December 15, 2001
By JAYSON BLAIR

Verizon Communications, New York's local phone carrier, has begun a lobbying effort in the wake of the terrorist attack on Sept. 11 that would give the company a competitive advantage, and its rivals are criticizing it for trying to profit from the disaster.

Since Sept. 11, Verizon executives and lobbyists have argued in Albany that the rates competitors pay to lease space on its networks should be increased to pay for new security and backup systems necessary in light of the attack.

In Washington, Verizon lobbyists have asked federal regulators to make it more difficult for competitors to lease space on its network, arguing that its success in restoring phone service in Lower Manhattan proves that only a big company could handle maintenance, recovery and security in the wake of such a disaster.

The trade center collapse knocked out nearly 300,000 telephone lines and damaged a central office that ran much of Verizon's network in Lower Manhattan, one of the most congested telecommunications hubs in the world. Verizon has been praised by many for its efforts to quickly restore phone service after the attack. But the company has also been criticized for not restoring service to some customers, particularly in Chinatown and other parts of Lower Manhattan, where Verizon says about 10,000 of its lines still do not work.

"Think about what happened at ground zero and ask yourself who else could do what we did," Ivan Seidenberg, the co-chief executive of Verizon, said during a speech at the National Press Club in Washington last week.

Mr. Seidenberg and other Verizon executives have advocated ending the practice of encouraging smaller competitors to lease lines on its local telephone networks and then resell them to consumers. Verizon has long argued that this competitive business model was flawed.

The new twist is that Verizon's leaders and advocates have been arguing since Sept. 11 that all competitors should eventually be forced to build their own networks, in part because of the security and logistical challenges that became clear after the attack and during the recovery efforts.

"Verizon has really kicked up its public policy and lobbying presence since Sept. 11," said Michael Morrissey, vice president for law and government affairs at AT&T. "They did a good P.R. job in terms of the recovery efforts; frankly, they did a good job with recovery, although others did just as well."

But he added, "It comes as no surprise that their kind of solution is that if you want to take care of the problems of Sept. 11 and wipe out the threat of terrorism, `wipe out my competitors.' "

Verizon, an offspring of the old Bell network formed when Bell Atlantic and GTE merged last year, operates more than 128.5 million phone lines in 31 states and the District of Columbia. The company is New York's main local telephone company.

Mr. Seidenberg said that he would welcome competition from companies with the same scale as Verizon, but that smaller ones that lease lines on a local carrier's network would not be able to ensure security, build backup systems and pull off a recovery of the scale of what was needed after Sept. 11.

Verizon has made no public estimate of the total cost of the disaster. But company officials have told Wall Street analysts that they believe most of the cost will be covered by insurance.

In a speech last month at the Chief Executive Club in Boston, Chuck Lee, Verizon's chairman and other co-chief executive, made remarks similar to Mr. Seidenberg's. "For all the focus on the viability of small niche competitors in the communications industry, this was one instance where, when push came to shove, scale mattered," Mr. Lee said of the recovery efforts.

The Telecommunications Act of 1996 allowed local carriers to enter the long distance business as they allowed other companies to compete with them in the local arena. The equation has turned out better for the local carriers, the Baby Bells, which have been able to make significant inroads into long distance service as other competitors have had a hard time piercing into their local customer base.

The telecommunications act forces Verizon to sell access to its network to competitors at a price that is capped by the New York State Public Service Commission. Verizon officials have long said those prices are too low, and they have repeated that with increasing insistency since Sept. 11.

All of Verizon's local competitors contend that they are not profitable in New York.

In response to a question from the Public Service Commission about the impact of the terrorist attacks, Verizon's regulatory counsel, Joseph A. Post, wrote a letter on Oct. 9 asking that the commission take into consideration the extra security costs when it reviews the amount that Verizon could charge for leasing the lines.

He also said that the small competitors that lease lines "did not and could not contribute in a meaningful way to the restoration of vital telecommunications services in Manhattan."

The Verizon lobbying efforts led three industry groups that are financed by Verizon's small competitors — the Competitive Telecommunications Association, the Association of Communications Enterprises and the Association for Local Telecommunications — to sharply rebuke the company in a letter to the Federal Communications Commission.

"Verizon's management is attempting to gain commercial advantage from these sad events," the letter read. "Verizon is attempting to use this tragedy to gain nothing less than a de facto repeal of the Federal Telecommunications Act of 1996, and a return to an integrated monopoly."

The letter went on to say, "The scale and scope of the Verizon network is the cumulative byproduct of nearly 100 years of monopoly service and government protection. The core vision of the Federal Telecommunications Act of 1996 — that these inherited scale and scope economies are to be shared with competitors — is as important today, in the wake of Sept. 11, as it was on the day the act was passed."

Verizon executives and lobbyists have said that there are concerns about security when it comes to allowing technicians from competitors into its offices. More important, the Verizon officials have said that the size of their company allowed them to pull in resources from all over the region for repair efforts, and that the size of Verizon's network allowed them to more easily reroute service.