Verizon Responds to Critics of Special Access Pricing

Verizon wrote that tw telecom “complains” that Verizon offers circuit portability only in connection with plans that require a volume commitment instead of term-only plans. “This is yet another example of parties seeking discounts without being willing to make the type of commitment that makes these discounts possible.” Tw telecom’s argument that higher month-to-month rates and termination penalties prevent the CLEC from moving to other providers “ignores the full ranges of options that are available to a customer,” such as the option of “switching from a term-and-volume plan to a term-only plan at the discount applicable to that term.” And the amount of special access tw telecom purchases from Verizon and ILECs is not proof of the absence of competition; tw telecom’s analysis “completely ignores” its own self-supply, which is “undoubtedly significant” given tw’s “vast competitive facilities."

A tw telecom attorney had a quick response. Verizon’s special access margins make clear it doesn’t need its customers to lock up nearly all their demand in order to offer reasonable terms and conditions such as circuit portability, Thomas Jones of Willkie Farr and Gallagher told us. “Verizon’s real motivation for pushing customers into outsized volume commitments is to ensure its continued dominance of the market.” At most business end-user locations the “full range” of viable options is a stark choice: “purchasing special access at wholesale from the ILEC or declining to serve the location altogether,” Jones said. Self-supplying or buying from alternative providers “are only options at a limited number of end user locations. Everywhere else, tw telecom and other CLECs buy from the ILECs out of necessity,” he said.

Verizon scoffed at a filing by Ad Hoc, which represents large enterprise purchasers of telecom services including special access. “Ad Hoc disputes that the special access marketplace is dynamic, but its sole evidence in support is a random collection of undated and unsourced quotes from unnamed ‘Ad Hoc Members.’ This is no substitute for reliable evidence,” Verizon said. In reality, demand for lower-capacity TDM-based special access circuits is declining, while demand for higher-capacity and Ethernet and IP-based services are growing rapidly, the company said.

But attorney Colleen Boothby of Levine Blaszak, who represents Ad Hoc, told us its members’ quotes about the continuing importance of special access circuits weren’t the primary point of its filing. Ad Hoc quoted data filed by AT&T at the FCC, which she said contradicts the claims that DS1 and DS3 demand is declining. Boothby couldn’t provide specific figures because of a protective order, but she said AT&T’s data show the circuits account for an “astonishing” percentage of the ILEC’s special access revenues. And although it’s true that demand for Ethernet is growing faster than demand for DS1 and DS3 services, “that’s like saying the Green Party is attracting new members faster than the Democrats or the Republicans,” Boothby said: The growth may be faster, but it’s still just a tiny amount compared to the others.

Verizon also rejected arguments by Level 3 that Verizon imposes “lock-up” requirements on its customers. Level 3 “seeks to distort” Verizon’s health club analogy, in which it argued providing special access discounts for volume purchases was like a gym that offers family memberships that cost less per person than an individual membership (CD Mar 29 p6). Level 3’s argument that competitive providers generally offer shorter terms than ILECs “may be the case,” but is “irrelevant” because “there is simply no way to make apples-to-apples comparisons between Verizon’s and competitors’ plans,” Verizon said. And Level 3’s examples of locations where both an ILEC and a competitor provide service, to ostensibly show that competitors offer special access at lower prices, is “anecdotal and incomplete analysis” that “does not provide a basis for regulatory action but at most indicates that competitive alternatives do in fact exist at many locations,” Verizon said.

"Verizon’s most recent filing continues to rehash arguments it has previously made,” said Mike Mooney, general counsel-regulatory policy at Level 3. “What is new is the increased vigor with which it has recently opposed any special access reform,” he said. This is Verizon’s fifth filing in less than four months, and its purpose is to “deflect the Commission’s attention away from what is a real problem -- a complete lack of effective competition in the special access market,” Mooney said. “We hope the Commission moves quickly towards special access reform, and in the meantime, we hope the Commission acts to restrict the incumbents’ use of anticompetitive lock up arrangements. Such action would unleash a competitive market immediately.”