Verizon dodges separation bullet—for now

In an attempt to increase local competition in its state, the Pennsylvania Utility Commission (PUC) ruled today that Verizon must adhere to a strict code of conduct in providing non-discriminatory access to its system or face stiff penalties.

In its unanimous ruling, however, the PUC fell short—at least for now—of ordering Verizon into separate retail and wholesale units, which competitors – including AT&T – had wanted.

Instead, the PUC called for “functional” structural separation, which requires a clear distinction between the company’s wholesale and retail units, but doesn’t require Verizon Pennsylvania to split into two separate companies.

“We would have preferred that the commission had gone ahead today to order full wholesale and retail separation,” said James Ginty, president of AT&T in Pennsylvania. “If they do comply, competition has a chance to take root.”

If Verizon fails to comply with the order, it faces the possibility of a full separation, which a spokesman for the company said would have been devastating to Pennsylvania consumers.

“A full structural would have done nothing really for the state of Pennsylvania or for consumers even though our good friends at some of the long-distance companies beat that drum for a long time,” said a Verizon spokesman. “The fact of the matter is that at some point consumers and businesses would have been looking at higher rates.”

Ginty said that although the order was a step in the right direction, AT&T would remain watchful in monitoring Verizon’s actions.

“Conditions are fine, but they have to be enforced and the commission has to step up and enforce the conditions,” Ginty said. “Our role will be to bring to the attention of the commission incidents where Verizon is not complying with the commissions directives.”

In a statement today, Verizon Pennsylvania’s president and CEO said that the company would review the commission closely over the next several days.

"The commission recognized that dividing Verizon Pennsylvania into two separate entities – one to sell wholesale services and one to sell retail services – is unwarranted," said Daniel J. Whelan, president and CEO of Verizon Pennsylvania. "There are, however, a number of provisions that could be troublesome. The motion is a complex document, which we must closely review before commenting in detail."

But a Verizon spokesman said the company would likely comply with the terms.

“We’re going to do everything we can to avoid paying penalties,” the spokesman said. “We’re held to strict standards, yes, but we’re going to try meeting them and if we don’t it won’t be for lack of trying.”

Chicago-based Focal Communications president and CEO Bob Taylor, whose company has operations in Pennsylvania, said he was “extremely pleased” with today’s ruling. The order, he said, would bolster competition across the state.

“We think the commission went far enough and they left themselves room to go further if necessary,” Taylor said. “Clearly when you go all the way to physical structural separation you’ve scrambled the egg and there’s no coming back. If Verizon does deliver and provide better service, everybody wins.”

Over that last several months, both Verizon and AT&T have been engaged in a media war to sway public opinion. Verizon, for instance, claimed the cost of structural separation to the company and Pennsylvania consumers would be $1 billion. AT&T said Verizon was merely engaging in scare tactics and hired an economist who determined only a $41 million price tag.

The PUC admonished Verizon for its part in the public relations battle, saying in a statement that, “As evidenced by the very content of its publications, Verizon did this to portray structural separation as leading to lost jobs and a broad-based negative economic impact.”