]: AT&T Opposition at 15-20; AT&T Reply at 6.

[^54]: AT&T Reply at 7; *see also* AT&T Opposition at 24-27.

[^55]: *See generally Special Access NPRM*, 20 FCC Rcd 1994. We note
    that the Commission incorporated the record compiled in response to
    AT&T's petition into the proposed rulemaking proceeding. *See id.*
    at 1996-97, paras. 5, 6.

[^56]: *Id.* at 1995-96, paras. 1, 3.

[^57]: *Id.* at 1995-97, paras. 1, 5.

[^58]: AT&T Opposition at 25.

[^59]: We have stated previously that we will not consider collateral
    challenges to the *Pricing Flexibility Order* when considering
    pricing flexibility relief. *See, e.g., Verizon Petition for Pricing
    Flexibility for Special Access Services,* WCB/Pricing File No.
    05-11, Memorandum Opinion and Order, 20 FCC Rcd 9809, 9814, para. 11
    (Wireline Comp. Bur. 2005).

[^60]: As noted, AT&T complains that advanced services should not be
    included in price caps. AT&T Opposition at 8. This is also an open
    issue in the pending rulemaking proceeding. *See Special Access
    NPRM*, 20 FCC Rcd at 2013, para. 52.

[^61]: *See Dom/Non-Dom NPRM*, 16 FCC Rcd at 22748, para. 7.

[^62]: AT&T Opposition at 7 (contending that a grant of Verizon's
    petition "would entirely subvert" the *Dom/Non-Dom NPRM*); *see
    also* AT&T Reply at 2; Sprint Opposition at 2, 6.

[^63]: *See AT&T Corp. v. FCC,* 236 F.3d 729, 738 (D.C. Cir 2001).

[^64]: *Pricing Flexibility Order*, 14 FCC Rcd at 14300, para. 151
    (explaining that Phase II regulatory relief still requires incumbent
    LECs to file generally available tariffs, is limited to certain
    services and areas, and will be granted only upon satisfaction of
    competitive triggers).

[^65]: *Id.* at 14276, para. 96; *see generally WorldCom, Inc. v. FCC*,
    238 F.3d 449.

[^66]: *WorldCom, Inc. v. FCC*, 238 F.3d at 459.

[^67]: Verizon June 27 *Ex Parte* Letter at 2 (citing *Dom/Non-Dom
    NPRM*, 16 FCC Rcd 22745; Petition of the Verizon Telephone Companies
    for Forbearance Under 47 U.S.C. § 160(c) from Title II and *Computer
    Inquiry* Rules with Respect to Their Broadband Services, WC Docket
    No. 04-440 (filed Dec. 20, 2004)).

[^68]: Verizon specifically states that its request here "is not seeking
    to have the Commission prejudge those \[pending broadband\]
    proceedings." *Id.*

[^69]: *Pricing Flexibility Order*, 14 FCC Rcd at 14227, para. 11.

[^70]: *Id.* at 14225, para. 3.

[^71]: *Id.* at 14225, 14258, paras. 3, 69.

[^72]: *Id.* at 14295, para. 136.

[^73]: *Id.* at 14258, para. 69.

[^74]: *See* 47 C.F.R. Part 61, Subparts E & F.

[^75]: *Id.*

[^76]: *See* Verizon Reply at 10.

[^77]: *Pricing Flexibility Order*, 14 FCC Rcd at 14261-62, para. 77.
    AT&T also argues that Verizon should make a new competitive showing
    here because "numerous competitors \[have\] exit\[ed\] local
    markets." AT&T Reply at 8. Even so, the Commission concluded in the
    *Pricing Flexibility Order* that, once a competitive LEC has made a
    substantial sunk investment in equipment, that equipment remains
    available to another firm that can buy the facilities and is capable
    of providing service in competition with the incumbent. *Pricing
    Flexibility Order*, 14 FCC Rcd at 14264, para. 80.

[^78]: *Pricing Flexibility Order*, 14 FCC Rcd at 14263, para. 79.

[^79]: *Id.* at 14261-62, paras. 77-78; *WorldCom, Inc. v. FCC*, 238
    F.3d at 452.

[^80]: *See, e.g.,* Verizon June 27 *Ex Parte* Letter at 3.

[^81]: Verizon June 8 *Ex Parte* Letter at 3 (excluding Digitial
    Subscriber Line, government services, promotions, and specialized
    services).

[^82]: 47 C.F.R. § 69.729; *Pricing Flexibility Order*, 14 FCC Rcd at
    14310, para. 173. As explained above, the new services rules, which
    permit a carrier to seek pricing flexibility for a service at the
    time it is introduced, do not apply to the advanced services at
    issue in Verizon's petition because these services are not new. *See
    supra* para. 8. Going forward, however, the waiver we grant herein
    will permit Verizon to qualify for Phase I pricing flexibility for
    new advanced services it may introduce in the future in areas where
    it has obtained, or applied for, pricing flexibility for other
    special access services. *See* 47 C.F.R. § 69.729; *Pricing
    Flexibility Order*, 14 FCC Rcd at 14310, para. 173. Paragraph 173
    contemplates a price cap LEC demonstrating that the new service
    falls within a price cap basket and service band for which the LEC
    already has been granted pricing flexibility. *Pricing Flexibility*
    Order, 14 FCC Rcd at 14310, para. 173. Verizon will be required to
    make an analogous showing in light of the factors discussed in this
    order. Likewise, Verizon must comply with the provisions of rules
    69.729(a) and (b), as applicable. *See* 47 C.F.R. § 69.729(a), (b).

[^83]: *See Pricing Flexibility Order*, 14 FCC Rcd at 14297, para. 144.

[^84]: *See* *id.* at 14301, para. 153; 47 C.F.R. § 69.727(b).

[^85]: *See* *Pricing Flexibility Order*, 14 FCC Rcd at 14301, para.
    153.

[^86]: *Id.* at 14296, 14301, paras. 141, 153.