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CONSENT DECREE
I. Introduction
1. This consent decree is entered into by the
Enforcement Bureau of the Federal Communications Commission
(``Bureau'') and Verizon Communications Inc. (``Verizon''),
terminating an informal Bureau investigation into Verizon's
compliance with the Merger Conditions imposed by the
Commission in Application of GTE Corp., Transferor, and Bell
Atlantic Corp., Transferee, for Consent to Transfer Control
of Domestic and International Sections 214 and 310
Authorizations and Application to Transfer Control of a
Submarine Cable Landing License, 15 FCC Rcd 14032 (2000)
(``BA/GTE Merger Order'').
II. Background
2. On June 16, 2000, the Commission approved, subject
to explicit conditions, the transfer of licenses and lines
from GTE Corporation (``GTE'') to Bell Atlantic Corporation
(``BA'') (collectively, ``Verizon'') in connection with the
merger of the two companies. To offset the potential harms
arising out of the merger, Verizon proposed, and the
Commission adopted, a series of conditions intended to
enhance local competition and to strengthen the incentives
of Verizon to expand competition outside its territories.
Verizon also proposed conditions designed to avoid
violations of section 271 of the Act as a result of the
merger.1 In particular, Verizon proposed, and the
Commission adopted, a condition to spin-off substantially
all of GTE's nationwide data business to a separate public
corporation (i.e., Genuity).
3. Market-Opening Condition V of the BA/GTE Merger
Order requires Verizon to file publicly monthly performance
measurement data under a Carrier-to-Carrier Performance
Assurance Plan (``PAP'').2 The PAP measures Verizon
performance in 17 different categories or metrics, which are
broken down into numerous sub-metrics, and which address
functions that can affect Verizon's local competitors and
their customers. These categories cover key aspects of pre-
ordering, ordering, provisioning, maintenance and repair,
and billing associated with unbundled network elements
(``UNEs''), interconnection, and resold services. Under the
PAP, Verizon shall make voluntary payments to the U.S.
Treasury if Verizon fails to provide a certain level of
performance. Verizon is subject to voluntary payments of up
to $1.164 billion for continued poor performance over three
years.3
4. Market-Opening Condition XIX of the BA/GTE Merger
Order requires Verizon to submit quarterly consumer service
quality reports.4 Market-Opening Condition XIX also
requires Verizon to report special access service quality
data to the Commission and an independent auditor in order
to protect against discrimination in favor of Genuity in the
provision of special access services.5
5. Market-Opening Condition XXII and Genuity
Condition VI of the BA/GTE Merger Order require Verizon to
engage annually an independent auditor to examine Verizon's
compliance with the Merger Conditions. The annual audit
provides a thorough and systematic evaluation of Verizon's
compliance with the Merger Conditions and the sufficiency of
Verizon's internal controls.
6. On June 1, 2001, PricewaterhouseCoopers (``PWC'')
filed an audit report addressing Verizon's compliance with
certain Market-Opening Conditions under the BA/GTE Merger
Order, from June 30, 2000 through December 31, 2000 (``PWC
Audit Report''). The PWC Audit Report indicates that
Verizon failed to submit certain historical performance data
to PWC, which limited the scope of the audit. The PWC Audit
Report indicates that Verizon did not provide the
independent auditor data for 2 of 17 Carrier-to-Carrier
performance measurements and 2 of 5 special access
performance measurements.6 The PWC Audit Report and
Verizon's Assertions accompanying the audit report also
identify performance reporting inaccuracies.7 Verizon
states in its Assertions that its performance reporting
inaccuracies were due to problems with systems development,
long-term systems enhancement, data extraction, data
calculations, report mapping, data posting, and
misapplication of business rules. Errors in performance
reports can affect the amount of Verizon's voluntary
payments for failing to meet performance levels specified in
the PAP. Verizon has disclosed in the 2001 audit, in
reports to the Commission, and in discussions with the
Bureau similar performance reporting inaccuracies that
appear to have occurred during the January 1 through
December 31, 2001 period.
7. Also on June 1, 2001, Verizon filed with the
Commission an audit report by Mitchell & Titus, LLP
(``M&T'') addressing Verizon's compliance with the Genuity
Conditions under the BA/GTE Merger Order, from June 30, 2000
through December 31, 2000 (``M&T Audit Report''). During
the audit, the independent auditor tested agreements between
Verizon and Genuity for compliance with the Genuity
Conditions. Of 157 agreements disclosed to M&T by Verizon
before June 1, 2001, M&T reported that 11 were submitted by
Verizon too late for M&T to test them in time for the June
1, 2001 filing. After June 1, 2001, Verizon disclosed to
M&T that additional agreements between Verizon and Genuity
existed besides the 157 previously disclosed to M&T.
8. The Bureau initiated an Investigation of Verizon's
potential non-compliance with the BA/GTE Merger Order
arising out of the facts disclosed in the PWC and M&T Audit
Reports and continuing through December 2001. In
particular, the Bureau's Investigation focused on Verizon's
compliance with the performance reporting requirements and
the audit requirements.
III. Definitions
9. For the purposes of this Consent Decree the
following definitions shall apply:
(a) ``Commission'' or ``FCC'' means the Federal
Communications Commission.
(b) ``Bureau'' means the Enforcement Bureau of
the Federal Communications Commission.
(c) ``Verizon'' means Verizon Communications Inc.
and any subsidiaries.
(d) ``Parties'' means Verizon and the Bureau.
(e) ``Adopting Order'' means an Order of the
Bureau adopting the terms and conditions of
this Consent Decree.
(f) ``Effective Date'' means the date on which
the Bureau releases the Adopting Order.
(g) ``Investigation'' means the investigation
initiated by the Bureau regarding the matters
discussed in paragraphs 6 - 8 above,
concerning Verizon's conduct during the June
30, 2000 to December 31, 2001 period.
IV. Agreement
10. Verizon agrees that the Bureau has jurisdiction
over the matters contained in this Consent Decree and the
authority to enter into and adopt this Consent Decree.
11. Verizon agrees to implement the Compliance Plan
attached hereto and incorporated by reference, to help
ensure Verizon's future compliance with the Merger
Conditions under the BA/GTE Merger Order.
12. Verizon agrees that it shall make a voluntary
contribution to the United States Treasury in the amount of
$260,000 (two hundred sixty thousand dollars). This amount
shall be paid within 30 days of the date on which the order
adopting this Consent Decree becomes final. Such
contribution shall be made, without further protest or
recourse, by certified check, cashiers check, wire transfer,
or money order drawn to the order of the Federal
Communications Commission, and shall be mailed to the
Forfeiture Collection Section, Finance Branch, Federal
Communications Commission, P.O. Box 73482, Chicago, Illinois
60673-7482, or be submitted by wire transfer according to
instructions provided by the Bureau. Reference should be
made on the check or money order to ``Acct. No.
200232080021.''
13. In express reliance upon the covenants and
representations contained in this Consent Decree, the Bureau
agrees to terminate its Investigation into the matters
discussed in paragraphs 6 - 8 above, without any finding of
liability on the part of Verizon.
14. The Bureau agrees that, based on the facts
developed in this Investigation and in the absence of
material new evidence related to this matter, it will not
use the facts developed in this Investigation through the
Effective Date of the Consent Decree or the existence of
this Consent Decree to institute, on its own motion, any new
proceeding, formal or informal, or take any action on its
own motion against Verizon concerning the matters discussed
in paragraphs 6 - 8 above. The Bureau also agrees that,
based on the facts developed in the Investigation, and in
the absence of material new evidence related to this matter,
it will not use the facts developed in this Investigation
through the Effective Date of this Consent Decree or the
existence of this Consent Decree to institute on its own
motion any proceeding, formal or informal, or take any
action on its own motion against Verizon with respect to its
basic qualifications, including its character
qualifications, to be a Commission licensee or with respect
to compliance with the Commission's rules and policies.
15. Nothing in this Consent Decree shall prevent the
Commission from adjudicating complaints filed pursuant to
section 208 of the Communications Act, as amended, 47 U.S.C.
§ 208, against Verizon or its affiliates for alleged
violations of the BA/GTE Merger Order, or for any other type
of alleged misconduct, regardless of when such misconduct
took place. If any such complaint is made, the Commission's
adjudication of that complaint will be based solely on the
record developed in that proceeding. Nothing in this
Consent Decree shall prevent the Commission from instituting
new investigations or enforcement proceedings against
Verizon pursuant to sections 4(i), 403 and 503 of the
Communications Act in the event of any alleged future
misconduct.
16. In the event that Verizon is found by the
Commission or its delegated authority to have engaged in a
violation of the BA/GTE Merger Order subsequent to the
release of the Adopting Order, the Commission or its
delegated authority reserves the right to consider the
conduct described in paragraphs 6 - 8 above in determining
an appropriate sanction. If such conduct is considered by
the Commission or its delegated authority in determining an
appropriate sanction, Verizon will not be estopped from
litigating the issues of whether such conduct or the facts
involved in such conduct actually violated the Act or the
Commission's rules, the merits of Verizon's conduct, or the
relevance or weight to be given such conduct under section
1.80 of the Commission's rules.
17. Verizon waives any and all rights it may have to
seek administrative or judicial reconsideration, review,
appeal or stay, or to otherwise challenge or contest the
validity of this Consent Decree and the Adopting Order,
provided the Order adopts the Consent Decree without change,
addition, or modification.
18. Verizon waives any rights it may have under any
provision of the Equal Access to Justice Act, 5 U.S.C. §
504.
19. In the event that this Consent Decree is rendered
invalid by any court of competent jurisdiction, this Consent
Decree shall become null and void and may not be used in any
manner in any legal proceeding.
20. If either Party (or the United States on behalf of
the Commission) brings a judicial action to enforce the
terms of the Adopting Order, neither Verizon nor the
Commission shall contest the validity of the Consent Decree
or the Adopting Order, and Verizon and the Commission will
waive any statutory right to a trial de novo with respect to
any matter upon which the Adopting Order is based, and shall
consent to a judgment incorporating the terms of this
Consent Decree.
21. The Bureau and Verizon agree that this Consent
Decree is for settlement purposes only and that it does not
constitute an admission, denial, adjudication on the merits,
or a factual or legal determination regarding any compliance
or noncompliance with the requirements of the BA/GTE Merger
Order.
22. Verizon agrees that any violation of the Consent
Decree or the Adopting Order will constitute a separate
violation of a Commission order, entitling the Commission to
exercise any rights or remedies attendant to the enforcement
of a Commission order.
23. This Consent Decree may be signed in counterparts.
For the Enforcement Bureau For Verizon
Communications Inc.
Federal Communications Commission
________________________________
________________________________
David H. Solomon Jeffrey Ward
Chief Senior Vice President
_______________________________
________________________________
Date Date
COMPLIANCE PLAN OF
VERIZON COMMUNICATIONS, INC.
To better ensure compliance with the Merger Conditions
set forth in the BA/GTE Merger Order, Verizon
Communications, Inc. (``Verizon'') will establish a formal
compliance program, which will consist of the following
remedial actions:
24. Vice Presidential steering committees
Verizon will establish one or more Vice Presidential
steering committees to review the accuracy of performance
and service quality reporting pursuant to Market-Opening
Conditions V and XIX, the retention and submission of
relevant data needed by independent auditors to examine
compliance with Market Opening Conditions V, XIX and XXII
and Genuity Condition VI, and the remedial actions and
process improvements for compliance with such conditions set
forth in this Consent Decree. The primary goals of the
steering committees will be to ensure that there are
reasonable assurances that (1) the performance as measured
and reported by Verizon is equivalent to the performance
that Verizon has actually delivered, and (2) all relevant
information needed to demonstrate compliance with the
Market-Opening Conditions V, XIX and XXII and Genuity
Condition VI during the annual merger audits is retained and
submitted to the independent auditors. The steering
committee will oversee Verizon's process improvements and
remedial actions for improving performance reporting
accuracy and the retention and submission of data. To
accomplish this, the steering committee will oversee the
following principal efforts:
· Examine Verizon's processes for reviewing
reporting accuracy in order to ensure that
Verizon consistently can and does
appropriately capture, process and report
performance information in accordance with
the applicable business rules.
· Conduct analysis of sample metrics data sets
and change controls between data providers
and data reporters to ensure metric accuracy
and business rule compliance.
· Perform independent internal calculations of
performance measures through a dedicated
Verizon Quality Assurance Team that performs
metrics replication independently of data
providers and data reporters to verify metric
calculation accuracy and business rule
compliance.
· Implement the measures set forth in this
Consent Decree regarding the retention and
submission of data to the independent
auditors conducting the annual merger audits
of Market-Opening Conditions V, XIX, XXII and
Genuity Condition VI.
Verizon will implement these activities within 45 days of
the Effective Date of this Consent Decree.
25. Error analysis and prevention process
Verizon will implement a performance metrics error
prevention process that will track and analyze metrics
reporting accuracy for Market-Opening Conditions V and XIX.
Verizon will develop a tracking mechanism that will be used
in error prevention and root cause analysis. Effective with
the implementation of the tracking mechanism, Verizon data
providers and data reporters will be graded for their
ability to deliver data in a timely and accurate manner,
while their errors will be identified and analyzed for error
prevention activities in order to reduce their recurrence.
Vice Presidential-level employees responsible for the
production of this data will have, as material elements in
their performance evaluations, the accuracy, timeliness and
retention of this data, and submission of this data to the
independent auditors. Verizon will implement these
activities within 45 days of the Effective Date of this
Consent Decree.
26. Refresher training
Verizon will provide refresher training to all data
providers and data reporters on proper guidelines for
interpretation of business rules and change control process
for Market-Opening Conditions V and XIX. Verizon will
complete a training package that will be ready for use
within 45 days of this Consent Decree. Verizon will review
metrics business rules and their interpretations, along with
the metrics change control process, with Verizon data
providers and data reporters within 4 months of the
Effective Date of this Consent Decree.
27. Data Retention
Annually, Verizon will communicate to all responsible
executives for each Merger Condition the importance of
retaining relevant information to demonstrate compliance
with the Merger Conditions in the annual merger audits.
Within 30 days of this Consent Decree, Verizon will (1)
retain all data that Verizon used in the calculation of
Market-Opening Conditions V and XIX reports for a period
ending 12 months after the relevant annual audit report is
issued; and (2) issue training materials to data providers
to meet this requirement.
28. Data Warehouse
Verizon will establish a ``data warehouse'' for Market-
Opening Condition V reporting data in Verizon East, and
later incorporate the existing one in Verizon West, that
will store and retain data for calculation of all reports in
a centralized location within 12 months for Verizon East,
and within 18 months for Verizon West, from the Effective
Date of this Consent Decree. The data warehouse will
produce a data reporting architecture for Market-Opening
Condition V that will provide common platforms and
procedures across the Verizon footprint for reporting
metrics. Verizon will provide a progress report on this
remedial action to the Enforcement Bureau every 6 months
from the Effective Date of this Consent Decree until the
data warehouse is completed.
29. Submission of Genuity Transactions
No later than 45 days after the Effective Date of this
Consent Decree, if Verizon has not already done so, Verizon
will reinforce in writing and orally, with Verizon managers
responsible for transactions between Verizon and Genuity
companies, the requirement for timely provision of Genuity
transactions to Verizon's Genuity audit management group in
order to timely submit such transactions to the independent
auditor for the relevant audit period. Reinforcement will
be made in writing in Genuity Condition compliance messages
periodically sent to such managers and in quarterly
compliance reporting process documents. Vice Presidential-
level employees responsible for the submission of these
transactions will have, as a material element in their
performance evaluations, the submission of these
transactions to the independent auditors.
30. Review with the Enforcement Bureau
By December 31, 2002, Verizon will provide to the
Enforcement Bureau a report on the effectiveness of these
remedial actions and the need, if any, for further process
improvements for Market-Opening Conditions V, XIX and XXII
and Genuity Condition VI.
31. Compliance audit
Review of Verizon's compliance with these remedial actions
will be included in the annual audits of Verizon's internal
controls and compliance under Market-Opening Condition XXII.
32. Term of Consent Decree
These remedial actions will expire when the related Merger
Conditions expire in accordance with the terms of the BA/GTE
Merger Order, or subsequent orders by the Commission or its
delegated authority concerning the merger.
_________________________
1 Section 271 of the Communications Act of 1934, as amended
(the ``Act''), 47 U.S.C. § 271, prohibits a Bell operating
company (``BOC''), or its affiliate, from entering the in-
region, interLATA market, unless the BOC demonstrates that
its local market is open to competition in accordance with
the requirements of section 271. BA/GTE Merger Order at ¶
26.
2 BA/GTE Merger Order at Appendix D, ¶¶ 16-17 & Attachment
A.
3 Id. at Appendix D, ¶ 16.
4 The consumer service quality reports must be submitted in
accordance with a Service Quality White Paper, which was
adopted by the National Association of Regulatory Utility
Commissioners (``NARUC''), Technology Policy Subgroup in
November 1998. NARUC's Service Quality White Paper measures
installation and repair performance, switch and transmission
facility outages, consumer complaints, and answer time
performance. This condition was designed to deter service
quality degradation and motivate Verizon to improve service
quality. BA/GTE Merger Order at ¶ 328.
5 Id. at ¶ 330.
6 PWC Audit Report at 1 (``The Company did not maintain
historical transaction data related to Verizon East (South)
Network Performance-1 (Condition V), Verizon East Average
Installation Interval (Condition XIX) and Verizon East
Percentage Commitment Met (Condition XIX) measurements, and
the historical transaction data for the Verizon East
Provisioning-09 (Condition V) measurement was only available
within a timeframe of 45 days. The unavailability of this
historical transaction data prevented us from applying the
procedures we considered necessary in the circumstances to
test these reported measurements.'').
7 May 31, 2001 Report of Management on Compliance with
Merger Conditions (``Assertions'') at Attachment A
(Condition V - Carrier-to-Carrier Performance Plan) &
Attachment C (Condition XIX - Additional Service Quality
Reporting).