Posted: 02/2001

Competitors Jam BellSouth’s, Verizon’s
Foward Movement
By Kim Sunderland

East Coast Bell operating companies BellSouth Corp. (www.bellsouth.com)
and Verizon Communications (www.verizon.com)
remain snarled in competitive jams that are holding up their plans to enter the
long-distance market in certain parts of their regions.

Competitive carriers have launched a frontal attack to gain assurances that
local markets are open to competition, before the BOCs get Section 271 approval.

"It’s a tough road out there," says one Washington telecom
regulatory source. "The more BOCs that gain more long-distance approvals,
the tougher it will get."

In Georgia, BellSouth has OSS problems that have forced it to delay its
Section 271 filing with the FCC (www.fcc.gov).
Originally, the company had expected to file before 2000 ended.

"BellSouth has absolutely not stepped up to the plate regarding its OSS,"
says Jason D. Oxman, senior counsel for Covad Communications Co. (www.covad.com).
"And this type of obstinacy has been the hallmark of BellSouth’s 271
applications."

The FCC has turned down three BellSouth requests to provide in-region
interLATA services, once in South Carolina and twice in Louisiana. The company
also stumbled before the Georgia Public Service Commission (PSC, www.psc.state.ga
.us) in its request to obtain long-distance approval in that state.

The OSS questions are not unknown to BellSouth executives.

"BellSouth’s OSS is right at the end of third-party testing by KPMG
[Consulting LLP, www.kpmgconsulting.com],"
Bill Stacy, network vice president of interconnection operations for BellSouth,
reported in late December. "We are in the last 30 to 60 days, finishing up
and polishing up, and the OSS has been thoroughly tested and is ready."

According to Stacy, Covad expressed concern relative to BellSouth’s ability
to place electronic orders for line sharing; and BellSouth’s ability to place
electronic orders for xDSL unbundled loops.

Oxman explains that BellSouth has an obligation to allow competitors to
integrate pre-order and order functions into a seamless computer network.

Stacy admits BellSouth’s vendor, Telcordia Technologies Inc. (www.telcordia.com),
has provided no firm commitment date on when this particular testing will be
completed.

"We are processing 3,000 to 4,000 orders a month manually," Stacy
says. "The OSS problems are due to the flow of orders through the system
under error conditions. For BellSouth, the problems are handed off to a person
to fix. For some CLECs, these problems are returned automatically and quickly to
them.

"The process has identified software defects," he adds. "This
is very complex software. But we’re at the tail end of the train."

Because the companies must handle orders manually, the process has been slow,
unreliable, can’t be scaled to large commercial volumes and is prone to errors,
Oxman says.

Ernest Bush, vice president of long- distance entry for BellSouth, told
PHONE+ that "the issue has been that you never get to test this in a closed
environment."

"Back when we first filed a 271, line sharing and electronic ordering
weren’t even conceived of," Bush explains. "Now, if a CLEC comes along
in the middle of the OSS test about these issues, it’s going to delay completion
of the test. We don’t know how to get around that.

"We will have to draw a line at some point on what the FCC says is
enough," he predicts.

Bush says that what the FCC ordered in the New York and Texas Section 271
approvals is sufficient. He adds that line sharing and electronic bonding are
not in those states.

"But we know the FCC says they are important, and we want to get it
fixed now," Bush adds.

He also says that BellSouth wouldn’t file an in-region, long-distance bid
with the Georgia PSC until the issues are rectified.

Status in the Sunshine State

In Florida, Stacy reports that preliminary BellSouth OSS testing began last
May. Functional and volume testing began in late November.

The testing should be finished during the second quarter, he says.

But, BellSouth has the same OSS throughout its nine-state region.

"Certainly it is our belief that if you have two states with completed
OSS tests, there should be no further need for OSS testing," Bush says.
"We should be able to move forward [in our seven other states] without
third-party testing."

Oxman says Covad’s problems with BellSouth’s OSS are of a regional nature.
Covad currently is evaluating several legal courses of action.

Pennsylvania Problems

At competitors’ requests in Penn- sylvania, the Public Utility Commission (http://puc.paonline.com)
rejected Verizon’s request to cut short its OSS testing process.

Verizon had asked regulators to speed up their review of the company’s plan
to offer in-region long-distance service. Local rivals called the request an
"unconscionable" shortcut. In fact, the competitors successfully
convinced state regulators against moving too quickly on Verizon’s long-distance
bid.

Verizon had wanted the PUC to review Verizon’s eligibility to enter the
state’s long-distance market before competitors could review third party tester
KPMG’s (www.kpmg.com) report, sources suggest.

The Pennsylvania long-distance bid coincides with Verizon’s plans to request
approvals on multiple Section 271 applications with the FCC this year.

As in Verizon’s OSS testing in New York and Massachusetts, KPMG reportedly
gave the company overall good marks in a comprehensive test of its back-office
systems in Pennsylvania.

"The KPMG report shows our systems are performing extremely well,"
says Daniel J. Whelan, president of Verizon Pennsylvania (www.bell-atl.com/ba-pa).
"This performance proves that Verizon’s systems meet the requirements of
the Telecommunications Act [of 1996] for long-distance entry."

The report submitted to the Pennsylvania PUC documents KPMG’s examination of
569 "test points" involving Verizon’s OSS.

The testing demonstrates that competitors can compete effectively using those
systems, and that none of the remaining areas KPMG categorized as "Not
Complete" or "Not Satisfied" would have an adverse impact on
competition, Verizon states.

Whelan adds that Verizon will improve its performance in those areas to a
satisfactory level by the time KPMG issues its final report.

With the draft report as ammunition, Verizon asked the PUC to move forward
its 100-day review before the company filed a formal long-distance bid with the
FCC. The FCC places a lot of weight in the PUC’s recommendation, as well as that
of the U.S. Department of Justice (www.usdoj.gov).

Despite Verizon’s claims, however, an AT&T Corp. (www.att.com)
executive has charged that Verizon pressured Gov. Tom Ridge and the Pennsylvania
PUC to shorten Verizon’s back-office systems testing.

Jim Ginty, president of AT&T-Pennsylvania, called Verizon’s actions
"unconscionable," in light of the problems that occurred in New York,
where he says Verizon’s systems weren’t fully tested prior to the Section 271
approval in December 1999.

AT&T says that shortening the Verizon OSS testing process serves the
BOC’s profit interests to the disadvantage of consumers who want to switch local
phone companies.

Ginty cites three major problems in the KPMG test. They are: The systems that
actually will be used in the real-world competitive environment won’t be tested
under high-volume conditions; KPMG is not using the test metrics prescribed by
the PUC, but are using metrics developed without input from competitors and
other stakeholders; and KPMG does not appear to be testing adequately Verizon’s
systems for providing competitors with DSL service.

KPMG began the OSS tests last June, but Verizon stopped them twice, according
to the report. They were stopped for five months to divert personnel to New
York–where the company’s systems crashed under the stress of heavy order
volumes. And they were halted for a month in the fall when Verizon employees
were on strike.

More than 270,000 consumers in New York suffered lost dial tone, service
delays, dropped directory listings and other hassles when Verizon’s systems
crashed last year, according to AT&T.

"Pennsylvania is at a pivotal crossroad on the path to local phone
competition," Ginty told the PUC. "We can take the necessary steps to
avoid the mistakes of New York, or we can take a shortcut and risk repeating
them."

AT&T also told the PUC that the report acknowledges deficiencies in
Verizon’s OSS that had been identified by KPMG, but which remained open and
"either under investigation or subject to ongoing test activities"
when the draft was submitted.

AT&T also is concerned the PUC has lowered or eliminated Verizon’s
performance measures of how Verizon serves competitors.

For example, the PUC says Verizon no longer is subject to penalties for
failing to answer up to 15 percent of all competitor-related calls, losing or
delaying some types of orders or neglecting to report whether certain problems
with Verizon’s networks have been fixed.

"We are concerned that these changes represent backsliding on the part
of the commission when it comes to holding Verizon accountable for its service
to competitors," Ginty said. "Fifteen percent is a significant number
in this market."

New Development

The Pennsylvania case became more complicated when Verizon and state Senator
Vincent J. Fumo, D-Philadelphia, filed a petition that seeks to overturn key
portions of the PUC’s 1999 Global Order on local phone competition.

That order would require Verizon, among other things, to structurally
separate its wholesale and retail functions.

A structurally separate Verizon wholesale unit means competitors would use
the same back-office systems as those used by Verizon’s retail unit, and they
would pay the same prices.

Verizon unsuccessfully challenged the order in court. The new petition,
however, could delay local phone choice in Pennsylvania.

In the meantime, Verizon has offered to establish an "economic
development" fund that the Pennsylvania Legislature would administer. In
exchange, Verizon wants elimination of the requirement that Verizon structurally
separate its wholesale and retail functions, and a dramatically weaker code of
conduct than the PUC has prescribed for Verizon’s wholesale unit that serves
competitors.

The PUC established the code of conduct to prevent Verizon from
discriminating against competitors in favor of its own retail unit in
provisioning phone lines.

Pennsylvanians for Local Competition (PLC, www.localcompetition.org),
a coalition working to bring local telephone choice to the state, opposes the
petition, calling it Verizon’s attempt to get out of key requirements necessary
to open the local phone market to competition.

"Pennsylvanians have been waiting years for local phone competition
because of Verizon’s delays and lawsuits. Now, instead of meeting its
requirements, Verizon is trying to sneak in major changes that will benefit the
local phone monopoly, but do nothing for Pennsylvanians," says Donna Irons,
the coalition’s executive director.

AT&T calls Verizon’s petition "a desperate attempt … to use its
deep pockets to undermine Pennsylvania’s regulatory and judicial processes so it
can keep and expand its phone monopoly in the state."

Verizon reportedly controls more than 95 percent of the state’s phone lines.

Meanwhile, the Pennsylvania PUC has completed hearings on how structural
separation should be implemented and a decision is expected early this year.