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Verizon Wants Credit For NorthPoint Investment

The Federal Communications Commission (FCC) is looking for comment on Verizon Communication's desire to get "credit" for its $150 million investment in bankrupt digital subscriber line (DSL) provider NorthPoint Communications.

The Baby Bell filed a request with the regulatory body last week in an attempt to recoup the monetary loss in its investment with regulatory capital in the form of credit towards its merger obligation.

Bob Bishop, Verizon spokesperson, said the $150 million credit is critical for the company to meet its merger conditions, which come due June 2003.

"We made that investment in good faith, with the expectation that it would result in the acquisition of customers outside our operating areas, but like any investment in business you make, there's risks involved," he said. "That investment might not yield the desired outcome. In this case it didn't and we ended up writing off that $150 million."

Verizon was ordered by the FCC to invest $500 million in out-of-region broadband companies as a condition to its merger in 2000. Verizon is the product of two Baby Bells -- Bell Atlantic and GTE, which merged to become the powerhouse telephone company serving most of the East Coast.

The FCC mandated the $500 million investment outside its coverage area (into other Baby Bell territories) to make up for the loss of competition the merger would entail, and the carrier quickly looked for outside companies ripe for acquisition to meet its obligations.

Verizon has met $295 million towards its merger obligations through the $295 million acquisition of OnePoint in December 2000, which was renamed Verizon Avenue. The subsidiary provides DSL access to condominiums and apartments throughout the country, competing with rival Bells BellSouth , SBC Communications and Qwest Communications .

The reason for the FCCs solicitation for comment is the events surrounding the $150 million investment in NorthPoint, which filed for Chapter 7 (liquidation) bankruptcy protection last year.

After making the investment, with plans to acquire the competitive data local exchange carrier (DLEC) and merge with its own DSL service for $800 million, Verizon backed out of the deal over financial concerns, prompting the company to file for bankruptcy.

Currently, NorthPoint is in the middle of a $1 billion lawsuit against Verizon, on charges the carrier only made the investment to bolster short-term share value and was looking for a reason to renege on the merger.