**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | CC Docket No. 96-150         |
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| Accounting Safeguards            | ** |                              |
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| Under the Telecommunications Act | *  |                              |
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| Section 272(d) Biennial Audit    |    |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted: August 27, 2002 Released: September 5, 2002**

By the Commission:

# Introduction and Background

1.  In this Order, we deny SBC Communications Inc.'s (SBC) request for
    confidential treatment of information contained in its audit report
    submitted under section 272(d) of the Communications Act of 1934, as
    amended (the Act).[^1] In particular, we reject SBC's arguments that
    information contained in its audit report is protected by the
    Commission's confidentiality rules.

2.  Section 272 establishes certain structural, transactional, and
    nondiscrimination safeguards that govern the relationship between a
    Bell Operating Company (BOC) and its affiliate after the BOC
    receives authorization for providing in-region interLATA
    telecommunications services pursuant to section 271 of the Act.[^2]
    Section 272(d) requires a BOC, after receiving section 271
    authorization, to obtain a joint Federal/State audit conducted by an
    independent auditor to determine whether the BOC complies with
    section 272 and the Commission's implementing rules.[^3]

3.  In a series of orders, the Commission implemented the separate
    affiliate safeguards mandated by the statute.[^4] These regulations
    are intended to deter conduct that would furnish an unfair
    competitive advantage to a BOC's newly established in-region
    interLATA operations over other carriers, such as cost misallocation
    or discrimination in favor of the BOC's section 272 affiliate.[^5]
    In the *Accounting Safeguards Order*, the Commission established
    requirements governing the conduct of the section 272(d) biennial
    audit, the oversight of the independent auditor, and the filing of
    the audit report.[^6] The audit staff of the Common Carrier Bureau
    (now the Wireline Competition Bureau) and participating state
    commissions subsequently developed the general audit program in
    conjunction with the BOCs and other interested parties. The general
    audit program has been publicly available since 1997.[^7]

4.  On December 17, 2001, SBC submitted its first section 272(d)
    biennial audit report. Consistent with relevant auditing standards,
    the "final audit report" provides facts concerning the compliance of
    several SBC affiliates that provided in-region interLATA
    telecommunications in Texas pursuant to SBC's section 271
    authorization.[^8] The final audit report also contains information
    regarding SBC's in-region interLATA telecommunications operations in
    Kansas, Oklahoma, and the former Ameritech region. With its
    submission, SBC requested confidential treatment for information on
    thirty-nine of ninety-three pages in the final audit report.[^9]
    Thus, SBC submitted two versions of its section 272(d) final audit
    report: (1) a publicly available report with redactions (SBC
    Redacted Section 272 Audit Report); and (2) a version submitted
    under seal.

5.  On January 10, 2002, the Commission issued the *Section 272(d) Audit
    Order* denying Verizon's request for confidential treatment of its
    section 272(d) audit information based on section 272(d)(2)'s
    requirement that "the audit results be made public."[^10] The
    Commission also found disclosure consistent with the audit
    provisions of section 220 of the Act, the Trade Secrets Act, and
    Exemption 4 of the Freedom of Information Act.[^11]

6.  On February 12**,** 2002, AT&T Corporation (AT&T) requested access
    to SBC's redacted audit information, citing the *Section 272(d)
    Audit Order*.[^12] On March 19, 2002, SBC filed a response to AT&T's
    request.[^13] On April 9, 2002, the Commission denied Verizon's
    petition for stay and petition for reconsideration of the *Section
    272(d) Audit Order*.[^14] On July 30, 2002, the Competitive
    Telecommunications Association (CompTel) also requested access to
    SBC's redacted audit information.[^15]

# DIscussion

7.  Pursuant to section 0.459 of the Commission's rules, we deny SBC's
    request for confidentiality of the information contained in its
    final section 272(d) audit report. Specifically, we find that
    release of the audit information (1) will not impair the flow of
    audit information in the future; (2) will not cause SBC substantial
    competitive harm; and (3) will serve the public interest.[^16]

## Section 272(d) Audit Order

8.  We concluded in the *Section 272(d) Audit Order* that the plain
    language and purpose of section 272 require disclosure of a BOC's
    section 272 audit report.[^17] We relied on section 272(d)(2), which
    requires the independent auditor to "submit the results of the audit
    to the Commission and to the State commission of each State in which
    the company audited provides service, which shall make such results
    available for public inspection."[^18] We further noted that the
    purpose of the audit report is to assist the Commission, the state
    commissions, and the public in evaluating a BOC's compliance with
    the section 272 separate affiliate requirements.[^19] We also
    rejected Verizon's claim that the Commission's confidentiality rules
    protected Verizon's section 272 audit results from release.[^20]
    Specifically, we found that Verizon's audit results were at a
    summary, not detailed, level,[^21] were otherwise required to be
    disclosed, and were dated. [^22] We therefore concluded that release
    of Verizon's audit information was compelled by both section
    272(d)(2) of the Act and consistent with the Commission's
    confidentiality rules.

9.  SBC argues here that our conclusion in the *Section 272(d) Audit
    Order* to release Verizon's audit results should not apply to its
    section 272(d) audit because, *inter alia*, its audit program
    contemplates a right to request confidential treatment of certain
    audit information. According to SBC, because the audit program
    stated a process for SBC to request confidential treatment pursuant
    to section 0.459 of the Commission\'s rules, the Commission cannot
    under section 272(d)(2) release information SBC claims is
    confidential. SBC confuses the confidentiality request procedure
    contemplated in the audit program with an entitlement to
    confidential treatment. As explained in detail below, SBC has
    requested confidential treatment of information contained in the
    audit report. SBC based its request on section 0.459 of the
    Commission\'s rules, and as explained below, we deny SBC\'s request
    and order release on those grounds.

## The Commission's Confidentiality Rules

10. The Commission's confidentiality rules regarding requests for
    information are contained in section 0.459.[^23] We base
    confidentiality determinations under section 0.459 on Exemption 4 of
    the FOIA, which permits us to withhold "trade secrets and commercial
    or financial information obtained from a person and privileged or
    confidential."[^24] Exemption 4 protects trade secrets and
    commercial or financial information obtained from a person that are
    privileged or confidential.[^25] The tests for confidentiality are
    contained in two seminal cases, *National Parks* and *Critical
    Mass*.[^26] If the submitter was obligated to furnish the
    information at issue, *National Parks* provides the analytical
    framework to determine if the information is confidential.[^27] If
    the agency determines that the information was submitted
    voluntarily, *Critical Mass* governs.[^28] Under *Critical Mass*,
    information is confidential if the information is not "customarily"
    disclosed to the public by the submitter.[^29] Under *National
    Parks*, information is confidential (and thus exempt from
    disclosure) if (1) release of the information would impair the
    agency's ability to get the information in the future or (2) release
    of the information would cause the submitter substantial competitive
    harm.[^30] In addition, the Commission has traditionally declined to
    release audit information unless it determines that release would
    serve the public interest.[^31]

11. The Commission's rules place on the submitter the responsibility to
    explain the degree to which the information is commercially
    sensitive (or contains trade secrets) and the manner in which the
    subject data could be used by competitors to inflict substantial
    competitive harm.[^32] Among other things, the submitter must
    explain how disclosure could result in substantial competitive
    harm;[^33] identify any measures taken to prevent unauthorized
    disclosure;[^34] and identify whether the information is available
    to the public and the extent of any previous disclosure of the
    information to third parties.[^35] The Commission's rules prohibit
    consideration of "casual requests" for confidential treatment that
    do not comply with these requirements.[^36]

### SBC's Confidentiality Request

12. On December 17, 2001, SBC requested confidential treatment for
    information on 39 pages of its section 272(d) audit report.[^37] On
    March 19, 2002, SBC supplemented its request for confidential
    treatment.[^38] In its requests, SBC generally argues that, pursuant
    to the impairment prong of *National Parks*, the redacted portions
    of the section 272(d) audit report are exempt from disclosure.[^39]
    In particular, SBC argues that disclosure of the information at
    issue would impair the Commission's ability to obtain information
    through the audit process. SBC states that, if disclosure is
    required here, it "certainly will not willingly agree to any
    procedures in future audits that would include confidential
    proprietary information in the audit report."[^40] SBC further
    argues that the redacted information should be treated
    confidentially because it is competitively sensitive,[^41] and
    because release of certain information would pose a "security
    risk."[^42] Finally, SBC contends that the redacted information is
    not relevant for evaluating SBC's compliance with section 272 and
    the Commission's implementing rules.[^43] For the reasons explained
    below, we deny SBC's request for confidential treatment pursuant to
    section 0.459 of the Commission's rules.

## Findings

13. As an initial matter, we find that SBC's section 272(d) audit report
    is a required submission for purposes of our analysis here. Section
    272(d) requires each BOC to obtain an audit of its compliance with
    the accounting and non-accounting safeguards contained in section
    272 and the Commission's implementing rules.[^44] Under section
    272(d)(2) and the Commission's rules, the BOC must submit the final
    section 272(d) audit report to the Commission and the state
    commissions for the BOC's region according to a specific schedule.
    We therefore find that the *National Parks* two-prong test must be
    applied here, *i.e.*, we must determine whether disclosure of the
    redacted information would impair our ability to get the information
    in the future or would cause SBC substantial competitive harm.[^45]

14. We reject SBC's argument that disclosure of the information in the
    section 272(d) audit report would impair the Commission's ability to
    obtain comparable information in future audits. Despite SBC's
    suggestion, we believe that all BOCs will comply with this statutory
    audit requirement until this requirement sunsets.[^46] Indeed,
    section 272(d)(3) expressly grants the Commission, the state
    commissions, and the independent auditor access to "the financial
    accounts and records" of the BOC and its affiliates for the purposes
    of the audit.[^47] Because the section 272(d) audit is "a joint
    Federal/State audit . . . conducted by an independent auditor," the
    joint Federal/State audit team and the independent auditor determine
    what information is necessary to evaluate the BOC's compliance.
    Failing to comply with the section 272(d) audit requirement by, for
    example, refusing to furnish information, would be an extremely
    serious matter that would subject SBC to a range of potential
    enforcement actions.

15. As explained below, we also conclude that disclosure of the
    information at issue is not likely to cause SBC substantial
    competitive harm. As with the Verizon case, the information SBC
    seeks to protect is aggregated, both geographically and by
    transaction, already publicly available elsewhere, and dated.[^48]
    Specifically, SBC's information does not provide competitors insight
    into SBC's or SBC's affiliates' strategies in individual markets.
    The Commission's confidentiality decisions for audit information
    have often turned on whether the information is at a summary level
    or is detailed because summary information is much less likely to
    cause competitive harm.[^49] Further, the report does not disclose
    individual transactions or customer information.[^50] Finally, we
    note that our decision here is reinforced by the fact that the
    information is arguably of limited use because it is greater than 12
    months old, mitigating the likelihood of substantial competitive
    harm.[^51]

16. SBC asks for confidential treatment of three categories of
    information: (i) financial and accounting information; (ii)
    performance data depicting SBC's quality of service for certain
    telecommunications services; and (iii) other commercial information.
    We address SBC's request for confidential treatment of each category
    below.

##### Financial/Accounting Information

17. SBC requests confidential treatment for nearly all financial and
    accounting information contained in the section 272(d) audit report.
    In particular, SBC seeks confidential treatment for the dollar value
    of the fixed asset listings for its section 272 affiliates (both in
    total and for switching and transmission facilities of SBC's section
    272 affiliates);[^52] the accounts payable from the section 272
    affiliates to the SBC BOCs;[^53] the dollar value of an asset
    transfer from an SBC BOC to a section 272 affiliate;[^54] the dollar
    value of services provided from the SBC BOCs to their section 272
    affiliates but not made available to third parties;[^55] the dollar
    value of certain services provided by the section 272 affiliate to
    an SBC BOC for certain months;[^56] the dollar value of services
    provided by an SBC BOC to a section 272 affiliate, but not disclosed
    to the independent auditor for testing purposes;[^57] the dollar
    value and sample size of invoiced exchange access services and
    facilities for January 2001;[^58] the dollar value of invoices from
    the SBC BOCs for which SBC's section 272 affiliate could not provide
    documentation;[^59] revenue fluctuations for certain services during
    a four-month period;[^60] the dollar value of discrepancies between
    the amount the BOCs recorded for providing certain
    telecommunications services to their section 272 affiliates and the
    amount paid by the affiliates;[^61] the dollar value of disputed
    charges between the SBC BOCs and their section 272 affiliates;[^62]
    the dollar value of certain tariffed services provided to an
    unaffiliated telecommunications carrier;[^63] a comparison of the
    billing and collection rates between SBC's section 272 affiliate and
    unaffiliated carriers;[^64] the dollar value of certain affiliate
    transactions noted in the comments of the joint Federal/State audit
    team.[^65]

18. We note that in its initial confidentiality request SBC did not
    attempt to support its claim of confidentiality for each redacted
    item. Instead, SBC argued generally that disclosure would impair the
    Commission's ability to conduct audits, that disclosure would reveal
    SBC's marketing plans and operational details for offering long
    distance service, and that competitors could "see the underlying
    costs" incurred by SBC's long distance affiliates.[^66] In addition,
    SBC argued that competitors could "discover specific details that
    indirectly impact how timely the affiliates provide services to
    customers and the quality of service offered."[^67] On March 19,
    2002, SBC supplemented its confidentiality request with additional
    arguments. SBC states that the Commission staff informed SBC that
    information arising out of the section 272(d) that SBC claimed as
    confidential or proprietary would be struck from the final audit
    report.[^68] SBC further argues that the information at issue is
    specific, commercially sensitive information that is exempt from
    disclosure under the FOIA.[^69] Finally, SBC provides a matrix that
    presents, on an item-by-item basis, SBC's argument that the redacted
    information is not relevant to the section 272(d) audit objective
    and SBC's explanation for how disclosure would cause "actual or
    potential competitive harm."[^70]

19. We disagree with SBC that the financial and accounting information
    in the audit report is highly specific data that could cause
    substantial competitive harm to SBC. [^71] None of the information
    represents individual accounting entries; rather, it is accounting
    information accumulated over the course of the one-year audit period
    and represents many individual transactions. Aggregated information
    uncovered during audits, as the Commission has held previously,
    mitigates the likelihood of causing substantial competitive
    harm.[^72] Aggregated information of this nature does not allow
    competitors to gain insight into marketing plans, etc. The section
    272(d) audit report does not, however, contain any "secret,
    commercially valuable plan, formula, process, or device that is used
    for the making, preparing, compounding, processing of trade
    commodities and that can be said to be the end product of either
    innovation or substantial effort."[^73] Nor does the report contain
    technical documentation detailing how SBC employees should operate
    SBC's computer systems, marketing surveys, plans for new products or
    services, memoranda describing technical assessments or evaluations
    of different vendor systems, customer lists, or detailed
    instructions or the source code needed for programming SBC's
    computer systems. We further find that SBC has not adequately
    explained how disclosure would be likely to cause it substantial
    competitive harm.[^74] In brief, nothing about SBC's section 272(d)
    audit report would allow a competitor to provide interLATA
    telecommunications service more efficiently or obtain SBC's
    customers.[^75] We address each category of financial and accounting
    information below.

20. *Fixed Asset Listing*. SBC seeks confidential treatment for the
    total dollar value of assets owned by its section 272
    affiliates.[^76] SBC argues that the asset listing is confidential
    because SBC's competitors are not required to disclose comparable
    information. We disagree. We note that the information is
    aggregated. The report only contains the total value of the assets;
    the report contains no details such as the cost of individual
    assets. We therefore find that disclosure of the fixed asset listing
    is not likely to cause SBC substantial competitive harm.

21. *Accounts Payable of Section 272 Affiliates*. SBC argues that
    disclosing the accounts payable from its section 272 affiliates to
    its BOCs "could show the extent of services purchased" by the
    affiliates and indicate the "sales volumes and markets being
    targeted."[^77] We disagree. The accounts payable information
    neither indicates sales volumes nor suggests which markets SBC is
    targeting to sell its long distance service. The balances are
    aggregated by section 272 affiliate and BOC and could not provide
    insight into specific services the section 272 affiliates provide.
    Further, these amounts represent accounts payable at a single point
    in time; they do not disclose total sales volumes for specific
    services. Even if the accounts payable information did show sales
    volumes or indicate SBC's target markets, it is not clear from SBC's
    initial and supplemental requests how disclosure could cause
    substantial competitive harm. In addition, the information is
    aggregated at the state level, and does not detail activity on an
    account-by-account or service-by-service level. We therefore find
    that disclosure of the accounts payable of SBC's section 272
    affiliates is not likely to cause SBC substantial competitive harm.

22. *Total Billings For Services Not Made Available to Third Parties*.
    SBC argues that disclosing the total dollar value for services not
    made available to third parties would cause competitive harm by
    revealing the section 272 affiliate's "level of marketing expenses"
    and allow competitors to "check the rates and make assumptions
    regarding sales volumes in relation to marketing costs."[^78] We
    disagree for two reasons. First, as noted above, the information is
    highly aggregated (beyond the state level), so that it only shows
    the total billings for a nine-month period by affiliate. The audit
    report does not contain, for example, marketing expenses related to
    specific product offerings. Second, SBC has not made clear how
    disclosure would cause it substantial competitive harm, *i.e.*, how
    a competitor "mak\[ing\] assumptions regarding sales volumes in
    relation to marketing costs" would cause substantial competitive
    harm. We therefore find that disclosure of the total billings for
    services not made available to third parties is not likely to cause
    SBC substantial competitive harm.

23. *Services Provided Between SBC's Section 272 Affiliate and the SBC
    BOCs*. SBC argues that disclosing the dollar value of
    telecommunications services billed by the section 272 affiliate to
    the BOC, and the amount paid by the BOC for such services, would
    allow competitors to "determine the exact extent and nature of
    competitive services provide by the 272 affiliates."[^79] Similarly,
    SBC argues that disclosing the dollar value of local
    telecommunications services purchased by its section 272 affiliate
    from the SBC BOCs would reveal the "extent and location of 272
    affiliate operations." SBC also contends that the total amounts
    charged by the SBC BOCs for exchange access services provided to the
    section 272 affiliates "reveals potentially competitive marketing
    information," disclosure of which could result in "unnecessary and
    unjustified concern on the part of non-affiliated entities."[^80] We
    note, however, that SBC itself already advertises the availability
    and details of the competitive services provided by its long
    distance affiliates.[^81] In addition, SBC discloses similar
    (although more aggregated) information pursuant to the Commission's
    Part 32 affiliate transactions rules and Part 43 reporting
    requirements.[^82] We disagree that disclosure would likely pose
    substantial competitive harm. The information in the audit report
    merely informs the reader of potential discrepancies between the
    amount billed by SBC's section 272 affiliate and the amount paid by
    the BOC. This information is needed to evaluate whether the BOC is
    adhering to the Commission's rules intended to ensure the
    relationship takes place at arm's length, but does not appear to
    provide any competitive advantage to SBC's competitors.[^83]
    Finally, we conclude that neither SBC's initial confidentiality
    request nor subsequent filing adequately explains how disclosure
    could cause substantial competitive harm. We therefore find that
    disclosure of the dollar value of services provided between SBC's
    section 272 affiliate and the SBC BOCs is not likely to cause SBC
    substantial competitive harm.

24. *Revenues for Incidental InterLATA Services.* SBC argues that
    disclosing the revenue amounts for incidental interLATA services
    would reveal "detailed revenue information about the specific lines
    of BOC competitive businesses."[^84] We disagree. The revenue
    information for certain services is highly aggregated into three
    categories, *i.e.,* amounts for Southwestern Bell, all the former
    Ameritech states, and Pacific Bell. Further, these aggregated
    revenues provide no transaction detail, such as the amount SBC
    charges specific customers for these services, the associated
    volumes of use, or the marketing costs associated with these
    services. Further, SBC has not explained why disclosure of this
    information is likely to cause it substantial competitive harm. We
    therefore find that disclosure of the revenues for incidental
    interLATA services is not likely to cause SBC substantial
    competitive harm.

##### Performance Data

25. SBC requests confidential treatment for the performance data
    gathered to demonstrate its compliance with section 272(e) for two
    reasons. First, SBC argues that disclosure could allow its
    competitors to "discover specific details that indirectly impact how
    timely the affiliates provide services to customers and the quality
    of service offered."[^85] Second, SBC argues that the information is
    irrelevant, containing only "\[m\]eaningless variances . . . that
    could have unnecessary negative consequences for SBC and may result
    in unnecessary and unjustified concern on the part of non-affiliated
    entities as well as other parties (*e.g.*, regulators)."

26. We reject SBC's request for confidential treatment for two reasons.
    First, the performance data at issue is summary information
    aggregated between the categories "BOC and Affiliates" and
    "Non-Affiliates." The performance data is also aggregated at the
    state level. As with the financial information in the audit report,
    these data do not represent individual transactions, but are a
    roll-up of a number of transactions. Thus, a competitor could not
    use this performance data to identify a specific SBC customer in a
    specific market to provide a targeted service offering. Nor could an
    SBC competitor use these data to provide interLATA
    telecommunications service more efficiently; the performance data
    does not (by itself or in conjunction with any other information)
    provide competing carriers with more efficient methods for serving
    customers or with the information needed to develop an innovative
    new telecommunications service offering. Thus, disclosure of the
    performance data does not pose substantial competitive harm to SBC.
    We also note that SBC, along with the other largest incumbent local
    exchange carriers, regularly submit similar performance data
    publicly to the Commission in various contexts.[^86]

27. Second, SBC's request does not provide adequate grounds for granting
    confidential treatment of these performance data. Embarrassing
    facts, "unnecessary negative consequences for SBC," or "unnecessary
    and unjustified concern" on the part of regulators do not constitute
    grounds for exempting information from disclosure.[^87]

28. We are concerned with SBC's contention that these performance data
    are irrelevant for assessing its compliance with section 272(e).
    Indeed, in the *SWBT Texas § 271 Order*, SBC submitted affidavits
    that contained the reporting format it planned to use to demonstrate
    compliance with the section 272(e) nondiscrimination
    safeguards.[^88] In fact, the Commission relied on SBC's
    representations to make an affirmative finding that SBC demonstrated
    compliance with section 272 during the section 271 application
    process.[^89] Because the Commission has already concluded that the
    data contained in the SBC Section 272(d) Audit Report are useful for
    evaluating compliance with section 272(e), we reject SBC's arguments
    based on the relevancy of this information for the purposes of this
    audit. In sum, we find that disclosure of SBC's performance data is
    not likely to cause SBC substantial competitive harm.

##### Other Commercial Information

29. *Leases*. SBC seeks confidential treatment for the number of, and
    total dollar value of, leases entered into by SBC's section 272
    affiliates that are greater than \$500,000 per year.[^90] SBC argues
    that this information is confidential because its competitors are
    not required to reveal the same information and because the
    information would give its competitors insight into its strategies
    to lease versus own office space. We disagree. The lease information
    is highly aggregated; the audit report does not disclose what is
    being leased, the location, or the terms of the transactions. The
    audit report does not disclose any leases under the \$500,000
    threshold, or reveal the affiliates' lease versus buy decisions for
    individual markets. Thus, we find that disclosure is not likely to
    cause SBC substantial competitive harm.

30. *Business Locations*. We likewise find that the information about
    the business locations of SBC's section 272 affiliates is
    summary-level and that disclosure does not pose substantial
    competitive harm nor a security risk to SBC.[^91] This information
    includes only the number of section 272 affiliate employees by
    geographical location and general department. This is summary
    information because it does not, for example, reveal how many
    employees SBC has devoted to marketing specific services, their
    individual qualifications, or SBC's hiring criteria. Nor does the
    information reveal specific employee information such as names or
    positions. As a result, we find that a competitor could not use this
    information to build its own marketing plan to steal customers from
    SBC. We therefore find that disclosure of SBC's section 272 business
    locations is not likely to cause SBC substantial competitive harm
    nor pose a security risk.

31. *Bonus Calculation*. SBC argues that the bonus calculation formula
    is confidential because "businesses generally do not reveal how they
    pay bonuses."[^92] We disagree. First, we note that SBC has not
    shown with particularity how a competitor could use the bonus
    calculation information to harm SBC. Second, the calculation does
    not appear to reveal the bonus calculation for any individual
    employee or to provide enough specificity for competitors to
    ascertain SBC's compensation methods. As a result, the information
    does not reveal SBC's calculation for specific employees. We further
    find that the information is relevant for determining whether the
    performance of managers of SBC's section 272 affiliates is tied to
    the performance of the SBC BOCs, *i.e.,* whether there is
    operational independence between the companies. We therefore find
    that disclosure of the bonus calculation is not likely to cause SBC
    substantial competitive harm.

32. *Vendor and Other Party Names*. For the two types of information at
    issue here, *i.e.,* the name of an SBC carrier customer and the
    names of vendors from whom SBC buys certain services, SBC argues
    that it would be inappropriate to disclose customer names,[^93] and
    it has a contractual obligation "to not reveal vendor names and
    other vendor information."[^94] We agree. Unlike the other
    categories of redacted information, this contains the names of
    specific unaffiliated parties. We recognize the substantial
    competitive harm that could result if the names of SBC business
    partners were disclosed involuntarily. In addition, we do not see
    how company names, as opposed to underlying facts that might suggest
    possible discrimination, are relevant to SBC's compliance with
    section 272 and the Commission's rules. Because of our conclusion
    that this information is not relevant to the subject of the audit,
    we need not reach whether, despite any competitive harm, it must
    nevertheless be made publicly available under the *Section 272(d)
    Audit Order*. As a result, we grant SBC's request for redaction of
    SBC customer and vendor names.

##### Public Interest

33. In addition to the two prongs of the *National Parks* test, the
    Commission has historically applied a public interest test to
    determine whether audit information should be made public.[^95] We
    find that the public interest would be served by release here.
    Public disclosure of the audit results will promote meaningful
    comment on the audit results pursuant to section 272(d)(2) and
    thereby help the Commission to determine whether SBC has complied
    with section 272 and the Commission's implementing rules. We note
    that Verizon's section 272 audit report drew comments from two of
    the largest long-distance competitors, AT&T and WorldCom.[^96] Many
    of these comments focused on information similar to that SBC seeks
    to shield here, *e.g.,* section 272(e)(1) performance data. We also
    note that the Commission has indicated in its past 0.459 decisions
    that the public interest test is met when the information at issue
    could form the basis of an enforcement action.[^97] SBC's audit
    results here, as carrier audit results elsewhere, could form the
    basis of enforcement actions. Finally, we find that the audit
    results here may be relevant to parties commenting on the
    Commission's *Separate Affiliate Sunset NPRM*.[^98]

34. SBC argues that the redacted audit report contains all information
    necessary for parties to judge SBC's compliance with section 272.
    Stated differently, SBC argues that the redacted information would
    add nothing to parties' evaluation of SBC's section 272 compliance.
    We disagree.[^99] We find it significant that the information SBC
    redacted from its audit report is substantially the same as that
    Verizon redacted from its audit report.[^100] After disclosure of
    all Verizon's audit information, parties filed comments, *e.g.,* on
    Verizon's section 272(e)(1) performance data.[^101] The redacted
    information bears directly on SBC's compliance with, *inter alia*,
    the section 272(b)(1) requirement to operate independently,[^102]
    the section 272(b)(3) requirement to use separate employees,[^103]
    the section 272(b)(4) requirement addressing credit
    arrangements,[^104] the section 272(b)(5) and (c)(2) accounting
    requirements,[^105] the section 272(c)(1) nondiscrimination
    safeguards,[^106] and the section 272(e) nondiscrimination
    safeguards.[^107]

35. Finally, we reject SBC's request to limit access to the audit
    information with a Protective agreement. As the Commission has
    stated previously, protective agreements should not be used for
    otherwise unprotected information.[^108] And, as we noted in the
    *Verizon Section 272 Audit Reconsideration Order*, protective
    agreements necessarily limit access to information.[^109]

36. For the foregoing reasons, we decline to grant SBC's request for
    confidential treatment of the information contained in the final
    section 272(d) audit report.

# Ordering Clauses

37. Accordingly, IT IS ORDERED, pursuant to sections 4(i), 220, and
    272(d) of the Act, 47 U.S.C. §§ 4(i), 220, and 272(d), that SBC's
    request for confidential treatment of the section 272(d) audit
    report, as noted and described herein, IS DENIED for the reasons
    indicated in this Order.

38. IT IS FURTHER ORDERED, pursuant to sections 4(i), 220, and 272(d) of
    the Act, 47 U.S.C. §§ 4(i), 220, and 272(d), that SBC's independent
    auditor file the unredacted version of SBC's final section 272(d)
    audit report in this docket, without restrictions as to disclosure,
    within ten days, subject to paragraph 39 below.

39. IT IS FURTHER ORDERED, pursuant to 0.459(g) of the Commission's
    rules, 47 C.F.R. § 0.459(g), that SBC has five working days from
    telephone notice of this decision to seek a judicial stay of this
    decision. If SBC seeks a judicial stay, the information in the
    section 272(d) audit report for which confidentiality is requested
    will be treated as confidential until the court acts on such a stay
    request.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch
>
> Secretary

[^1]: *See* 47 U.S.C. § 272(d).

[^2]: The Commission considers a BOC's compliance with section 272
    during the section 271 application process. *See, e.g.*,
    *Application of Bell Atlantic New York for Authorization under
    Section 271 of the Communications Act to Provide In‑Region,
    InterLATA Service in the State of New York*, CC Docket No. 99‑295,
    Memorandum Opinion and Order, 15 FCC Rcd 3953, ¶¶ 401-21 (1999)
    (subsequent history omitted).

[^3]: *See* 47 U.S.C. § 272(d); 47 C.F.R. § 53.209.

[^4]: *See* *Accounting Safeguards Under the Telecommunications Act of
    1996*, CC Docket No. 96-150, Report and Order, 11 FCC Rcd 17359
    (1996) (*Accounting Safeguards Order*), Second Order on
    Reconsideration, 15 FCC Rcd 1161 (2000); *Implementation of the
    Non-Accounting Safeguards of Sections 271 and 272 of the
    Communications Act of 1934, as Amended*, CC Docket No. 96-149, First
    Report and Order and Further Notice of Proposed Rulemaking, 11 FCC
    Rcd 21905 (1996) (*Non-Accounting Safeguards Order*), First Order on
    Reconsideration, 12 FCC Rcd 2297 (1997), Second Order on
    Reconsideration, 12 FCC Rcd 8653 (1997), *aff'd sub nom. Bell
    Atlantic Telephone Companies v. FCC*, 131 F.3d 1044 (D.C. Cir.
    1997), Third Order on Reconsideration, 14 FCC Rcd 16299 (1999); *see
    also* 47 C.F.R. §§ 32.27, 53.1-53.213, 64.901-64.904.

[^5]: *See Accounting Safeguards Order* at ¶ 13; *see also
    Non-Accounting Safeguards Order* at ¶¶ 15-16.

[^6]: *See* 47 C.F.R. §§ 53.209-213; *see Accounting Safeguards Order*
    at ¶¶ 197-205.

[^7]: *See* *Proposed Model for Preliminary Biennial Audit
    Requirements*, Public Notice, 12 FCC Rcd 13132 (1997) (*Proposed
    Model Biennial Audit Requirements*).

[^8]: By "final audit report," we mean the report submitted on December
    17, 2001.

[^9]: *See* Letter from Anu Seam, Senior Counsel, SBC, to Magalie Salas,
    Secretary, Federal Communications Commission (Dec. 17, 2001) (*SBC
    December 17, 2001 Confidentiality Request*) Thus, SBC redacted
    information on 42 percent of the pages in the final audit report
    (excluding the title and table of contents pages). By comparison,
    Verizon redacted information on twenty-eight of eighty-seven pages
    in its section 272 audit report, or 32 percent. *See* *Accounting
    Safeguards Under the Telecommunications Act of 1996: Section 272
    Biennial Audit Procedures*, CC Docket No. 96-150, Memorandum Opinion
    and Order, 17 FCC Rcd 1374, 1375, at ¶ 4 (2002) (*Section 272(d)
    Audit Order*).

[^10]: *See Section 272(d) Audit Order*, 17 FCC Rcd at 1375-76, ¶¶ 5-6.

[^11]: *Id*. at ¶ 13.

[^12]: Letter from Joan Marsh, Director, Federal Government Affairs,
    AT&T Corporation to Magalie Roman Salas, Secretary, Federal
    Communications Commission (Feb. 12, 2002) (*AT&T February 12, 2002
    Letter*).

[^13]: Letter from Michelle Thomas, Executive Director -- Federal
    Regulatory, SBC, to William F. Caton, Acting Secretary, Federal
    Communications Commission (Mar. 19, 2002) (*SBC March 19, 2002
    Supplemental Confidentiality Request*).

[^14]: *See Accounting Safeguards Under the Telecommunications Act of
    1996: Section 272 Biennial Audit Procedures,* CC Docket No. 96-150,
    Order on Reconsideration, 2002 WL 534612, FCC 02-111 (rel. Apr. 11,
    2002) (*Section 272(d) Audit Order on Reconsideration*).

[^15]: Letter from H. Russell Frisby, Jr., President, CompTel, to
    Michael K. Powell, Chairman, Federal Communications Commission (July
    30, 2002).

[^16]: As explained below, we do not require disclosure of certain
    irrelevant information relating to the names of specific customers
    and vendors. *See* ¶ 32, *infra*.

[^17]: *See* *Section 272(d) Audit Order*, 17 FCC Rcd at 1375-77, ¶¶
    5-8.

[^18]: 47 U.S.C. § 272(d) (2).

[^19]: *See Section 272(d) Audit Order*, 17 FCC Rcd at 1376-77, ¶ 7;
    *Accounting Safeguards Order* at ¶ 197 (concluding that the purpose
    of the section 272(d) audit is to determine whether the BOCs and
    their separate affiliates are complying with the section 272
    requirements); *Non-Accounting Safeguards Order* at ¶ 323 (stating
    that the "broad audit requirement is intended to verify BOC
    compliance with the accounting and non-accounting requirements").

[^20]: *See Section 272(d) Audit Order*, 17 FCC Rcd at 1380-83, ¶¶
    13-20.

[^21]: *See id.* at 1381-82, ¶ 16.

[^22]: *See id.* at 1381-82, ¶¶ 16-19.

[^23]: 47 C.F.R. § 0.459.

[^24]: 5 U.S.C. § 552(b)(4); *Section 272(d) Audit Order*, 17 FCC Rcd at
    1380, ¶ 13.

[^25]: *See, e.g., Gulf & Western Indus. v. United States*. For purposes
    of this order, we assume the commercial or financial and "from a
    person" requirements are met. Our analysis will focus on the
    "confidential or proprietary" prong.

[^26]: *See National Parks and Conservation Ass'n v. Morton*, 498 F.2d
    765, 770 (D.C. Cir. 1974) (*National Parks)*; *Critical Mass Energy
    Project v. NRC*, 975 F.2d 871 (D.C. Cir. 1992) (en banc) (*Critical
    Mass*).

[^27]: *See* *Critical Mass*, 975 F.2d at 880.

[^28]: *See Critical Mass*, 975 F.2d at 879.

[^29]: *Critical Mass*, 975 F.2d at 879.

[^30]: *National Parks*, 498 F.2d at 770.

[^31]: *See* *Examination of Current Policy Concerning the Treatment of
    Confidential Information Submitted to the Commission*, Report and
    Order, 13 FCC Rcd 24816 at ¶ 53 (1998) (*Confidential Treatment
    Policy*), *Order on Reconsideration*, 14 FCC Rcd 20128 (1999).

[^32]: *See* 47 C.F.R. §§ 0.459(b)(3), (b)(5).

[^33]: *See* 47 C.F.R. § 0.459(b)(5).

[^34]: *See* 47 C.F.R. § 0.459(b)(6).

[^35]: *See* 47 C.F.R. § 0.459(b)(7).

[^36]: *Id.* at § 0.459(c).

[^37]: *See SBC December 17, 2001 Confidentiality Request*.

[^38]: *See SBC March 19, 2002 Supplemental Confidentiality Request*.

[^39]: *See SBC December 17, 2001 Confidentiality Request* at 3.

[^40]: *See SBC March 19, 2002 Supplemental Confidentiality Request* at
    8. SBC also states that it will not "willingly agree to include
    additional information not specifically necessary to assess
    compliance with the relevant requirements." *Id.*

[^41]: *See SBC December 17, 2001 Confidentiality Request* at 3-4.

[^42]: *See SBC March 19, 2002 Supplemental Confidentiality Request* at
    A-6.

[^43]: *Id*. at 1.

[^44]: 47 U.S.C. § 272(d); *see* 47 C.F.R. § 53.209-.213.

[^45]: *See* n. 30 *supra*.

[^46]: The Commission is currently considering whether to sunset section
    272's structural separation and related requirements. *See Section
    272(f)(1) Sunset of the BOC Separate Affiliate and Related
    Requirements*, WC Docket No. 02-112, Notice of Proposed Rulemaking,
    FCC 02-148 (rel. May 24, 2002) (*Separate Affiliate Sunset NPRM*).

[^47]: 47 U.S.C. § 272(d)(3).

[^48]: *See* *Section 272(d) Audit Order*, 17 FCC Rcd at 1381-82, ¶¶
    16-19.

[^49]: *See National Exchange Carrier Association, Inc., et al.,
    Requests for Confidential Treatment of Certain Financial
    Information,* Memorandum Opinion and Order, 5 FCC Rcd 7184 (1990)
    (*NECA Order*); *BellSouth Corp., BellSouth Telecommunications, Inc.
    Request for Confidential Treatment of Certain Financial Information
    and Release of Audit Findings*, AAD 93-127, Memorandum Opinion and
    Order, 8 FCC Rcd 8129 (1993); *Bell Telephone Operating Companies,
    Requests for Confidential Treatment of Certain Commercial and
    Financial Information and Release of Summary of Audit Findings,* 10
    FCC Rcd 11541 (1995). In the recent *Qwest* case, the Court of
    Appeals for the D.C. Circuit affirmed the Commission's authority to
    release audit data under section 220 of the Act. *Qwest
    Communications International, Inc. v. FCC,* 229 F.3d 1172 (2000).
    The court did find, however, found that the Commission did not
    sufficiently explain its rationale for disclosing "raw audit data."
    *See id.* at 1173. Raw audit data meant individual assets and their
    costs, as recorded in the carriers' books. *See id.* at 1175.

[^50]: There is an exception where the independent auditor identified
    customer and vendor names. *See* SBC Redacted Section 272 Audit
    Report at 39, Attachment A-2. We will not require disclosure of
    these items as they have no bearing on SBC's compliance with section
    272.

[^51]: *See, e.g., Africa Fund v. Mosbacher*, No. 92-289, 1993 WL
    183736, at \*8 (S.D.N.Y May 23, 1993) (rejecting argument that
    exemption is permanent because "\[w\]hat today may be deemed . . . a
    'trade secret' quite conceivably may be of little consequence
    tomorrow"); *Lee v. FDIC*, 923 F.Supp. 451, 455 (S.D.N.Y. 1996)
    (potential harm caused two-year-old information "would seem likely
    to have mitigated with the passage of time").

[^52]: *SBC Section 272(d) Audit Report* at 2, 3.

[^53]: *Id.* at 10.

[^54]: *Id.* at 16, 23.

[^55]: *Id.* at 20.

[^56]: *Id.* at 21.

[^57]: *Id.* at 26.

[^58]: *Id.* at 32.

[^59]: *Id.* at 33.

[^60]: *Id.* at 34-36.

[^61]: *Id.* at 37.

[^62]: *Id.* at 37.

[^63]: *Id.* at 39.

[^64]: *Id.* at Attach. A-5a, A-5b, A-5c.

[^65]: *Id.* at Attach B-1, 1-2.

[^66]: *See generally SBC December 17, 2001 Confidentiality Request*.

[^67]: *Id.*

[^68]: *SBC Supplemental Confidentiality Request* at 3-4, n.12.

[^69]: *Id.* at 7-9.

[^70]: *Id.* at Attachment.

[^71]: We stress that nothing about this decision releases the
    independent auditor's workpapers, which contain more detailed,
    disaggregated information than the audit report.

[^72]: *See Confidential Treatment Policy* at ¶ 55.

[^73]: *Public Citizen Health Research Group v. FDA,* 704 F.2d 1280,
    1288 (D.C. Cir. 1983).

[^74]: *See* 47 C.F.R. § 0.459(b)(5).

[^75]: As discussed below, we do find that some customer information
    could be disclosed through the audit report, and do not therefore
    require disclosure of that information.

[^76]: *See* SBC Redacted Audit Report at 2-3. We note that the
    independent auditor included the information in the report only
    because SBC could not prove that the assets were not owned jointly
    with the SBC BOCs.

[^77]: *Id.* at Attachment, 2 (addressing SBC Section 272(d) Audit
    Report at 10).

[^78]: *Id.*

[^79]: *Id.* at Attachment, 3.

[^80]: SBC also argues that competitors "can use tariff rates and
    determine the 272 affiliate's minutes of use and other sales and
    volume information, thus gaining useful information about the extent
    of the 272 affiliate's operations." It is not at all clear from
    SBC's request, however, precisely how a competitor could use this
    information to obtain a competitive advantage by, for example,
    providing interLATA telecommunications service more efficiently.

[^81]: *See, e.g.*,
    <http://www.swbell.com/Products_Services/Business/Catalog/1,1965,17-0-6-1-17,00.html>
    (visited July 18, 2002); *Niagra Mohawk Power Corp. v. United States
    Dep't of Energy*, 169 F.3d 16***,*** 19 (D.C. Cir. 1998) (Exemption
    4 cannot be used to protect information already in the public
    domain); *Anderson v. HHS*, 907 F.2d 936, 952 (10^th^ Cir. 1990)
    ("\[N\]o meritorious claim of confidentiality" can be made if
    information is in the public domain).

[^82]: *See* 47 C.F.R. §§ 32.27, Part 43;
    <http://www.fcc.gov/wcb/armis/instructions/>. SBC's asset and
    services affiliate transactions appear in Automated Reporting
    Management Information System (ARMIS) Report 43-02 (Uniform Systems
    of Accounts Report), Tables B-4 (Analysis of Assets Purchased From
    or Sold to Affiliates) and I-2 (Analysis of Services Purchased From
    or Sold to Affiliates).

[^83]: In particular, the Commission's Part 32 affiliate transactions
    rules establish a specific hierarchy for recording the costs of
    transactions between a BOC and its section 272 affiliate. *See* 47
    C.F.R. § 32.27. For tariffed telecommunications services (such as
    those listed in Table 6 of the SBC Section 272 Audit Report), the
    BOC must record the cost of these transactions at the tariffed
    rates.

[^84]: *Id.* at Attachment, 4.

[^85]: *SBC December 17, 2001 Confidentiality Request* at 4.

[^86]: *See, e.g.,* <http://www.fcc.gov/wcb/armis/>. These are
    performance data that SBC submits into the Commission's ARMIS
    system. *See* 47 C.F.R. § 43.21.

[^87]: *See CNA Fin. Corp. v. Donovan*, 830 F.2d 1132, 1154 (D.C. Cir.
    1987).

[^88]: *SWBT Texas § 271 Order* at ¶ 412, n.1198.

[^89]: Pursuant to section 271(d)(3)(B), the Commission shall not
    approve a BOC's section 271 application unless it finds, among other
    things, that the authorization "will be carried out in accordance
    with the requirements of section 272." 47 U.S.C. § 271(d)(3)(B).

[^90]: *See* SBC Redacted Audit Report at 5, 10.

[^91]: *See SBC March 19, 2002 Supplemental Confidentiality Request* at
    6, Attachment, 6.

[^92]: *See SBC March 19, 2002 Supplemental Confidentiality Request* at
    Attachment, 1.

[^93]: *Id.* at Attachment, 5.

[^94]: *Id.* at Attachment, 6

[^95]: *See Confidential Treatment Policy* at ¶ 53.

[^96]: *See* Comments of AT&T and WorldCom in CC Docket No. 96-150
    (filed April 8, 2002).

[^97]: *See NECA Order* at ¶ 7.

[^98]: *See* n.46 *supra***.**

[^99]: We disagree except for the limited category of vendor and other
    company names described above. *See* ¶ 32 *supra***.**

[^100]: For example, the section 272(e)(1) performance data is similar
    in SBC's and Verizon's audit reports. Verizon's report contains the
    performance data for Verizon (including Verizon affiliates) and
    non-affiliates, for regular and high-speed services. *See* Verizon
    section 272 audit report at Appendix A, Tables 14(a), 14(b), and
    14(c). SBC's report divides the data between SBC (including SBC
    affiliates) and non-affiliates, for DS-0, DS-1, and DS-3 services.
    *See* SBC Redacted Section 272 Audit Report at Attachment A-7.

[^101]: *See* n.96 *supra***.**

[^102]: *See id*. at 1-2.

[^103]: *See id*. at 5-9.

[^104]: *See id*. at 9.

[^105]: *See id*. at 10-22.

[^106]: *See id*. at 23-28.

[^107]: *See id*. at 29-30, Attachment A-7; *Section 272(d) Audit Order*
    17 FCC Rcd at 1377-78, ¶ 8.

[^108]: *See Confidential Treatment Policy* at ¶ 22.

[^109]: *See Section 272(d) Audit Order on Reconsideration* at ¶ 3.