**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In re Application of             | *  | CC Docket No. 98-184         |
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| GTE CORPORATION,                 | ** |                              |
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| Transferor,                      | *  |                              |
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| AND                              | ** |                              |
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| BELL ATLANTIC CORPORATION,       | *  |                              |
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| Transferee,                      | ** |                              |
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| For Consent to Transfer Control  | *  |                              |
| of Domestic and International    | *) |                              |
| Sections 214 and 310             | ** |                              |
| Authorizations and Application   |    |                              |
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| Submarine Cable Landing License  | *) |                              |
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**ORDER**

**Adopted: March 11, 2003 Released: March 13, 2003**

By the Commission:

# introduction

1.  In this Order, we approve in part Verizon Communications Inc.'s
    ("Verizon") request to count \$20.292 million of its SONET and
    switched voice expenditure toward its out-of-region expenditure
    requirements under the *Bell Atlantic/GTE Merger Conditions*.[^1]
    Specifically, we approve \$13.95 million of the \$20.292 million
    Verizon requests. We therefore find that Verizon has thus far spent
    a total of \$401.85 million toward the merger condition, including
    \$177.55 million in facilities.

# background

2.  To encourage Verizon to enter other incumbent local exchange
    carriers' ("incumbent LEC") regions and compete for local customers,
    the *Bell Atlantic/GTE Merger Order* requires the company to spend
    \$500 million to provide "Competitive Local Service" outside its
    incumbent territory within three years of the closing of the merger
    (*i.e.*, by June 30, 2003).[^2] The *Merger Conditions* define
    "Competitive Local Service" as "services, including resale, that
    compete with traditional local telecommunications services offered
    by incumbent local exchange carriers or . . . Advanced Services to
    the mass market."[^3] The *Merger Conditions* require Verizon to
    spend at least half of the total requisite amount (*i.e.,* \$250
    million) "to construct, acquire, lease, use, obtain or provide
    facilities, operating support systems, or equipment that are used to
    service customers in Out-of-Region Markets" ("Facilities Expenditure
    Requirement").[^4] Verizon may use the other half to acquire
    customers for Competitive Local Service in those Out-of-Region
    Markets ("Service Expenditure Requirement").[^5] These two mandatory
    expenditures constitute Verizon's out-of-region expenditure
    commitments. If Verizon does not satisfy these requirements by June
    30, 2003, it must pay the U.S. Treasury 150 percent of the
    difference between what it spent and what it was obligated to
    spend.[^6]

3.  On June 24, 2002, the Commission approved Verizon's February 7, 2002
    request to count \$90.5 million of its investment in Northpoint
    Communications Group, Inc. toward the out-of-region requirements,
    including \$50.2 million toward the Facilities Expenditure
    Requirement.[^7] Previously, the former Common Carrier Bureau found
    that Verizon satisfied \$297.4 million of the condition, including
    an expenditure of \$113.4 million for facilities, with its purchase
    of OnePoint, a DSL provider.[^8] Thus, to date the Commission or the
    staff has determined that Verizon has spent a total of \$387.9
    million, including \$163.6 million for facilities, towards the two
    out-of-region requirements.

4.  In Verizon's February 7, 2002 proposal, it asked that an additional
    investment of \$20.292 million qualify to help satisfy the
    out-of-region requirements. In particular, Verizon asserts that it
    spent \$18.192 million on synchronous optical network ("SONET")
    investment and \$2.1 million on switched voice services in Los
    Angeles, Seattle, and Dallas.[^9] Verizon asserts that all this
    investment should qualify as facilities expenditures.[^10] The SONET
    facilities are comprised of fiber rings and associated equipment
    located in the three cities.[^11] Verizon is an incumbent LEC in
    each city, and the fiber rings straddle the line between the Verizon
    incumbent territories and those of other incumbent LECs.[^12] As a
    result, portions of the rings and associated equipment lie within
    Verizon's incumbent region. The Commission did not make a decision
    on this investment in the *Northpoint Order*; instead it deferred
    judgment to a later date.[^13]

# discussion

5.  The first issue here is whether Verizon spent the \$20.292 million
    "to provide services . . . that compete with traditional local
    telecommunications services offered by incumbent local exchange
    carriers . . . ."[^14] The second issue is whether such investment
    may count toward the out-of-region requirements if it is physically
    located within Verizon's incumbent region.

6.  We approve \$13.95 million of Verizon's request to count \$20.292
    million of its SONET and switched voice expenditure toward its
    out-of-region expenditure condition. Specifically, we approve
    \$11.85 million of Verizon's proposed \$18.192 million SONET
    investment and all of Verizon's proposed \$2.1 million in switched
    voice investment. We find that the remaining SONET investment
    (*i.e.,* \$6.342 million) does not qualify as "out-of-region"
    because it is physically located in Verizon's incumbent region.
    Therefore, we deny Verizon's request to count it toward the
    condition.

## SONET Investment

7.  We find that Verizon's SONET investment provides a "service\[\],
    including resale, that compete\[s\] with traditional local
    telecommunications services offered by incumbent local exchange
    carriers."[^15] Verizon states that it uses the SONET facilities to
    provide special access and transport services that compete with the
    local incumbents' special access and transport services.[^16] For
    the customers actually and potentially served by the portions of the
    fiber rings located outside Verizon's incumbent region, Verizon
    provides alternatives to the incumbents' traditional special access
    and transport services. We also find, based on Verizon's showing,
    that all of the SONET expenditures are for facilities.[^17]

8.  We decline, however, to count all Verizon's SONET investment toward
    the condition. In its previous filings, Verizon proposed, and the
    former Common Carrier Bureau agreed, to allocate its investment
    based on the percentage physically located outside Verizon's
    incumbent region.[^18] Verizon argues that we should not use this
    approach here.[^19] We conclude, however, that in the absence of any
    alternative methodology or data, physical location is a reasonable
    basis for allocation in light of past practice.

9.  Verizon states that, unlike the OnePoint case, "100% of the
    investment is being used for out-of-region services."[^20] Even
    crediting this statement as true, it does not change our conclusion.
    First, while it may be true that all the investment can, at any
    given time, be used to complete communications from out-of-region
    customers, it is also true that the same facilities can be used to
    complete communications originating from in-region customers, either
    to other in-region customers or out-of-region customers. The fact
    that all the ring facilities can be used to provide out-of-region
    services does not change the fact that all the facilities could also
    be used to provide in-region services. Thus, Verizon's argument does
    not support a decision that all the investment should count toward
    satisfaction of the out-of-region requirement. Second, although it
    admits that the facilities serve in-region customers, Verizon has
    not proposed a method for dividing the investment between in-region
    and out-of-region based on the customers served, or on any other
    basis for that matter. In the absence of a better method than
    Verizon's proposal simply to allocate all investment to
    out-of-region, and based on the Common Carrier Bureau's previous
    approach, we find allocation based on physical location to be
    reasonable.

10. In a related argument, although the merger condition does not
    specify a methodology to allocate Verizon's investment between
    in-region and out-of-region, Verizon states that all its SONET
    investment should qualify because the investment "is designed" to
    provide services to out-of-region customers.[^21] We disagree with
    Verizon that its intent governs satisfaction of the condition.
    Instead, we find that the condition's language and purpose require
    that we exclude some of the investment given Verizon's statement
    that in-region customers use the facilities, *e.g.,* to communicate
    with other in-region customers.[^22] The text of the condition
    requires Verizon to spend its funds "to provide \[Competitive Local
    Service\] *outside the \[Verizon\] Service Areas* \[\], within the
    United States."[^23] In the absence of any customer use data,
    physical location is a reasonable basis for allocating the
    investment. As a result, we deny Verizon's request to count the
    in-region investment toward satisfaction of the condition.

11. Verizon states that \$11.85 million of its SONET investment lies
    outside its incumbent region.[^24] We therefore conclude that
    Verizon spent \$11.85 million towards its out-of-region commitment,
    including the facilities expenditure requirement.

## Switched Voice Expenditure

12. We find that the \$2.1 million Verizon spent on switched voice
    investment qualifies as an out-of-region expenditure. We find that
    the investment is "traditional" local service under the *Merger
    Conditions* because it is voice service. Further, Verizon represents
    that all the investment is located outside its incumbent
    territory.[^25] Finally, the investment, for which Verizon received
    rights-to-use switching capacity, qualifies as a facilities
    expenditure because it was made "to construct, acquire, lease,
    *use*, obtain, or provide facilities, operating support systems, or
    equipment that are used to serve customers in Out-of-Region
    Markets."[^26]

# ordering clause

13. Accordingly, IT IS ORDERED, pursuant to sections 1-4, 201-205, 214,
    251, 303(r), and 309 of the Communications Act of 1934, as amended,
    47 U.S.C. §§ 151-154, 201-205, 214, 251, 303(r), and 309, that
    Verizon's request to count its SONET and switched voice expenditures
    toward satisfaction of Condition XVI of the *Bell Atlantic/GTE
    Merger Conditions* IS GRANTED IN PART as described herein.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

[^1]: *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, 14182, ¶
    319, Appendix B, ¶¶ 43-48 (2000) *(*"*Bell Atlantic/GTE Merger
    Order,*" "*Bell Atlantic/GTE Merger Conditions*," or "*Merger
    Conditions*"). The condition requires Verizon to spend \$500 million
    toward services that compete with incumbent LECs outside Verizon's
    region.

[^2]: *Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 43.

[^3]: *Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 43.

[^4]: *See Bell Atlantic/GTE Merger Order* at Appendix D, ¶¶ 44-45.

[^5]: *See Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 43.

[^6]: *See Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 46. For
    example, if Verizon spends no more between now and July 1, 2003, it
    would owe the U.S. Treasury \$147.225 million (\$98.15 million X 150
    percent).

[^7]: *See* *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*, Order, CC
    Docket No. 98-184, 17 FCC Rcd 12271 (2002) ("*Northpoint Order*").

[^8]: *See* Letter from Carol Mattey, Deputy Chief, Common Carrier
    Bureau, to Jeff Ward, Senior Vice President -- Regulatory
    Compliance, Verizon, 16 FCC Rcd 20315 (Nov. 20, 2001) ("*CCB
    OnePoint Letter*").

[^9]: *See* Letter from Gordon Evans, Vice President, Federal
    Regulatory, Verizon, to Marlene Dortch, Secretary, Federal
    Communications Commission, filed in CC Docket No. 98-184 (May 24,
    2002) ("*Verizon May 24, 2002 Letter*"). In its initial proposal,
    Verizon stated that the total for the SONET investment is \$18.2
    million. In a subsequent filing, Verizon stated that the total is
    \$18.192 million. *See* Letter from Gordon R. Evans, Vice President,
    Federal Regulatory, Verizon, to Marlene Dortch, Secretary, Federal
    Communications Commission, filed in CC Docket No. 98-184, at 3 (Jan.
    16, 2003) ("*Verizon January 16, 2003 Letter*"). We use the \$18.192
    million amount here for more precision.

[^10]: *See Verizon May 24, 2002 Letter*.

[^11]: *See Verizon January 16, 2003 Letter* at 1-2. Verizon states that
    the investment includes "fiber, fiber rings, nodes, and
    state-of-the-art switching equipment, including dense wave division
    multiplexing (DWDM) and synchronous optical network (SONET)
    devices." *Id*. Verizon states that the equipment is designed to
    "supply local high-speed data telecommunications services
    interconnecting out-of-region customer locations with other
    customer-designated sites." *Id*.

[^12]: *See id*. at 2.

[^13]: *See Northpoint Order*, 17 FCC Rcd at 20316, n.11.

[^14]: *Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 43.

[^15]: *Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 43.

[^16]: *See* Letter from Gordon Evans, Vice President, Federal
    Regulatory, Verizon, to Anthony Dale, Assistant Chief,
    Investigations and Hearings Division, Enforcement Bureau, Federal
    Communications Commission, filed in CC Docket No. 98-184, at 2 (July
    19, 2002).

[^17]: *See Verizon January 16, 2003 Letter* at 2 (noting that Verizon
    previously filed with the Commission, on a confidential basis,
    "samples of detailed work orders describing the work performed" and
    "concept diagrams that reflect the general outline of the
    networks"). This filing is persuasive evidence that Verizon spent
    the money on construction or acquisition of the facilities, not
    customer acquisition.

[^18]: *See CCB OnePoint Letter*; ¶ 3 *supra*; *Verizon January 16, 2003
    Letter* at 2, n.4.

[^19]: *See id*.

[^20]: *Id.*

[^21]: *See id*. at 1.

[^22]: Verizon's statement that in-region customers use the facilities
    does not contradict another Verizon statement that it uses "100%" of
    the facilities to serve out-of-region customers. The facilities are
    configured in a ring straddling the geographic line between
    Verizon's incumbent region and the regions of other incumbents.
    Customers are arrayed on the ring, both in-region and out-of-region.
    As a result, the entire ring is used for communications that
    originate with out-of-region customers, *e.g.,* an out-of-region
    customer sends data to an in-region customer that can be sent either
    direction around the ring. Similarly, an in-region customer can send
    data to out-of-region customers using any part of the ring. Thus,
    the entire ring can be used for service for an out-of-region
    customer in one transmission and an in-region customer in another.

[^23]: *Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 43 (emphasis
    added).

[^24]: *See Verizon January 16, 2003 Letter* at 3.

[^25]: *See id.* at 1.

[^26]: *Bell Atlantic/GTE Merger Order* at Appendix D, ¶ 44 (emphasis
    added).