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VERIZON NORTHWEST INC

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					                                    BEFORE THE

      WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION




                                            )
In the Matter of the Petition of            )
                                            )    DOCKET NO.
VERIZON NORTHWEST INC.                      )
                                            )    PETITION OF VERIZON NORTHWEST
For Competitive Classification of Directory )    INC.
Assistance Services                         )
                                            )
                                            )
                                            )




                                   APPENDIX C


                               Market Analysis
                                     APPENDIX C

This appendix provides the following information required by the Commission's

rules and contemplated by the competitive service classification statute:


        A description of the ease of entry into the market [WAC 480-121-
        062(4)(f)];

        A statement of whether Verizon Northwest Inc. (Verizon) has a significant
        captive customer base and the basis for its contention that it does not
        [WAC 480-121-062(4)(g)]; and

        The ability of alternative providers to make functionally equivalent or
        substitute services readily available at competitive rates, terms and
        conditions [RCW 80.36.330(1)(c)].

It also combines this information with the information in Appendix A (list of other

directory assistance providers) and Appendix B (market share estimates) and

other information to fully address the factors set forth in RCW 80.36.330 and

demonstrate that Verizon's directory assistance services are subject to effective

competition in its filed exchanges, as well as the rest of the state.


Alternative Providers Offer Functionally Equivalent and Substitute Services
at Competitive Rates, Terms and Conditions

There are many substitutes for Verizon’s DA service that are ubiquitously

available and well known to consumers.                   The Commission has already

determined that directory assistance is a competitive service in Washington. It

made this finding in a Qwest proceeding,1 and it states the fact on its own web

site.    The Commission includes directory assistance on its “Competitive


1
    Order Granting U S West Communications’ Petition for Competitive Classification of its DA
    Services, Docket UT-990259, April 28, 1999, p. 4.

VERIZON PETITION                               1
Appendix C
Telephone Services” web page.2 The Commission also has a “Consumer Guide

Fact Sheet” for Directory Assistance, which states that “this service can be

provided by your local phone company, your long-distance carrier, and many

other independent providers.”         The Fact Sheet also explains that telephone

numbers can be obtained for free from many Internet Sources, and it lists several

of them.3     In addition, the Commission included an article in its Fall 2001

consumer newsletter regarding the different DA alternatives available to

Washington consumers.4



First, DA is available to all customers from their interexchange carrier (“IXC”).

Traditionally, consumers obtained long distance telephone numbers by dialing

1+NPA (area code)+555-1212. Outside of one’s “home” NPA, these DA calls are

routed to the customer’s presubscribed IXC (e.g., AT&T, MCI WorldCom, Sprint,

etc.). This mode of obtaining long distance telephone numbers is still available

and is a viable alternative to Verizon’s DA service.



Second, IXCs have introduced and heavily promoted their own DA services, such

as AT&T’s “00 Info” service and MCI WorldCom’s “10-10-9000” service. These

IXC services are substitutes for Verizon’s DA. They are available to customers

that are presubscribed to the IXC by dialing “00” and to all customers through



2
    A copy of this web page is provided in Appendix C.1. See the third paragraph.
3
    A copy of this web page is provided in Appendix C.2.
4
    A copy of the fall 2001 consumer newsletter, UTC News and Views, is provided in Appendix
    C.3. See pages 4 and 5.

VERIZON PETITION                              2
Appendix C
various “dial around” codes (e.g., AT&T’s 10-10-ATT-00 or 1-800-CALL-ATT,

MCI WorldCom’s 10-10-9000, 10-10-345, 10-10-321, 10-10-220, etc.).



For example, if a Verizon customer dials 00, he will typically reach AT&T’s DA

service.    If AT&T is not the Verizon customer’s long distance carrier, the

customer will reach the DA service of his long distance carrier, if that particular

carrier offers 00 as a DA option. If a Verizon customer dials 10-10-288-00 or 1-

800-CALL-ATT, he will reach AT&T’s DA, no matter who provides his long

distance service.      If a Verizon customer dials 10-10-9000, he will reach

Worldcom’s DA, no matter who provides his long distance service. If a Verizon

customer uses a dial-around access codes, such as 10-10-345, 10-10-321 or 10-

10-220 followed by “1-NPA-555-1212”, he will reach other DA providers of DA

service, no matter who provides his long distance service.



Third, consumers can turn to wireless directory assistance. Wireless carriers’ DA

services use the same dialing pattern as Verizon’s and add the convenience of

mobile access.       According to the Cellular Telecommunications & Internet

Association (“CTIA”), there are over 120 million wireless subscribers in the

United States today.5 As of December 2000, there were over 2.3 million wireless

subscribers in Washington – an increase of 22% from the previous year.6 As of

that date, there were as many wireless subscribers in Washington as there were

5
    Wireless subscribership information was found at the CTIA’s website http://www.wow-
    com.com/.
6
    FCC, Local Telephone Competition: Status as of December 31, 2000, May 2001 (Table 9).

VERIZON PETITION                             3
Appendix C
households (2.3 million), and 39% of the entire Washington population (5.9

million) subscribed to wireless service.7 The nationwide average number of DA

listings accessed per wireless subscriber is 6.6385.8              Applying this factor to

Washington wireless subscribers, the 2001 volume of wireless DA calls is

estimated to be 18.6 million, of which 4.6 million is estimated to occur in

Verizon’s serving area.9         Wireless DA is obviously a viable alternative for

Verizon’s wireline DA service.         According to Frost & Sullivan, the volume of

wireless DA service in the U.S. will approach 1 billion calls by 2002.10



Fourth, consumers have a plethora of Internet alternatives from which to obtain

local and nationwide telephone numbers at no charge.                   Internet telephone

directories are provided on virtually all web portals, such as Yahoo!, AOL, Excite,

and Lycos, as well as on numerous websites, such as switchboard.com,

infospace.com, anywho.com and bigfoot.com. These Internet services include

residential listings, business yellow page listings, toll-free numbers, maps, and

even reverse number lookups.                The National Telecommunications and

Information Administration (“NTIA”) found that as of August 2000 60.7% of

households in Washington had computers, that 49.7% of households in




7
     Washington household and population information as of 2000 was found at the U.S. Census
     Bureau’s website, State and County QuickFacts,
     http://quickfacts.census.gov/qfd/states/06000.html.
8
     Frost and Sullivan, Washington Directory Assistance Market, November 2001, footnote 97.
9
     Verizon calculates 24.77% of the state’s population residing in Verizon’s serving area.
10
     Frost & Sullivan, Wireless Directory Assistance Services Market, 2001-2007, #6051-63,
     Figure 6.

VERIZON PETITION                              4
Appendix C
Washington had Internet access, and that these levels are increasing rapidly.11

In fact, the NTIA estimates that there were 116.5 million Americans online at

some location in August 2000, 31.9 million more than there were only 20 months

earlier.12



In addition, wireless web access via telephones and Personal Digital Assistants

(“PDAs”), as well as “always on” wireline broadband access (e.g., DSL and cable

modems) are becoming more common.                    The availability of free telephone

numbers to a large percentage of consumers makes the Internet an important

substitute for Verizon’s DA service.



The demand for Internet directories is significant because they occupy “prime

real estate” on all major web portals.             For instance, on Yahoo! the “People

Search” directory option occupies a prominent position on the screen, as does

the “White Pages” option on AOL’s portal. This indicates that the directory is a

popular option for users, or Yahoo! and AOL would not allocate precious portal

space to it. It also means that users can access a telephone directory very

conveniently. Both of these observations support the common sense notion that

there is significant demand for Internet directories.            Indeed, Frost & Sullivan

estimates that the number of Internet directory website visits will increase from



11
     National Telecommunications and Information Administration, Falling through the Net:
     Toward Digital Inclusion, October 2000, Executive Summary, p. xv and Charts and Tables,
     Table I-A and Table I-B (http://www.ntia.doc.gov/ntiahome/fttn00/charts00.html).
12
     Ibid.

VERIZON PETITION                               5
Appendix C
660 million in 1999 to over 5 billion in 2006, a compounded annual growth rate of

34.2% over the forecast period.13 Frost and Sullivan estimates the volume of

Internet DA searches to be almost 21 million in the state of Washington, of which

5.2 million is estimated to occur in Verizon’s serving area. Thus, Internet DA is

another viable alternative for Verizon’s wireline DA service.



Fifth, companies such as Excell Agent and InfoNXX provide wholesale DA

services. Besides enabling retail DA providers to readily enter the Washington

market, such firms can also provide directory services to large customers. For

instance, the University of Washington contracted with an alternate DA provider.



Finally, telephone numbers are available on CD ROM at reasonable prices from

companies such as PhoneDISC and InfoUSA. For instance, PhoneDISC offers a

CD-ROM with 100 million listings that can be purchased for a $119.95 flat fee or

an annual subscription of $226.00 which includes quarterly updates. InfoUSA

offers a CD ROM with 104 million listings that can be purchased for about $20 at

CompUSA or for an annual subscription of $59.95, which includes quarterly

updates. Office Depot sells a CD-ROM by InfoUSA called Select Phone Pro. It

has 115 million business and residential listings for a price of $99.99. Quarterly

updates are available as well. The CompUSA website offers another InfoUSA

product called 300 Million Mega Listings for $29.99. CD ROM directories have


13
     Frost & Sullivan, Invasion of Internet Directory Assistance Creates New Challenges for
     Telephone Directory Service Providers, #6043-63, Figure 2.

VERIZON PETITION                                6
Appendix C
significant advantages, such as advanced search capabilities and the ability to do

unlimited searches at zero marginal cost. Washington businesses can load CD-

ROMs on their company computers or server and instruct employees and

customers to use the in-house on-line service instead of dialing “411.”



Due to the number and types of alternative providers, the rates, terms and

conditions for DA services will be determined by the market and consumer

choices. Appendix A summarizes data for alternative DA services and compares

them to the current DA rates. It shows that the Local DA, National DA and call

completion marketplace involves a diverse set of differentiated products, which

results in a variation in price from zero to $1.29 per call for Local DA, from zero to

$1.99 per call for National DA, and from zero to $1.25 per call for call completion.



The Size and Growth Capability of Many Alternative DA Providers is
Significant

It is clear from the list in Appendix A that DA competitors include some of the

largest and most capable firms in the world. For instance, wireline and wireless

carriers are represented by AT&T, which ranks ninth in the Fortune 500 with $66

billion in annual revenues, SBC Communications, which ranks 14th with $51

billion in annual revenues; WorldCom, which ranks 32nd with $39 billion in

annual revenues; Sprint, which ranks 75th with $24 billion in annual revenue; and

Qwest, which ranks 120th with $17 billion in annual revenue. In addition, Internet

directories are provided through portals of giant firms such as Microsoft ($23



VERIZON PETITION                          7
Appendix C
billion in annual revenues), AOL Time Warner ($36 billion in annual revenues)

and Yahoo! ($1.1 billion in annual revenues). It is reasonable to expect such

firms to continue to compete with Verizon for the foreseeable future.


Additionally, the growth capability for DA is to a large extent dependent on

smaller but faster growing and more nimble enhanced directory assistance

(“EDA”) providers. These include companies that store and provide the actual

listing information, platform providers that supply the EDA operators, and

outsourcers that offer the EDA services on a wholesale basis to wireline and

wireless carriers. There appears to be significant growth capability within these

providers. According to the Pelorus Group, “[i]n many ways, the EDA service

providers are the drivers and innovators of this industry. They are the companies

developing the services, and the platforms to offer them, that the consumers

want or could use. These companies are expanding the type and amount of

information that will be available to DA operators in the future. They are seeing

the potential for services that wireless carriers, and eventually wireline providers,

can and will offer to better serve customers, build name and brand recognition,

and help retain and possibly gain market share.”14 Indeed, one of these EDA

providers, Metro One Telecommunications, is ranked 21st on Fortune’s list of the

100 Fastest-Growing Companies and also made Business Week’s annual list of

100 Hot Growth Companies. These firms have demonstrated the capability to

innovate and to create growth in service demand for their clients.

14
     The Pelorus Group, Enhanced Directory Assistance: Strategies for the New Directory
     Assistance Landscape, September 2001, p. 90.

VERIZON PETITION                               8
Appendix C
Many Alternative DA Providers Can Readily Expand Production, Freely
Enter & Exit the Relevant Market, and Need Not Own Significant Facilities
to Provide DA Service

As shown above, there are many alternative DA suppliers, such as IXCs,

wireless carriers, Internet portals and websites, and CD ROM producers. This

fact demonstrates the lack of significant barriers to entry in the relevant market.

Indeed, as shown above, these alternative DA suppliers handle the majority of all

DA calls in Verizon’s Washington service territory. Since the capability to provide

DA already exists, expanding supply in this market can be accomplished at a

modest incremental cost. Expanding supply for existing providers can be easily

accomplished by adding servers and trunking, which are relatively inexpensive,

and hiring additional operators. Third-party DA providers such as Excell and

MetroOne provide price breaks as the volume of calls increase. Thus, there are

no impediments to entry and the expansion of supply by market participants.



In addition, a potential DA provider would not need to own significant facilities in

order to provide service. There are extensive operator facilities deployed by DA

competitors that are available on a third-party basis to carriers. For instance,

according to the Pelorus Group, InfoNXX has call centers in more than 20 U.S.

cities, Metro One has call centers in 29 U.S. cities (including Seattle), and Excell

Agent Services also has extensive call center facilities throughout North

America.15      These call centers can process DA calls trunked from virtually

15
     The Pelorus Group, Enhanced Directory Assistance: Strategies for the New Directory
     Assistance Landscape, September 2001, Chapter V.

VERIZON PETITION                               9
Appendix C
anywhere in Washington or the nation. That is, if a potential entrant chooses not

to self-provision, it is not required to own any DA facilities at all. Third-party

providers such as InfoNXX, Metro One, and Excell Agent Services provide high-

quality branded directory assistance service with call completion on a per call

basis. All that would be required would be the necessary transport facilities to

route calls to the DA providers’ facility. These transport facilities are also readily

available for lease at competitive rates from multiple carriers. Thus, there are

virtually no facility ownership or capital investment issues that could serve as a

barrier to entry and exit in this market.



Competitors also have unimpeded access to DA listing information for use in

providing their services. For example, they can choose to use the same listings

that Verizon uses by obtaining them directly from Verizon, or they can choose to

obtain Washington listing information from a variety of other sources, including

Qwest, alternate DA providers, and commercial list compilers. Various sources

used by these providers are listed in Appendix A.


The Quality and Accuracy of Alternative Providers’ DA Listings Should be
Comparable with the DA Listings of Verizon

Since alternative providers can obtain listings from Verizon, the quality and

accuracy of their services should be comparable. All Verizon listings, both from

the former GTE and the former Bell Atlantic companies, are available for license.

Alternative providers that elect to license Washington listings from Verizon are

provided updates on a daily basis.          The update process is initiated the day

VERIZON PETITION                            10
Appendix C
immediately after an initial load of Verizon's DA database and is provided on

magnetic tape to the provider for loading on its database platform.



As an alternative to obtaining listings from Verizon, there are multiple vendors in

the industry, such as VoltDelta Resources (the vendor Verizon uses for non-

Verizon listings), as well as all the Regional Bell Operating Companies, which

provide access to their listings databases and sell compiled listings that are used

in provisioning directory assistance.



FCC and Washington Commission Findings Regarding the Lack of Barriers
to Entry for the Provision of DA Services are Consistent with Verizon’s
Position

In its Third Report and Order in Docket No. 96-98, which was released

November 5, 1999, the FCC found that operator services and directory

assistance need not be unbundled as network elements because there is a

competitive wholesale market in the provision of OS/DA service, as well as

opportunities for self-provisioning. The FCC stated:


       The record provides significant evidence of a wholesale market in
       the provision of OS/DA services and opportunities for self-
       provisioning OS/DA services. Moreover, we do not find that the
       evidence regarding the differences in cost, timeliness, quality,
       interoperability and ubiquity between the incumbent’s OS/DA
       service and alternative OS/DA services, provided either through
       self-provisioning or third-party alternatives, is sufficient to conclude
       that lack of unbundled access to the incumbent’s OS/DA service
       would materially diminish a requesting carrier’s ability to offer the
       services it seeks to provide.        We note that nondiscriminatory
       access to the incumbent’s underlying databases used in the
       provision of OS/DA is required under section 251(b)(3) of the 1996


VERIZON PETITION                         11
Appendix C
        Act. The additional nondiscrimination requirements of section
        251(b)(3), coupled with evidence of multiple alternative providers of
        OS/DA service in the marketplace, provide strong evidence that
        competitors are not impaired without access to the incumbent’s
        OS/DA service as an unbundled network element.

        Accordingly, incumbent LECs need not provide access to its OS/DA
        as an unbundled network element.16


Thus, the FCC’s analysis strongly supports Verizon’s conclusion that there are

no impediments to entry and the expansion of supply in the market for national

DA.



The Washington Commission has also come to similar conclusions with respect

to DA services in Washington. The Commission found the market for Local DA,

National DA, and Call Completion to be competitive for Qwest.17 As discussed

above, the same market conditions apply for Verizon as for Qwest.                         This

supports the conclusion that there is a competitive market for DA service that

ensures ease of entry and expansion for alternative providers.




16
     FCC, Third Report and Order and Further Notice of Proposed Rulemaking in CC Docket No.
     96-98 (FCC 99-238) released November 5, 1999, ¶¶ 441 and 442 (“FCC UNE Remand
     Order”).
17
     Order Granting U S West Communications’ Petition for Competitive Classification of its DA
     Services in Docket UT-990259 dated April 28, 1999; p. 4.

VERIZON PETITION                              12
Appendix C

				
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