Telco TV

Verizon: We Sell Naked DSL

5/29/2005 8:00 PM Eastern

Washington— Requiring the sale of digital subscriber line service on a stand-alone basis is unnecessary because “naked DSL” is generally available in its markets, Verizon Communications Inc. said last Tuesday in a filing defending its proposed merger with MCI Inc.

Earlier in the month, New York State Attorney General Eliot Spitzer urged the Federal Communications Commission to require naked DSL, claiming Verizon’s bundling of voice and DSL in a package was anti-competitive and deterred consumers from experimenting with such voice-over-Internet protocol providers as Vonage Holdings Corp.

CABLE GRUMBLES

Cable companies deploying VoIP service, including Bright House Networks, complained about Verizon’s bundling policies before the merger was announced, questioning Verizon’s refusal to transfer a customer’s phone number until both voice and DSL service had been discontinued.

Verizon told the FCC those practices were a thing of the past and Spitzer’s merger condition should be disregarded.

“Although Verizon’s advances in this area were originally geographically limited, the comments of the New York Attorney General are now moot because Verizon’s standalone DSL offering is generally available in all of Verizon’s service territories, not just the former Bell Atlantic service territory,” Verizon said.

A spot check by a reporter who takes Verizon local phone and DSL services in the D.C. market turned up contrary evidence. A Verizon customer-service representative last Wednesday told the reporter that dropping the company’s telephone service would require dropping DSL. A Verizon spokesman said naked DSL is an option when switching voice providers not when seeking to drop just Verizon’s voice service.

The $8.4 billion Verizon-MCI deal requires FCC approval and antitrust clearance from the Justice Department. Regulators routinely apply conditions to ensure mergers will serve the public interest and won’t lessen competition.

At a press conference last Tuesday, Verizon officials said naked DSL became available first in former Bell Atlantic Inc. regions and later in former GTE Corp. regions for current customers that wished to drop local phone service. The company is still working on making naked DSL available to new customers.

“We haven’t yet got the system in place to do that. We expect to have that this summer,” Verizon attorney Michael Glover said.

In the FCC filing, Verizon did not mention the price it charges for naked DSL or compare the standalone DSL price to the price of its voice-DSL bundle. Pricing naked DSL so high could make the bundle a default option for the vast majority of consumers.

Verizon spokeswoman Bobbi Henson said the $29.99-per-month price of DSL would not change if a consumer dropped voice service. “In the future, however, as we add more variations of standalone service, this pricing may change,” she said.

Cable companies sell cable modem service a la carte but usually at a premium to the video-data bundle. Comcast Corp., for example, charges $57.95 a month for standalone cable-modem service, but $42.95 if combined with a cable TV subscription. The vast majority of its 7.4 million broadband subscribers — 89% — opt for the bundle, according to Comcast.

In February 2004, Qwest Communications International Inc. became the first Baby Bell to offer naked DSL. It charges $49.99 a month just for DSL, compared to $39.99 for the DSL-voice package following a two-month $19.99 promotion.

Although Qwest has 1.1 million DSL customers, just 28,000 are naked DSL, according to a Qwest spokeswoman.

Verizon came under criticism because the company wouldn’t sell DSL unless the customers also purchased voice service. Similarly, customers had to drop DSL service if they wanted to drop phone service to try out a VoIP provider.

Verizon CEO Ivan Seidenberg said bundling was not a marketing decision. Rather, it was in keeping with the company’s tradition of selling services to consumers with Verizon-issued phone numbers.

In his comments, Spitzer said the FCC should give Verizon-MCI no more than 30 days to make naked DSL a reality. But the regulator was silent on whether naked DSL should be price regulated to ensure that consumers didn’t automatically opt-in to a more attractively priced bundle.

VONAGE CHIMES IN

Echoing Spitzer’s view, Vonage, the leading VoIP provider with 650,000 subscribers, called for a naked DSL merger condition, saying that Verizon’s tying of voice and data required would-be Vonage customers to subscribe to two phone companies.

In its FCC filing, Verizon argued that even if it did not offer naked DSL, broadband access provided by cable companies was so widely available that consumers did not need to rely on Verizon’s DSL service to locate a VoIP provider.

“More than 90% of U.S. households are now able to obtain a broadband connection from a provider other than their incumbent local telephone company, principally cable-modem service,” Verizon said. “Consumers can use those broadband connections to obtain VoIP either from cable companies or independent providers such as Vonage regardless of the availability of naked DSL.”

September