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 Federal  Communications  Commission  FCC  03-  53 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 
 In  re  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 

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 CC  Docket  No.  98-  184 

 ORDER 
 Adopted:  March  11,  2003  Released:  March  13,  2003 
 By  the  Commission: 
 I.  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. 
 II.  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 

 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  Verizons  region.  2 
 Bell  Atlantic/  GTE  Merger  Order  at  Appendix  D,    43. 
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 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  Verizons  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  Verizons  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  Verizons  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 
 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. 
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 of  the  rings  and  associated  equipment  lie  within  Verizons  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 
 III.  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  Verizons  incumbent  region. 

 6.  We  approve  $13.95  million  of  Verizons  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  Verizons  proposed  $18.192  million  SONET  investment  and  all  of  Verizons  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  Verizons  incumbent  region.  Therefore,  we  deny  Verizons  request  to  count  it  toward  the  condition. 

 A.  SONET  Investment 
 7.  We  find  that  Verizons  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  Verizons  incumbent  region,  Verizon  provides  alternatives  to  the  incumbents  traditional  special  access  and 
 transport  services.  We  also  find,  based  on  Verizons  showing,  that  all  of  the  SONET  expenditures  are  for  facilities.  17 

 8.  We  decline,  however,  to  count  all  Verizons  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  Verizons  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 
 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. 
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 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,  Verizons 
 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  Verizons 
 proposal  simply  to  allocate  all  investment  to  out-  of-  region,  and  based  on  the  Common  Carrier  Bureaus  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  Verizons  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  conditions  language  and  purpose  require  that  we  exclude  some  of  the  investment  given  Verizons  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  Verizons  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. 
 B.  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 

 20  Id. 
 21  See  id.  at  1. 
 22  Verizons  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  Verizons  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. 
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 in  Out-  of-  Region  Markets.  26 
 IV.  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  Verizons  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 

 26  Bell  Atlantic/  GTE  Merger  Order  at  Appendix  D,    44  (emphasis  added). 
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