Cost Huge for Ending UNE Regulation for Verizon in Six Markets, CLECs Say
Freeing Verizon from requirements that it provide unbundled network elements to competitors at regulated rates would cost customers $2.4 billion in six major markets in just one year, QSI Consulting said in a report released Monday and paid for by XO and other competitive carriers. Costs will soar $1.4 billion in the New York market alone as costs for these elements grow 200 to 300 percent, QSI said. The average household would pay $114 more annually for service. Verizon disagreed.
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The report also examines Boston, Philadelphia, Pittsburgh, Providence, R.I., and Virginia Beach, Va., the five other major markets for which Verizon filed forbearance petitions in September 2006. The FCC has a Nov. 6 deadline for acting on them. “Competitors that currently rely on Verizon’s loop and transport UNEs can expect to pay Verizon’s special access rates for the same facilities if the Petitions are granted,” the report said. “Because special access prices are significantly higher than TELRIC-based prices, higher wholesale rates would impair the ability of competitors -- and potential entrants -- to discipline retail rates.”
Granting Verizon forbearance would force competitors to exit the market or charge more, the report said. Verizon’s retail prices also would rise, the report said. “There are a number of reasons why Verizon will opt to increase its retail rates in tandem with other market participants,” QSI contended. “In highly concentrated markets such as telecommunications markets, dominant firms generally are able to increase their profits by raising prices and forfeiting larger market shares.”
August Ankum, QSI economist, hopes the report will lead the FCC to scrutinize the costs of granting the forbearance petition, he said, noting that the FCC didn’t do such an analysis before giving Qwest similar relief in Omaha. “In the Omaha petition the FCC never even attempted is to quantify the impact,” Ankum told reporters. “The impact is very broad and there are many, many aspects to the impact, particularly when a company is as large and prominent as Verizon is… The focus has been very much on what it does for Verizon, the private corporate interests of Verizon and the benefits to Verizon.” Ankum said QSI’s argument that prices for loop and transport facilities would hit the rates charged for special access is based on “the historic record,” not speculation. “To the extent that CLECs have hammered out commercial agreements they typically echo those special access tariffs,” he said.
“Forbearance is bad news for competitors and worse news for businesses and residential ratepayers,” said Heather Gold, senior vice president-external affairs at XO Communications. “The QSI analysis provides indisputable proof that Verizon can and will raise wholesale rates to competitors, making it uneconomic for competitive carriers to provide service in the six affected markets. It will be difficult to continue serving many customers, who will lose the benefits of service innovation and competitive rates.”
“This so-called study is based on the huge assumption that Verizon will automatically raise rates,” Verizon said in a statement responding to the study. “How do they know that? These markets are very competitive with a variety of providers in and across platforms. I find it hard to believe that anyone with an ounce of objectivity will take this paper very seriously.”