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EarthLink: Verizon-XO Deal Would ‘Harm Competition and Consumer Welfare’

Boxing, Conflict

Edward Gately**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in July-August 2016.**

EarthLink has come forward in opposition to Verizon’s pending $1.8 billion purchase of XO Communications’ fiber-optic network business.

In a Sept. 12 letter to the Federal Communications Commission, Thomas Jones, EarthLink’s legal counsel, outlines a number of reasons why the deal would “harm competition and consumer welfare in several important respects.” The FCC is now on day 107 of its 180-day review.

Verizon spokesman Rich Young said “we continue to cooperate with the FCC as they review the transaction and we look forward to a prompt resolution of this proceeding.”

On Sept. 8, EarthLink executives met with representatives of the Wireline Competition Bureau and the Office of General Counsel. During the meeting, EarthLink said XO’s Ethernet-over-copper (EoC) service offers the “most favorable combination of price and service quality of any wholesale Ethernet offering in many circumstances.”{ad}

“In fact, given that many incumbent LECs and competitive LECs only offer Ethernet in the subset of locations where they have deployed fiber connections and the limited reach of other competitive LECs’ EoC offerings, XO’s EoC is the only Ethernet service offered at many locations, both within the Verizon incumbent LEC territory and outside of that territory,” the letter said. “In addition, XO offers DS1 business data services at lower prices and on more favorable non-price terms and conditions than either Verizon or other providers of business data services.”

If Verizon acquires XO, it would have the “incentive and opportunity to cause XO to offer Ethernet and DS1 services at higher prices, at lower service quality, and on less favorable non-price terms and conditions … than it has in the past,” Jones said.

“Verizon’s incentive to engage in this conduct is especially strong in its incumbent LEC region, but its track record as a weak competitor outside of its incumbent LEC territory indicates that it will do this in those geographic areas as well,” he said. “It is also likely that Verizon will eventually discontinue XO’s EoC since Verizon has never provided EoC.”

The EarthLink executives said that, since there is little competition in the provision of business data services, the “harmful effects of the proposed merger would not cause another competitor to take XO’s place as provider of business data services,” Jones said. Instead, EarthLink and other wholesale purchasers would be “forced to pay higher prices, to receive inferior service quality, and to accept less favorable non-price terms and conditions for business data services,” he said.

A commitment by the merging parties to honor XO’s existing contracts would not protect EarthLink from the “harmful consequences” of the proposed merger even in the short run, he said.

Announced in February, the deal would provide Verizon with access to XO’s fiber-based IP and Ethernet networks, “helping to better serve enterprise and wholesale customers,” according to XO. In addition, the acquired fiber facilities will help Verizon continue to densify its cell network.

Separately, Verizon also will lease available XO wireless spectrum, with an option to buy that spectrum by the end of 2018.


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