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Verizon Suffers Court Setback

7/18/2008 8:00 PM Eastern

A federal appeals court has rejected an attempt by Verizon Communications to keep marketing local phone service to customers who had already elected to switch to cable and other competing voice providers.

A panel of the U.S. Court of Appeals for the D.C. Circuit, voting 2-1, rejected Verizon’s request to stay a recent Federal Communications Commission order that sided with cable companies after finding that Verizon was violating established retention-marketing rules adopted to promote fair competition.

The July 16 decision became public last Thursday, with the court promising to expedite review of Verizon’s underlying appeal in the months ahead.

“We are pleased the court denied the stay,” Comcast spokesman Sena Fitzmaurice said. Joined by Time Warner Cable and Bright House Networks, Comcast filed the complaint at the FCC against Verizon.

The FCC’s Enforcement Bureau carried out orders from FCC chairman Kevin Martin to issue a decision backing Verizon in the dispute with the cable companies. But the full FCC, voting 4-1, recently overturned the bureau’s recommendation. Verizon then took the FCC to court, where it has lost the first round.

“We are pleased the court granted an expedited review,” said Verizon spokesman David Fish, “because the FCC order denies consumers the full benefits of competition and puts their money into the pockets of the cable incumbents each day it is in effect.”

The FCC determined that Verizon had been violating the law when it tried to retain customers during the four-day window it has to transfer a customer’s phone number to a new voice provider. Phone-rate payers paid millions of dollars to reimburse phone companies their costs to install number-portability technology.

Verizon learns about a defecting voice customer when the new provider submits the number portability request. The FCC has repeatedly ruled that phone incumbents like Verizon may not use information gleaned from the number-transfer process to engage in retention marketing prior to completion of the port.

“The ruling is a victory for Comcast, Time Warner Cable and Bright House Networks — which had pressed the FCC to stop the retention marketing and opposed the stay — and a defeat for Verizon, though the Bell is presumably heartened by the fact that one of the three judges would have granted a stay and by the panel’s decision to set expedited review on the merits,” Stifel, Nicolaus & Co. analyst Blair Levin said in a client note Thursday afternoon.

Verizon has claimed that cable has an advantage because it can try to retain video customers immediately when they call in to say they are switching to Verizon or another pay-TV provider. But cable operators have to obey the same retention-marketing rules when their voice customers decide they want to switch to Verizon and take their phone numbers with them. Cable offers digital phone service to 16 million consumers.

Judge Douglas H. Ginsburg would have granted Verizon’s stay, but he was out-voted by Judges Merrick B. Garland and Judith W. Rogers. The court said simply that Verizon failed to satisfy “the stringent standards required for a stay pending court review.” It also indicated that a different group of judges might hear Verizon’s regular appeal in the fall.

September