NY's PSC Raises Questions About Verizon-MCI Merger

New York State's Public Service Commission has expressed concern that Verizon Communication's proposed takeover of MCI could produce significant consolidation in large and medium business markets.

In a white paper issued this week, the PSC termed the consolidation "troubling" and offered some tentative remedies aimed at ensuring that smaller telecom providers could "continue to provide their services to medium and large customers, thereby preserving customer choice."

Verizon is proceeding with plans to acquire MCI after a long battle with Qwest, which eventually dropped out of the bidding for MCI.

In its analysis of the pending acquisition, the PSC noted that it also reviewed the acquisition of AT&T by SBC Communications. The PSC expressed few reservations about that transaction, however, because SBC has little presence in New York State and, therefore, its acquisition of AT&T would likely have little impact on business and residential users in the state. Verizon is the major telecommunications carrier in New York State.

Even so, in its report, the PSC cited comments made by some petitioners that "the combined post-merger scenario could provide a powerful incentive for SBC and Verizon to engage in 'tacit collusion' by not competing in each other's territories" In the wake of the breakup of AT&T two decades ago and the subsequent consolidation of the nation's telephone systems, consumer groups have complained that major telephone companies including Verizon and SBC have been re-monopolizing telecommunications.In a statement released Thursday, Verizon took note of the 78-page PSC report. Thomas McCarroll, Verizon's vice president for regulatory affairs in New York and Connecticut, said the New York communications marketplace is "robustly competitive."

He added: "The facts show that the combination of Verizon and MCI will create a strong new competitor whose customer focus and commitment will allow us to better offer innovative new services, packages and products, particularly to the major businesses now served by MCI, without negative effects on competition in any aspect of the market."

In its analysis of the Verizon-MCI merger, the PSC suggested that one remedy to instill competition in business enterprise markets would be for smaller carriers to be entitled to receive the same rates and conditions for three years for the wholesale services they have been receiving from MCI.

Addressing IP delivery, the PSC suggested a pro-competitive measure requiring Verizon to offer "naked DSL" so its customers could "take advantage of the burgeoning Voice over the Internet Protocol (VoIP) market without also subscribing to Verizon's telephone service."

The PSC also suggested that MCI could offer its retail residential service for a year after approval of the merger.0