Verizon: Naked DSL Generally Available

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 said Tuesday in a filing defending its proposed merger with MCI Inc.

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

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

But Verizon told the FCC those practices were a thing of the past.

“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 stand-alone DSL offering is generally available in all of Verizon’s service territories, not just the former Bell Atlantic [Corp.] service territory,” Verizon said.

A spot check by a reporter who takes Verizon local phone and DSL services in the Washington, D.C., market turned up contrary evidence. A Verizon customer-service representative Wednesday told the reporter that dropping Verizon voice would require dropping DSL. A Verizon spokesman said naked DSL is an option only 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 Department of Justice. Regulators routinely apply conditions to ensure that mergers will serve the public interest and won’t lessen competition.

At a press conference Tuesday, Verizon officials said naked DSL became available first in former Bell Atlantic regions and later in former GTE Corp. regions for current customers who 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, nor did it compare the stand-alone DSL price to the price of its voice-DSL bundle. Pricing naked DSL high could make the bundle a default option for the vast majority of consumers.

Verizon spokeswoman Bobbi Henson said the $29.99 monthly price of DSL would not change if a consumer dropped voice service.

“In the future, however, as we add more variations of stand-alone service, this pricing may change,” she added.

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 per month for stand-alone 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 per month just for DSL, compared with $39.99 for the DSL-voice package following a two-month $19.99 promotion.

Qwest has 1.1 million DSL customers, but just 28,000 buy 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.

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.”