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News | News Release Contact: Ken Schrad, 371-9141
For Immediate Release: February 1, 2008

RICHMOND — The State Corporation Commission (SCC) has granted in part and denied in part Verizon’s petition for modifications to the Commission’s December 14, 2007, order deregulating certain local telephone services in areas of Virginia found to be competitive.

Verizon made four specific requests for modifications. The SCC ruled on each request separately.

The SCC approved Verizon's request that certain competitive local exchange carriers (CLECs) be considered "facilities-based" carriers if those CLECs lease unbundled network "loops" from Verizon at wholesale prices capped by the Federal Communications Commission (FCC). The SCC noted that the FCC recently denied Verizon's request to be relieved of such leasing obligations in the Virginia Beach area. The SCC found that as long as the FCC maintained this obligation on Verizon, CLECs leasing loops from Verizon were properly considered to be "facilities-based" competitors under the competitiveness test established in the SCC's December order.

The SCC also partially approved Verizon's request to count so-called "over the top" Voice over Internet Protocol (VoIP) providers, such as Vonage, as a competitor to Verizon in local telephone exchanges where broadband availability has reached 75% of households or businesses. For residential telephone services, the SCC found that granting Verizon's request would grossly overstate the amount of actual competition presently posed to Verizon by providers such as Vonage. The SCC instead found that Verizon's request should be granted for residential telephone services when available FCC data on residential broadband subscribership in Virginia, compared to total Virginia households, showed a sufficient level of subscribership penetration.

The SCC determined that there was a logical connection between broadband subscribership penetration statewide and broadband availability in local telephone exchanges to find potential competition to Verizon from VoIP providers. The SCC further found that available data showed that broadband subscribership among Virginia businesses had already reached a sufficient level to justify approving Verizon's request to count VoIP as a competitor for business services in local exchanges based on availability.

The SCC denied Verizon's request to count cable companies that had upgraded their networks but were not offering telephone service as "facilities-based" competitors to Verizon. The SCC said that under the applicable Virginia law a cable company needed to offer telephone service to be considered a competitor to Verizon's local telephone service.

The SCC also denied Verizon's request to count wireless telephone providers as "facilities-based" competitors to Verizon's landline telephone service, although the SCC did include wireless providers as non-facilities-based competitors to Verizon in its competitiveness test. The SCC said that the purpose of "facilities-based" competitors in its competitiveness test was to ensure that Virginia consumers had at least one option to Verizon that offered local telephone service that was comparable to Verizon's landline service. The SCC found that, while great advances had been made in wireless technology and would likely continue to be made, at the present time the evidence shows that wireless telephone service does not yet offer reliability, service quality, and emergency 911 service that is consistently comparable to Verizon's landline service.

In summary, the SCC wrote, "As a practical matter, granting all four of Verizon's requests in full would give Verizon what it requested in its original application, which is statewide deregulation of essentially all local telephone services. Yet, Verizon failed to prove that it faced competition sufficient to restrain prices in all areas of its Virginia service territory."

According to the Commission, its December order found that such competition or the potential for competition did exist in most of the more densely populated urban and suburban areas of Virginia. It granted Verizon deregulation of approximately more than 62% of all residential lines and 57% of business lines, plus statewide deregulation of bundled and some other services.

However, the evidence demonstrated there were some remaining areas of Virginia, mostly rural areas and in smaller towns and cities, where consumers do not have realistic alternatives to Verizon for reliable local telephone service sufficient to restrain Verizon's ability to raise prices. According to the Commission, "We do not find that current Virginia law allows deregulation if the result will be that Verizon receives the legal authority to raise prices for telephone services in local areas where it still retains dominant market power (market power it inherited from decades as a state-granted monopoly)."

The Commission said, "Virginia law requires us to ensure that deregulation takes place where the facts show that Virginians have realistic options to Verizon's local telephone service, not theoretical options, and that these options 'reasonably meet the needs of consumers'."

The SCC's December order established an administrative process by which Verizon can provide factual evidence in the future that additional local telephone exchange areas are competitive, leading to further deregulation.

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Case Number PUC-2007-00008
Order on Reconsideration