Even Supporters Urge Scrutiny of Verizon-MCI Merger

Vonage said it doesn’t oppose the merger but wants the FCC to make sure the merger won’t “negatively affect” VoIP providers. Vonage said Verizon has taken steps to make sure its merger won’t hurt IP-based companies, such as helping VoIP providers access E-911 operators. However, Vonage said the FCC still should assure the merger doesn’t impede VoIP provider access to key network facilities: (1) Direct tandems used for interconnection to the public network and 911 services. (2) Number porting. (3) Internet backbone facilities. (4) Wireless platforms.

The Alliance for Public Technology (APT) said the merger could speed deployment of advanced networks but told the FCC the application doesn’t provide enough information on public access to such networks. APT said “the Commission should examine how this merger will affect Verizon’s deployment of advanced services in rural areas, in lower-income neighborhoods, to Native American populations, and to the other demographic segments of our society” that don’t get new telecom technologies at the same pace as customers “that are more attractive from a marketing standpoint.”

A coalition of small telecom manufacturers, one of the few voices offering unconditional support, also viewed the merger as speeding network investment. The Ad Hoc Telecom Manufacturer Coalition urged the FCC to approve the merger because the combined company “is likely to invest far more heavily in both the Verizon and MCI telecom networks than the two companies would invest if the acquisition did not occur.”

However, a group of telecom competitors warned that industry concentration resulting from the merger could raise prices and slow innovation. CBeyond, Conversent, Eschelon, TDS Metrocom, Nuvox and XO Communications said the merger could increase Verizon’s opportunities to engage in anticompetitive conduct in the business market and would reduce residential competition by eliminating MCI as a large competitor. The group said the Verizon-MCI merger application doesn’t support the claim that the acquisition will stimulate innovation. Most innovations in wireless, fiber optics, DSL and Internet technology were fueled by competitive entrants, they said.

Paetec Communications, a competitive carrier, said it doesn’t necessarily oppose the merger. But it urged the FCC to require MCI to divest facilities used by companies such as Paetec for access to networks. Paetec said it leases DS-3 transport capacity from competitive access providers (CAPs) such as MCI’s MFS subsidiaries, to connect its switches to subscribers. Paetec said it fears the merger’s “incorporation of the MFS subsidiaries into the Verizon corporate umbrella, will have an adverse effect on the competitive landscape.”

Qwest, which lost a bidding war to Verizon for acquisition of MCI, said the merger should be denied because it would hurt wholesale and retail competition. Qwest said it’s the most active among the Bells in out-of- region competition and would be “directly harmed by the elimination of MCI as a provider of wholesale access in the Verizon region.” Qwest told the Commission that if the Verizon-MCI and SBC-AT&T mergers are approved, “the result would be two large regional giants, less competitive choice for retail customers, and fewer wholesale alternatives and higher input prices for [competing] carriers.” Qwest said it’s position “has nothing to do with our prior bid to acquire MCI.”

N.Y. Attorney Gen. Eliot Spitzer’s (D) office said the Verizon-MCI acquisition “portends a tremendous consolidation in the vital and changing telecommunications industry” when taken in combination with the pending SBC- AT&T merger. Spitzer’s office urged the FCC not to approve the merger unless it is sure the merger’s anticompetitive aspects can be overcome. “There is great potential for this merger to cause significant competitive harm, which may prevent telecommunications markets from developing competitively in the fashion that Verizon and MCI predict,” Spitzer’s office said. The filing targeted 2 major consumer concerns: (1) Making sure Verizon post- merger offers standalone DSL to all customers. (2) Ensuring that competitors have non-discriminatory access to MCI’s Internet backbone. “The expected concentration of the nationwide Internet backbone… is particularly significant” because after the 2 mergers, SBC-AT&T and Verizon-MCI would control more than half of the backbone assets, Spitzer’s office said.

The Tex. Office of Public Utility Counsel (OPUC) said the merger would be “detrimental to the public interest” unless the FCC imposes conditions and performance standards. The OPUC is a state unit set up to represent consumers. The Verizon-MCI merger and the SBC-AT&T merger viewed together “will result in the elimination of competition far greater than for reach merger viewed individually,” the OPUC said: “The two mergers would go a long way to reestablishing dominant carriers in the local and long distance markets that will reverse the trend away from the total market dominance held by AT&T prior to the divestiture of the RBOCs.” Among conditions urged by the OPUC: (1) Requiring Verizon to make UNE-P and the high frequency portion of loops available at TELRIC rates. (2) Requiring Verizon to enter out-of-region markets.

The FCC must set more substantial conditions than in the past because the Verizon-MCI merger differs from mergers of Bell companies in past years, said NASUCA. The merger joins “two of the largest providers of broadband service in the nation as well as… two competitors that provide [VoIP] service,” NASUCA said.