**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

)

In the Matter of )

)

Enforcement of Section 275(a)(2) of the )

Communications Act of 1934, as amended by )

the Telecommunications Act of 1996, )

Against Ameritech Corporation )

)

Motion for Orders to Show ) CCBPol 96-17

Cause and to Cease and Desist )

)

**MEMORANDUM OPINION AND ORDER** **ON REMAND**

**AND ORDER TO SHOW CAUSE**

**Adopted: September 15, 1998 Released: September 25, 1998**

By the Commission:

**TABLE OF CONTENTS**

**Paragraph**

**I. INTRODUCTION** [2](#__RefHeading___Toc6825062)

**A.** **Overview** [2](#__RefHeading___Toc6825063)

**B.** **Procedural Background** [2](#__RefHeading___Toc6825064)

**C.** **Ameritech\'s Acquisition of Assets**
[7](#__RefHeading___Toc6825065)

**II. DISCUSSION** [8](#__RefHeading___Toc6825066)

**A.** **Definition of \"Alarm Monitoring Service Entity\\**
[8](#__RefHeading___Toc6825067)

**B.Whether Ameritech Obtained \"Financial Control\" Over Circuit
City\'s Alarm Monitoring Division** [12](#__RefHeading___Toc6825068)

**III. ORDERING CLAUSES** [18](#__RefHeading___Toc6825069)

**I. INTRODUCTION**[]{#__RefHeading___Toc6825062 .anchor}

**A. Overview**[]{#__RefHeading___Toc6825063 .anchor}

We revisit in this Order on Remand a \"Motion for Orders to Show Cause
and to Cease and Desist\" filed by the Alarm Industry Communications
Committee (AICC) against Ameritech Corporation (Ameritech). The
Commission\'s initial order in this proceeding[^1] denied AICC\'s motion
on the ground that Ameritech\'s acquisition of the alarm monitoring
assets of a division of Circuit City Stores, Inc. (Circuit City) did not
come within the ambit of section 275 of the Communications Act, as
amended by the Telecommunications Act of 1996.[^2] That order was
vacated on review by the United States Court of Appeals for the District
of Columbia Circuit and remanded to the Commission.[^3] As directed by
the court, we have considered anew the issues raised in this proceeding
in light of the concerns identified by the court regarding our prior
determination. Based on a more thorough analysis, we now conclude, for
the reasons discussed below, that Ameritech\'s acquisition of Circuit
City\'s alarm monitoring assets violates section 275(a)(2). We therefore
grant, in part, AICC\'s motion and order Ameritech pursuant to section
312(c) of the Act,[^4] to show cause why a cease and desist order should
not be issued pursuant to section 312(b).[^5]

**B. Procedural Background**[]{#__RefHeading___Toc6825064 .anchor}

On June 28, 1996, Ameritech acquired all the assets of Circuit City\'s
Home Security Division, Circuit City\'s division exclusively devoted to
providing alarm monitoring services. On August 12, 1996, AICC filed with
the Commission a motion requesting the Commission to issue an Order to
Show Cause and to Cease and Desist against Ameritech. AICC claimed in
that motion that Ameritech\'s acquisition of Circuit City\'s alarm
monitoring assets and its solicitation of further purchases of alarm
monitoring assets from unaffiliated alarm monitoring service providers
violate section 275(a)(2).[^6] That provision permits a Bell Operating
Company (BOC) or BOC affiliate that was engaged in providing alarm
monitoring services as of November 30, 1995, to continue to do so,
provided that it

*may not acquire any equity interest in, or obtain financial control of,
any unaffiliated alarm monitoring service entity* after November 30,
1995 and until 5 years after the date of enactment of the
Telecommunications Act of 1996, except that this sentence shall not
prohibit an exchange of customers for the customers of an unaffiliated
alarm monitoring service entity.[^7]

AICC contended that Ameritech obtained \"financial control\" of an
\"unaffiliated alarm monitoring service entity,\" in violation of
section 275(a)(2), by acquiring Circuit City\'s alarm monitoring
assets.[^8] AICC urged the Commission to (1) direct Ameritech to show
cause why it should not be required to rescind its purchase of Circuit
City\'s alarm monitoring assets; and (2) issue a cease and desist order,
requiring Ameritech to rescind its purchase of Circuit City\'s alarm
monitoring assets and to refrain from attempting to acquire the assets
of additional alarm monitoring service providers until February 8, 2001,
the date on which the five-year statutory moratorium on BOC entry into
alarm monitoring services expires.[^9]

The Commission established a pleading cycle for comments on AICC\'s
motion on August 23, 1996 and received comments from Ameritech and reply
comments from AICC.[^10] On March 25, 1997, the Commission released its
Memorandum Opinion and Order, denying AICC\'s motion.[^11] The
Commission ruled that Ameritech\'s acquisition of the alarm monitoring
assets of Circuit City\'s Home Security Division did not come within the
ambit of section 275(a)(2) on the basis of a finding that a division is
not an \"entity\" within the meaning of that subsection.[^12] The
Commission reasoned that \"the statutory language regarding \'alarm
monitoring service entity\' is unambiguous\" and that \"the plain
meaning of the term requires that an \'entity\' have an independent
legal existence.\"[^13] Because the Home Security Division was an
unincorporated division of Circuit City, the Commission concluded that
the Division did not have an independent legal existence and, therefore,
was not an \"entity\" for purposes of section 275(a)(2).[^14] Having
determined that Ameritech\'s acquisition of Circuit City\'s assets did
not implicate section 275, the Commission did not address other issues
raised by the parties, such as the meaning of \"financial control,\" and
denied AICC\'s Motion for Orders to Show Cause and to Cease and
Desist.[^15]

AICC appealed the Commission\'s *Circuit City Order* to the D.C. Circuit
on April 2, 1997. The court stayed the Commission\'s order pending
appeal.[^16] On December 30, 1997, the court issued an opinion vacating
and remanding the Commission\'s order. The court held that the
Commission erred in concluding that the term \"unaffiliated alarm
monitoring entity,\" as used in section 275(a)(2), is \"unambiguous\"
and that there is a plain meaning of the term that requires the entity
to have an independent legal existence.[^17] The court rejected the
Commission\'s reliance on a dictionary definition to give meaning to the
term \"entity\" because this approach did not take into account other
possible interpretations of the term, statutory objectives, or
Congressional intent. The court specifically rejected the Commission\'s
reliance on *Black\'s Law Dictionary*\'s definition of \"entity\" as
\"an organization or being that possesses a separate existence for tax
purposes\" on the basis that other dictionary definitions of \"entity\"
are broad enough to include an unincorporated division, such as Circuit
City\'s Home Security Division. Further, the court rejected the
Commission\'s contention that section 274(i)(6), which defines
\"entity\" for purposes of a BOC\'s entry into electronic publishing,
supports its interpretation of \"entity.\"[^18] The court determined
that the list of examples of \"entity\" provided in section 274(i)(6)
was not an exhaustive list and could include an unincorporated division
because the list was not limited to separate legal organizations.[^19]

The court also expressed concern that the Commission\'s interpretation
of \"alarm monitoring service entity\" could not be reconciled with
other clauses of section 275(a)(2). Specifically, it observed that the
Commission\'s interpretation of section 275(a)(2) would permit Ameritech
to buy all the assets of a division, but preclude Ameritech from buying
one share of stock in the corporation.[^20] The court could see no
reason why Congress would draw such a distinction between asset and
equity acquisitions.[^21] It also noted that the Commission\'s treatment
of \"entity\" would make \"superfluous\" the final clause in section
275(a)(2), which permits the exchange of customer accounts.[^22] This
final clause, the court suggested, would make sense only if section
275(a)(2) placed restraints on asset acquisitions. The court concluded
that the disputed language was \"uncertain,\" and vacated and remanded
the case to the Commission \"to decide how best to resolve the ambiguity
in the phrase \'alarm monitoring service entity.\'\"[^23] The court
stated that it did not intend to foreclose the Commission from
interpreting the phrase narrowly, but that the Commission\'s
interpretation must be based on more than a single dictionary
definition.[^24]

The parties subsequently filed supplemental comments addressing points
raised during the oral argument before the court and in the court\'s
decision.[^25] The Common Carrier Bureau sent Ameritech written requests
for further information and documentation relating to the
Ameritech/Circuit City transaction.[^26] These requests sought
information regarding, among other things, the types of assets Ameritech
purchased, the number of Circuit City employees it hired, and the
buildings or other facilities it acquired from Circuit City.
Ameritech\'s responses to the Common Carrier Bureau\'s request for
information,[^27] and the pleadings filed throughout this proceeding,
establish the following relevant, undisputed facts regarding
Ameritech\'s acquisition of Circuit City\'s alarm monitoring assets.

**C. Ameritech\'s Acquisition of Assets**[]{#__RefHeading___Toc6825065
.anchor}

Prior to Ameritech\'s June 28, 1996 acquisition of Circuit City\'s alarm
monitoring assets, Circuit City provided alarm monitoring services
through its Home Security Division. The Home Security Division\'s
services included providing alarm protective equipment, installing the
equipment, and monitoring signals activated by the equipment.[^28] These
services were provided under the names \"Circuit City Monitored Security
Systems\" and \"Circuit City Home Security Systems.\"[^29] At the time
of the asset acquisition, sixteen employees worked exclusively for the
Home Security Division.[^30] Circuit City had a Director of the Home
Security Division to manage the alarm monitoring service
operations.[^31] Circuit City also maintained a separate accounting of
the Division\'s finances.[^32]

Ameritech purchased Circuit City\'s alarm monitoring service assets with
cash, pursuant to an Asset Purchase Agreement signed by Circuit City and
Ameritech.[^33] The assets purchased included all of Circuit City\'s
alarm monitoring contracts, machinery and equipment, intellectual
property and goodwill, and books and records pertaining to the alarm
monitoring business.[^34] Ameritech also acquired the building Circuit
City had used as its headquarters for alarm monitoring services and as
its alarm monitoring facility.[^35] In addition, Ameritech made offers
of employment to fifteen of the sixteen Circuit City employees whose
work was fully dedicated to the Home Security Division.[^36] Twelve of
those employees accepted Ameritech\'s offer of employment.[^37]

Ameritech subsequently integrated Circuit City\'s alarm monitoring
assets and employees into its existing SecurityLink operations.[^38]
Ameritech sent letters to Circuit City\'s former customers explaining
that Ameritech would now provide their security services.[^39] To
Ameritech\'s knowledge, Circuit City did not continue to provide alarm
monitoring services or subsequently engage in a new alarm monitoring
service business.[^40]

**II. DISCUSSION**[]{#__RefHeading___Toc6825066 .anchor}

**A. Definition of \"Alarm Monitoring Service
Entity\"**[]{#__RefHeading___Toc6825067 .anchor}

The D.C. Circuit remanded the *Circuit City* case to the Commission \"to
resolve the ambiguity in the phrase \'alarm monitoring service
entity,\'\" based on more than a dictionary definition. Consistent with
the court\'s directive, we consider Ameritech\'s Circuit City
transaction in light of the concerns expressed by the court regarding
the Commission\'s prior holding. Based on this more extensive analysis,
we believe that the Commission\'s initial *Circuit City Order* defined
\"entity\" too narrowly as an organization requiring a separate legal
existence. We now conclude on remand, after examining the statutory
objectives underlying section 275(a)(2), that a broader definition of
\"entity\" that includes any organizational unit such as Circuit City\'s
Home Security Division is more consistent with the Congressional purpose
underlying section 275(a)(2). This interpretation is also consistent
with the idea that \"entity\" is \"the broadest of all definitions which
relate to bodies or units,\"[^41] which is recognized by the D.C.
Circuit and reflected in judicial and statutory definitions of
\"entity\" in other contexts. Accordingly, we reject the Commission\'s
prior construction of the term \"entity\" as used in section 275(a).

When the meaning of a statute is ambiguous, it is appropriate to turn to
legislative history for guidance.[^42] The legislative history of
section 275(a)(2), however, sheds little light on how we should define
\"alarm monitoring service entity.\" As the D.C. Circuit noted, there
are directly contradictory statements by individual legislators
regarding whether asset purchases violate section 275(a)(2).[^43] The
legislative history therefore provides no conclusive guidance in
determining whether Congress intended to prohibit the acquisition of
alarm monitoring assets from an unincorporated division.

As the legislative history does not offer any guidance on the meaning of
\"entity\" in section 275(a)(2), we next consider whether a broader
interpretation of the term is consistent with the statutory intent of
that section. We find that a broader interpretation of \"entity\" allows
for a sensible reading of section 275 and gives meaning to all its
various provisions.[^44] The term \"entity\" can be interpreted narrowly
to refer only to a separate legal entity, or more broadly to encompass
any organization or unit. Defining \"entity\" narrowly as an
organization that has a separate legal existence raises the question
that troubled the D.C. Circuit: Why would Congress prohibit a
grandfathered BOC from obtaining control of an alarm monitoring service
provider through the purchase of a single share of stock, but allow that
BOC to obtain all the assets of that company by structuring the
transaction as an asset acquisition?[^45]

Ameritech advances several arguments in response to this question, none
of which we find persuasive. First, Ameritech argues that Congress
intended to prohibit equity acquisitions, while permitting the
acquisition of assets, because section 275(a)(2) does not expressly bar
asset acquisitions.[^46] We agree that section 275(a)(2), on its face,
does not prohibit all asset acquisitions. We concluded in a previous
order,[^47] and reaffirm here, that it does prohibit transactions that
result in financial control over the selling company and that the
statutory language does not exclude asset acquisitions from the
prohibition.[^48] Ameritech further explains that Congress made this
distinction because it was primarily concerned with preventing hostile
takeovers.[^49] The D.C. Circuit found Ameritech\'s explanation
unpersuasive. The court described this argument as \"far-fetched\"
because it does not account for section 275(a)(2)\'s prohibition of all
types of equity acquisitions, including takeovers welcomed by the target
company or the acquisition of even one share of stock.[^50] Ameritech
subsequently added, in its Supplemental Comments, that section
275(a)(2)\'s prohibition of only equity acquisitions was a result of
legislative compromise and that the Commission must honor that
compromise.[^51] There is no evidence, however, that Congress intended
to forge such an illogical compromise and, as stated above, the
legislative history offers no guidance on this point. The D.C. Circuit
could find no reason why Congress would have distinguished between asset
and equity transactions when the transactions achieve the same result
\-- *i.e.*, the acquisition of an alarm monitoring business, and, on
further reflection, neither can we. As the D.C. Circuit noted, there is
no evidence that Congress was more concerned with the form of the
transaction rather than its substance.[^52]

Rather, we conclude that Congress apparently viewed section 275(a)(2) as
a pro-competitive provision and that it meant to authorize grandfathered
BOCs to continue in the alarm business and to grow that business only
through competition, not through equity acquisitions or asset
acquisitions that result in financial control.[^53] Congress, in
enacting section 275, appeared concerned about ensuring a \"level
playing field\" between the BOCs and the alarm monitoring industry.[^54]
A broader interpretation of \"entity,\" for purposes of determining
section 275(a)(2)\'s restrictions, therefore comports best with this
stated intent. We can find no reason \"why it would have mattered to
Congress whether a potential target of Ameritech ran its alarm
monitoring business through a wholly-owned incorporated subsidiary or,
as here, through an unincorporated operating division.\"[^55] If section
275(a)(2) prohibited asset acquisitions only from separate subsidiaries,
companies could easily circumvent the law by transforming a subsidiary
into an unincorporated division.[^56] A more rational interpretation is
that Congress intended to prohibit equity transactions and non-equity
acquisitions that result in financial control of any type of entity,
regardless whether the entity has a separate legal existence.

Interpreting the term \"entity\" more broadly also gives meaning to the
final clause of section 275(a)(2). That clause expressly permits a
grandfathered BOC, *i.e*., Ameritech, to exchange customers with an
\"unaffiliated alarm monitoring service entity,\" without violating
section 275. The D.C. Circuit questioned why this clause would allow the
acquisition of one kind of asset (*i.e*., customer accounts), if \"the
clauses preceding the customer exchange clause place no restraints on
asset acquisitions of less than everything the corporation holds.\"[^57]
On further reflection, we agree that this clause would appear to be
superfluous if section 275(a)(2) permits, as Ameritech contends, a
grandfathered BOC to acquire all, or substantially all, of an alarm
monitoring service entity\'s assets.[^58] Reading the term \"entity\"
more broadly to pertain to all types of organizations, including an
unincorporated division, thus gives meaning to the final clause of
section 275(a)(2) and allows us to read this clause consistently with
the other clauses in that subsection.

Our review of judicial and statutory definitions of \"entity,\" in other
contexts, also supports a broader interpretation of \"entity,\" for
purposes of section 275(a)(2). The D.C. Circuit, for example, in
reviewing the term \"entity\" in the context of the Foreign Missions
Act, stated that \"\[t\]he meaning of the term \'entity\' in general
usage is quite broad . . . .\"[^59] Similarly, other statutes that use
the term \"entity,\" define it to include organizations including, but
not limited to, those with a separate legal existence. \"Entity\" has
been statutorily defined to include an \"organization,\"[^60] an
\"association,\"[^61] a division of a government bureau,[^62] and a
\"person.\"[^63] In contrast, in other contexts, Congress has expressly
made statutes applicable to separate \"legal entities\" when it has so
intended,[^64] or further defined the type of entity affected by the
statute.[^65] These further definitions would not be necessary if the
term \"entity,\" on its own, was understood to require a separate legal
existence.

Finally, as the D.C. Circuit observed in *AICC v. FCC*, most dictionary
definitions of \"entity\" are broad enough to include Circuit City\'s
Home Security Division. For example, *The American Heritage Dictionary
of the English Language* defines \"entity\" as \"something that exists
as a particular and discrete unit\" and defines \"unit\" as an
\"individual, a group, a structure or other entity regarded as an
elementary structural or functional constituent of a whole.\"[^66] As
the court noted, \"it is hardly evident why Circuit City\'s operating
division was something other than a \'group\' or \'structure\' that was
a \'functional constituent of a whole,\' the whole being the Circuit
City corporation \-- in other words, the division was a particular and
discrete unit, an \'entity.\'\"[^67]

We conclude, therefore, that the term \"entity,\" for purposes of
section 275(a)(2), should be construed to include any \"organization\"
or \"unit,\" including an unincorporated division such as the Home
Security Division. This conclusion is consistent with Ameritech\'s
position that the term \"entity\" must apply to the \"holder of the
assets\" and does not \"encompass an amorphous collection of
assets.\"[^68] We regard the Home Security Division, not its alarm
monitoring assets, as the \"entity.\" The fact that the Home Security
Division was organized exclusively to provide Circuit City\'s alarm
monitoring services, had its own director and employees, its own assets,
and maintained a separate accounting of its finances, demonstrates that
the Home Security Division operated as a separate unit or organization
within Circuit City, such that it was an \"entity\" distinguishable from
the Circuit City corporation.

**B.Whether Ameritech Obtained \"Financial Control\" Over Circuit
City\'s Alarm Monitoring Division**[]{#__RefHeading___Toc6825068
.anchor}

Having decided that Circuit City\'s Home Security Division is an
\"entity\" within the meaning of section 275(a)(2), we now address
whether Ameritech \"obtained financial control\" of the Home Security
Division in violation of section 275(a)(2). As explained above, the
Commission did not reach this issue in its initial *Circuit City
Order*.[^69] We now determine that Ameritech obtained \"financial
control\" of the Home Security Division because it acquired control of
the Division\'s entire business operations and integrated those
operations into its own ongoing alarm monitoring business.

We previously considered the issue of \"financial control,\" for
purposes of section 275(a)(2), in our *CCA/Norman/Masada Order*, which
addressed Ameritech\'s transactions with three other alarm monitoring
service entities. In that proceeding, Ameritech and AICC raised
virtually the same arguments regarding \"financial control\" as they
raise here. We explained in that order that the issue of \"financial
control\" must be determined by looking at the totality of circumstances
in a particular case.[^70] Because a broad range of factors could
demonstrate direct or indirect control, we declined to identify a single
criterion or factor that would determine whether Ameritech obtained
\"financial control\" of another alarm monitoring service entity.[^71]

We concluded in our *CCA/Norman/Masada* *Order* that section 275(a)(2)
prohibits those asset sales that confer \"financial control\" of an
alarm monitoring service entity.[^72] We explained in that order that
the legislative history regarding section 275 is not illuminating on the
issue of financial control.[^73] We determined, however, that while
Congress did not expressly prohibit all asset acquisitions, it did
prohibit transactions through which the buying company obtains
\"financial control\" of the selling company. We further determined that
such prohibited transactions could include asset acquisitions. While we
recognized that not all asset acquisitions result in \"financial
control,\" we concluded that section 275(a)(2) bars those asset
acquisitions that do confer such control over an alarm monitoring
service entity.[^74]

With respect to the CCA, Norman, and Masada transactions, we concluded
that Ameritech obtained \"financial control\" of the entities because it
engaged in more than a simple purchase of assets.[^75] Ameritech
integrated those three entities\' businesses into its own alarm
monitoring business by hiring virtually all those entities\' employees,
assuming liabilities related to their alarm monitoring business, and
subsequently serving the entities\' former customers. The fact that
these transactions were structured as tax-free \"reorganizations,\"
requiring the entities to liquidate and dissolve following the asset
acquisitions, supported our conclusion that the selling entities no
longer exerted \"financial control\" over their business functions and
that Ameritech obtained control of the entities\' entire alarm
monitoring business through these transactions.[^76]

Ameritech advances in this proceeding many of the same arguments in
support of its contention that section 275(a)(2), on its face, permits
all asset acquisitions that the Commission rejected when it determined
that Ameritech obtained financial control over CCA, Norman, and Masada.
Ameritech also advances many of these same arguments in support of its
contention that section 275(a)(2) permits the purchase of assets from an
unincorporated division, *i.e*., Circuit City\'s Home Security Division.
We reject Ameritech\'s arguments in support of its contention that it
did not obtain \"financial control\" over the Home Security Division,
for the reasons the D.C. Circuit rejected, and the Commission now
rejects, Ameritech\'s arguments with respect to what constitutes an
\"entity.\" Ameritech basically reiterates its view that Congress did
not ban asset acquisitions, and therefore, that it could not obtain
\"financial control\" of an entity in violation of section 275(a)(2)
through an asset acquisition. As stated above, however, Ameritech has
yet to offer any sound policy reason or evidence why Congress would
intend to permit a grandfathered BOC to purchase all or part of an alarm
monitoring entity\'s assets, but not a single share of stock of the
entity.[^77] Ameritech also reasserts its argument that Congress
intended only to prohibit hostile takeovers in section 275(a)(2), as
support for its contention that it could not obtain \"financial
control\" of the Home Security Division through an asset acquisition.
Again, the argument is without merit in light of the fact that it is
impossible to engage in a hostile takeover by purchasing one share of
stock, yet section 275(a)(2) expressly prohibits the acquisition of even
one share of stock from an alarm monitoring service entity.[^78] We have
also rejected Ameritech\'s argument that the \"customer exchange
provision\" does not favor a broad interpretation of \"financial
control\" that prohibits certain types of asset acquisitions.[^79]

Nor do we find persuasive Ameritech\'s argument that Congress intended
to permit all asset acquisitions because it replaced language in an
earlier bill containing a broad prohibition against acquisitions of
\"the alarm monitoring service activities of another entity,\" with the
final language prohibiting \"equity interest\" and \"financial
control.\"[^80] Ameritech provides no explanation as to why Congress
dropped the original language. Nothing in the ultimate version adopting
the \"financial control\" language detracts from our conclusion that, at
a minimum, Congress intended to bar those asset acquisitions resulting
in financial control of an alarm monitoring service entity. In fact, it
could be argued that the ultimate language imposes broader restrictions
than the original language because it prohibits, not only acquisitions,
but other types of transactions that result in \"financial
control.\"[^81]

Finally, Ameritech raises several constitutional arguments in its
Supplemental Comments to support its contention that section 275(a)(2)
permits all asset acquisitions. Ameritech asserts that section 275(a)(2)
would be an unconstitutional bill of attainder if construed to prohibit
asset acquisitions because it would prohibit Ameritech from engaging in,
what it considers to be, lawful behavior.[^82] We reject Ameritech\'s
bill of attainder argument for several reasons. First, in the
*CCA/Norman/Masada Order* and in this order, we have not interpreted
section 275(a)(2) to prohibit all asset acquisitions. Rather, we have
rejected Ameritech\'s argument that section 275(a)(2) permits all asset
acquisitions. Consistent with the language of section 275(a)(2), we have
interpreted section 275(a)(2) to prohibit equity transactions and only
those asset acquisitions that result in the buying company obtaining
\"financial control\" over an alarm monitoring service entity.[^83]
Second, section 275(a)(2) does not bar Ameritech from engaging in alarm
monitoring, nor from growing its alarm monitoring business through
non-equity transactions or transactions that do not result in Ameritech
obtaining financial control over an alarm monitoring entity. In
*BellSouth v. FCC*, the D.C. Circuit rejected BellSouth\'s argument that
section 274 of the Act was a bill of attainder, for the reason, *inter
alia*, that section 274 did not bar the BOCs from engaging in electronic
publishing, but only required structural separation.[^84] This type of
structural separation, the court found, \"has the earmarks of a rather
conventional response to commonly perceived risks of anticompetitive
behavior.\"[^85] Similarly, section 275(a)(2) was intended to help
create a \"level playing field\" between BOCs and the alarm monitoring
industry and established restrictions on BOC alarm monitoring
acquisitions to achieve this pro-competitive goal.[^86]

Ameritech also asserts that construing section 275(a)(2) as prohibiting
asset acquisitions would violate its due process rights because \"there
is no rational basis for restricting Ameritech\'s out-of-region
activities.\"[^87] We view this argument as a constitutional challenge
to the statute itself. As Ameritech has repeatedly stated in its
submissions to the Commission, section 275 was the result of compromise.
We view the resulting compromise as limiting Ameritech\'s out-of region
alarm monitoring activities only when those activities involve asset
acquisitions resulting in \"financial control\" of an unaffiliated alarm
monitoring service entity. To the extent that Ameritech still contends
that the statute gives rise to due process concerns, its remedy is a
judicial challenge to section 275.

In addition to arguing that it cannot obtain \"financial control\" of an
entity through an asset acquisition because section 275(a)(2), on its
face, allows asset acquisitions, Ameritech also disputes that the facts
of the Circuit City transaction gave it \"financial control\" of an
alarm monitoring service entity. According to Ameritech, the term
\"financial control\" means to \"control the entity financially -
*i.e*., to have the power to make the entity\'s financial
decisions.\"[^88] Even an acquisition of 100% of a company\'s assets,
Ameritech argues, does not give it \"financial control\" of that company
because decisions regarding the company\'s financial destiny continue to
be made by the selling company\'s officers, directors, and
shareholders.[^89] Ameritech asserts that the selling company \"can
remain in business conducting its remaining operations (just as Circuit
City has done after the sale of its alarm monitoring assets to
Ameritech) and/or it can enter into new operations.\"[^90] This argument
is problematic for several reasons. First, it assumes that the selling
entity is still an ongoing entity conducting business. As we found with
respect to Ameritech\'s transactions with CCA, Norman, and Masada,
however, Ameritech can structure an asset acquisition that also results
in the dissolution of the selling company and the acquisition of that
company\'s entire business. We determined that, as a result of those
transactions, Ameritech obtained \"financial control\" over the future
of CCA, Norman, and Masada\'s business enterprises. Additionally, for
purposes of this case, Ameritech incorrectly assumes that Circuit City,
or its collection of alarm monitoring assets, is the \"alarm monitoring
service entity\" at issue. We have determined, however, that the Home
Security Division constitutes an \"entity\" and is, therefore, the
relevant \"alarm monitoring service entity\" in this proceeding. As
such, the relevant question is whether Ameritech acquired \"financial
control\" of the Home Security Division, not of Circuit City.

We conclude that Ameritech obtained \"financial control\" of Circuit
City\'s Home Security Division based on facts similar to those that led
us to the same conclusion in our *CCA/Norman/Masada Order*. Ameritech
has not identified anything that was previously a part of Circuit
City\'s Home Security Division that did not become a part of
Ameritech.[^91] Ameritech\'s responses providing supplemental
information confirm that Ameritech acquired all of Circuit City\'s alarm
monitoring assets.[^92] This transaction, like those with CCA, Norman,
and Masada, was more than a simple asset purchase. Ameritech acquired
the entire alarm monitoring business of the Home Security Division by
hiring the vast majority of its employees, integrating the Home Security
Division\'s alarm monitoring business into its own ongoing alarm
monitoring subsidiary, and subsequently serving Circuit City\'s former
customers.[^93] Unlike Ameritech\'s transactions with CCA, Norman, and
Masada, this transaction was not arranged as a tax-free
\"reorganization\" whereby the selling entity agreed to liquidate and
dissolve. Nevertheless, the evidence suggests that, after the sale of
assets to Ameritech, the Home Security Division ceased to exist.[^94] We
therefore conclude that, because Ameritech obtained control of the Home
Security Division\'s entire business operations, it obtained \"financial
control\" of that entity.

Having found that Ameritech obtained \"financial control\" of the Home
Security Division through its asset purchase, we conclude that Ameritech
has violated section 275(a)(2). We grant AICC\'s motion insofar as AICC
seeks an order directing Ameritech to show cause why it should not be
required to cease and desist its violations of section 275(a)(2).
Pursuant to sections 312(c) and 4(i) of the Act,[^95] Ameritech is
required to show cause in writing within thirty (30) days of the release
of this Memorandum Opinion and Order on Remand and Order to Show Cause
why we should not issue a cease and desist order pursuant to section
312(b)[^96] directing Ameritech to divest itself of the assets formerly
owned by Circuit City. Because a show cause proceeding must precede any
cease and desist order we issue pursuant to section 312(b), we deny
AICC\'s motion to the extent that AICC seeks an order to cease and
desist at this time. We will consider whether such an order is warranted
upon reviewing Ameritech\'s response to our Order to Show Cause.

We also deny AICC\'s motion insofar as it seeks an Order to Show Cause
as to why Ameritech should not be required to cease and desist from
soliciting or engaging in further purchases of alarm monitoring assets
of unaffiliated entities. As explained above, not all asset purchases
violate section 275(a)(2). We must examine the individual facts relating
to each transaction in order to determine whether a violation has
occurred. We therefore cannot conclude, at this time, that all future
asset acquisitions necessarily violate section 275(a)(2). Nevertheless,
our orders on this issue should provide Ameritech guidance in
determining which transactions might violate that statute.

**III. ORDERING CLAUSES**[]{#__RefHeading___Toc6825069 .anchor}

Accordingly, IT IS ORDERED that AICC\'s Motion for Order to Show Cause
and to Cease and Desist in CCBPol 96-17 is granted in part, insofar as
we find that Ameritech\'s transaction with Circuit City violated section
275(a)(2) and grant the Motion for an Order to Show Cause with respect
to Ameritech\'s transaction with Circuit City.

IT IS FURTHER ORDERED that AICC\'s Motion for Orders to Show Cause and
to Cease and Desist is denied in part, insofar as we deny, at this time,
AICC\'s Motion for an Order to Cease and Desist pertaining to the
Circuit City transaction and deny AICC\'s Motion requesting that we
order Ameritech to cease and desist from soliciting or engaging in
further purchases of alarm monitoring assets of unaffiliated entities.

IT IS FURTHER ORDERED that Ameritech, pursuant to sections 312(c) and
4(i) of the Act, shall show cause in writing within thirty (30) days of
the release of this Memorandum Opinion and Order and Order to Show Cause
why a cease and desist order should not be issued, pursuant to section
312(b), directing Ameritech to divest itself of the assets formerly
owned by Circuit City.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

[^1]:     ^?^ *See In the Matter of Enforcement of Section 275(a)(2) of
    the Communications Act of 1934, as amended by the Telecommunications
    Act of 1996, Against Ameritech Corp.*, CCBPol 96-17, Memorandum
    Opinion and Order, 12 FCC Rcd 3855 (1997) (hereinafter *\"Circuit
    City Order*\"), *vacated and remanded sub nom*. *Alarm Industry
    Commun. Comm. v. FCC*, 131 F.3d 1066 (D.C. Cir. 1997) (hereinafter
    \"*AICC v. FCC*\").

[^2]:     ^?^ Telecommunications Act of 1996, Pub. L. No. 104-104, 110
    Stat. 56 (1996 Act), *codified at* 47 U.S.C. §§ 151 *et seq.*
    Hereinafter, all citations to the 1996 Act will be to the 1996 Act
    as it is codified in the United States Code. The 1996 Act amended
    the Communications Act of 1934. We will refer to the Communications
    Act of 1934, as amended, as \"the Communications Act\" or \"the
    Act.\"

[^3]:     ^?^ *See supra* note 1.

[^4]:     ^?^ 47 U.S.C. § 312(c). Section 312(c) establishes that
    \"\[b\]efore . . . issuing a cease and desist order pursuant to
    subsection (b), the Commission shall serve upon the licensee,
    permittee, or person involved an order to show cause why an order of
    revocation or a cease and desist order should not be issued.\"

[^5]:     ^?^ 47 U.S.C. § 312(b). Section 312(b) provides that
    \"\[w\]here any person . . . has violated or failed to observe any
    of the provisions of this Act . . . the Commission may order such
    person to cease and desist from such action.\"

[^6]:     ^?^ *See* Motion for Orders to Show Cause and to Cease and
    Desist (Motion) at 4.

[^7]:     ^?^ 47 U.S.C. § 275(a)(2) (emphasis added). The Commission
    determined that Ameritech is the only BOC that qualifies for
    \"grandfathered\" treatment under section 275(a)(2). *Implementation
    of the Telecommunications Act of 1996: Telemessaging, Electronic
    Publishing, and Alarm Monitoring Services*, CC Docket No. 96-152,
    Second Report and Order, 12 FCC Rcd 3824, 3839 (1997).

[^8]:     ^?^ *See* Motion at 5.

[^9]:     ^?^ *See* Motion at 4, 11-13.

[^10]:     ^?^ *Public Notice*, \"Pleading Cycle Established for
    Comments on AICC Motion for Orders to Show Cause and to Cease and
    Desist,\" CCBPol 96-17, DA 96-1427 (rel. Aug. 23, 1996). Ameritech
    filed comments on September 6, 1996 (Ameritech Comments), and AICC
    filed reply comments on September 13, 1996 (AICC Reply Comments).
    The Commission\'s initial *Circuit City Order* summarizes the
    arguments set forth in those comments. *See* *Circuit City Order*,
    12 FCC Rcd at 3857-58.

[^11]:     ^?^ *See supra* note 1. Commissioner Ness dissented from the
    *Circuit City Order*.

[^12]:     ^?^ *Circuit City Order*, 12 FCC Rcd at 3859.

[^13]:     ^?^ *Id.*

[^14]:     ^?^ *Id.*

[^15]:     ^?^ *Id.*

[^16]:     ^?^ *Alarm Industry Commun. Comm.* v. *FCC*, No. 97-1218
    (D.C. Cir. filed Nov. 17, 1997).

[^17]:     ^?^ *AICC v*. *FCC*, 131 F.3d at 1068.

[^18]:     ^?^ Section 274(i)(6) of the Communications Act provides that
    \"the term \'entity\' means any organization and includes
    corporations, partnerships, sole proprietorships, associations, and
    joint ventures.\" 47 U.S.C. § 274(i)(6). The Commission relied on
    that provision as support for interpreting \"entity\" as a separate
    legal organization. *Circuit City Order*, 12 FCC Rcd at 3859.

[^19]:     ^?^ *AICC* *v*. *FCC,* 131 F.3d at 1069.

[^20]:     ^?^ *Id.* at 1068.

[^21]:     ^?^ *Id.* at 1071.

[^22]:     ^?^ *Id.* at 1070.

[^23]:     ^?^ *Id.* at 1072.

[^24]:     ^?^ *Id.*

[^25]:     ^?^ *See* Ameritech\'s Supplemental Comments In Light of the
    D.C. Circuit\'s Decision in AICC v. FCC (filed April 1, 1998)
    (Ameritech Supplemental Comments) and AICC\'s Letter of April 9,
    1998 responding to Ameritech\'s Supplemental Comments (AICC
    Supplemental Comments). These pleadings were filed in accordance
    with the Common Carrier Bureau\'s Public Notice changing the status
    of the proceeding from \"permit but disclose\" to \"restricted\" for
    *ex parte* purposes. *See* Public Notice, \"Change in *Ex Parte*
    Treatment of Alarm Industry Communication Committee Emergency Motion
    for Orders to Show Cause and to Cease and Desist (*Circuit City*
    Proceeding),\" CCBPol 96-17, DA 98-386 (rel. Feb. 26, 1998).

[^26]:     ^?^ *See* Letter dated April 21, 1998 from Deputy Chief,
    Common Carrier Bureau (FCC) to Lynn S. Starr, Exec. Dir., Ameritech,
    and Letter dated May 14, 1998 from Deputy Chief, Common Carrier
    Bureau (FCC) to Lynn S. Starr, Exec. Dir., Ameritech (seeking
    clarification of certain responses to the first letter).

[^27]:     ^?^ *See* Letter dated May 12, 1998 from Lynn S. Starr, Exec.
    Dir., Ameritech to Deputy Bureau Chief, Common Carrier Bureau, FCC
    (Ameritech May 12, 1998 Letter) and Letter dated May 19, 1998 from
    Lynn S. Starr, Exec. Dir., Ameritech to Deputy Bureau Chief, Common
    Carrier Bureau, FCC (Ameritech May 19, 1998 Letter).

[^28]:     ^?^ *See* Ameritech May 12, 1998 Letter, Exh. 4 (Agreements
    regarding services provided by Circuit City); Ameritech May 19, 1998
    Letter, Exh. 3 (Circuit City\'s Prospectus for Acquisition
    describing its alarm monitoring operations).

[^29]:     ^?^ *See* Ameritech May 12, 1998 Letter, Exh. 4.

[^30]:     ^?^ *See id.* at 3.

[^31]:     ^?^ *See id.*

[^32]:     ^?^ *See id.* at 5-6 and Exh. 3 (providing financial data
    pertaining to revenue received by Home Security Division).

[^33]:     ^?^ *See id.* at 4.

[^34]:     ^?^ *See id.* at 1 and Exh. 1 (listing assets acquired from
    Circuit City).

[^35]:     ^?^ *See id.* at 2. Ameritech also states that it did not
    acquire two other facilities that Circuit City had used in the
    provision of alarm services.

[^36]:     ^?^ *See id.* at 3.

[^37]:     ^?^ *See id.* at 3.

[^38]:     ^?^ Ameritech Comments at 2.

[^39]:     ^?^ *See* Ameritech May 12, 1998 Letter at 4.

[^40]:     ^?^ *See id.* at 7.

[^41]:     ^?^ *AICC* *v*. *FCC,* 131 F.3d at 1069 (citing 2 *Collier on
    Bankruptcy*, ¶ 101.15 (15th ed. 1997)).

[^42]:     ^?^ *See* 2A *Sutherland Stat. Const.* § 48.01 at 302 (5th
    Ed. 1992).

[^43]:     ^?^ The D.C. Circuit stated that:

    The tortured history of the Telecommunications Act does not shed
    much light on the matter. Although Congress rejected an earlier
    version that precluded a grandfathered Bell from acquiring \'the
    alarm monitoring service activities of another entity,\' S. 652,
    104th Cong. (1995), it never explained the change and the earlier
    draft made no mention of \'financial control.\' On February 1, 1996,
    the day both Houses approved the Telecommunications Act,
    Representative Hyde stated, in written remarks inserted into the
    Congressional Record, that grandfathered BOCs \'may grow their alarm
    monitoring business through customer or asset acquisitions.\' 142
    Cong. Rec. H1158 (daily ed. Feb. 1, 1996) (statement of Rep. Hyde).
    On the same date, Senator Pressler commented, \'The language in the
    bill . . . is intended to include a prohibition on the acquisition
    of the underlying customer accounts and assets.\' 142 Cong. Rec.
    S689 (daily ed. Feb. 1, 1996) (statement of Sen. Pressler).

    *AICC v*. *FCC*, 131 F.3d at 1071.

[^44]:     ^?^ Where the legislative history itself is ambiguous, we
    must look to other intrinsic aids, such as the purpose of the
    statute and other provisions in the statute, to define an ambiguous
    term. *See* 2A *Sutherland Stat. Const.* § 48.01 at 303 (5th Ed.
    1992).

[^45]:     ^?^ The court found that it makes little sense to
    \"preclude\[\] Ameritech from acquiring even one share of Circuit
    City\'s stock,\" while allowing \"Ameritech to acquire the
    company\'s entire alarm monitoring services division - lock, stock,
    and barrel.\" *AICC* *v*. *FCC*, 131 F.3d at 1071.

[^46]:     ^?^ Ameritech also explains that \"Congress\'s express
    specification of \'equity interest\' combined with the absence of a
    reference to assets in Section 275(a)(2) indicates its intent that
    assets not be covered.\" Ameritech Comments at 6.

[^47]:     ^?^ *See In the Matter of Enforcement of Section 275(a)(2) of
    the Communications Act of 1934, as amended by the Telecommunications
    Act of 1996, Against Ameritech Corp.*, CCBPol 97-7 and 97-8,
    Memorandum Opinion and Order and Order to Show Cause, FCC 98-148
    (rel. July 8, 1998) (hereinafter \"*CCA/Norman/Masada Order\"*).

[^48]:     ^?^ *See* discussion *infra* at ¶ 21.

[^49]:     ^?^ Ameritech Comments at 9 n.5 and 12-13.

[^50]:     ^?^ *AICC* *v*. *FCC*, 131 F.3d at 1071.

[^51]:     ^?^ Ameritech Supplemental Comments at 31.

[^52]:     ^?^ The court could find no \"telecommunications policy that
    would turn on the method of acquisition.\" *AICC* *v*. *FCC*, 131
    F.3d at 1071.

[^53]:     ^?^ *See Circuit City Order*, 12 FCC Rcd. at 3864-65
    (Commissioner Ness, dissenting).

[^54]:     ^?^ *See* H.R. Rep. No. 104-204, 104th Cong., 1st Sess., 87
    (\"The state-of-art services provided by the alarm and telemessaging
    industries are dependent on the local telephone wires . . . . These
    industries have had problems with the local telephone companies. On
    several occasions, the Federal government has stepped in to ensure a
    level playing field. Thus, the concerns raised by the industry are
    real and not theoretical.\").

[^55]:     ^?^ *AICC* *v*. *FCC*, 131 F.3d at 1071.

[^56]:     ^?^ As the D.C. Circuit stated, \"\[I\]f the Commission
    decided that Ameritech could not purchase the assets of an
    unincorporated subsidiary, the seller could merely reconfigure its
    structure before the sale so that its alarm monitoring assets were
    held in an unincorporated division.\" *AICC v*. *FCC*, 131 F.3d at
    1071.

[^57]:     ^?^ *AICC* *v*. *FCC*, 131 F.3d at 1070.

[^58]:     ^?^ Ameritech has argued that Congress intended that the
    clause permit tax-free customer exchanges through the acquisition of
    equity in subsidiary or special purpose corporations for tax
    purposes. *See* Ameritech Comments at 8-9. We find this
    interpretation of the clause strained and unsupported by the record.
    A far more obvious interpretation is the clause creates an exception
    to a more general prohibition on asset acquisitions that result in
    financial control.

[^59]:     ^?^ *Palestine Information Office v. Shultz*, 853 F.2d 932,
    937 (1988).

[^60]:     ^?^ *See* 47 U.S.C. § 274(i)(6) at *supra* note 18.

[^61]:     ^?^ *See* 47 U.S.C. § 274(i)(6).

[^62]:     ^?^ The Indian Law Enforcement Reform Act defines the term
    \"Division of Law Enforcement Services\" as \"the entity established
    within the Bureau.\" *See* 25 U.S.C. § 2801.

[^63]:     ^?^ In the Bankruptcy Code, for example, \"entity\" is
    defined to include \"person, estate, trust, governmental unit, and
    United States trustee.\" *See* 11 U.S.C. § 101(15) (emphasis added).

[^64]:     ^?^ *See, e.g.*, the Racketeer Influenced and Corrupt
    Organizations Act, which defines \"enterprise\" as \"any individual,
    partnership, corporation, association, or other *legal entity* . . .
    .\" 18 U.S.C. § 1961(4) (emphasis added).

[^65]:     ^?^ The Foreign Service Immunity Act, for example, specifies
    that an \"agency or instrumentality of a foreign state is defined as
    an *entity*: (1) *which is a separate legal person*, corporate or
    otherwise.\" 28 U.S.C. § 1603(b).

[^66]:     ^?^ *AICC v. FCC*, 131 F.3d at 1069 (citing *American
    Heritage Dictionary* 614 (3d ed. 1992)).

[^67]:     ^?^ *Id.*

[^68]:     ^?^ *See* Ameritech Supplemental Comments at 20.

[^69]:     ^?^ *See supra* ¶ 3.

[^70]:     ^?^ *CCA/Norman/Masada Order* at ¶ 25.

[^71]:     ^?^ *Id.* at ¶ 25.

[^72]:     ^?^ *Id.* at ¶ 24.

[^73]:     ^?^ *Id*. at ¶ 30.

[^74]:     ^?^ In reaching this conclusion, we disagreed with AICC\'s
    argument in this proceeding that Ameritech obtained \"financial
    control\" of an alarm monitoring service entity by purchasing
    Circuit City\'s alarm monitoring assets because \"\[t\]here is no
    greater manifestation of control than ownership.\" AICC Reply
    Comments at 4. A buying entity might not obtain \"financial
    control\" of the selling entity where, for example, the seller
    transfers assets but continues to control its ongoing business
    functions.

[^75]:     ^?^ *CCA/Norman/Masada Order* at ¶ 27.

[^76]:     ^?^ While the structuring of these transactions as tax-free
    reorganizations supported our conclusion, they were not essential to
    our determination that Ameritech obtained \"financial control\" of
    the three entities.

[^77]:     ^?^ *See* *supra* ¶ 13.

[^78]:     ^?^ *See supra* ¶ 13.

[^79]:     ^?^ *See supra* ¶ 15.

[^80]:     ^?^ Ameritech Supplemental Comments at 35-38.

[^81]:     ^?^ *See CCA/Norman/Masada Order* at ¶ 30. Ameritech even
    asserts that section 275(a)(2) precludes a company from acquiring
    \"financial control\" over another company through other means, such
    as demanding a role in its decision making process in exchange for
    acquiring its debt. *See* Ameritech Comments at 7-8.

[^82]:     ^?^ *See* Ameritech Supplemental Comments at 40.

[^83]:     ^?^ *See supra* ¶ 21.

[^84]:     ^?^ *See BellSouth Corp. v. FCC*, No. 97-1113, 1998 WL 242244
    (D.C. Cir. May 15, 1998). The D.C. Circuit also rejected
    BellSouth\'s bill of attainder argument because the statute furthers
    nonpunitive legislative purposes.

[^85]:     ^?^ 1998 WL 242244 at \*7.

[^86]:     ^?^ *See supra* ¶ 14.

[^87]:     ^?^ *See* Ameritech\'s Supplemental Comments at 41-42.

[^88]:     ^?^ Ameritech Comments at 6.

[^89]:     ^?^ *See id.* at 7.

[^90]:     ^?^ Ameritech Comments at 7.

[^91]:     ^?^ *See Circuit City Order*, 12 FCC Rcd at 3862
    n.31(Commissioner Ness, dissenting).

[^92]:     ^?^ *See* Ameritech May 12, 1998 Letter at 1 and Exh. 1, and
    Ameritech May 19, 1998 Letter at 1 and Exhs. 1-A through 1-G .

[^93]:     ^?^ *See* *supra* ¶¶ 8, 9.

[^94]:     ^?^ *See* Ameritech May 12, 1998 Letter at 7.

[^95]:     ^?^ *See supra* note 4. Section 4(i) provides that \"\[t\]he
    Commission may . . . issue such orders, not inconsistent with this
    Act, as may be necessary in the execution of its functions.\"

[^96]:     ^?^ *See supra* note 5.