The long and winding road

Last week, Verizon Communications got the news it waited roughly two years to hear: It can offer long-distance service in the commonwealth of Massachusetts starting April 26.

The FCC approved the RBOC's Section 271 application in the Bay State in the face of opposition coming not only from competitors, but also from the U.S. Department of Justice and Massachusetts' attorney general.

In February, the DOJ expressed concern that, in several aspects, Verizon provided better access to its retail operations than to its competitors.

The FCC disagreed, which didn't surprise Lynda Starr, vice president of carrier research at Probe Research and director of the company's U.S. Competitive Service Markets program, which has followed the progress of RBOCs and their entry into long-distance for more than two years.

“The Telecom Act requires the FCC to ask the DOJ for its opinion, but the Commission doesn't have to listen to it,” she said.

Buoyed by its success in Massachusetts, Verizon is moving to accelerate the 271 application and approval process in other states in which it is the incumbent. The company plans to file an application in Connecticut this week, then will quickly set its sights on Pennsylvania, Rhode Island, New Jersey, New Hampshire and Vermont, in that order.

Verizon hopes to have several of the New England applications completed by the end of the year, according to Tom Tauke, senior vice president of public policy and external affairs.

“As you know, our predictions in this arena have not been the greatest,” Tauke said. “But those are the six that I would expect we would be able to get in by the end of the year, or at least have a good shot at completing by the end of the year. I don't think that we're on target to get Maine by the end of 2001.”

Predictably, competitive long-distance companies weren't pleased by the news. According to David Eisenberg, Sprint's vice president for state external affairs, consumers in Massachusetts may be getting another choice in long-distance, but they aren't getting in return the requisite improvement in local competition.

“The FCC decision is premature, and that's unfortunate,” Eisenberg said. “We think the prices being charged by Verizon in Massachusetts for access to its network are too high, and when you look at the local market in Massachusetts, it's inhospitable to competition.”

Tauke disagreed, saying that the FCC's approval validates Verizon's position.

“Massachusetts is one of the most competitive markets in the country. We have now, we believe, more than 850,000 lines being served by competitors,” he said. “The FCC in its order apparently did a very good job of rebutting challenges of opponents to our pricing in Massachusetts. If you look at paragraph 31 of the order, the Commission takes on the assertion that the rates in Massachusetts are not TELRIC-based.”

Starr predicted Verizon's approval in Massachusetts would start a trend that will see the RBOCs gain a 25% share of the long-distance market by 2003.

“The RBOCs had about $1 billion in long-distance revenue in 2000, and we expect, for 2001, it will be $6 billion, and $14 billion by 2003,” Starr said. AT&T, WorldCom and Sprint currently split about 85% of the market, with as many as 2000 smaller carriers splitting the remaining 15%, she said.

Turning the RBOCs loose creates a sizeable problem for long-distance companies, Eisenberg said.

“In New York, Verizon brought on a million customers in very short order and surpassed Sprint's long-distance market share in a matter of just a few months,” he said. “There is no question the incumbent monopolist's ability to sell long-distance to its existing base of local customers through the use of bundled offerings has some appeal in the marketplace.”