June 23, 2005
Ms. Marlene H. Dortch
Secretary
Office of the Secretary
Federal Communications Commission
445 12
th
Street, S.W.
Washington, D.C. 20554
Ex Parte Submission
Re: SBC Communications Inc. and AT&T Corp. Applications for
Approval of Transfer of Control ? WC Docket No. 05-65; and
Verizon Communications Inc. and MCI, Inc. Applications for
Approval of Transfer of Control ? WC Docket No. 05-75.
Dear Ms. Dortch:
On June 22, 2005, Daniel C. Pyzik of FiServ, Inc., John C. Smith of First
Data Corporation, and the undersigned on behalf of the Ad Hoc Telecommuni-
cations Users Committee (?Ad Hoc?), met with Commissioner Jonathan Adelstein
and his Legal Advisor, Scott Bergmann.
At the meeting, the parties reviewed the issues raised by Ad Hoc in the
Reply Comments it filed in the proceedings captioned above, as summarized in
the meeting handout attached to this letter. Messrs. Pyzik and Smith also
described (1) their companies? products and telecommunications service needs;
(2) their companies? combined annual telecommunications expenditures (which
exceed $200 million); (3) the approximate number of locations at which their
companies receive service from incumbent local exchange carriers (?ILECs?),
competitive local exchange carriers (?CLECs?), and/or interexchange carriers
(?IXCs?) (over four million); (3) the geographic distribution of those locations in
rural and suburban commercial areas rather than core business districts in urban
areas; (4) the impact of facility-based local service from MCI and AT&T on the
pricing they receive from those carriers where MCI and AT&T are able to provide
such services; and (5) ILEC reluctance (and occasionally outright refusal) to
negotiate contract tariffs for special access in areas where the ILEC has qualified
for pricing flexibility under the Commission?s rules. In addition, Messrs. Pyzik
and Smith observed that access costs account for a disproportionate share of the
total cost associated with a typical inter-city circuit and that wireless, cable, and
Page 2
June 23, 2005
Notice of Ex Parte Meeting
WC Docket Nos. 05-65 & 05-75
satellite services do not currently provide viable competitive alternatives to ILEC
special access service.
Pursuant to Section 1.1206(b) of the Commission?s Rules, 47 C.F.R. §
1.1206(b), copies of this letter and attachments are being filed with the Office of
the Secretary.
Sincerely,
Colleen Boothby
Counsel for
Ad Hoc Telecommunications Users
Committee
Attachment
cc: Commissioner Copps
Jessica Rosenworcel
Ad Hoc Telecommunications Users Committee
June 22, 2005
The problem
Enterprise customers depend on special access services
Special access is not a competitive service
The mergers will make a bad situation worse
The solution
Merger conditions that keep special access prices and practices just and
reasonable
* * *
Special access plays a unique role in the telecom marketplace
Key ingredient for enterprise customer networks
Key input for IXCs and CLECs
Special access services are not competitive
Ad Hoc Committee members have no alternatives to ILEC special access
services in the vast majority of their geographic markets
ETI White Paper, updated in Ad Hoc?s merger filings, confirms the
anecdotal experience of Committee members
Excessive earnings
Steep price increases
Special Access is not regulated
?Pricing flexibility? rules de-regulated monopoly services
Prices are higher in de-regulated areas than in the few remaining ?price
caps? areas
Ad Hoc Telecommunications Users Committee
June 22, 2005
The mergers will make matters worse
Elimination of pricing pressure from IXC facilities and contract discounts
Price squeeze incentives combined with market power
If they?re serious about competing, where are their challenges to the out-
of-region special access prices they pay?
Ad Hoc?s proposed conditions, pending final action in the special access
rulemaking:
Re-initialize rates at the authorized 11.25% rate of return
Unlimited downward pricing flexibility to respond to competition
Incentive regulation to discipline future rate increases
Ad Hoc Telecommunications Users Committee
June 22, 2005
RBOC Special Access RoRs: 2004
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Bell South Qwest SBC Verizon Average
Special Access
ROR
FCC Authorized
RoR
FCC Authorized
ROR
Bell South 81.9%
Qwest 76.8%
SBC 76.2%
Verizon 31.6%
Average 53.7%
Ad Hoc Telecommunications Users Committee
June 22, 2005
Sample Monthly Price for a DS1 Special Access Circuit of
10-miles in Length
SBC
$350
$400
$450
$500
$550
2001 2002 2003 2004
Pricing Flexibility Price Cap
Ad Hoc Telecommunications Users Committee
June 22, 2005
Sample Monthly Price for a DS-1 Special Access Circuit of
10-miles in Length
Verizon - Maryland
$590
$610
$630
$650
$670
$690
$710
$730
$750
$770
$790
2001 2002 2003 2004
Pricing Flexibility ----Price Cap