Technology

Spitzer Wants 'Naked’ DSL

5/15/2005 8:00 PM Eastern

Taking a time out as Wall Street’s ethics cop, New York State Attorney General Eliot Spitzer is showing interest in competition in the telecommunications industry, particularly in how major phone companies market high-speed Internet.

Verizon Communications Inc. won’t sell digital subscriber line service unless a customer also buys local phone service, and the subscriber can’t drop local phone service without disconnecting DSL. SBC Communications Inc. has the same policy.

Siding with Verizon’s rivals, Spitzer told the Federal Communications Commission last Monday that Verizon’s bundling policy is anti-competitive, because it deters Verizon DSL customers from seeking alternative voice providers that are attempting to nibble at the telco’s huge voice market share.

Evidently, Spitzer sees an opportunity to break up the bundle through the FCC’s review of Verizon’s proposed $8.5-billion merger with MCI Inc. The agency might impose conditions on the deal to ensure that it meets the public-interest standard in federal communications law.

“The [FCC] should condition the merger on the combined Verizon/MCI offering standalone DSL service to all customers, existing or otherwise, not later than 30 days following [FCC] approval,” Spitzer’s office said in an FCC filing on the merger’s competitive impact.

Last month, Verizon chairman and CEO Ivan Seidenberg said the company was moving ahead with plans to offer “naked DSL,” adding that the bundling strategy was the result of internal operations.

Testifying before a Senate committee in March, Seidenberg said he would oppose a naked DSL merger condition.

The FCC is studying whether to force Verizon and SBC to sell DSL a la carte after Bright House Networks complained that Verizon’s bundling policy deterred consumers from signing up for the MSO’s competing VoIP service.

Bright House said imposition of a naked-DSL requirement might rectify the problem.

In the FCC filing, Spitzer signaled agreement with Bright House.

“By selling its DSL service with its monopoly voice service, Verizon discourages its DSL customers from using VoIP competitors,” Spitzer said, adding that Verizon’s introduction of its own VoIP service, called “VoiceWing,” would give the company “further incentive to hinder competitive VoIP products through means other than competition on the merits.”

Echoing Spitzer’s concern, Vonage Holdings Corp. also called for a naked-DSL merger condition. Signing up a Verizon DSL subscriber currently requires Vonage to convince the customer to purchase voice service a second time.

Oddly, neither Spitzer nor Vonage addressed a likely method for circumventing a naked-DSL merger requirement: pricing strategies.

Unless the government imposed price controls, Verizon could offer naked DSL at such a high markup to the bundle that very few consumers would purchase the standalone offering.

“If you do it without any price regulation, it’s meaningless,” said Thomas Hazlett, an economist with the Manhattan Institute for Policy Research. “[Verizon will] say, 'Yeah, we’re offering it. We’re offering at 60 bucks a month.’ ”

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