Windstream says Verizon’s XO acquisition will increase ILEC pricing for wholesale Ethernet services

Windstream said Verizon’s acquisition of XO will give the telco and other large ILECs a more favorable position in the Ethernet market, resulting in higher prices for wholesale customers.

While Windstream is increasingly expanding its own fiber networks to serve business customers, the service provider said in an FCC filing it still has to rent last mile facilities from ILECs like Verizon and AT&T to satisfy the needs of its business customer base, particularly in areas where it can’t make a business case to build out its own network facilities.

“The loss of an independent XO would increase ILEC dominance not only in Verizon’s territory, but also where XO currently provides a competitive alternative to AT&T,” Windstream said. “As the nation’s two largest ILECs and wireless carriers, AT&T and Verizon stand to benefit from engaging in coordinated behavior to limit competition for business data services in each carrier’s region."

Windstream said that it is fearful that it and other competitive providers will have to pay higher prices for wholesale Ethernet services after Verizon completes its purchase of XO.

“Without conditions requiring Verizon to continue to make XO’s best prices available, Windstream and other competitive providers will face a significant price increase following the acquisition,” Windstream said in the FCC filing. “XO’s wholesale rates are generally substantially lower than ILECs’, as well as cable and many CLECS’, rates for comparable services. Windstream currently purchases inputs from XO in many cases on a month-to-month basis, which means that Verizon could increase the rates on short notice as soon as the transaction closes.”

In tandem with potentially raising service prices, Windstream argued that Verizon would be able to increase its Ethernet special construction charges, something that XO does not impose today when it orders service.

“XO does not impose upfront special construction charges on Windstream, though it does pass through to Windstream special construction charges imposed by Verizon when Verizon is the underlying facilities owner,” Windstream said. “The Commission should take a stand against Verizon’s unnecessary and excessive special construction charges by, at a minimum, making clear that Verizon may impose special construction charges only when both of the following conditions are met: (1) existing facilities, even with routine maintenance and conditioning, do not have capacity available at or above the level requested by the CLEC and (2) the special construction charges do not address the costs of network delivery infrastructure that Verizon will use for its own operations.”

For its part, Verizon has maintained that the XO deal will not hinder competition for Windstream or other CLECs. The telco said that the pending XO acquisition will enhance the services it provides to enterprise and wholesale customers.

In a previous FCC filing, Verizon said that it "will honor existing contractual obligations to XO Communications' customers after closing."