TodayVerizon, MCI merger OK rejected
A state appeals court reversed the decision, which may affect rates.
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Article RatingHARRISBURG (AP) — A state appeals court on Tuesday reversed Pennsylvania’s approval of a 2005 merger between telephone giants Verizon and MCI, saying state regulators failed to protect ratepayers.
In a 30-page ruling, the Commonwealth Court said the state Public Utility Commission did not study the anticompetitive effects of the merger and fell short of a legal duty to ensure that the merger would benefit customers.
“We find that there was no evidence that the merger of Verizon and MCI in Pennsylvania would affirmatively promote the service, accommodation, convenience or safety of the public in some substantial way,” Judge Dan Pellegrini wrote.
The court sent the matter back to the utility commission to either reject the merger or impose conditions.
Verizon Communications Inc., Pennsylvania’s largest telephone company with about 6 million lines, and MCI Inc. applied for state approval of their merger in March 2005. The merger was completed in January 2006.
Possible effects
The plaintiff, state utility consumer advocate Irwin A. Popowsky, said the decision means that Verizon may have to guarantee savings or improved services for its customers in Pennsylvania, or somehow do business separately from MCI in the state.
“It’s not that it has to be good only for the utilities involved or their shareholders and profits. It has to be good for consumers as well,” Popowsky said.
A utility commission spokeswoman said the agency would not comment because it was still reviewing the decision and deciding whether to appeal to the state Supreme Court.
In a statement, the president of Verizon Pennsylvania, William B. Petersen, insisted that the merger was in the public interest, and he said any suggestion to the contrary was “flat-out wrong.”
“This merger has enabled Verizon to increase investment and serve customers better in a hotly competitive industry where technology has permanently changed the way people communicate, in Pennsylvania and across the country,” Petersen said. “That is clearly in the public interest. We think the PUC got it right, and we strongly disagree with today’s ruling.”
Federal decision still under review
A U.S. district judge continues to review federal approval of the merger, as required by Congress.
When the companies applied to the utility commission for approval, numerous parties intervened, including Popowsky and state Sen. Mary Jo White, R-Venango.
They asked, among other things, that Verizon be required to step up its deployment of high-speed Internet service and cap the cost of its basic telephone service for five years.
The utility commission voted 4-1 in January 2006 to approve the merger without any conditions. Instead, commissioners pointed to conditions required by federal regulators, such as a commitment to a two-year freeze of state-approved rates that Verizon can charge competitors leasing parts of its network.
Pellegrini, however, cited the objection by the dissenting commissioner, James H. Cawley, who said the federal settlement was independent of a state’s authority to impose conditions.
And Pellegrini reviewed the utility commission’s rationale for approving the merger, disputing the contention that gaining access to MCI’s Internet network would enable Verizon to offer “multimedia communications services and applications.”
“While that benefit may sound like it is offering something, after parsing it out, it promises nothing,” Pellegrini wrote. “Nowhere in (Verizon’s and MCI’s) application do they explain what ‘multimedia services’ will be offered, make a commitment to offer those services, or state that those services would not be offered in absence of the merger.”
Pellegrini also said ratepayers would not benefit from the hundreds of millions of dollars in savings expected from combining the operations of the two companies, because Pennsylvania sets rates according to inflation, not cost.
The $7.5 billion Verizon-MCI deal was one of two major telecommunications mergers in the last two years that largely ended the two-decade separation between local and long-distance companies prompted by the breakup of the national Bell monopoly in 1984.
