II. Background

Verizon California Inc. (Verizon, formerly known as GTE) seeks Commission approval to transfer certain infrastructure, personnel and space to an affiliate, Verizon Advanced Data Inc. (VAD). These assets fall into the category of "advanced services," which provide a means to move packetized data upstream and downstream at speeds of 56 kilobits and above. They include, in Verizon's case, multimegabit data service (SMDS), Frame Relay, asynchronous transfer mode (ATM) service, multi-media data service (MMDS) and transport LAN connection (TLC).

Verizon states it made a commitment to the Federal Communications Commission (FCC) to transfer its advanced services to a structurally separate subsidiary as a condition of obtaining the FCC's approval of the merger of GTE and Bell Atlantic - the merger that resulted in the formation of Verizon. The FCC approved that merger on June 16, 2000, stating that "by requiring the merged entity to provide advanced services² through a separate affiliate, there is less likelihood that it will use its local market power to gain a competitive advantage in the advanced services market."³ The merger closed on June 30, 2000. Verizon filed this application on September 1, 2000.

Verizon seeks to have the assets valued at their net book value or fair market value, whichever is higher. It does not estimate the overall value of the assets to be transferred, but the plant and equipment alone carries an estimated book value of $47,868. This valuation does not include real property, personal computers, office support equipment, or personnel.

Verizon asserts that the transfer must happen quickly pursuant to the FCC's order, although it is not clear from its application what is the deadline for state commission approval. Verizon alternately refers to deadlines of 90 days after merger closing, 180 days of state regulatory approval, 270 days after merger closing, or 30 days after state approval of the asset transfer. Regardless of the deadline, the FCC contemplated and accounted for delays in state commission approvals:

[I]f a state commission fails to provide the necessary approvals within 180 days of the Merger Closing Date, so that Bell Atlantic/GTE's Advanced Service Affiliate is impaired from providing Advanced Services in strict accordance with these Conditions, Bell Atlantic/GTE shall petition the Chief of the Common Carrier Bureau for an extension of the relevant deadline. During the pendency of the waiver request, Bell Atlantic/GTE and its Advanced Service Affiliate shall continue to operate as if the transition period had not expired.⁴

Given the allegations of the Office of Ratepayer Advocates' (ORA's) protest, discussed in Section III below, it may be that this application will require hearings. Assuming that our "deadline" is 180 days from the closing date of the merger, or December 31, 2000, it is clear we will not meet this deadline if we hold hearings on the application. Thus, Verizon should be prepared to avail itself of the FCC waiver procedure set forth above.

² According to the FCC, "'Advanced Services' means intrastate or interstate wireline telecommunications services, such as ADSL, IDSL, xDSL, Frame Relay, and asynchronous transfer mode (ATM) that rely on packetized technology and have the capability of supporting transmissions speeds of at least 56 kilobits per second in both directions." GTE Corp., Transferor, and Bell Atlantic Corp., Transferee, for Consent to Transfer Control, CC Docket No. 98-184, FCC 00-221, Memorandum Opinion and Order (June 16, 2000), Appendix D, "Conditions for Bell Atlantic/GTE Merger," ¶ 2. (We identify the merger order itself as FCC Merger Order, and the merger conditions in Appendix D as FCC Merger Conditions. The Merger Order is available on the FCC's web site at http://www.fcc.gov/Bureaus/Common_Carrier/Orders /2000/ fcc00221.pdf and the Merger Conditions are located at http://www.fcc.gov/Bureaus/ Common_Carrier/Orders/2000/fcc00221b.pdf.)