IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

AT&T CORPORATION *et al*., )

Appellants, )

)

v\. ) Nos. 99-1538

) 99-1540

FEDERAL COMMUNICATIONS COMMISSION, )

[Appellee.]{.underline} )

OPPOSITION OF FCC TO EMERGENCY MOTION FOR STAY

AT&T and Covad Communications Co. have moved for an emergency stay of an
order of the Federal Communications Commission authorizing Bell Atlantic
to provide long distance telephone service to its customers in New
York.[^1] *Application of Bell Atlantic New York*, FCC 99-404 (rel.
December 22, 1999) ("*Order*"). The Commission issued the order pursuant
to §271 of the Communications Act, 47 U.S.C. §271, which directs the
Commission to authorize a Bell Operating Company ("BOC") to provide long
distance service within its area of local operations when that BOC has
opened its local market to competition. The Commission opposes the
motion for stay and respectfully asks the Court to allow competition in
New York to proceed without delay. The Commission does not object to any
reasonable briefing schedule that will permit the Court to resolve this
appeal expeditiously.

This case involves the FCC's first grant of authority to a BOC to
provide long distance service. That is a significant step, and it
fulfills a central premise of Congress's restructuring of the telephone
industry in the Telecommunications Act of 1996. In ruling on the issue,
the Commission took its responsibilities under §271 quite seriously.
Although given only 90 days to act, the agency carefully sorted through
a huge record and closely analyzed dozens of separate issues, the result
of which is a painstakingly detailed 200+ page order. The FCC does not
grant permission under §271 lightly \-- it rejected five prior
applications.

The central premise of the Commission's decision is that Bell Atlantic
has taken the statutorily required steps to open the local telephone
market in New York to competition. *Order* ¶ 1. Bell Atlantic has worked
with the New York regulators for 2½ years to open its market, and as the
result of that work, more than a million telephone lines are now served
by carriers competing with Bell Atlantic, and more customers are
switching every day, making New York the most competitive local market
in the country. The New York Public Service Commission \-- an agency
that has led the country in opening local telephone markets to
competition and is charged with protecting the consumers of New York \--
strongly supported grant of the application. The State authority also
developed and implemented a "Performance Assurance Plan" to monitor Bell
Atlantic's performance in the future and to ensure that the market
remains open to competitors. On that record, the FCC's fundamental
judgment that new entrants now have a fair opportunity to compete is
sound.

The competitive dynamic of the New York market must be considered
carefully in assessing the claims made in support of a stay that would
\-- to AT&T's benefit \-- delay Bell Atlantic's entry into New York's
long distance market. AT&T has recently stepped up its campaign to woo
local telephone customers in New York by offering "one-stop shopping"
for both local and long distance service. S*ee* Wall Street Journal,
Dec. 30, 1999, p. A14. That is a positive development and is consistent
with the objective of the 1996 Act to "ope\[n\] all telecommunications
markets to competition."[^2] But entry by Bell Atlantic into long
distance service once it has opened its local market to competitors such
as AT&T also fulfills one of Congress's objectives. Indeed, the link
Congress created in §271 between a BOC's opening its local market and
receiving authorization for entry into long distance undoubtedly was a
large part of the incentive for Bell Atlantic to take the steps it has
taken in New York. Delaying Bell Atlantic's long distance entry while
AT&T and other competitors actively mine the now-open local market would
break that link, would be unfair to Bell Atlantic, and above all would
deny New York consumers the full benefits of competition promised in the
1996 Act.

# BACKGROUND

###  A. The 1996 Telecommunications Act

Under a 1984 antitrust consent decree \-- the "MFJ" \-- that broke up
the once-unified Bell System,[^3] AT&T continued to provide long
distance service in a market already open to competition, and the
divested BOCs provided local service, typically on a monopoly basis
pursuant to State law. The MFJ banned the BOCs from providing long
distance service, at least until they lost their monopoly in the local
market.[^4]

In the Telecommunications Act of 1996,[^5] Congress dramatically changed
the structure and the regulation of the nation's telephone industry.
Congress sought to "ope\[n\] all telecommunications markets to
competition" under "a pro-competitive, deregulatory national policy
framework."[^6] Two principal, interrelated goals of this initiative
were to open local telephone markets to competition for the first time
and, by releasing the BOCs from the long distance service restriction,
to enhance the competition that already had developed in long distance
service. In pursuit of those goals, the 1996 Act superseded the MFJ and
preempted State grants of monopoly local exchange franchises.[^7]
Congress thus ushered in a new regime of competition in local markets.
Congress required all incumbent local exchange carriers, including the
BOCs, to allow new entrants to use their facilities to offer competitive
local service.[^8] To provide an incentive for the BOCs and to add a
significant measure of new competition in long distance service,
Congress promised the BOCs that they would be allowed to enter the long
distance market in states where they had local franchises if they
satisfied a checklist of obligations designed to permit an adequate
level of competition in the local market. That promise was contained in
47 U.S.C. §271.

**B. Section 271 Authorization**

Section 271 "both gives the BOCs an opportunity to enter the
long-distance market and conditions that opportunity on the BOCs' own
actions in opening up their local markets." *U S WEST Communications,
Inc. v. FCC*, 177 F.3d 1057, 1060 (D.C. Cir. 1999). Pursuant to §271, a
BOC must apply to the FCC for authorization to provide long distance
service originating in any State where the BOC provides local service.
47 U.S.C. §271(b)(1). Before the FCC can authorize a BOC to provide long
distance service in a particular in-region State, the Commission must
find that the BOC has satisfied several statutory prerequisites. 47
U.S.C. §271(d)(3).

First, as it is relevant here, the BOC must demonstrate to the FCC that
it is providing or offering to provide network access and
interconnection to competing providers of local service. 47 U.S.C. §
271(c)(1); *see SBC Communications Inc. v. FCC*, 138 F.3d 410 (D.C. Cir.
1998). Second, the BOC must establish that it has fully implemented the
fourteen requirements of a statutory "competitive checklist." 47 U.S.C.
§271(c)(2)(B).[^9] Third, the BOC must show that it will provide long
distance services in accordance with the separate affiliate and
nondiscrimination requirements of §272. 47 U.S.C. §271(d)(3)(B).
Finally, the BOC must persuade the FCC that "the requested authorization
is consistent with the public interest, convenience, and necessity." 47
U.S.C. §271(d)(3)(C). AT&T's motion is confined to issues concerning
compliance with the checklist.

# C. The FCC's Approval Of Bell Atlantic's Application 

For more than two years, Bell Atlantic, the New York Public Service
Commission ("NYPSC"), and competitive carriers (including AT&T) worked
closely together in the State commission's effort to open New York's
local exchange market to competition. *Order* ¶¶ 8-12, 21-22. That
process entailed, in part, the NYPSC's retaining the consulting firm
KPMG and the computer company Hewlett-Packard to develop and test the
technical systems that are necessary for the competitive provision of
local service. *Order* ¶ 10. KPMG posed as a "pseudo local exchange
carrier" to evaluate the adequacy of the various systems pursuant to a
comprehensive testing plan. This "rigorous, comprehensive third party
testing," supervised every step of the way by the NYPSC, identified and
addressed various problems, and KPMG ultimately found that commercial
entry was viable. *Ibid.* At the same time, the NYPSC developed and
applied its own measures of performance testing, resulting in "data that
accurately measur\[e\] Bell Atlantic's actual performance." *Id*. ¶ 11.
With the framework for competition in place under the auspices of the
State regulator, a "thriving market for the provision of local exchange
and exchange access has developed in New York." *Order* ¶¶ 13-14. On
September 29, 1999, Bell Atlantic filed with the FCC its application for
long distance authorization.

Numerous parties filed comments supporting and opposing Bell Atlantic's
application. Two are worth specific mention. The NYPSC, supported by 220
pages of comments and reams of data generated in its 2½ year study of
the issues, concluded that "Bell Atlantic-NY is meeting its legal
obligations" under the checklist. NYPSC Comments at 1. The Department of
Justice criticized certain aspects of Bell Atlantic's performance, but
found ultimately that the company had made "great progress in opening
the \[local\] market to competition." DOJ Evaluation at 2. DOJ expressly
"le\[ft\] for the Commission's judgment" whether Bell Atlantic had
complied with the checklist. *Id*. at 13 n.25. DOJ advised the
Commission not to allow entry by Bell Atlantic until certain problems
regarding access to network elements had been solved. DOJ acknowledged,
however, that "information from Reply Comments and *ex parte*
submissions will provide additional support for Bell Atlantic's claims
and \[may\] justify a conclusion by the Commission different from that
reached by the Department on the basis of the current record." *Id*. at
41.

On December 22, 1999, within the 90-day statutory deadline for action on
applications, the FCC granted Bell Atlantic authorization. The
Commission found that Bell Atlantic had satisfied §271(c)(1)(A) by
implementing interconnection agreements with competing carriers in New
York. *Order* ¶ 62. The Commission also determined that Bell Atlantic
had fully implemented the competitive checklist. *Order* ¶¶ 63-400. In
addition, the Commission found that Bell Atlantic had demonstrated that
it would provide long distance service in compliance with the separation
and nondiscrimination requirements of §272. *Order* ¶¶ 401-421. Finally,
the FCC concluded that approval of Bell Atlantic's application would
serve the public interest by promoting competition in both the local
exchange and long distance markets in New York. *Order* ¶¶ 422-445.

# ARGUMENT

To obtain the extraordinary remedy of a stay, AT&T must demonstrate
that: (1) it will likely prevail on the merits; (2) it will suffer
irreparable harm if a stay is not granted; (3) other interested parties
will not be harmed if a stay is granted; and (4) grant of a stay will
further the public interest. *Washington Metropolitan Area Transit
Commission v. Holiday Tours, Inc.*, 559 F.2d 841, 843 (D.C. Cir. 1977).
AT&T has failed to satisfy any of those requirements.

**I. AT&T And Covad Are Not Likely To Prevail On The Merits.**

AT&T raises three fact-bound issues on which it claims it will prevail.
The standard of review for such claims is whether the agency has
articulated a "rational connection between the facts found and the
choices made." *Burlington Truck Lines v. United States*, 371 U.S. 156,
168 (1962). In no event may the Court "substitute its judgment for that
of the agency." *Motor Vehicle Mfrs. Ass'n v. State Farm Automobile Ins.
Co.*, 463 U.S. 29, 43 (1983).

Covad in particular has no chance of success, for it lacks standing.
Covad acknowledges that it does not provide long distance telephone
service. *See* Markley Affidavit at 1, App. B to Motion. Covad therefore
will suffer no harm from Bell Atlantic's entry into the long distance
market. It thus fails the primary element of the test for standing.
*Lujan v. Defenders of Wildlife*, 504 U.S. 555, 560-61 (1992). Covad
claims (Motion at 19) that allowing Bell Atlantic into long distance
will "remove Bell Atlantic's incentive" to provide sufficient data
circuits, but that claim is insufficient to support standing. *Lujan*,
*supra*. Although the Commission agrees that the opportunity to enter
the long distance market provided an important incentive to Bell
Atlantic to open its local market to competition, it now has the
incentive to maintain its performance in order to avoid being penalized
pursuant to §271(d)(6). The NYPSC's performance assessment plan provides
additional incentive. If Bell Atlantic fails to provide sufficient data
circuits, Covad may pursue remedies at either the state or federal
level. But in the absence of a concrete injury that arises from Bell
Atlantic's §271 authorization, Covad lacks standing to challenge the
grant of that authorization.

**1. Digital Subscriber Line ("DSL") Loops.**

A "loop" is the wire that connects a customer's home or business to the
local switch; a "DSL loop" (also called an "xDSL loop") is an ordinary
loop that has been "conditioned" to carry data at high speeds, such as
for internet access. Item 4 of the competitive checklist requires a BOC
to provide access to "\[l\]ocal loop transmission from the central
office to the customer's premises, unbundled from local switching or
other services." 47 U.S.C. §271(c)(2)(B)(iv). AT&T and Covad argue that
Bell Atlantic does not provide adequate access to DSL loops.

The Commission acted reasonably with respect to DSL loops. To determine
whether a BOC satisfies checklist item 4, the FCC assesses whether the
BOC provides loops "in substantially the same time and manner as it does
to its retail customers." *Order* ¶ 279. The Commission, in the
circumstances of this case, made its assessment on the basis of Bell
Atlantic's "performance data for *all* of the various loop\[s\] . . . in
order to obtain a *comprehensive* picture of whether Bell Atlantic is
providing unbundled loops in accordance with the requirements of
checklist item 4." *Order* ¶ 278 (emphasis added). The analysis did not
focus on "any single type of loop." *Ibid*. Applying that test, the
Commission found that Bell Atlantic satisfied item 4 the of checklist.
The evidence showed that the BOC "provides unbundled local loop
transmission . . . in a nondiscriminatory manner." *Order* ¶ 273. In
particular, through September 1999, Bell Atlantic had provided 200,000
loops to competing providers and had shown its ability to "easily meet
the current commercial demand for unbundled local loops." *Id*. ¶ 277.
Thus, competitors had a meaningful opportunity to enter the market.

AT&T's principal contention on this point is that the Commission was
required to analyze DSL loops *separately*. As AT&T points out, the
Commission announced that, in assessing *future* §271 applications, it
will separately consider the applicant's provision of DSL loops under
checklist item 4. *Order* ¶ 330. Given the growing demand for DSL
services by competitors and their customers, examining those loops
separately in the future makes sense. Applicants for §271 authority \--
including Bell Atlantic in applications for states other than New York
\-- are now on notice that they must make a separate showing with
respect to DSL loops. But the Commission's future intentions did not, as
AT&T suggests (Motion at 6), require separate analysis of DSL loops in
this case.

The statute itself does not address whether providing loops should be
analyzed on an aggregate basis or whether DSL loops should be evaluated
separately from other loops. [^10] Because Congress did not address the
precise issue presented, the Commission has discretion in applying the
statute. *Chevron v. NRDC*, 467 U.S. 837, 843 (1984). Because the
telecommunications market is extremely dynamic, it was wise of Congress
to give the Commission that discretion, which it exercised properly in
this case by examining loops in the aggregate while announcing that, in
the future, it would examine DSL loops separately.

The Commission decided to evaluate loop provision in this case on an
aggregate basis because Bell Atlantic's application had presented
"unique factual circumstances" with respect to DSL. *Order* ¶ 322.
Demand for DSL loops had arisen only recently and had surged
unexpectedly. As late as June 1999, Bell Atlantic had filled only 7
requests for DSL loops; that number rose to 56 in July, 449 in August
and 653 in September. *Order* ¶ 320. Furthermore, the issue had not
arisen in any of the 5 previous §271 applications. *Order* ¶ 316. Most
importantly, as of the date of filing, DSL loops constituted a small
portion of Bell Atlantic's overall provision of loops, about 1100 out of
200,000. *Id*. ¶ 277.[^11]

The Commission found that those circumstances \-- a sudden and
unexpected demand for a previously unsupplied kind of loop \-- did not
justify holding Bell Atlantic to a previously unannounced standard;
doing so, in the words of Commissioner Ness, "would be unfair." Sep.
Statement of Comm'r Susan Ness at 2. That is particularly so where the
newly requested loop was a decidedly minor part of the overall demand
for loops and where there was no reason to believe that any initial
shortcomings would not be corrected. There was thus a rational
connection between the facts found and the choice made.

AT&T spends a large part of its argument (Motion at 7-9) attempting to
refute the factual bases for the FCC's finding that the circumstances
here were unique. It disputes the finding that no prior §271 orders
considered DSL loops separately, but it fails to cite a single prior
§271 order that did so. It disputes that the DSL issue arose recently,
but the record shows that competitors first raised the issue in the
context of Bell Atlantic's §271 application before the NYPSC in July
1999. NYPSC Evaluation at 92. The number of DSL lines provided by Bell
Atlantic \-- only 7 in June and 56 in July 1999 \-- also shows the
issue's recency. The Commission's determination of DSL's proportion of
total loop provision was also solidly based in the record. *Order* ¶
277. At most, AT&T can show divergent data in the record. When faced
with such a mixed record, "the court must not second-guess the
particular way the agency chooses to weigh the conflicting evidence or
resolve the dispute." *United Steelworkers v. Marshall*, 647 F.2d 1189,
1263 (D.C. Cir. 1980); *accord* *Indiana Municipal Power Agcy. v. FERC*,
56 F.3d 247, 254 (D.C. Cir. 1995).

AT&T also claims that the Commission improperly gave insufficient weight
to the Justice Department's view on Bell Atlantic's DSL performance.
Motion at 8. That is wrong on several grounds. First, DOJ did not
recommend that the FCC deny Bell Atlantic's application. Although it
criticized Bell Atlantic's performance in some areas, including
providing DSL loops, its ultimate conclusion was to "leave for the
Commission's judgment" whether to approve the application. DOJ Comments
at 13 n.25. Second, the Commission obviously considered carefully and
gave substantial weight to DOJ's analysis. It discussed DOJ's views and
explained the few instances in which it differed with DOJ's assessment.
*Order* ¶ 328. That is all that the statutory directive of "substantial
weight" requires. 47 U.S.C. §271(d)(2)(a). Moreover, the NYPSC, with
which the FCC is also required by §271(d)(2)(B) to consult, argued
strongly in favor of a grant.

Finally, AT&T asserts that it was "patently arbitrary" for the FCC to
rely on Bell Atlantic's commitment to provide DSL loops through a
separate subsidiary. Motion at 10. In fact, the *Order* expressly states
that the Commission did not rely on Bell Atlantic's promise (contained
in an *ex parte* filing) as a basis for the decision. *Order* ¶ 40. The
agency found some "assurance" in Bell Atlantic's commitment, but the
discussion of the separate subsidiary issue is in the context of
suggesting that *future* applicants may choose to show
non-discrimination by creating a similar structure. That the agency's
Chairman stated at a press conference that he found it to be a critical
factor is of no moment. "Agency opinions, like judicial opinions, speak
for themselves." *Checkosky v. SEC*, 23 F.3d 452, 489 (D.C. Cir. 1994).
Statements made by agency members outside of formal, published orders
cannot be used to impeach the agency's formal written findings. *PLMRS
Narrowband Corp. v. FCC*, 182 F.2d 995, 1001 (D.C. Cir. 1999).

The communications industry exists in a constant state of change, and
the regulatory process must be sufficiently flexible to accommodate that
change in a realistic manner. As Commissioner Powell put it, "the
section 271 snapshot inevitably will catch glimpses of uses of the
incumbent's network that have not fully developed." Sep. Statement of
Comm'r Michael Powell at 2; *see id*. at 3 ("there may *never* be a time
in which there are no outstanding issues for the applicant to address").
AT&T's preferred framework on the other hand \-- perfect competition in
every service, no matter how small or recent \-- would virtually ensure
that the Commission never will be in a position to approve a BOC's
application to provide long distance service. That outcome would favor
AT&T's own economic interests, but it is not the arrangement Congress
envisioned. In the circumstances of Bell Atlantic's application, the
Commission acted reasonably.[^12]

**2. Hot Cuts**

AT&T raises three complaints concerning Bell Atlantic's performance in
providing "hot cuts," the physical transfer of a customer's line from
Bell Atlantic's switch to a competitor's. Because the line must be
disconnected during the transfer, an error in the hot cut process can
cause a temporary loss of telephone service.

a\. AT&T claims that the record showed that 4.5% of lines transferred to
AT&T by a hot cut resulted in service outages. It claims that the agency
failed to explain its decision to approve in the face of that record.
Motion at 12. In fact, the Commission explained its action quite
carefully, and the decision was reasonable.

Other evidence in the record showed that, collectively, competing
carriers receiving a hot cut line reported subsequent problems with the
line only in 0.5% to 1.3% of all hot cuts. *Order* at ¶300 n.956.
Although those data do not capture all service outages, they are a good
indicator of the overall quality of hot cuts. Given the extremely low
rate of overall reported problems, the Commission considered AT&T's
outage rate of 4.5% acceptable. Moreover, there appeared to be serious
problems with AT&T's figures. For example, evidence showed that "AT&T
fails to report installation troubles within a reasonable period of
time;" in many cases, "AT&T took longer to identify and report the
problem to Bell Atlantic than Bell Atlantic took to fix it." *Order* ¶
303. NYPSC found that where a service outage was attributable to Bell
Atlantic, "the outages for the vast majority of customers were measured
in hours." NYPSC Reply Comments at 29. The Commission reasonably reached
the view that even if AT&T had experienced an abnormally high incidence
of service outage, in general Bell Atlantic's provision of hot cuts was
acceptable. In addition, a certain amount of service outage is
unavoidable: the data showed that 1.6% of Bell Atlantic's *own*
customers experienced "loop troubles." *Id*. ¶ 303 n.966.[^13]

The data support the Commission's judgment that Bell Atlantic's hot cut
performance did not deny competing carriers a "meaningful opportunity to
compete." *Order* ¶ 299. In any event, that determination amounts at
bottom to a line-drawing exercise of the type that is entitled to
considerable deference and should be upheld unless it is "patently
unreasonable." *Cassell v. FCC*, 154 F.3d 478, 485 (D.C. Cir. 1998). No
system of hot cuts is likely to be perfect, and the Commission
determined that on the whole Bell Atlantic's hot cut performance was
acceptable. There is no good reason to overturn that considered
judgment.

b\. Similar reasoning defeats AT&T's next complaint that the Commission
could not properly find acceptable Bell Atlantic's 90% on-time
performance rate for hot cuts. Motion at 13-14. The Commission again
drew a reasonable line in finding that "on-time hot cut performance at a
level of 90 percent or greater is sufficient to permit carriers to enter
and compete in a meaningful way." *Order* ¶ 298. Although the NYPSC
preferred an on-time performance level of 95%, it vigorously supported
grant of the application. Reply Comments of NYPSC at 28 (90% performance
level "cannot, under any definition, be considered discriminatory").
Moreover, the Commission found that State performance standards are "not
determinative of what is necessary to establish checklist compliance."
*Order* ¶ 55. Similarly, although DOJ criticized Bell Atlantic's on-time
performance, it did not conclude that Bell Atlantic failed to comply
with the checklist. *Id*. ¶ 297.

c\. AT&T also complains that 10% of hot cuts resulted in the customer's
number being dropped from the directory assistance database. Motion at
14. AT&T's data were again hotly contested, *Order* ¶ 355, and the
Commission rejected AT&T's reliance on it. It found instead that "Bell
Atlantic *has taken* adequate measures to detect any dropped listings
and restore them to the directory assistance database promptly," such as
by adding more personnel to monitor and correct mistakes. *Ibid*.
(emphasis added). Bell Atlantic thus complied with the checklist at the
time its application was filed. Although DOJ had relied on AT&T's data
to criticize Bell Atlantic's performance, DOJ "did not have the benefit
of Bell Atlantic's Reply, which . . . rebuts AT&T's claims." *Order* ¶
356.

**3. Pricing**

AT&T contends that the Commission erroneously deferred to the NYPSC on
the issue whether Bell Atlantic's prices for checklist items satisfy
statutory standards. As a result, it claims, the Commission approved the
application even though the rates for three elements are excessive.
Motion at 15-17. In fact, although the Commission relied significantly
upon the NYPSC's rate evaluations, it made independent determinations as
to each of the three elements (switches and two kinds of loops) that
AT&T questions and found that they were "priced pursuant to a
forward-looking, long-run incremental \[TELRIC\] cost methodology."
*Order* ¶ 239; *see also id*. ¶¶ 242-261.

TELRIC is the method the Commission prescribed for the States to apply
in evaluating the rates local exchange carriers charge for unbundled
network elements under §§251 and 252, and the method the Commission
applies in its consideration of §271 applications. *See Application of
Ameritech Michigan*, 12 FCC Rcd 20543, 20695-99 (1997). In prescribing
that method, the Commission recognized that it would not produce the
same rates in every State, and "indeed it will not even generate the
same formula for pricing in every \[S\]tate." 12 FCC Rcd at 20699. This
is consistent with §252(c)(2) of the 1996 Act, which assigns to the
States the function of establishing the actual rates for unbundled
elements (subject to review in federal district court for compliance
with the Act, including the Commission's rules implementing the Act).

The Supreme Court recognized the separate roles of the FCC and State
commissions in its decision affirming the Commission's authority to
prescribe a method for evaluating network element prices, making clear
that "\[i\]t is the States that will apply \... and implement that
methodology, determining the concrete results in particular
circumstances." *AT&T Corp. v. Iowa Utilities Board*, 119 S. Ct. 721,
732 (1999). The Commission acted consistently with the statutes, its
TELRIC prescription, and its own previous orders in evaluating Bell
Atlantic's prices in light of the NYPSC's active review of those prices.
*See Ameritech Michigan*, 12 FCC Rcd at 20699. There was no abdication
of responsibility here. As to the three particular rates that AT&T
challenges, brief responses are sufficient.

a\. [Switch prices.]{.underline} AT&T argues that Bell Atlantic's switch
prices are inconsistent with the switching costs the Commission had used
in calculating the level of universal service support to which eligible
carriers are entitled.[^14] But the Commission pointedly had announced
in the *Tenth Report* that its cost determinations there were for
universal service purposes only, and that they might not be appropriate
for other purposes, "such as determining prices for unbundled network
elements." And it had cautioned parties not to make "any claims in other
proceedings based upon the input values we adopt in this Order." *Tenth
Report* ¶ 32. *See Order* ¶ 245. The determination of costs for federal
universal service support, which is a national program, is not
necessarily instructive in the different context of evaluating prices on
a state-by-state basis for determining §271 checklist compliance.

In this case, the Commission found sufficient evidence in the record to
show that Bell Atlantic's switch prices were based on TELRIC costs.
*Order* ¶ 242. It took comfort in the fact that the NYPSC had examined
Bell Atlantic's original estimate of \$586 per line, applying TELRIC
standards to local conditions, and had reduced that estimate to \$192,
"an amount much closer to AT&T's estimation" of the proper rate. *Order*
¶ 243. And, although the State's investigation of the rates was
"ongoing," the Commission found that they were "no less TELRIC-compliant
on that account." *Order* ¶ 248. AT&T has identified no error here.

b\. [Voice grade local loops.]{.underline} AT&T asserts that optical
fiber loops cost more than copper, at least for shorter loops, and that
the Commission departed from TELRIC principles in acquiescing in the
NYPSC's adoption of prices based entirely on fiber costs. The Commission
concluded, however, that the NYPSC reasonably had determined that the
higher cost of fiber on some loops was "more than offset" by the lower
costs of "provisioning and maintenance." *Order* ¶ 248. The State
commission also found that fiber loops might "prove useful" in the
future to competitors who choose to offer enhanced services for which
copper might be inappropriate, and that the comparison of copper and
fiber costs also had to take account of capacity differences. *Id*. AT&T
has not shown error in the Commission's conclusion that rates based on
fiber technology are "not \... inconsistent with a TELRIC methodology."
*Order* ¶ 249.

c\. [xDSL loops.]{.underline} AT&T complains that Bell Atlantic's rates
for conditioning loops for data services had been filed so recently that
the NYPSC had not completed its evaluation of them, and asserts that the
rates are excessive. AT&T does not allege that it uses or has ordered
such "data loops," but relies solely on Covad's showing before the
Commission. As we argue elsewhere, Covad lacks standing to challenge the
§271 authorization; and AT&T would appear not to be aggrieved by the
level of charges for a service or facility that it does not use. This
dispute would be better resolved in a direct challenge to the xDSL rates
by a party who actually would be injured if they were too high.

In any event, the Commission reasonably declined to reject Bell
Atlantic's application on the basis of unresolved complaints about the
xDSL rate level, for several reasons. First, the rates are under
expedited investigation now by the NYPSC and are subject to refunds if
they are found non-compliant. Second, it is understandable that the
rates have not been evaluated yet because "the conditioning of xDSL
loops is a relatively new issue" and new issues arise constantly. Third,
the NYPSC has a "substantial track record" of setting rates at TELRIC
levels. *Order* ¶¶ 250-259. AT&T's apparent assumption that the
Commission may not grant any §271 application until all issues in this
rapidly developing industry come to rest cannot be correct.[^15] The
Commission acted reasonably with respect to the xDSL pricing issue.

II\. AT&T And Covad Will Not Suffer Irreparable Injury In The Absence Of
A Stay.

"The basis for injunctive relief in the federal courts has always been
irreparable harm and inadequacy of legal remedies." *Sampson v. Murray*,
415 U.S. 61, 88 (1974), *quoted in Wisconsin Gas Co. v. FERC*, 758 F.2d
669, 674 (D.C. Cir. 1985). A party seeking a stay thus has the burden of
establishing that it will suffer irreparable harm in the absence of a
stay -- without regard to the other factors listed in *Holiday Tours*.
Indeed, this Court has denied stay relief on the basis of its analysis
of claims of irreparable harm alone, without even addressing the other
factors. *Wisconsin Gas Co.*, 758 F.2d at 674 (addressing only "whether
the petitioners have demonstrated that in the absence of a stay, they
will suffer irreparable harm").

To satisfy the irreparable harm factor, a moving party must show that,
in the absence of a stay, it will suffer injuries that are "both certain
and great." *Wisconsin Gas Co.*, 758 F.2d at 674. The injuries must be
"actual and not theoretical," and they must be "imminen\[t\]." *Id.* The
"key word" in this consideration, moreover, is "irreparable," and the
possibility of "adequate compensatory or other relief" at a later date
weighs heavily against a stay. *Id.*

As to the kinds of harm that might justify relief, "'mere' economic
injuries \... are insufficient," although "severe" injury \-- such as
"the destruction of a business" \-- may warrant a stay. *Holiday Tours*,
559 F.2d at 843 & n.2, *citing Virginia Petroleum Jobbers*, 259 F.2d at
925. The threat of additional competition in itself is not irreparable
harm, at least in the absence of severe economic impact that "threatens
the very existence" of a business. *Wisconsin Gas Co.*, 758 F.2d at 674,
*citing Holiday Tours*, 559 F.2d at 843 nn.2, 3.

AT&T's alleged injuries boil down to a claim that Bell Atlantic's entry
into the New York long distance market will require AT&T to face what it
believes to be unfair competition, leading to the loss of customers and
revenue. Posed by the world's largest long distance company, with nearly
\$60 billion in yearly revenue, that claim does not pass the stringent
test for a stay.

AT&T's claim that Bell Atlantic's competition will be unfair -- which is
an essential premise of its irreparable harm argument -- depends upon
the correctness of its merits arguments, addressed above. We have shown
that the Commission reasonably applied the statutory standards in
granting Bell Atlantic's application and that Congress expressly
contemplated and authorized competition of this kind. If we are correct,
AT&T's irreparable harm claim is simply an indirect challenge to the
congressional policy favoring competition.

AT&T's assertion that Bell Atlantic will have an advantage in offering
"one-stop shopping" for packages of local and long distance service
ignores the facts that AT&T had a head start in that offering, that AT&T
already has a substantial presence in local markets in New York through
resale and the use of unbundled network elements, and that AT&T itself
is a powerful economic force with brand recognition and traditions of
service working in its favor. The underdog mantle does not fit AT&T
well.

More particularly, both the FCC and the NYPSC have found that Bell
Atlantic meets the statutory requirements. AT&T's assertion that Bell
Atlantic has the advantage of competitive rates for the long distance
service it will resell as part of a package does not make the
competition unfair. AT&T may buy local service from Bell Atlantic for
resale, including service at rates discounted for high-volume customers.
Moreover, just as Bell Atlantic has an advantage in selling the local
part of a combined service package, AT&T has the advantage in selling
long distance service to satisfied customers who have been with that
company for many years. The efforts of Bell Atlantic and AT&T \-- each
with its advantages and specialized experience \-- to sell their
packages of service is the essence of competition, and that is what
Congress sought to promote in the 1996 Act and in §271 in particular.

The addition of a new competitor in itself does not justify a stay.
*Holiday Tours*, 559 F.2d at 843 n.3. That is especially so here, where
Congress has decided that opening all telecommunications markets to
competition is to be the national policy. Bell Atlantic's entry into
long distance service upon the opening of its local market is nothing
more than the increase in competition that Congress envisioned when it
created the framework of the 1996 Act.

AT&T will surely lose some customers to Bell Atlantic. At the same time,
however, AT&T will continue to win customers *from* Bell Atlantic in New
York's local markets, where competitive providers, including AT&T,
already provide service to more than a million lines. *Order* ¶ 14. As
this Court has held, "revenues and customers lost to competition which
can be regained through competition are not irreparable." *Central &
Southern Freight Tariff Ass'n v. United States*, 757 F.2d 301, 309 (D.C.
Cir.), *cert. denied*, 474 U.S. 1019 (1985); *see ibid*.
("\[p\]etitioners may seek to eliminate the alleged competitive
advantage . . . simply by engaging in the \[same line of business\]
themselves"). Moreover, as AT&T points out, Bell Atlantic will initially
provide long distance service by reselling the services of existing long
distance companies. Thus, although AT&T will not be the retailer of that
service, it could be a wholesale provider. AT&T has presented only the
side of the loss picture; when the entire situation is considered, any
net injury to AT&T is more theoretical than actual.

Finally, the Commission retains considerable enforcement power should
Bell Atlantic backslide in its performance. Under §271(d)(6), the
Commission may impose penalties, direct Bell Atlantic to take corrective
action, or even revoke its previously given approval. Carriers may file
complaints concerning failures to meet the competitive conditions, and
the Commission must act on such complaints promptly. The agency stands
ready to wield such tools if necessary. *See* *Order* ¶¶ 446-453. The
NYPSC also has crafted a performance assurance plan, and it may also
take corrective measures. *Order* ¶¶ 429-443. Under those circumstances,
AT&T faces little likelihood of irreparable injury. With respect to
Covad, we have shown above that it lacks standing because it is not a
long distance telephone company and, in any event, has various remedies
available to it if the New York market ceases to remain open to
competition.

**III. Bell Atlantic Will Be Harmed By A Stay.**

Congress has determined that once a BOC's local market is open to
competition, the BOC should be allowed to enter the long distance
market. To that end, §271 directs the Commission to decide within 90
days whether a BOC has satisfied the competitive checklist, 47 U.S.C.
§271(d)(3), and directs the Commission to publish its orders in the
Federal Register within 10 days of their issuance, *id*. §271(d)(5).
Congress's judgment applies fully here. Bell Atlantic has opened its
market to competition and is losing customers daily to AT&T and other
new entrants. Indeed, at this point AT&T and others may offer consumers
one-stop shopping with bundled local and long distance service, while
Bell Atlantic has been precluded from selling a competitive product. To
deny Bell Atlantic its part of the 1996 Act's *quid pro quo* would cause
it unfair harm. It might also dampen the incentive of other BOCs to open
their markets if they see that the significant steps that Bell Atlantic
has taken are not sufficient to allow them to enter the long distance
market.

**IV. The Public Interest Will Be Harmed By A Stay.**

In passing the 1996 Act, Congress found that the public interest would
be served by opening all markets to competition. Competition lowers
prices to consumers and expands the range of services and options from
which consumers may choose. Should the Court delay Bell Atlantic's entry
into New York's long distance market, it is ultimately consumers \-- the
citizens of New York \-- who will suffer the consequences. The benefits
of expanded efforts to win their business will be delayed, prices will
remain higher than they should be, and the range of choices will be
narrower than it could be. That outcome would directly contradict
Congress's intent in creating the mechanisms of the 1996
Telecommunications Act. It would also undermine the Commission's finding
in this case that "additional competition in \[the long distance\]
markets will enhance the public interest." *Order* ¶ 428.

# CONCLUSION

For the foregoing reasons, the Court should deny the motion for a stay.

> Respectfully Submitted,

Christopher J. Wright

General Counsel

John E. Ingle

Deputy Associate General Counsel

James M. Carr

Joel Marcus

Counsel

Federal Communications Commission

Washington, D.C. 20554

\(202\) 418-1740

January 3, 2000

[^1]: As explained below, we believe that Covad lacks standing, and we
    accordingly refer to the petitioners collectively as AT&T, except
    when referring specifically to a particular company.

[^2]: H.R. Conf. Rep. No. 104-458 at 1 (1996).

[^3]: *United States v. AT&T*, 552 F. Supp. 131 (D.D.C. 1982), *aff'd,
    Maryland v. U.S.*, 460 U.S. 1001 (1983).

[^4]: 552 F. Supp. at 194-95.

[^5]: Pub. L. No. 104-104, 110 Stat. 56 ("1996 Act").

[^6]: H.R. Conf. Rep. No. 104-458 at 1.

[^7]: 47 U.S.C. 152 nt., 253(a).

[^8]: 47 U.S.C. §§251, 252.

[^9]: The competitive checklist incorporates by reference many of the
    substantive requirements imposed on local exchange carriers by 47
    U.S.C. §§251-252.

[^10]: As AT&T notes, the FCC has required BOCs to provide DSL loops to
    competitors. Motion at 7 n.3. The requirement under §251 to provide
    DSL loops did not, however, dictate that the Commission assess Bell
    Atlantic's satisfaction of checklist item 4 on the basis of a
    separate analysis of DSL loops.

[^11]: AT&T's claim (Motion at 9 & n.5) that DSL represents 15% of all
    loops is wrong. The Commission found that Bell Atlantic had provided
    200,000 loops, of which 1,100 \-- 0.55% \--were DSL loops. *Order*
    ¶¶ 277, 320. Although AT&T claims that Covad placed more than 2,000
    DSL orders, the Commission rejected reliance on that number due to
    several factors suggesting it was not accurate. *Order* ¶ 326.

    AT&T's claims about the level of problems with DSL loops are also
    wrong. Other evidence in the record showed problems with DSL service
    between 3 and 7% of the time, not the 29-39% claimed by AT&T.
    *Order* ¶ 323. The record also showed that a substantial portion of
    Covad's orders for DSL loops could not be filled. *Id*. ¶ 326. The
    Commission drew no firm conclusions from the data due to its
    decision to examine overall loop performance.

[^12]: The Commission also noted that a proceeding before the NYPSC was
    under way to develop meaningful performance measures for the
    provision of DSL loops. *Order* ¶¶ 317, 319. If problems develop in
    the future, the Commission has at its disposal various enforcement
    mechanisms, including revocation of §271 authority and other, lesser
    penalties. 47 U.S.C. §271(d)(6). The NYPSC may also take enforcement
    action.

[^13]: AT&T portrays DOJ's comments as having found that Bell Atlantic
    had an unacceptable number of dropped lines. Motion at 12. In fact,
    though DOJ criticized what it considered to be several deficiencies
    in hot cut performance, those criticisms did not pertain to service
    outages. *Order* at ¶ 302 n.963. AT&T does not complain of the
    matters on which DOJ focused its criticism.

[^14]: See Federal-State Joint Board on Universal Service, Tenth Report,
    FCC 99-304 (Nov. 2, 1999), review pending, U S West v. FCC, 10^th^
    Circuit No. 99-9547 ("Tenth Report").

[^15]: *See, e.g., MCI Telecomm. Corp. v. FCC*, 627 F.2d 322, 341 (the
    best should not become the enemy of the good).