Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

In re Applications of )

)

AMERITECH CORP., )

Transferor, )

)

AND )

)

SBC COMMUNICATIONS INC., ) CC Docket No. 98-141

Transferee, )

)

For Consent to Transfer Control of )

Corporations Holding Commission Licenses )

and Lines Pursuant to Sections 214 )

and 310(d) of the Communications Act )

and Parts 5, 22, 24, 25, 63, 90, 95 and 101 )

of the Commission's Rules )

MEMORANDUM OPINION AND ORDER

**Adopted: October 6, 1999 Released: October 8, 1999**

By the Commission: Commissioner Ness issuing a statement; Commissioners
Furchtgott-Roth and Powell concurring in part, dissenting in part, and
issuing separate statements; Commissioner Tristani issuing a statement.

TABLE OF CONTENTS

**Page**

I. INTRODUCTION [5](#introduction)

II\. EXECUTIVE SUMMARY [6](#executive-summary)

III\. BACKGROUND [8](#background)

A. The Applicants [8](#the-applicants)

1\. A Changing Industry [11](#a-changing-industry)

2\. State of Local Competition in SBC and Ameritech Regions
[12](#state-of-local-competition-in-sbc-and-ameritech-regions)

B. The Merger Transaction and Review Process
[18](#the-merger-transaction-and-review-process)

1\. Department of Justice Review [19](#department-of-justice-review)

2\. State and International Review [20](#state-and-international-review)

3\. Commission Review [22](#commission-review)

IV\. PUBLIC INTEREST FRAMEWORK [25](#public-interest-framework)

V. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS
[30](#analysis-of-potential-public-interest-harms)

A. Overview [30](#overview)

B. Analysis of Competitive Effects
[32](#analysis-of-competitive-effects)

1\. Competition Between SBC and Ameritech
[32](#competition-between-sbc-and-ameritech)

2\. Local Exchange and Exchange Access Services
[34](#local-exchange-and-exchange-access-services)

C. Comparative Practices Analysis [49](#comparative-practices-analysis)

1\. Need for Comparative Practices Analyses
[51](#need-for-comparative-practices-analyses)

2\. Effect of Reduction in Number of Benchmarks
[55](#effect-of-reduction-in-number-of-benchmarks)

3\. The Value of Comparative Practices Analyses
[59](#the-value-of-comparative-practices-analyses)

4\. Adverse Effects of SBC/Ameritech Merger
[69](#adverse-effects-of-sbcameritech-merger)

5\. Continued Need for Major Incumbent LEC Benchmarks
[75](#continued-need-for-major-incumbent-lec-benchmarks)

6\. Conclusion [83](#conclusion)

D. Increased Discrimination [84](#increased-discrimination)

1\. Overview [84](#overview-1)

2\. Analysis [88](#analysis)

VI\. ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS
[114](#analysis-of-potential-public-interest-benefits)

A. National-Local Strategy [115](#national-local-strategy)

1\. The Benefits are Not Merger-Specific
[119](#the-benefits-are-not-merger-specific)

2\. Magnitude of the Claimed Benefits
[131](#magnitude-of-the-claimed-benefits)

B. Efficiencies [135](#efficiencies)

1\. Cost Savings [137](#cost-savings)

2\. Revenue Enhancements [139](#revenue-enhancements)

3\. Long Distance [141](#long-distance)

C. Other Product Markets [141](#other-product-markets)

VII\. CONDITIONS [143](#conditions)

A. Open Process [144](#open-process)

B. Adopted Conditions [145](#adopted-conditions)

1\. Promoting Equitable and Efficient Advanced Services Deployment
[148](#promoting-equitable-and-efficient-advanced-services-deployment)

2\. Ensuring Open Local Markets [156](#ensuring-open-local-markets)

3\. Fostering Out-of-Territory Competition
[166](#fostering-out-of-territory-competition)

4\. Improving Residential Phone Service
[167](#improving-residential-phone-service)

5\. Ensuring Compliance with and Enforcement of these Conditions
[170](#ensuring-compliance-with-and-enforcement-of-these-conditions)

C. Benefits of Conditions [175](#benefits-of-conditions)

1\. Mitigating Harm from Loss of Potential Competition
[176](#mitigating-harm-from-loss-of-potential-competition)

2\. Mitigating Harm from Loss of Benchmarks
[177](#mitigating-harm-from-loss-of-benchmarks)

3\. Mitigating Harm from Potential Increased Discrimination
[178](#mitigating-harm-from-potential-increased-discrimination)

4\. Additional Benefits from Conditions
[180](#additional-benefits-from-conditions)

D. Other Requested Conditions or Modifications to Proffered Conditions
[181](#other-requested-conditions-or-modifications-to-proffered-conditions)

1\. Separate Affiliate for Advanced Services
[182](#separate-affiliate-for-advanced-services)

2\. Requests Regarding Other Conditions
[198](#requests-regarding-other-conditions)

VIII\. OTHER ISSUES [214](#other-issues-1)

A. Wireless Services [214](#wireless-services)

1\. Wireless Service Offerings [214](#wireless-service-offerings)

2\. Relevant Markets [215](#relevant-markets-1)

3\. Mobile Voice Telephone Services
[215](#mobile-voice-telephone-services)

4\. Two-way Wireless Data Services
[217](#two-way-wireless-data-services)

5\. Paging Services [217](#paging-services)

6\. Other Competitive Issues [217](#other-competitive-issues)

B. International Issues [218](#international-issues)

1\. SBC Foreign Carrier Affiliations
[218](#sbc-foreign-carrier-affiliations)

2\. Ameritech Foreign Carrier Affiliations
[221](#ameritech-foreign-carrier-affiliations)

C. Alarm Monitoring [223](#alarm-monitoring)

1\. Overview [223](#overview-2)

2\. Analysis [225](#analysis-1)

3\. AICC Motion on Smith Alarm [231](#aicc-motion-on-smith-alarm)

D. Cable Overbuild Issues [232](#cable-overbuild-issues)

E. Service Quality Issues [234](#service-quality-issues)

F. Public Interest Issues Involving SBC\'s Acquisition of the Ameritech
Licenses and Lines
[236](#public-interest-issues-involving-sbcs-acquisition-of-the-ameritech-licenses-and-lines)

G. Requests for Evidentiary Hearing
[239](#requests-for-evidentiary-hearing)

IX\. ORDERING CLAUSES [243](#ordering-clauses)

APPENDIX A: Public Record Filings

A. List of Commenters and Filings

B. List of Participants in Public Forum on Merger Conditions

APPENDIX B: Summary of Confidential Information and Conclusions

\[TEXT NOT AVAILABLE IN PUBLICLY RELEASED VERSION\]

A. Each Applicant's Plans to Compete Outside Its Home Region

1\. Ameritech's Out-of-Region Plans

2\. SBC's Out-of-Region Plans

3\. Conclusion

B. Additional Information Pertaining to the Analysis of Potential Public
Benefits

APPENDIX C: Conditions

# INTRODUCTION

1 In this Order, we consider the joint applications filed by SBC
Communications Inc. (SBC) and Ameritech Corporation (Ameritech) pursuant
to sections 214(a) and 310(d) of the Communications Act of 1934, as
amended (Communications Act),[^1] for approval to transfer control of
licenses and lines from Ameritech to SBC in connection with their
proposed merger.[^2] Before we can grant their applications, SBC and
Ameritech (collectively, Applicants) must demonstrate that their
proposed transaction will serve the public interest, convenience, and
necessity.[^3] After lengthy discussions with Commission staff and
consideration of public comments in this proceeding, SBC and Ameritech
supplemented their initial application by attaching to it proposed
conditions representing a set of voluntary commitments.

2 We conclude that approval of the applications to transfer control of
Commission licenses and lines from Ameritech to SBC is in the public
interest because such approval is subject to significant and enforceable
conditions designed to mitigate the potential public interest harms of
their merger, to open up the local markets of these Regional Bell
Operating Companies (RBOCs), and to strengthen the merged firm's
incentives to expand competition outside its regions. We believe that
the proposed voluntary commitments by SBC and Ameritech substantially
mitigate the potential public interest harms while providing public
interest benefits that extend beyond those contained in the original
applications.

3 Specifically, we conclude in this Order that the proposed merger of
these RBOCs threatens to harm consumers of telecommunications services
by: (a) denying them the benefits of future probable competition between
the merging firms; (b) undermining the ability of regulators and
competitors to implement the pro-competitive, deregulatory framework for
local telecommunications that was adopted by Congress in the
Telecommunications Act of 1996; and (c) increasing the merged entity's
incentives and ability to raise entry barriers to, and otherwise
discriminate against, entrants into the local markets of these RBOCs
.[^4] Furthermore, the asserted benefits of the proposed merger, absent
conditions, do not outweigh these significant harms, as described
herein.

4 The proposed conditions, however, change the public interest balance.
We expect that with these conditions, competition in the provision of
local exchange services, including advanced services, will increase both
inside and outside the merged firm's region. Accordingly, assuming the
Applicants' ongoing compliance with the conditions described in this
Order, we find that the Applicants have demonstrated that the proposed
transfer of licenses and lines from Ameritech to SBC serves the public
interest, convenience, and necessity.

# EXECUTIVE SUMMARY

5 To implement the dismantling of the Bell System, seven Regional Bell
Operating Companies were created in 1984. After the mergers of SBC with
Pacific Telesis and Bell Atlantic with NYNEX, five RBOCs remain. The
instant proceeding concerns the proposed transfer of licenses and lines
attendant upon a proposed merger of two RBOCs, SBC and Ameritech. We
conclude that, with the conditions adopted by this Order, the Applicants
have demonstrated that the proposed transfer of licenses and lines from
Ameritech to SBC will serve the public interest, convenience, and
necessity. We also make the following determinations in support of this
conclusion:

-   [Harms]{.underline} -- The proposed merger of these RBOCs threatens
    to harm consumers of telecommunications services in three distinct,
    but interrelated, ways.

1)  The merger will remove one of the most significant potential
    participants in local telecommunications mass markets both within
    and outside of each company's region.

2)  The merger will substantially reduce the Commission's ability to
    implement the market-opening requirements of the 1996 Act by
    comparative practice oversight methods.[^5] Contrary to the
    deregulatory, competitive purpose of the 1996 Act, this will, in
    turn, increase the duration of the entrenched firms' market power
    and raise the costs of regulating them.

3)  The merger will increase the incentive and ability of the merged
    entity to discriminate against its rivals, particularly with respect
    to the provision of advanced telecommunications services. This is
    likely to frustrate the Commission's ability to foster advanced
    services as it is directed to do by the 1996 Act.

-   [Benefits]{.underline} -- The asserted benefits of the proposed
    merger do not outweigh the significant harms, detailed above.
    Specifically:

1)  The Applicants have failed to demonstrate that the merger is
    necessary in order to obtain the benefits to local competition of
    the National-Local Strategy, a plan in which the merged firm will
    enter 30 out-of-region markets as a competitive LEC.

2)  Only a small portion of the Applicants' claimed cost-saving
    efficiencies, including procurement savings, consolidation
    efficiencies, implementation of best practices, faster and broader
    roll-out of new products and services, and benefits to employees and
    communities, are merger-specific, likely and verifiable.

3)  The only merger-specific benefits to product markets other than
    local wireline telecommunications markets, such as wireless
    services, Internet services, long distance and international
    services, and global seamless services for large business customers,
    relate to a somewhat increased pace of expansion and modest
    reductions in unit costs. Any benefits in these regards are both
    speculative and small.

-   [Conditions]{.underline} -- On July 1, 1999, the Applicants
    supplemented their application by proffering a set of voluntary
    commitments that they agreed to undertake as conditions of approval
    of their proposed transfer of licenses and lines. Following a period
    of public comment regarding their proposed conditions, the
    Applicants substantially revised their commitments on August 27,
    1999, and continued to refine those commitments in filings with the
    Commission on September 7, September 17, and September 29, 1999.
    Assuming satisfactory compliance, implementation of the attached
    final set of conditions will further the following goals:

1)  promoting advanced services deployment;

2)  ensuring that in-region local markets are more open;

3)  fostering out-of-region competition;

4)  improving residential phone service; and

5)  enforcing the Merger Order.

> These commitments are sufficient to tip the scales, so that, on
> balance, the application to transfer licenses and lines should be
> approved.

-   [Wireless]{.underline} -- SBC and Ameritech are required by the U.S.
    Department of Justice, and as a condition of this Order, to divest
    one of the cellular telephone licenses in seven Metropolitan
    Statistical Areas and seven Rural Service Areas where the two
    companies have overlapping cellular geographic service areas.

-   [International]{.underline} -- The public interest will be served by
    transferring control of Ameritech's international section 214
    authorizations to SBC, subject to the condition that SBC
    subsidiaries be classified as dominant international carriers in
    their provision of service on the U.S.-South Africa and U.S.-Denmark
    routes.

-   [Alarm Monitoring]{.underline} -- Section 275 of the Communications
    Act does not require that the Ameritech BOCs lose their
    grandfathered right to be affiliated with an entity that is engaged
    in the provision of alarm monitoring services merely because the
    Ameritech BOCs will become affiliates of the SBC BOCs, which are not
    grandfathered. A forced divestiture of Ameritech's alarm monitoring
    subsidiary would be contrary to the intent of section 275.

-   [Cable]{.underline} -- Section 652 of the Communications Act does
    not prohibit SBC from acquiring Ameritech's existing in-region cable
    overbuild operations.

-   [Service Quality]{.underline} -- Any post-merger service quality
    concerns are adequately addressed by the Applicants' proffered
    commitments.

```{=html}
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-   [Character/Requests for Hearing]{.underline} -- Petitions to deny
    the applications do not raise a substantial or material question of
    fact that would warrant an evidentiary hearing regarding whether SBC
    or Ameritech possesses the requisite character to engage in a
    transfer of control of Commission licenses, or regarding any other
    matter related to this transaction.

#  BACKGROUND

## The Applicants

6 *Ameritech Corporation*. Ameritech, one of the original seven
RBOCs[^6] formed as part of the divestiture of AT&T's local operations,
is the primary incumbent local exchange carrier (LEC) serving Illinois,
Indiana, Michigan, Ohio, and Wisconsin. Ameritech, through its operating
companies,[^7] serves more than 20 million local exchange access lines,
and had 1998 operating revenues in excess of \$17.1 billion.[^8]

7 In addition to local exchange and exchange access services,
Ameritech's operating companies provide a wide range of other services,
including cellular, personal communications services (PCS), paging,
security, cable television, Internet access, alarm monitoring and
directory publishing services.[^9] Ameritech provides cellular services
to more than 3.5 million customers in 42 cellular markets throughout its
five-state region and in other markets in Missouri, Hawaii and Kentucky,
as well as PCS service in the Cleveland, Cincinnati, and Milwaukee
metropolitan areas.[^10] Ameritech also provides paging services to more
than 1.5 million customers in its five-state region, and in two adjacent
states, Missouri and Minnesota.[^11] Through its Ameritech Interactive
Media Services, Inc. subsidiary, Ameritech provides Internet services
and products to over 66,000 customers,[^12] while its cable television
subsidiary, Ameritech New Media, Inc., provides competitive cable
service to more than 200,000 consumers in over 75 communities in the
Chicago, Cleveland, Columbus, and Detroit metropolitan areas.[^13]
Ameritech's SecurityLink by Ameritech, Inc. subsidiary is North
America's second-largest security monitoring provider with more than one
million residential and commercial accounts.[^14] Finally, Ameritech has
diverse overseas investments, which include direct or indirect financial
interests in communications ventures in fifteen European countries,
including Belgium, Denmark, Germany, Hungary, and Norway.[^15]

8 Ameritech's subsidiaries hold numerous Commission licenses and operate
lines used in interstate and international communications, including
domestic and international lines authorized under section 214, and
various Title III licenses necessary to operate cellular, paging, PCS,
experimental radio, business radio, mobile radio, and microwave
services, as well as earth station authorizations.[^16] Through its
subsidiaries, Ameritech is also authorized to operate international
facilities-based and/or resale services originating outside the states
in which Ameritech provides local exchange service.[^17]

9 *SBC Communications Inc*. SBC, another of the original seven RBOCs,
became the primary incumbent LEC serving Arkansas, Kansas, Missouri,
Oklahoma, and Texas following the AT&T divestiture. In April 1997, SBC
acquired Pacific Telesis Group, another RBOC, which was the primary
incumbent LEC in California and Nevada.[^18] In October 1998, SBC
acquired Southern New England Telecommunications Corporation (SNET),
which was the primary incumbent LEC for most of Connecticut.[^19]
Together, SBC's operating companies[^20] serve more than 35.7 million
local exchange access lines in its eight-state region. In 1998, SBC's
operating revenues exceeded \$28.7 billion.[^21]

10 In addition to providing local exchange and exchange access services,
SBC provides wireless, Internet access, out-of-region interLATA, cable
television and directory publishing services.[^22] SBC's principal
wireless subsidiaries provide cellular, PCS, and paging services to more
than 8.3 million subscribers throughout SBC's eight-state region and in
several out-of-region markets.[^23] SBC's Personal Vision subsidiary
(d/b/a SNET Americast) provides cable television service in
Connecticut.[^24]

11 SBC also provides interexchange (long distance) service to more than
900,000 customers in Connecticut through its SNET subsidiary.[^25] In
February 1999, SBC entered into an alliance with Williams
Communications, Inc., in which SBC will acquire \$500 million, or
approximately ten percent, of Williams' shares, giving SBC access to
Williams' nationwide fiber-based broadband network.[^26] Finally, SBC
also holds international investments in communications ventures in
France, Israel, Switzerland, the United Kingdom, Chile, Mexico, South
Korea, Taiwan, and South Africa, as well as in two proposed
trans-Pacific undersea cable systems linking China and Japan with the
United States.[^27]

### A Changing Industry

12 In 1982, the United States District Court for the District of
Columbia entered a consent decree in an antitrust suit entitled *United
States v. AT&T Corp*.[^28] The 1982 Consent Decree, also known as the
\"Modification of Final Judgment\" (MFJ), when fully enforced in 1984,
substantially dismantled what had formerly been an integrated end-to-end
monopoly of U.S. telecommunications services, the Bell System. Before
the MFJ, the Bell System provided local exchange telephone service to
over 80 percent of all residential phone subscribers in the United
States, and accounted for even higher shares of long distance service,
phone plant equipment manufacture and customer premises equipment sales.
For most Americans, the Bell System provided virtually all
telecommunications needs. By fundamentally altering that environment,
the MFJ, together with its underlying rationale, provides the central
backdrop against which all telecommunications regulation takes place in
this country, and, indeed, the measure against which we evaluate the
merger before us.

13 The entry of the 1982 Consent Decree created SBC and Ameritech. The
MFJ essentially divorced the Bell System\'s local exchange operations
from its other lines of business by requiring the creation of seven
regionally-based operating companies (*i.e.,* the RBOCs). These RBOCs
were created as holding companies for the local operating companies that
had been owned by AT&T and were forbidden from selling long distance
services and information services, and from manufacturing or selling
telecommunications equipment. Both SBC and Ameritech therefore are
creations of the MFJ, not an outgrowth of natural market forces.
Necessarily, then, the rationale behind the 1982 Consent Decree frames
most of the issues raised by their proposed merger.

14 To put it simply, the Bell System was broken up because of two firmly
held beliefs. One belief was that competition, rather than regulation,
could best decide who would sell what telecommunications services at
what prices to whom. The other belief was that the principal obstacles
to realizing that competitive ideal were the incentive and ability of
dominant local exchange carriers, who typically controlled virtually all
local services within their regions, to wield exclusionary power against
their rivals. The Department of Justice, the federal courts, and this
Commission concluded that a firm controlling access to virtually all
local phone customers in its region was very likely to exclude those who
would directly compete with it and to discriminate against those, such
as long distance service providers and equipment manufacturers, who
might offer competitive ancillary services that the local exchange
carrier also sought to offer. Further, decades of experimentation with
various regulatory regimes had taught that regulators could not fully
monitor and control such exclusionary and discriminatory behavior.
Rather, structural solutions -- in this case the divorce of AT&T from
its local operating companies -- were vitally necessary.

15 The other seminal event in post-World War II telecommunications
regulation was the enactment of the 1996 Act. When Congress passed the
1996 Act, it codified the standards and principles established by the
Bell System break-up and set forth a framework that governs us today.
Two aspects of the 1996 Act in particular drive our analysis of this
license transfer application and the companies' subsequent proposed
conditions.

16 First, Congress not only firmly ratified the pro-competitive thrust
of the MFJ and embraced its rationale, but it extended the goals of the
decree. The MFJ principally sought to further competition in ancillary
fields, such as long distance, equipment manufacturing, and information
services. Based in part on successful state experiments with limited
introduction of local competition, the 1996 Act determined that it would
also be U.S. telecommunications policy to foster competition nationally
in the provision of local exchange and exchange access services to all
telephone subscribers, including residential units. From the date of the
enactment of the 1996 Act, this Commission, in conjunction with state
public utility commissions, has been statutorily charged with opening up
local markets to competition, on the specific premise that without
regulatory oversight, the incumbent LECs would be able to discriminate
against and exclude local rivals.

17 Second, Congress directed this Commission and the state commissions
to achieve these competitive ends by deregulatory means. The 1996 Act
introduced into our telecommunications law a clearly-stated duty of
dominant LECs to interconnect with their competitors -- for example, to
unbundle their networks and provide advance notice of changes in their
network design, to permit rivals to resell incumbent LEC services at a
discount, and to allow their competitors to collocate on their
premises.[^29] Incumbent LECs must accommodate their rivals, not predate
against them, and the process of accommodation is to be through
commercial negotiation -- not regulatory fiat -- where possible. Thus,
Congress instructed this Commission and state regulators to effectuate
the transition from monopoly markets to competitive markets in a
deregulatory manner. This means that regulations enforcing
interconnection on fair and equitable terms should not impose detailed
regulatory oversight on incumbents. Our mandate is to achieve
competition, not to devise a complex regulatory regime. We assess this
transfer of control application, and its associated conditions, against
this mandate.

### State of Local Competition in SBC and Ameritech Regions

18 At the time of its merger application in July 1998, SBC served 33.4
million access lines.[^30] SBC provided approximately 650,000 resold
lines to competitors,[^31] commonly referred to as competitive LECs.
Most of these access lines were in California, Texas, and Kansas.[^32]
In addition, SBC provided 60,000 unbundled loops, most of which were in
the former PacTel region[^33] \-- 52,000 in California and 3,600 in
Nevada, compared with only 330 in Texas.[^34] SBC also reported that it
was providing approximately 353,000 interconnection trunks, greater than
90 percent of which were in California and Texas,[^35] and 343 unbundled
switch ports.[^36]

19 SBC stated that there were more than 50 active competitors in its
region and that it had entered into 374 interconnection and resale
agreements, 93 percent of which were adopted without state
arbitration.[^37] SBC noted 548 collocation arrangements (490
physical/58 virtual) in 173 wire centers, plus 443 pending
arrangements.[^38] SBC stated that competitors had installed 547
switches[^39] (vs. approximately 2800 that SBC owns) and more than 6,500
route miles of fiber in its region.[^40]

20 At the time of its application, Ameritech served more than 20 million
access lines.[^41] It provided approximately 635,000 resold lines to
competitors, 92 percent of which were in three of its five states. Only
six percent of these resold lines were in Wisconsin, and two percent
were in Indiana.[^42] Ameritech reported provisioning 94,600 unbundled
loops.[^43] Fifty-seven percent of these unbundled loops were in a
single state, Michigan.[^44] Only 900 such lines had been unbundled in
Wisconsin and no lines had been unbundled in Indiana.[^45] Ameritech
also reported provisioning 180,000 interconnection trunks and "zero"
unbundled switch ports.[^46]

21 Ameritech stated that there were more than 50 active competitors in
its region, and that it had entered into 175 interconnection and resale
agreements with 39 carriers.[^47] Ameritech reported 113 physical
collocations and 166 virtual collocations in Ameritech wire centers,
with 77 more scheduled for activation in the third quarter of 1998.[^48]
According to Ameritech, this represents 23 percent of Ameritech wire
centers, which serve 63 percent of business lines and 50 percent of
residential lines in Ameritech's service area.[^49] Ameritech stated
that competitors had installed 120 switches (vs. approximately 1500 that
Ameritech owns) and more than 5,000 route miles of fiber in Ameritech's
region.[^50]

22 Although Ameritech had only 60 percent as many access lines as SBC,
Ameritech and SBC had an equivalent number of resold lines, and
Ameritech had approximately 50 percent more unbundled loops, as of July
1998. As noted, however, not a single unbundled loop was reported in
Indiana.[^51] SBC provided proportionately more interconnection trunks,
but nearly two-thirds of those trunks were in California,[^52] and more
than 90 percent were in Texas and California. Ameritech's provisioning
of interconnection trunks was spread more evenly across its region.[^53]

23 Ameritech's supply to competitors of 635,00 resold lines and 94,600
unbundled loops represents about 3.5 percent of its 20 million access
lines,[^54] whereas SBC's 650,000 resold lines and 60,000 unbundled
loops represents approximately 2 percent of SBC's 33.4 million access
lines.[^55] SBC estimated that, as of December 1998, it had provided
800,000 lines through resale, and facilities-based competitive LECs had
self-provisioned an additional 600,000 lines.[^56] SBC counts the loss
to facilities-based competitive LECs through a variety of means,
including directory listings, 911/E911 databases, and telephone numbers
ported to competitors.[^57]

24 In their Joint Reply to comments regarding proposed merger
conditions,[^58] SBC and Ameritech assert that local communications
markets have opened further, and competition has intensified, in the
year since they filed their initial merger application in July
1998.[^59] Specifically, SBC and Ameritech state that they signed an
additional 250 interconnection agreements during that year, and that
competitors in Ameritech's region now serve 738,000 lines using their
own facilities, 154,000 using unbundled network elements (an increase of
63 percent since the numbers reported in the merger application), and
nearly one million lines through resale (an increase of 57
percent).[^60] SBC and Ameritech note industry estimates that are much
more conservative than the Applicants' original estimates concerning
competitors' deployment of switches -- *i.e.,* more than 175 in SBC's
region (compared with 547 estimated by SBC in its application) and more
than 75 in Ameritech's region (compared with 120 estimated by Ameritech
in its application). However, those sources also indicate greater fiber
deployment by competitive LECs in SBC's region as of 1999 (more than
10,000 route miles versus 6,500 estimated by SBC).[^61]

25 It has been more than three and-a-half years since Congress passed
the 1996 Act in an attempt to stimulate competition in local telephone
markets. Competition has been slow to emerge, but there have been recent
signs that momentum is building. For instance, the Commission's Local
Competition Report notes that revenues of local service competitors
increased from \$2.2 billion at the end of 1997 to \$3.6 billion at the
end of 1998.[^62] The report estimates that competitive LECs are gaining
market share, but that incumbent LECs retain 96 percent of local service
revenues.[^63] Moreover, the Report indicates that competitive LECs have
been most successful in the market for specialized services such as
special access and local private line services, which are provided to
business customers.[^64] Aggregate competitive LEC use of resold
incumbent LEC lines predominates over their use of unbundled loops by a
factor of approximately 10 to 1 and according to data provided by ILECs,
40 percent of the resold lines serve residential customers.[^65] In
addition, facilities-based competitive LECs appear to have concentrated
in more urbanized areas.[^66]

26 For its part, in response to the 1996 Act, SBC appears to have
adopted an acquisition strategy. Within weeks of passage of the 1996
Act, SBC announced its agreement to merge with PacTel, one of the other
six Baby Bells.[^67] Last year, SBC merged with SNET, the primary
incumbent LEC in Connecticut. The instant merger would add a third Baby
Bell to the original SWBT and PacTel. Congress may or may not have
contemplated such horizontal moves when it replaced the MFJ with the
1996 Act, but Congress did signal a clear intent that the desire of BOCs
to enter the long distance markets within their existing regions would
provide a powerful incentive to open their local markets to competition.
This is embodied in the so-called "carrot-and-stick" approach taken in
section 271 of the Act, which requires satisfaction of a 14-point
checklist for determining whether local markets are open to competition
before a BOC may be allowed to originate in-region interLATA services
within a particular state.

27 SBC and Ameritech have separately engaged in failed attempts to
convince regulators that their local markets are open to competition
within the meaning of section 271.[^68] This Commission denied SBC's
application for in-region interLATA authority in Oklahoma in June
1997,[^69] finding that SBC had not met the threshold requirement under
section 271 that SBC be providing access and interconnection to a
facilities-based competing provider of local exchange service to
residential and business subscribers (the "Track A" requirement under
section 271).[^70] The Texas and California commissions issued orders in
mid-1998 establishing collaborative processes among SBC, competitive
LECs and commission staff to resolve outstanding issues regarding SBC's
compliance with section 271 in those states. Those processes are ongoing
and have resulted in significant progress with respect to operations
support systems (OSS), performance measurements and penalties,
collocation, and provision of unbundled network elements (UNEs). SBC
states that it expects to receive section 271 approval for Texas and
California first, and that approvals for its five remaining states would
follow shortly thereafter.[^71]

28 This Commission denied Ameritech's application for in-region
interLATA authority in Michigan in August 1997, citing deficiencies with
respect to access to OSS, interconnection, and access to 911 and E911
services.[^72] Ameritech is not actively pursuing section 271 approvals
in any of its states at this time as evidenced by the fact that
Ameritech has not filed in any state section 271 proceedings since
1997.[^73] On January 21, 1999, the Illinois Commerce Commission issued
an order dismissing its section 271 proceeding because of the staleness
of the record.[^74]

29 All evidence suggests that competition has been slow to emerge in the
territories of these Baby Bells and that not all geographic areas, and
not all types of customers, are receiving the benefits of competition.
Furthermore, this merger application comes at a critical juncture when
competitive LECs may shortly be able to take advantage of more favorable
market conditions resulting from: (1) recent court decisions;[^75] (2)
final prices for interconnection, UNEs and resale that have been
determined in state cost proceedings;[^76] and (3) extensive section 271
collaborative processes supervised by state commissions. A number of
competitive LECs have noted in *ex parte* discussions with Commission
staff that their original interconnection agreements with SBC and
Ameritech expire this year, and that they are facing negotiation of
"second-generation" interconnection agreements that will govern their
relationships with these companies (or the combined company) over the
next several years. With this background in mind, we turn in the
following sections to discussion of the harms that are likely to result
from this merger, which is proposed at a critical time in the evolution
of local competition that Congress envisioned.

## The Merger Transaction and Review Process

30 *Proposed Transaction*. Under the Agreement and Plan of Merger
(Merger Agreement), dated May 10, 1998, Ameritech would become a
first-tier, wholly-owned subsidiary of SBC in a stock-for-stock
merger.[^77] Following the merger, SBC would own all the stock of
Ameritech, and SBC itself would be owned 57.5 percent by the pre-merger
stockholders of SBC and 42.5 percent by the pre-merger stockholders of
Ameritech.

31 Together, SBC and Ameritech would serve more than 55.5 million local
exchange access lines, representing approximately one-third (31.9
percent) of the nation's total access lines.[^78] SBC and Ameritech as a
combined company would have more than 200,000 employees and annual
revenues in excess of \$45 billion, based on December 1998 statistics
from both companies. In other words, SBC and Ameritech combined would be
the second largest telecommunications company in the country behind only
AT&T, as measured by revenues. Based on the extensive breadth of SBC's
and Ameritech's operations, their proposed merger requires the approval
of several government agencies, including the DOJ, state public utility
commissions, the European Commission, and this Commission.

### Department of Justice Review

32 The DOJ reviewed the proposed transaction as part of the pre-merger
review process under the Hart-Scott-Rodino Antitrust Improvements Act of
1976.[^79] On March 23, 1999, DOJ, pursuant to a proposed consent
decree, required the Applicants to divest cellular properties in
overlapping geographic areas.[^80] This condition was deemed necessary
to prevent a substantial lessening of competition as a result of the
merger in "markets for mobile wireless services in Illinois, Indiana,
and Missouri."[^81] Recognizing further that Ameritech planned to
provide wireline service in St. Louis, and that "no one else is
providing such service in St. Louis," DOJ required that Ameritech's, not
SBC's, cellular assets be divested in St. Louis, and that the purchaser
of these assets "has the capability of competing effectively in the
provision of local exchange telecommunications services and long
distance telecommunications services in the St. Louis area."[^82] On
April 5, 1999, Ameritech announced that it was selling twenty cellular
holdings to a joint venture of GTE Consumer Services Inc. (GCSI), a
subsidiary of GTE, and Georgetown Partners, which would eliminate all
cellular overlaps.[^83]

### State and International Review

33 The proposed merger of SBC and Ameritech also requires the approval
of, or notification to, a number of state governing bodies and the
European Commission. The status of these proceedings is summarized
below.[^84]

34 *Ohio*. Pursuant to the laws of Ohio, the Applicants filed for
approval of their proposed transaction from the Public Utility
Commission of Ohio (PUCO). On April 8, 1999, PUCO approved with
conditions the proposed merger pursuant to a stipulated settlement
agreement negotiated among several parties. The conditions imposed by
PUCO, among other things, require that the Applicants: (1) freeze
residential rates through January 2002; (2) compete for residential and
business customers in four markets outside of Ameritech's current
service territory; (3) improve service quality; (4) increase
infrastructure investment; (5) maintain current employment levels for
two years; and (6) offer a promotional rate for unbundled loops and
resold service for a certain period of time linked to Ameritech's loss
of residential access lines to competitors.[^85] PUCO also required the
combined entity to make available in Ohio the level of interconnection
it obtains as a new entrant outside its service territory or which it
provides in another state as an incumbent.[^86] Finally, SBC and
Ameritech agreed to meet certain competitive, operations support
systems, and service quality benchmarks, or face monetary
penalties.[^87]

35 *Illinois*. On July 24, 1998, pursuant to Illinois law, the
Applicants filed a joint application requesting approval of their
proposed reorganization from the Illinois Commerce Commission (ICC). The
ICC held numerous formal hearings on the application, and approved the
merger on September 23, 1999, subject to several conditions.[^88] The
conditions imposed by the ICC address, among other things, performance
measurements and associated penalties, enhanced operations support
systems, shared transport, most-favored nation interconnection
arrangements, residential xDSL service deployment, service outages and
associated penalties, network infrastructure investment, 911 practices,
and updated cost studies and cost allocation manuals. In addition, for
three years, the combined company is required to allocate 50 percent of
the net merger-related savings in Illinois to competitors and retail
customers. The ICC also relied on a series of voluntarily commitments by
the Applicants that, among other things, require the combined firm to
retain Ameritech's brand identity and regional employment levels, make
charitable and community contributions and establish community
enrichment programs in the state (*e.g.*, a consumer education fund, a
community technology fund, and community computer centers).

36 *Nevada*. On July 29, 1999, the Public Utilities Commission of Nevada
(Nevada PUC) ordered SBC to submit its proposed merger to the commission
for review and approval.[^89] SBC thereafter filed a special application
with the Nevada PUC seeking either authorization to acquire Ameritech or
a finding by the Nevada PUC that it lacks jurisdiction over the
transaction.[^90] The Applicants and the Nevada PUC staff subsequently
agreed to a settlement agreement that was approved by the Nevada PUC on
September 1, 1999. Pursuant to the stipulated agreement, no
merger-related transaction costs will be passed on to Nevada ratepayers
and, among other things, the merged firm must keep the Nevada PUC
apprised of its implementation of any FCC merger conditions, retain the
Nevada Bell brand identity, and buy locally where possible.[^91]

37 *European Commission*. In a June 1998 letter to the Applicants, the
European Commission's Merger Task Force confirmed that the proposed
merger would not conflict with applicable antitrust guidelines.[^92]

38 *Others*. In addition to these governing bodies, the Applicants
sought approval of or made notification to: (i) certain state public
utilities commissions in connection with Ameritech's authorizations to
provide intrastate interexchange service in all 45 out-of-region states
and local exchange service in eight out-of-region states; (ii) certain
local franchising authorities in jurisdictions in which Ameritech has
received franchises for competitive cable systems; and (iii) certain
regulatory authorities in select European countries in which SBC or
Ameritech holds investments.[^93]

### Commission Review

39 As noted above, SBC and Ameritech filed joint applications on July
24, 1998, pursuant to sections 214(a) and 310(d) of the Communications
Act, requesting Commission approval of the transfer of control to SBC of
licenses and lines owned or controlled by Ameritech or its affiliates or
subsidiaries. Following the Commission's Public Notice of July 30,
1998,[^94] thirty-five parties filed timely comments supporting or
opposing the application, or petitions to deny the application.[^95]
Nine parties, including the Applicants, filed reply comments. In
addition, the Commission held a series of three public forums at which a
number of parties, including (a) the Applicants, (b) states, consumer
groups, community organizations, and industry participants, and (c)
economists, could present their views on the proposed merger.[^96]

40 On October 2, 1998, the Bureau adopted a protective order under which
third parties would be allowed to review confidential or proprietary
documents that SBC or Ameritech submitted.[^97] Commission staff also
requested, and obtained, the Applicants' consent to review the documents
that SBC and Ameritech had submitted to DOJ as part of its
Hart-Scott-Rodino review process.

41 In January, 1999, Commission staff requested additional documentation
and information from the Applicants.[^98] The supplemental request,
among other things, sought documents and information on the following
subjects: (1) Applicants' out-of-region entry activities; (2)
Applicants' brand name awareness; (3) perceived demand for end-to-end
telecommunications services; (4) Applicants' investment projects; (5)
plans for implementing the Applicants' National-Local Strategy; (6) the
profitability of serving out-of-region residential and small business
customers; and (7) the relationship between the companies'
National-Local Strategy and section 271 authorizations.[^99] The
Applicants filed certain of the Hart-Scott-Rodino documents, and other
confidential documents, with the Commission under seal, with a redacted
version placed in the public record. The portion of this Order that
discusses confidential documents that were used in the Commission's
decision-making process has been issued under seal as Appendix B.

42 On April 1, 1999, FCC Chairman William Kennard notified the
Applicants that Commission staff had raised a number of significant
issues with respect to potential public interest harms and questions
about the claimed competitive and consumer benefits of their proposed
transaction.[^100] Accordingly, Chairman Kennard invited SBC and
Ameritech and other interested parties to explore with Commission staff,
on a cooperative and public basis, whether it would be possible to craft
conditions that would address the public interest concerns raised by the
Application.[^101]

43 Accepting the Chairman's invitation,[^102] representatives of SBC and
Ameritech held a series of discussions with Commission staff to explore
the possibility of the Applicants strengthening their application by
agreeing to certain voluntary public interest commitments.[^103] During
this time, Commission staff also met with other interested parties who
expressed views on the severity of potential public interest harms and
possible mitigating conditions.[^104]

44 On May 6, 1999, the Common Carrier Bureau held a public forum where
Commission staff and representatives of SBC and Ameritech reported on
the progress of discussions and received further input on the need for,
and composition of, any potential conditions.[^105] Interested parties
also expressed opinions on potential conditions through record
submissions.

45 Based on the input received from Commission staff and third parties,
SBC and Ameritech supplemented their initial Application by submitting
on July 1, 1999 an "integrated package of conditions" which they claimed
would satisfy potential public interest concerns and lead to Commission
staff support of their Application.[^106] More than 50 parties filed
timely comments and 14 parties filed reply comments addressing the
Applicants' proposed commitments.[^107] SBC and Ameritech subsequently
clarified their commitments on August 27, 1999, and in further *ex
parte* filings in September.[^108]

#  PUBLIC INTEREST FRAMEWORK

46 Pursuant to sections 214(a) and 310(d) of the Communications Act, the
Commission must determine whether the Applicants have demonstrated that
the public interest would be served by transferring Ameritech's numerous
licenses and lines used in interstate or foreign communications to
SBC.[^109] As discussed below, we must weigh the potential public
interest harms of the proposed transaction against the potential public
interest benefits to ensure that the Applicants have shown that, on
balance, the merger serves the public interest, convenience and
necessity.[^110]

47 Section 214(a) of the Communications Act generally requires carriers
to obtain from the Commission a certificate of public convenience and
necessity before constructing, acquiring, operating or engaging in
transmission over lines of communication, or before discontinuing,
reducing or impairing service to a community.[^111] In this case,
section 214(a) requires the Commission to find that the \"present or
future public convenience and necessity require or will require\" SBC to
operate the acquired telecommunications lines, and that \"neither the
present nor future public convenience and necessity will be adversely
affected\" by the discontinuance of service from Ameritech.[^112]
Section 310(d) provides that no construction permit or station license
may be transferred, assigned, or disposed of in any manner except upon a
finding by the Commission that the "public interest, convenience, and
necessity will be served thereby."[^113] The Commission therefore must
determine that the proposed transfer of licenses from Ameritech to SBC
\"serves the public interest, convenience, and necessity\" before it can
approve the transaction.[^114]

48 The public interest standard of sections 214(a) and 310(d) involves a
balancing process that weighs the potential public interest harms of the
proposed transaction against its potential public interest
benefits.[^115] The Applicants bear the burden of proving, by a
preponderance of the evidence, that the proposed transaction, on
balance, serves the public interest.[^116] In applying this public
interest test, the Commission considers four overriding questions: (1)
whether the transaction would result in a violation of the
Communications Act or any other applicable statutory provision;[^117]
(2) whether the transaction would result in a violation of Commission
rules;[^118] (3) whether the transaction would substantially frustrate
or impair the Commission\'s implementation or enforcement of the
Communications Act, or would interfere with the objectives of that and
other statutes;[^119] and (4) whether the merger promises to yield
affirmative public interest benefits.[^120] In summary, the Applicants
must demonstrate that the transaction will not violate or interfere with
the objectives of the Communications Act or Commission rules, and that
the predominant effect of the transfer will be to advance the public
interest.

49 The Commission's analysis of public interest benefits and harms
includes, but is not limited to, an analysis of the potential
competitive effects of the transaction, as informed by traditional
antitrust principles.[^121] While an antitrust analysis, such as that
undertaken by the DOJ in this case, focuses solely on whether the effect
of a proposed merger "may be substantially to lessen competition,"[^122]
the Communications Act requires the Commission to make an independent
public interest determination, which includes evaluating public interest
benefits or harms of the merger\'s likely effect on future
competition.[^123] In order to find that a merger is in the public
interest, therefore, the Commission must "be convinced that it will
enhance competition."[^124]

50 In the *AT&T/TCI Order*, we explained that competition in the
telecommunications industry is shaped not only by antitrust rules, but
also by regulatory policies that govern interactions among industry
participants.[^125] For example, no industry can be effectively governed
by antitrust rules unless some other rules specify the industry
participants' property rights. In telecommunications markets the ground
rules necessary to permit competition are frequently supplied by
regulatory policy. Accordingly, our public interest evaluation
necessarily encompasses the "broad aims of the Communications
Act."[^126] These broad aims include, among other things, the
implementation of Congress\'s pro-competitive, deregulatory national
policy framework designed to open all telecommunications markets to
competition, the preservation and advancement of universal service, and
the acceleration of private sector deployment of advanced
services.[^127] Our public interest analysis may also entail assessing
whether the merger will affect the quality of telecommunications
services or will result in the provision of new or additional services
to consumers.[^128] In making these assessments, the Commission
considers the trends within, and needs of, the telecommunications
industry, as well as the factors that influenced Congress to enact
specific provisions of the Communications Act.[^129]

51 Following passage of the 1996 Act, local telecommunications markets
have been undergoing a transition to competitive markets, so a
transaction may have predictable yet dramatic consequences for
competition over time even if the immediate effect is more modest.
Therefore, when a transaction is likely to affect local
telecommunications markets, our statutory obligation requires us to
assess future market conditions. In doing so, the Commission may rely
upon its specialized judgment and expertise to render informed
predictions about future market conditions and the likelihood of success
of individual market participants.[^130]

52 Where necessary, the Commission can attach conditions to a transfer
of lines and licenses in order to ensure that the public interest is
served by the transaction.[^131] Section 214(c) of the Communications
Act authorizes the Commission to attach to the certificate \"such terms
and conditions as in its judgment the public convenience and necessity
may require.\"[^132] Similarly, section 303(r) of the Communications Act
authorizes the Commission to prescribe restrictions or conditions, not
inconsistent with law, that may be necessary to carry out the provisions
of the Act.[^133] Indeed, unlike the role of antitrust enforcement
agencies, the Commission's public interest authority enables it to rely
upon its extensive telecommunications regulatory and enforcement
experience to impose and enforce certain types of conditions that tip
the balance and result in a merger yielding overall positive public
interest benefits.[^134]

53 In addition to its public interest authority under the Communications
Act, the Commission shares concurrent antitrust jurisdiction with DOJ
under the Clayton Act to review mergers between common carriers.[^135]
In this case, because our public interest authority under the
Communications Act is sufficient to address both the competitive issues
raised by the proposed merger and its likely effect on the public
interest, we decline to exercise our Clayton Act authority for the
proposed transaction.[^136]

54 As noted in the *AT&T-TCI Order*, many transfer applications on their
face show that the merger would yield affirmative public interest
benefit and would not violate the Communications Act or Commission
rules, nor frustrate or undermine policies and enforcement of the
Communications Act.[^137] Such cases do not require extensive review and
expenditure of considerable resources by the Commission and interested
parties. This is not the case with respect to this proposed transaction.
We analyze the potential public interest harms and benefits of this
proposed merger, absent conditions, in the next sections.

# ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS

## Overview

55 We conclude that the proposed merger, considered without supplemental
conditions, threatens our ability to fulfill our statutory mandate in
the following three ways.

56 [First]{.underline}, the proposed merger between SBC and Ameritech
significantly decreases the potential for competition in local
telecommunications markets by large incumbent LECs. The merger
eliminates SBC and Ameritech as significant potential participants in
the mass market for local exchange and exchange access services in the
other's regions. Both firms have the capabilities and incentives to be
considered most significant market participants in geographic areas
adjacent to their own regions, and in out-of-region markets in which
they have a cellular presence. This finding is based partly on our
analysis of the plans of Ameritech to expand into St. Louis (in SBC's
territory) which would have occurred but for the merger, and SBC's plans
to expand into Chicago (in Ameritech's territory). As incumbent LECs,
each firm is one of only a few potential entrants with the necessary
systems, such as billing and operations support, required to provide
local exchange services to residential and small business customers on a
large scale. They also bring particular expertise to the process of
negotiating and arbitrating interconnection agreements between incumbent
and competitive LECs. In adjacent markets, each Applicant has an array
of nearby switches that can be used to provide local exchange services
in the other's traditional operating territories. Moreover, in
out-of-region markets in which either Applicant has a cellular
affiliate, it also has a base of customers to whom it can offer wireline
local exchange services, potentially bundled with cellular and other
offerings. Finally, in both adjacent and cellular out-of-region markets,
SBC and Ameritech have brand recognition with mass market customers that
would provide a strong and often unique advantage in providing
competitive wireline services.

57 [Second]{.underline}, the proposed merger frustrates the ability of
the Commission (and state regulators) to implement the local
market-opening provisions of the 1996 Act. The merger of SBC and
Ameritech -- two of the six remaining major incumbent LECs (the RBOCs
and GTE) -- would have an adverse impact on the ability of regulators
and competitors to implement the competitive goals of the 1996 Act by
deregulatory means. Comparing the practices of independent firms can
assist federal and state regulators in defining incumbent LEC
obligations and in discovering new approaches and solutions to open
markets to competition under sections 251 and 271 and state law. Such
comparative practice analyses (or "benchmarking") depend upon having a
sufficient number of independent sources of observation available for
comparison. Indeed, the development of the local competition that exists
today can be attributed largely to comparative practice analyses of
experiments and developments in various states and among various
incumbent LECs, as indicated by examples in the Comparative Practices
Analysis section of this Order (*see infra* Section V.C.).

58 Significant differences between the major incumbent LECs and other
carriers preclude the use of other carriers as alternative benchmarks.
Large incumbent LECs differ greatly from smaller incumbent LECs,
competitive LECs and foreign LECs in regulatory treatment, structure and
operation. Furthermore, statistical parity comparisons cannot be used as
a substitute for all forms of incumbent LEC benchmarking. The decreased
ability to employ comparative practice analysis that would result from
the proposed merger ultimately would force regulators and competitors to
replace benchmarking with more intrusive and costly methods of
regulation, frustrating the goals of the 1996 Act and this Commission of
opening markets and easing regulation, to the detriment of the public
interest. We and our state colleagues would be forced to adopt more
regulations of greater complexity, while competitors would be prevented
from gaining valuable information that could help them succeed in
breaking down entry barriers.

59 Moreover, the merger's elimination of Ameritech as an
independently-owned RBOC is likely to reduce significantly the amount of
innovation that regulators and competitors could observe and analyze.
Ameritech frequently has taken an approach at the holding-company level
that is different from the other RBOCs, examples of which are detailed
in the Comparative Practices Analysis section (*see infra* Section
V.C.). These differences by Ameritech in one state have allowed
regulators and competitors to induce market-opening behavior from other
incumbent LECs in other states. Another harm of the merger is that the
larger combined entity will have a greater incentive to unify the
practices of its separate operating companies to affect the outcome of
both best practices and average practices benchmarking by regulators and
competitors, resulting in an overall loss of diversity at the
operating-company level. The proposed merger of SBC and Ameritech would
also directly increase the incentive and ability of remaining incumbent
LECs to coordinate their behavior to resist market-opening measures. As
the number of relevant independently-owned incumbent LECs shrinks to a
small few, the probability of coordination significantly increases.

60 [Third]{.underline}, while it would diminish regulatory efficacy, the
proposed merger also would increase the incentives and ability of the
larger merged entity to discriminate against rivals in retail markets
where the new SBC will be the dominant incumbent LEC. The merger will
lead the merged entity to raise entry barriers that will adversely
affect the ability of rivals to compete in the provision of retail
advanced services, interexchange services, local exchange and exchange
access services, thereby reducing competition and increasing prices for
consumers of those services. The increase in the number of local areas
controlled by SBC as a result of the merger will increase its incentive
and ability to discriminate against carriers competing in retail markets
that depend on access to SBC's inputs in order to provide services. For
example, if SBC discriminates against a competitive LEC attempting to
enter Houston, it will raise this rival's costs. This competitive LEC
will have less capital to spend on common research, product development,
and marketing costs, making the competitive LEC a less effective
competitor in other areas such as Chicago because of its overall higher
costs. Prior to the merger, SBC would not realize the benefits in
Chicago from such conduct. After merging with Ameritech, which is the
incumbent LEC in Chicago, SBC would realize such benefits. Because SBC
after the merger would realize more of the gains from what are presently
"external" effects, it would have a greater incentive to engage in
discrimination than the combined incentives that the two individual
companies would have had in their smaller regions.

61 Any likelihood of increased discrimination and heightened entry
barriers causes particular concern in the retail market for advanced
services, given the Commission's ongoing efforts to encourage innovation
and investment in these emerging markets. Competitors' requests for the
type of interconnection and access arrangements necessary to provide new
types of advanced services are continually evolving and provide ample
scope for incumbents to discriminate in satisfying these requests. The
combined entity has an increased incentive to discriminate against a
competitor such as Sprint ION that is seeking to enter markets on a
national basis, because the merged firm will realize the benefits over
the larger combined area in its control. Likewise, once an incumbent LEC
has authority to provide interLATA services within its region, it has an
incentive to discriminate against the termination of its competitors'
calls that originate in that region in order to induce callers at the
originating end to choose the incumbent LEC as their interexchange
service provider. SBC after the proposed merger will have a much larger
"in-region" area, and thus will terminate a greater number of calls from
in-region customers. The larger merged firm would therefore have a
greater incentive to engage in discrimination, which is likely to be
particularly acute with respect to advanced or customized access
services where such discrimination would be most difficult to detect.

62 In short, absent stringent conditions, we would be forced to conclude
that this merger does not serve the public interest, convenience or
necessity because it would inevitably retard progress in opening local
telecommunications markets, thereby requiring us to engage in more
regulation. Standing alone, without conditions, the initial application
proposed a license transfer that would have been inconsistent with the
approach to telecommunications regulation and telecommunications markets
that the Congress established in the 1996 Act, ratifying the fundamental
approaches enshrined in the MFJ. For that reason, we conclude that it
would be inconsistent with the public interest, convenience and
necessity to permit this license transfer in the absence of significant
and enforceable conditions. The remainder of Part IV explains these
conclusions in detail.

## Analysis of Competitive Effects

### Competition Between SBC and Ameritech

63 We begin our review of the proposed merger of SBC and Ameritech by
examining the merger's likely effects on interactions between the
merging firms, which represents one prong of our analysis of potential
public interest harms. Until recently, carriers seeking to compete with
incumbent LECs in local exchange and exchange access services markets
had been prevented or deterred from entering due to legal, regulatory,
economic and operational barriers. As such, these markets are currently
undergoing a transition to competitive market conditions, as envisioned
by the 1996 Act. Accordingly, as the 1996 Act is being implemented and
local markets are opening to competition, it is necessary to use an
analysis of competitive effects that accounts for the transitional
nature of these local markets.[^138] This "transitional market" analysis
is relevant to the examination of a merger under the Communications Act
because the Act requires this Commission actively to promote the
development of competition in telecommunications markets, not merely to
prevent the lessening of competition, which is the policy objective of
antitrust laws.

64 As explained in the *WorldCom/MCI Order*, our framework for analyzing
these transitional markets reflects the values of, and builds upon, but
does not attempt to copy, the \"actual potential competition\" doctrine
established in antitrust case law.[^139] Under the actual potential
competition doctrine, a merger between an existing market participant
and a firm that is not currently a market participant, but that would
have entered the market but for the merger, violates antitrust laws if
the market is concentrated and entry by the nonparticipant would have
resulted in deconcentration of the market or other pro-competitive
effects.[^140] As the case law indicates, one obstacle facing parties
bringing an actual potential competition case is to demonstrate that the
acquired firm would have entered the relevant market absent the merger.
The transitional markets framework set forth in the *Bell Atlantic/NYNEX
Order*, which is well-tailored to the Commission\'s unique role as an
expert agency and its statutory obligation to promote competition and to
open local markets, identifies as \"most significant market
participants\" not only firms that already dominate transitional
markets, but also those that are most likely to enter soon, effectively,
and on a large scale once a more competitive environment is established.
The Commission seeks to determine whether either or both of the merging
parties are among a small number of these most significant market
participants,[^141] in which case its absorption by the merger will, in
most cases, if not offset by countervailing positive effects, harm the
public interest in violation of the Communications Act.[^142]

65 In this portion of the Order, we focus on the probable effects of
SBC's acquisition of Ameritech on the provision of local exchange and
exchange access services.[^143] In analyzing the competitive effects of
the instant merger, we take into account that SBC and Ameritech, until
recently, have been effectively precluded from competing in each other's
local markets. We therefore examine the ability and incentive of both
SBC and Ameritech to enter each other's previously closed market. We
conclude therefore that it is appropriate to utilize the \"transitional
markets\" analytical framework of the *Bell Atlantic/NYNEX Order* to
determine whether this merger would result in a potential harm to the
public interest in the provision of local exchange and exchange access
services in SBC's or Ameritech's regions.

### Local Exchange and Exchange Access Services

#### Summary

66 We conclude that the merger causes a public interest harm by
eliminating SBC and Ameritech as among the most significant potential
participants in the mass market for local exchange and exchange access
services in each other's regions. In the mass market for local exchange
services, we conclude that both firms are most significant market
participants in geographic areas adjacent to their own regions, and in
out-of-region markets in which they have a cellular presence. We base
this finding partly on our analysis of the plans of Ameritech to expand
into St. Louis, and SBC's plans to expand into Chicago. In the larger
business market for local exchange and exchange access services, SBC and
Ameritech are only two of a larger number of actual and potential
competitors in each other's regions. The merger would thus be less
likely to have competitive effects leading to public interest harms in
these markets. The exposition of our analysis of these competitive
effects issues is necessarily truncated. Because much of the information
concerning the parties' business plans has been submitted under a
blanket of confidentiality, accordingly, a good deal of the information
on which we rely here is explained only in Appendix B, to which access
must be restricted.

#### Relevant Markets

67 As the Commission explained in the *BELL ATLANTIC-NYNEX Order*, we
begin our analysis of the proposed merger by defining the relevant
product and geographic markets.[^144] We then consider whether the
merger frustrates the Communications Act's goal of encouraging greater
competition in relevant local markets.

68 *Product Markets*. We analyze the competitive effects of this merger
on the provision of local exchange and exchange access services.[^145]
As we explained in the *WorldCom/MCI Order*, to define relevant product
markets we can identify and aggregate consumers with similar demand
patterns. For purposes of analyzing the competitive effects of this
merger on these services we identify two distinct relevant product
markets: (1) residential consumers and small business (mass market); and
(2) medium-sized and large business customers (larger business market).
We distinguish mass market consumers from larger business customers
because the services offered to one group may not be adequate or
feasible substitutes for services offered to the other group, and
because firms need different assets and capabilities to target these two
markets successfully.[^146]

69 *Geographic Markets.* As we explained in the *WorldCom/MCI Order,* we
aggregate into a relevant geographic market those customers facing
similar choices regarding a particular relevant product or service in
the same geographic area.[^147] In the instant merger proceeding, we
focus on competition within metropolitan areas because all out-of-region
expansion plans contemplated or undertaken by either Applicant targeted
customers in metropolitan areas, as discussed in Appendix B. Indeed, at
present and for the next few years, any local exchange and exchange
access competition in both relevant product markets is likely to be
confined to metropolitan areas. Any loss of potential competition by
merger is therefore likely to affect primarily specific metropolitan
areas. We focus on individual metropolitan areas because each may
attract different levels of competition, and certain competitors,
including the Applicants, may have particular strengths or unique assets
in one metropolitan area compared with another. For instance, in St.
Louis, Ameritech has advantages as a competitive LEC based on its
cellular presence and as an incumbent LEC in an adjacent area. These
considerations are relevant as we analyze the potential public interest
harms below.

70 We reject arguments that we should modify or limit our geographic
market definition. For example, the Applicants assert St. Louis and
Chicago are the only geographic areas where they arguably would compete
against each other.[^148] Although we agree with Applicants that the
geographic areas of St. Louis and Chicago raise competitive concerns for
local exchange and exchange access services, as discussed below, other
metropolitan areas warrant examination. Some commenters contend that the
relevant geographic market is everywhere SBC and Ameritech could have
competed had they pursued their competitive LEC business independently
of each other.[^149] Similarly, the Texas Office of Public Utility
Counsel maintains the relevant market is the combined serving areas of
SBC and Ameritech, rather than St. Louis and Chicago.[^150] The Texas
Office of Public Utility Counsel further argues that, if
telecommunications customers have locations nationwide, marketing
managers will eventually consider the relevant market as a national
market.[^151] We find that using our above stated approach, our analysis
will include, but not be limited to, examination of these areas. We,
therefore, find there is no need to modify our market definition, as the
results of our analysis would be identical using any of these geographic
market definitions.[^152]

#### Market Participants

71 To analyze the probable effects of this merger on the relevant
product and geographic markets, we first identify significant market
participants. We note that incumbent LECs are still dominant within
their regions, and therefore are included in the list of most
significant market participants within their respective in-region
markets. Next we consider, among other things, whether, but for the
merger, either of the merging parties would be a significant potential
competing provider of local exchange and exchange access services in the
other's markets. We examine each of the merging firm's capabilities and
incentives to provide local exchange and exchange access services
outside the region in which it is an incumbent LEC, with particular
emphasis on analyzing existing plans and any past attempts to do so. We
then turn to an analysis of other firms that may be considered most
significant market participants in the relevant markets to determine the
competitive impact of the loss by merger of one of the Applicants as an
independent entity.

72 As described in the *Bell Atlantic/NYNEX Order*, we identify the most
significant market participants from the universe of actual and
precluded competitors based on an analysis of the firms' capabilities
and incentives to compete effectively in the relevant market. Of
particular interest are those market participants that are likely to be
at least as significant a competitive force as either of the merging
parties.[^153] In determining the most significant market participants
from the universe of actual and precluded competitors, we identify the
market participants that have, or are most likely to gain speedily, the
greatest capabilities and incentives to compete most effectively and
quickly in the relevant market.

73 In prior merger orders, the Commission set out the various
capabilities it considers in identifying the most significant potential
competitors in local exchange and exchange access markets.[^154] Those
capabilities include whether the firm: (1) has the operational ability
to provide local telephone service (*i.e*., know how, and operational
infrastructure, including sales, marketing, customer service, billing
and network management); (2) could quickly acquire a critical mass of
customers; (3) has brand name recognition, a reputation for providing
high quality and reliable service, an existing customer base, or the
financial resources to get these assets; and (4) possesses some
significant unique advantages, such as a cellular presence in the
relevant market.[^155]

74 In order to determine the likelihood that a firm that is not
currently serving a relevant market nevertheless will enter this market
in the future, we consider industry trends that may lead a firm
currently serving one product, customer, or geographic segment to expand
to other relevant markets. For instance, in a number of recent merger
applications before the Commission, prior applicants have pointed to
consumers' demand for "one-stop-shopping," and/or end-to-end-service
that is in part justifying these Applicants' merger plans.[^156] In
order to meet these demands, firms providing one service may choose to
expand their offering to provide a whole range of products or expand to
other geographic regions.

75 We consider all available evidence demonstrating that precluded
competitors would likely have entered relevant markets.[^157] For
instance, Applicants' plans or attempts to enter the relevant markets
represent probative evidence of each Applicant's own perception that it
possesses the capabilities and incentives necessary to be a significant
participant in the market. We likewise look at unsuccessful plans to
enter a relevant market in the past. Although a "failed" attempt might
suggest that a firm is not a significant market participant, we would
consider all relevant circumstances, including changes in market
conditions that might facilitate successful subsequent entry and the
strategic business consequences to a firm of failing to enter into a
relevant market.[^158] Finally, the lack of entry plans does not
eliminate a firm from being considered a significant market participant;
rather, we consider whether the firm has the capabilities, and is likely
to have the incentive, to become a significant market participant soon.

76 Applying this analysis to the instant merger, we find that
eliminating Ameritech and SBC as actual or potential participants in the
mass market for local exchange and exchange access services in each
other's regions results in a substantial public interest harm by
frustrating the achievement of the Communications Act's objective of
fostering greater competition in these markets. This harm must be
outweighed by compensating benefits if the license transfer is to be
approved.

#####  Mass Market

77 We find that, with respect to the mass market for local exchange and
exchange access services, SBC and Ameritech have the capabilities and
incentives to make each firm a most significant market participant in
particular markets in each other's regions. First, as described in
Appendix B, prior to the announcement of the proposed merger, SBC and
Ameritech had plans to enter other incumbent LECs' regions, including
each other's. Second, as incumbent LECs, SBC and Ameritech have certain
advantages when expanding out-of-region that other potential local
service market entrants lack.

78 *Ameritech's Out-of-Region Plans*. We find that Ameritech is not only
a most significant market participant in SBC's territory but also, as
described in Appendix B, had both the incentives and capabilities to
become a significant market participant in the St. Louis mass market for
local exchange and exchange access service. The fact that Ameritech,
prior to merger negotiations, had not begun offering commercial local
wireline services out-of-region to the general public does not establish
that Ameritech lacked the capabilities and incentives to expand. As
described in greater detail in Appendix B, we find that, but for the
merger, Ameritech would have implemented Project Gateway and entered the
St. Louis residential market. In project Gateway, Ameritech's cellular
company in St. Louis planned to offer local service as part of a bundle
first to residential, and then to small business customers.[^159]
Applicants concede that uncertainties created by the planned merger were
among the reasons for placing Project Gateway on hold.[^160] In
addition, in testimony before the Illinois Commerce Commission,
Ameritech admitted that it would have proceeded with the launch of
Project Gateway had it not been for the merger.[^161] Specifically,
Ameritech's internal documents show that the firm had already announced
its intention to enter SBC's St. Louis market, and was actively
implementing those entry plans at the time the merger was
announced.[^162] Once the proposed merger was announced, Ameritech
suddenly abandoned these plans.[^163]

79 Ameritech offers conceivable reasons for canceling Project Gateway
besides the merger, but many or all of them had existed for a long time
without causing it to be cancelled.[^164] Also, whatever the merits of
these reasons, none of them is described in contemporaneous documents as
*the* reason, or even *a* reason, for the cancellation. Indeed, there is
no stated reason for the cancellation and no statement of a simultaneous
event provoking cancellation in the documents Ameritech has provided to
us. What did, in fact, occur simultaneously with the cancellation of
Project Gateway was the agreement of Ameritech and SBC to merge. We
conclude that Project Gateway was cancelled because SBC and Ameritech
preferred to merge rather than compete in the mass market for local
exchange and exchange access services in St. Louis and perhaps
elsewhere.[^165]

80 Although Ameritech minimizes the competitive significance of its own
independent entry absent the merger, the preponderance of the evidence
demonstrates that Ameritech's portrayal is self-serving.[^166] Ameritech
argues Project Gateway was resale-based, producing less competition than
facilities-based entry. Next, Ameritech claims it lacked strong brand
name recognition in St. Louis. Ameritech also argues it had problems
implementing and launching the service in St. Louis because of
difficulties interfacing with SBC\'s operations support systems (OSS).
Lastly, Ameritech states it had difficulty pricing a bundle of services
that would attract customers in St. Louis.[^167]

81 We disagree with Ameritech that its entry into St. Louis would have
had a limited impact on that market. We find that absent the merger, it
is highly likely that Ameritech ultimately would have made Project
Gateway facilities-based.[^168] Although Ameritech initially relied on
resale, this is typical of initial entry moves by competitive LECs. A
competitive LEC's entry by resale may be a necessary first step to
facilities-based competition. It is not *per se* a disavowal of it. In
fact, Ameritech's documents indicate that it was considering
facilities-based competition when it achieved sufficient scale to
justify the related expenditure in capital,[^169] and that it began
several steps that, if completed, would have made it a facilities-based
competitor in St. Louis.[^170] Furthermore, we find that Ameritech's
assertion that it lacks brand name recognition in St. Louis has no
credibility. Ameritech had been aggressively promoting and providing its
cellular service in St. Louis, under the Ameritech brand name, for many
years. Ameritech's own documents show that it believed it had a strong
brand name in St. Louis and that its brand name would enable it to
compete effectively in the local service market there.[^171] Finally, it
is significant to our analysis that SBC considered Ameritech to be a
potential facilities-based provider of local service to the Missouri
consumer market[^172] with strong brand name recognition.[^173]
Therefore, we conclude that Ameritech is a significant market
participant in the mass market for local exchange and exchange access
services in St. Louis.[^174]

82 *SBC's Out-of-Region Plans*. The evidence indicates that SBC is a
potential entrant for mass market local exchange and exchange access
service in Ameritech's region.[^175] The evidence in the record
indicates that SBC had plans to enter the mass market in Chicago,
building off its cellular base in that city, and could thus be viewed as
a potential entrant into this market.[^176] Support for this argument
comes from SBC's own statements. For instance, in October 1996, SBC\'s
James S. Kahan testified in the California SBC/PacTel merger proceeding
that SBC had certain entry advantages in the Chicago market and
therefore it \"would make sense to enter the local exchange market in
Chicago but not in Los Angeles.\" Kahan stated:

> In Chicago, we have an extensive wireless network consisting of 10
> switches and over 600 cell sites. That network also includes extensive
> backbone network of microwave, leased facilities, and connections to a
> SONET ring. This network is supported by a sophisticated billing
> system, a responsive care unit, as well as sales and distribution
> marketing, accounting, finance, installation and maintenance and other
> personnel who reside in and understand the Chicago market. In
> addition, we have a well recognized brand name since we operate under
> the Cellular One name in Chicago. We also have a large existing
> customer base to which we send bills every month and to whom we could
> market services.[^177]

83 We conclude that SBC was a significant potential entrant into
Ameritech's region; SBC disagrees. SBC argues that Rochester, New York,
was a first experiment in out-of-region competition in local services,
and that the experiment failed, ending out-of-region planning.
Nevertheless, we base our conclusion in part on our analysis of the
ability of SBC to pursue out-of-region opportunities using, in this
instance, its out-of-region cellular assets. In addition, although it
had no existing plans to enter out-of-region territories at the time of
the merger, SBC's internal documents indicate the company contemplated
such entry when the competitive landscape became clear, as discussed in
Appendix B.[^178] Therefore, we conclude that SBC had the incentives to
make it a significant potential market participant in the mass market
for local services in out-of-region markets such as Chicago.
Significantly, Ameritech also perceived SBC's potential entry into
Chicago as a competitive threat to Ameritech.[^179]

84 *Capabilities and Incentives*. The Applicants' own plans, as well as
the Commission's independent analysis, indicate that SBC and Ameritech
each have the operational capabilities necessary to enter out-of-region
markets. In general, each has the requisite access to the necessary
facilities, "know how," and operational infrastructure such as customer
care, billing, and related systems that are essential to the provision
of local exchange services to a broad base of residential and business
customers.[^180] These systems are required whether entry occurs through
resale, use of UNEs, or some other form of facilities-based entry. SBC
and Ameritech also possess special expertise as incumbent LECs that each
could bring to the interconnection negotiation and arbitration process
when entering out-of-region markets because of their intimate knowledge
of local telephone operations and experience negotiating interconnection
agreements with new entrants.[^181]

85 Moreover, in a number of areas, Ameritech and SBC have the additional
advantage of adjacency, or a cellular presence, or both.[^182] Each
company has an array of switches and switching locations that have
capacity (or can be readily upgraded) to provide switching to contiguous
territories. Thus, where they are contiguous, SBC or Ameritech can lease
or build transport from their existing switches to a newly entered
market more readily than other potential local service providers because
of proximity to the newly entered market and their understanding of the
requirements for local exchange services.[^183] Finally, both Ameritech
and SBC have brand recognition in contiguous regions because of
extensive advertising in media markets that cross these regions.[^184]
Ameritech's research, for example, shows its brand recognition in St.
Louis is so high that it essentially proves Ameritech is one of the "top
two" telecommunications brand names among consumers in the market.[^185]
The cellular assets that Ameritech and SBC possess in each other's
regions also provide unique advantages for out-of-region entry. For
instance, a cellular presence provides a ready customer base for
expanding into wireline local telephony.

86 We therefore reject Applicants' claim that they should not be
considered most significant market participants in out-of-region
markets.[^186] Given the depth and breadth of Ameritech's expansion
plans, we find it likely that Ameritech would have expanded into other
SBC markets, in addition to St. Louis, but for the merger. We find it
significant that Ameritech viewed Project Gateway as a "testbed" in
which it could learn about competing with incumbent LECs in local
service and long distance service, customer demand for bundles, and how
to implement local and other services in a new area.[^187] Project
Gateway, had it not been cancelled by Ameritech so that it could merge
with SBC, would have given Ameritech insights and experience for later
use about how best to enter additional out-of-region markets.[^188] One
potential means for entry for Ameritech was to build on its larger
business expansion plans, as described below. We also find that SBC may
have expanded into Ameritech markets, such as Chicago, using its
cellular bases spread throughout Ameritech's region.[^189]

87 As for other significant market participants, the dominance of each
incumbent LEC in its own region makes it a most significant competitor
in its own region. We also reaffirm our finding in prior decisions that
the three largest interexchange carriers, AT&T, MCI (now MCI WorldCom),
and Sprint are among the most significant participants in the mass
market for local exchange and exchange access services.[^190] We find
that these firms each have the capabilities, incentives, and stated
intentions to serve the mass market for local exchange services. All
three firms already have a substantial base of residential customers of
their long distance services and established brand names resulting from
their marketing of these services. Thus, these firms are among the best
positioned to provide local services to residential customers. Further,
their stated intentions to begin serving the mass market for local
services underscores their position as being among the most significant
competitors.[^191] Nevertheless, in certain regions, such as adjacent
territories or cellular markets, where incumbent LECs have brand name
and/or customer base advantages similar to those enjoyed by the
interexchange carriers with their customers, incumbent LECs have the
additional advantage of their experience in providing local services to
mass market customers as incumbent LECs.[^192]

88 Other firms, currently serving or planning to serve the mass market
for local exchange and exchange access services out-of-region, are not
yet included in the list of most significant market participants.
Competitive LECs have begun serving residential markets but do not yet
have the existing customer base and brand name that enable AT&T, MCI,
and Sprint, as well as certain incumbent LECs, to become most
significant competitors.

#####  Larger Business Market

89 We find that the larger business local exchange market has a number
of market participants with similar incentives and capabilities as an
incumbent LEC expanding out-of-region. As the Commission found in
earlier orders, incumbent LECs still dominate the market for local
exchange and exchange access services sold to larger business customers
in their regions and are therefore most significant market
participants.[^193] We recognize, as we observed in the *WorldCom/MCI
Order*, that in contrast to the relative lack of competition incumbent
LECs face in the market for local services sold to mass market
customers, incumbent LECs face increasing competition from numerous new
facilities-based carriers in serving the larger business market.[^194]
We note that this competition lessens the potential public interest
benefits of SBC or Ameritech expanding out-of-region in the larger
business market for local exchange and exchange access services.[^195]

90 As with the mass market, incumbent LECs have significant capabilities
and incentives to expand into the market for larger business customers
out-of-region. Prior to the merger Ameritech was offering out-of-region
services to its larger business customers, and had already entered
several metropolitan areas in SBC's territory as part of its Managed
Local Access (MLA) Program.[^196] In its MLA program, Ameritech offered
local service in a number of out-of-region states to its largest
business customers. Ameritech began to implement MLA in 1997. As of
February 2, 1999, Ameritech had negotiated interconnection agreements
and was certificated to provide local service as a reseller and/or
facilities-based carrier in three SBC states -- California, Missouri,
and Texas.[^197] Ameritech asserts that it cancelled the program in June
1998 because it was unable to win customers.[^198] The Commission
nevertheless agrees with the commenters that argue that Ameritech is a
significant potential entrant in the larger business markets in
California, Missouri, and Texas.[^199] We base this conclusion on our
analysis of the ability and incentive of Ameritech to expand
out-of-region to serve larger business. The MLA program provides
evidence of the incentives of Ameritech to expand out-of-region, if not
the ability to do so.

91 Although both SBC and Ameritech are significant market participants
in the larger business market for local exchange and exchange access
services, unlike in the mass market for local exchange and exchange
access services, a large number of other firms may have similar
capabilities and incentives expanding out-of-region to serve larger
business customers.[^200] As we have noted, the larger business market
for local exchange and exchange access services differs from the mass
market.[^201] Larger business customers in general tend to be more
sophisticated and knowledgeable purchasers of telecommunications
services than mass market customers. A significant difference between
the mass market for local services and the larger business market for
local services is that larger business customer purchases are not
limited to a single local metropolitan geographic area; rather, they
purchase simultaneously in numerous local markets. Ameritech's MLA
program and the Applicants' National-Local Strategy are examples of how
larger business customers' purchasing patterns are targeted by following
larger business customers out-of-region. Finally, broad-based brand name
recognition and mass advertising are less important in attracting larger
business customers.[^202] As a result, many more firms are entering the
larger business market successfully than are entering the mass market
for local exchange services, and the merger is therefore less likely to
have adverse public interest effects in the larger business market for
local services.[^203]

#### Analysis of Merger's Effects

92 We seek to determine whether the merger of Ameritech and SBC is
likely to cause a public interest harm by reducing the level of
competition in any relevant local market. One of the major purposes of
the Act, that we seek here to further, is to lower the entry barriers
that gave incumbent LECs monopoly control over the local services
offered to customers in their regions. The Act's goal was to introduce
competition in these markets to the ultimate benefit of customers, both
as entrants attempted to win consumers' business with lower prices and
improved services, and as incumbents were forced in turn to respond to
the entrants or lose customers. The realization of this goal is
jeopardized if the incumbent and one of the most significant competitors
in its region choose to merge instead of compete. This is true even if
this competitor has not yet entered during the transitional period while
entry barriers are being eliminated, as the merger will eliminate future
entry and any corresponding competitive restraint this would place on
the incumbent.

93 In the instant merger analysis, we conclude above that both SBC and
Ameritech have the capabilities and incentives to expand into the mass
market for local exchange and exchange access services in geographic
markets adjacent to their own regions or ones in which they have a
cellular presence. SBC and Ameritech are thus among the most significant
potential competitors in these markets in each other's regions.
Therefore, the merger of SBC and Ameritech would lessen competition in
these markets, resulting in a potential public interest harm. In the
larger business market for local exchange and exchange access services,
we conclude above that SBC and Ameritech are among a significant number
of actual and potential competitors in each other's regions. Therefore,
the merger would be unlikely to lessen competition in these markets and
we find little corresponding public interest harm.

#####  Competitive Effects on Mass Market Local Services

94 *St. Louis*. In our analysis of the ability and incentives of
incumbent LECs to expand out-of-region, we focus on the advantages that
incumbent LECs have when expanding into adjacent regions or regions in
which they already have a cellular presence. In St. Louis, Ameritech
enjoys both advantages. Indeed, as discussed above, Ameritech did have
plans to enter the St. Louis market. We therefore focus our discussion
first on the St. Louis market, before turning to other general regions.

95 We find that the merger will result in the elimination of Ameritech
as a significant market participant in the mass market for local
services in St. Louis. Consequently, the proposed merger will reduce the
level of competition in this market, and thereby result in a significant
public interest harm. As discussed above, we base this conclusion on the
following. First, until the merger was negotiated, Ameritech was
entering the mass market for local services in St. Louis. Second, we
find that Ameritech was among the most significant competitors to SBC in
St. Louis. We base this finding on our conclusion that Ameritech, as an
incumbent LEC, has the operational experience to be able to offer local
exchange services on a large-scale in out-of-region markets. In
addition, Ameritech had a number of advantages for entering St. Louis,
including its St. Louis wireless customer base and brand reputation, and
its adjacency to St. Louis. The only other most significant potential
market participants in the mass market for local services in St. Louis
are the major interexchange carriers, with their ability to capitalize
on their brand name and existing customer base.[^204] We conclude,
therefore, that the merger will eliminate Ameritech as one of a very
limited number of most significant market participants in the mass
market for local services in St. Louis, and thereby will result in a
public interest harm.

96 We therefore concur with DOJ's conclusions that Ameritech planned to
begin offering wireline local exchange services to mass market customers
in St. Louis prior to the merger announcement, as well as the absence of
other firms with similar intentions.[^205] Nevertheless, we conclude
that the divestiture of Ameritech's cellular assets required by DOJ,
standing alone, does not mitigate the public interest harms outlined in
this section.[^206] As discussed above, the public interest standard
that governs the Commission's review is broader than the antitrust
analysis undertaken by the DOJ. In particular, we find that the merger
may delay the future development of competition or lessen its eventual
impact, contrary to the intention of the 1996 Act. Specifically, we find
that the merger will result in a significant public interest harm in the
provision of local exchange services to the mass market in St. Louis and
elsewhere, despite the divestiture of Ameritech's cellular assets.

97 We reach this conclusion based on our analysis of the capabilities,
incentives, and intentions of Ameritech to expand into St. Louis, and
our corresponding finding that GTE Consumer Services Incorporated
(GCSI), the purchaser of Ameritech's St. Louis cellular assets[^207] is
not likely to be as significant a competitor to SBC's residential
wireline services as was Ameritech. First, we note that GCSI meets the
requirement specified in DOJ's Proposed Final Judgment, if it "has the
capability of competing effectively in the provision of local exchange
telecommunications services and long distance telecommunications service
in the St Louis Area."[^208] This specific language clearly indicates
that DOJ only wishes to require that GCSI demonstrate the *capability*
to use these assets to provide local services in St. Louis, but not the
specific *intention* to so use them. We note that although GCSI has the
capability of providing local services in the St Louis Area, based on
the record before us, it lacks the adjacency, incentive and stated
intention to provide wireline local exchange services in St. Louis that
in combination with its brand name recognition gave Ameritech its
advantages in entering the St. Louis market.[^209] It is therefore
unlikely that GCSI could demonstrate the same incentive, and intention
to provide wireline local exchange services for mass market customers in
St. Louis as Ameritech. We therefore conclude that the merger leads to a
public interest harm in the St. Louis market despite the divestiture of
Ameritech's cellular assets, although divestiture to a firm with the
ability to extend the wireless business to a genuine wireline threat
does mitigate the significance of the harm.

98 *Other Regions*. We further find that, as elaborated in Appendix B,
the fact that SBC had no current plans to enter any mass market for
local exchange and exchange access services out-of-region, and the fact
that Ameritech's plans focused on St. Louis, do not preclude a finding
that each was a significant potential mass market participant in other
regions. We base this finding on the transitional market analysis
articulated in the *Bell Atlantic/NYNEX Order*, stating that in
transitional markets such as the local markets examined here, the
Commission may consider future entry in its analysis of the competitive
effects of a merger.[^210] As discussed in Appendix B, Ameritech was
expanding elsewhere into SBC's region as part of its MLA program.
Combining the MLA foothold in the larger business market in these
regions with the benefits of Ameritech's experience as an incumbent LEC,
along with additional experience that it would have accrued as a
competitive LEC in St. Louis, we find that Ameritech had the
capabilities and incentives to further expand into the mass market for
local services in SBC's region. The divestiture of Ameritech's cellular
assets in St. Louis does not provide any assurance that the purchaser
will expand beyond St. Louis as Ameritech was likely to have done.
Although SBC would not have adjacency benefits in most of Ameritech's
region, combining its experience as an incumbent LEC with its cellular
assets, notably in Chicago, but also elsewhere in Ameritech's region, we
find that SBC had the capabilities and incentives to expand into the
mass market for local services in Ameritech's region.

99 Therefore, we find that the merger of SBC and Ameritech results in
the loss of a most significant potential competitor in the provision of
mass market local exchange services in portions of each other's regions,
resulting in a potential public interest harm. The harm is significant
because both firms are among a very few that are poised on the edge of
an entrenched monopolist, with genuine abilities to challenge that
monopolist. These harms, although real and substantial, nevertheless may
not be enough, in and of themselves, to justify prohibiting the merger.
Neither firm was likely to enter most of the other's territory.
Throughout both territories, at least three interexchange carriers are
also significant actual or potential entrants. The divestiture of
Ameritech's wireless St. Louis operation to GTE somewhat mitigates the
merger's effects in that city. Were the loss of each firm's entry into
the other's territory the only public interest harm produced by this
merger, the overall balance would be much closer.

##### Effects on Larger Business Market

100 With respect to the provision of local exchange access services to
larger business customers, we find that, absent the merger, Ameritech is
likely to have followed a number of its large business customers in a
number of out-of-region states in SBC's territory, as documented by
Ameritech's plans to offer local exchange services via its MLA program,
and that SBC had the capabilities and incentives to expand out-of-region
in a similar fashion, despite the absence of concrete plans.[^211] We
also find that there are a number of significant competitors equally
competitive with SBC and Ameritech in these markets. Therefore, although
SBC and Ameritech are significant market participants, we do not find
that their elimination, as a result of the merger, would substantially
frustrate the goals of the Act and harm the public interest in the
provision of local exchange and exchange access services sold to larger
business customers.[^212]

## Comparative Practices Analysis

101 In this section, we analyze the effect of the proposed merger on the
ability of regulators and competitors to use comparative analyses of the
practices of similarly-situated independent incumbent LECs to implement
the Communications Act in an effective, yet minimally intrusive manner.
Such comparative practices analyses, referred to by some commenters as
"benchmarking," provide valuable information regarding the incumbents'
networks to regulators and competitors seeking, in particular, to
promote and enforce the market-opening measures required by the 1996 Act
and the rapid deployment of advanced services. Without the use of this
tool, regulators would be forced, contrary to the 1996 Act and similar
state laws, to engage in less efficient, more intrusive regulatory
intervention in order to promote competition and secure quality service
at reasonable rates for customers. We find that the proposed merger of
SBC and Ameritech would pose a significant harm to the public interest
by severely handicapping the ability of regulators and competitors to
use comparative practices analysis as a critical, and
minimally-intrusive, tool for achieving the Communications Act's
objectives.

102 The Commission's public interest test considers, among other things,
"whether the merger . . . would otherwise frustrate our implementation
or enforcement of the Communications Act and federal communications
policy."[^213] In past incumbent LEC mergers, the Commission has
recognized that the declining number of independently-owned major
incumbent LECs limits the effectiveness of benchmarking for regulators
in carrying out the goals of the Communications Act.[^214] In the *Bell
Atlantic/NYNEX Order* in particular, the Commission observed that, as
the number of independent large incumbent LECs declines, regulators and
competitors lose the ability to compare policies and performance among
major incumbents that have made divergent management or strategic
choices.[^215] Consequently, in allowing the Bell Atlantic/NYNEX merger,
the Commission expressly cautioned that "further reductions in the
number of Bell Companies or comparable incumbent LECs would present
serious public interest concerns."[^216] The Commission went on to warn
that "future applicants bear an additional burden in establishing that a
proposed merger will, on balance, be pro-competitive and therefore serve
the public interest, convenience and necessity."[^217] The Applicants
have not overcome that burden.

103 Following the concerns expressed in the *Bell Atlantic/NYNEX Order,*
and SBC's prior acquisitions of Pacific Telesis and SNET, we must
consider the effect that a further reduction in the number of large
incumbent LECs would have on the ability of regulators and competitors
to use comparative practices analyses as a deregulatory means to advance
the pro-competitive goals of the Communications Act. We find, as the
Commission concluded in the *Bell Atlantic/NYNEX Order*,[^218] that the
major incumbent LECs (RBOCs and GTE), because they are of similar size
and face similar statutory obligations and market conditions, remain
uniquely valuable benchmarks for assessing each other's performance. It
follows that a reduction in the few remaining major incumbent LECs would
restrict the flow of information to regulators and competitors that
otherwise could be used to promote innovative market-opening solutions
or to identify and curtail unreasonable and discriminatory behavior.

104 As discussed in greater detail below, we find that the proposed
merger's elimination of Ameritech as an independent major incumbent LEC
will significantly impede the ability of this Commission, state
regulators and competitors to use comparative practices analyses to
discover beneficial, pro-competitive approaches to open
telecommunications markets to competition and to promote rapid
deployment of advanced services. More specifically, the loss of
Ameritech as an independent source of strategic decisions and
experimentation, and the increased incentive for the merged entity to
reduce autonomy at the local operating company level as a result of the
merger, would severely restrict the diversity that regulators and
competitors otherwise could observe and, where pro-competitive, endorse.
By further reducing the number of major incumbent LECs, the merger also
increases the risk that the remaining firms will collude, either
explicitly or tacitly, to conceal information and thereby hinder
regulators' and competitors' benchmarking efforts. We therefore conclude
that the proposed merger of SBC and Ameritech would impede the ability
of regulators and competitors to make effective benchmark comparisons,
which would force more intrusive, more costly, and less effective
regulatory measures contrary to the 1996 Act's deregulatory aims and the
interests of both the regulated firms and taxpayers. The loss of this
more efficient method of oversight can only serve to further entrench
the large incumbent LEC's substantial market power.

105 Our analysis of the effect on comparative practices analysis of
SBC's acquisition of Ameritech discusses: (1) the need for comparative
practices analyses to offset the informational disadvantage of
regulators and competitors; (2) the impact of a reduction in the number
of comparable firms on benchmarking's effectiveness; (3) examples of the
use of comparative practices analysis by regulators and competitors to
evaluate practices of the large incumbent LECs both prior to and
following the 1996 Act; (4) the adverse impact of the proposed
SBC/Ameritech merger on the effectiveness of comparative practices
analyses; and (5) the present inadequacy of other alternatives to large
incumbent LEC benchmarks.

### Need for Comparative Practices Analyses

106 For regulators and competitors, comparative analyses of the
practices and approaches of a variety of similarly situated incumbent
LECs can render valuable information regarding network features,
capabilities and costs. The 1996 Act requires regulators to oversee the
opening of local telecommunications markets to competition and to
promote rapid deployment of advanced services under circumstances in
which regulators possess far less accurate and less complete information
than incumbent LECs about the capabilities and constraints of existing
networks.[^219] Without such information, regulators and competitors may
not be able to make informed decisions regarding the feasibility and
costs of certain interconnection or access arrangements, particularly
when disputes arise over the introduction of new, unproven technologies
or services.[^220] The incumbent LEC's superior knowledge also gives it
a decided advantage over competitors in negotiating prices, terms and
conditions for interconnection or network access.[^221]

107 In addition, incumbent LECs, which are both competitors and
suppliers to new entrants, have strong economic incentive to preserve
their traditional monopolies over local telephone service and to resist
the introduction of competition that is required by the 1996 Act.[^222]
More specifically, an incumbent LEC has an incentive to: (1) delay
interconnection negotiations and resolution of interconnection disputes;
(2) limit both the methods and points of interconnection and the
facilities and services to which entrants are provided access; (3) raise
entrants' costs by charging high prices for interconnection, network
elements and services, and by delaying the provisioning of, and
degrading the quality of, the interconnection, services, and elements it
provides.[^223] An incumbent LEC has similar, and probably greater,
incentive to deny special accommodations required by competitive LECs
seeking to offer innovative advanced services that the incumbent may not
even offer.[^224] As noted at the outset, this view of the incumbent
LECs' incentives and abilities is the fundamental postulate of the basic
cornerstones of modern telecommunications law -- the MFJ and the 1996
Act.

108 Given these incentives to resist competitive entry, independent
incumbent LECs, absent collusion, are likely to adopt different
defensive strategies to forestall competitive entry, and each particular
strategy will reveal information to regulators and competitors. One
incumbent LEC may claim, for example, that a particular form of
interconnection is infeasible, while a second may resist the unbundling
of a particular network element, and a third may oppose the collocation
of specific types of equipment within its central offices. In such
situations, the behavior of other major incumbent LECs can be used as
benchmarks to evaluate the outlying incumbent's claims. Competitors, in
negotiating and implementing access and interconnection arrangements,
could point to the conduct of one incumbent to rebut another incumbent's
assertion that a particular service is not feasible or must be
structured or priced in a particular manner. Comparative practices
analysis does not require this Commission to assume the more expensive
and intrusive posture of imposing arduous reporting requirements and
dictating how networks should be organized and operated. Comparing the
practices of a large number of similarly-situated incumbents provides a
minimally-intrusive means for regulators and competitors to
counterbalance the incumbents' superior knowledge of the possible
technical arrangements for collocation, unbundled access, and
interconnection, as well as the costs associated with such arrangements.

109 The ability to analyze a wide variety of approaches among the major
incumbent LECs is especially crucial for regulators and competitors in
implementing the provisions of the 1996 Act that mandate competitive
access to facilities and services. As regulators seek to open local
telecommunications markets and promote advanced services deployment
using deregulatory means, they benefit greatly from observing diverse
strategic decisions and experimentation among the incumbents.[^225] The
Applicants themselves acknowledge that the introduction of local
competition has "both accelerated and been accompanied by rapid
technological developments."[^226] Comparative practices analyses are
perhaps the regulators' and competitors' best means of staying abreast
of such rapid technological advances, particularly in assessing the
technical feasibility of novel access and interconnection configurations
vital for the provision of new services and technologies.

110 In analyzing comparative practices, regulators and competitors
generally use two broad methods of comparison -- "best-practices" and
"average-practices" benchmarking. It is not unusual, however, for
comparative practices analyses to involve a combination of these
approaches.

111 *Best-Practices*. Under "best-practices" benchmarking, a regulator
compares behavior across a group of similarly situated, independent
firms in order to identify the best practice employed by a firm, or
subset of firms.[^227] When individual incumbent LECs adopt a variety of
techniques or technologies to provide a particular service, regulators
and competitors can compare the costs and benefits of each technique to
arrive at a "best practice," which presumptively could be promoted or
required of all incumbents. If one or two incumbent LECs, for example,
offered requesting carriers cageless collocation, this would call into
question the claims of other incumbent LECs that cageless collocation
threatened the reliability of the network.[^228] Alternatively, if
several similarly-situated incumbent LECs provide widely varying
estimates of the cost of providing a certain service, then the low cost
estimate would call into question the accuracy of the higher cost
estimates.

112 *Average-Practices*. Under "average-practices" benchmarking, a
regulator gathers data from a number of firms in order to identify the
prevailing standard or to calculate the average, which then could be
used as a benchmark against which to evaluate an individual LEC's
performance. Substantial deviation from the benchmark average can assist
regulators and competitors in detecting substandard, and potentially
unreasonable, behavior, such as poor service quality or unreasonable
costs.[^229] Variations of this form of comparative practices analysis
also can be used to monitor service quality or to detect unreasonable or
discriminatory costs or practices. The Commission's calculation of the
X-factor based on industry-wide increases in productivity, which was
then applied to all "Price Cap LECs," is another use of
average-practices benchmarking.[^230] To be effective, however,
average-practices benchmarking requires data from a large number of
independent, similarly situated incumbent LECs, none of which is large
enough to dominate, or skew, the aggregate data. In such a situation, an
individual LEC's action would have little impact on the average
benchmark, and an incumbent LEC would have no incentive to deviate from
its individually optimal behavior in order to affect that average
benchmark.

113 Absent the ability to benchmark among major independent incumbent
LECs, this Commission and state regulators would have no choice but to
engage in highly intrusive regulatory practices, such as investigating
the challenged conduct directly and at substantial cost to make an
assessment regarding its feasibility or reasonableness.[^231] The
increased need for such direct regulation would not only be more costly,
but it would clash with the deregulatory goals of the 1996 Act.[^232]
Furthermore, these more intrusive and costly regulatory alternatives are
unlikely to be as effective as comparative practices analysis in
implementing the pro-competitive mandates of the 1996 Act, given the
rapid evolution of technology, the incumbent LECs' informational
advantage and their incentive to conceal such information.

### Effect of Reduction in Number of Benchmarks

114 In order to render a variety of policies and practices for
regulators and competitors to observe and analyze, comparative practices
analysis requires a large number of comparable independent sources of
observation. For this reason, mergers between benchmark firms
significantly weaken the effectiveness of this tool. Removing a
benchmark firm through a merger reduces the independence of the sources
of observation at three levels: (a) the holding company level, as
policies of the acquired firm that conflict with those of the acquiring
firm are eliminated; (b) the local operating company level, as the
holding company's incentive to impose uniform practices throughout its
expanded region increases; and (c) the industry level, as the incentives
and capabilities of the few remaining major incumbent LECs to coordinate
their behavior increase. In addition, the loss of an independent
incumbent LEC will have a greater impact on reducing benchmarking's
effectiveness the larger the region of the combined entity and the
smaller the number of similarly-situated firms remaining following the
merger.

#### Effect at Holding Company Level

115 A merger of two large incumbent LECs obviously eliminates an
independent source of observation at the holding company level. The
combined entity is unlikely to continue with two sets of policies and
practices where the dual policies conflict with one another. Instead, it
is likely to eliminate any divergent approaches in favor of a standard
policy (which may represent a choice between the two firms' positions or
a compromise). The acquiring firm has a particularly strong incentive to
eliminate conflicting policies of the acquired firm that would
jeopardize its chosen strategy to resist competitive entry.[^233]
Consequently, as the Commission explained in the *Bell Atlantic/NYNEX
Order*, the result of the merger may be a reduction in the level of
experimentation and variety of approaches observable to regulators and
competitors.[^234]

116 When only a few similarly-situated benchmark firms remain, the harms
to benchmarking increase more than proportionately with each successive
loss of a firm as an independent source of observation.[^235] As the
number of independent sources of observation declines, there is less
likelihood that a significant "maverick" will emerge to undertake a
strategic or management decision that departs from the other incumbents,
and that may establish a best practice in the industry. Moreover, the
best observed practice is likely to become worse simply because there
are fewer observations. Finally, as the number of independent sources of
observation decreases, deviations from average practices can be
identified less confidently as unreasonable and punishable.

117 Having a significant number of independent points of observation is
especially crucial for regulators and competitors in decisions regarding
new services and innovative technologies. Such decisions are likely to
entail forecasting the expected benefits, costs, timing, and problems
associated with the provision and maintenance of such services and
innovations. Although it is impossible to make such predictions with
certainty, the existence of numerous major incumbent LECs increases the
information available to regulators in evaluating whether or when to
require the new service or innovation, and in setting rates. Conversely,
having few major incumbent LECs to serve as independent points of
observation can undermine the credibility of such determinations.

#### Effect at Operating Company Level 

118 A merger of two holding companies also is likely to reduce the
relative autonomy of their local operating companies and hence the
overall level of experimentation and diversity for decisions that were
made at the operating company level. Holding companies typically impose
certain constraints on their operating companies. Accordingly, when two
holding companies with distinct policies merge and adopt one common set
of policies, the decisions made by the operating companies of the
acquired holding company will become more closely correlated with the
decisions made by the operating companies of the acquiring holding
company. Furthermore, the expansion in the combined entity's service
region results in a greater incentive to shift more decisions from the
operating company level to the holding company level.

119 As a holding company\'s size increases, the cost it incurs when one
of its operating companies' practices is used as a benchmark against the
rest of the company also increases. For example, if each of the merging
firms previously had five local operating companies, then each of these
holding companies would have been concerned only with the cost of
adopting a benchmark practice for its four other operating companies.
Following the merger, however, the holding company would have to
consider the cost of adopting this benchmark practice for a total of
nine other operating companies. Accordingly, as a holding company
acquires more operating companies and its service region expands, it has
an increased incentive to ensure that its operating companies\' policies
are consistent with those of the holding company.

120 Where a merger creates an incumbent LEC of sufficient size to
dominate the setting of industry averages and standard practices, which
are based on data from operating companies, the merged firm acquires an
incentive to impose uniform practices in order to influence or set the
*de facto* average benchmark. An incumbent LEC with few operating
companies, for example, may allow its local operating companies to set
the non-recurring charge (NRC) associated with cutting over a loop,
because the data from its operating companies will have negligible
impact on the industry average. If, however, as a result of a merger,
the holding company controlled a large percentage of the nation's local
loops, then it would have a strong incentive to establish a uniform NRC
in order to influence the industry average.[^236] Alternatively, a
holding company that knew that a maverick operating company outside its
territory was developing a new billing and collection arrangement that
would likely become a best-practice benchmark would have limited
incentive to prevent its own operating companies from employing a
variety of billing and collection arrangements, for the differing
arrangements would have little effect on the ultimate benchmark. If,
however, a merger brought the maverick operating company under the
holding company's control, the holding company would be able to
influence the benchmark by requiring all its operating companies
(including the maverick) to adopt the billing and collection arrangement
that it deemed most advantageous. The result, again, would be a loss of
independent sources of observation for regulators and competitors
seeking to use comparative practices analyses to promote competition and
rapid deployment of advanced services.

#### Effect at Industry Level 

121 A reduction in the number of independently-owned major incumbent
LECs as a result of a merger increases the likelihood of coordination,
either tacit or explicit, among the remaining firms in the industry for
the purposes of reducing the effectiveness of comparative practices
analyses. As general antitrust principles indicate, collusion is more
likely to occur where only a few participants comprise a market and
entry is relatively difficult.[^237] This is due in part to the fact
that, with fewer firms, less potentially divergent interests must be
accommodated by the coordinated behavior. On the other hand, with a
large number of competitors and low barriers to entry, coordinated
behavior is less likely.[^238]

122 The Horizontal Merger Guidelines indicate concern that firms may be
able to coordinate with respect to price or other product attributes
when six equally sized firms compete in an industry.[^239] Nonetheless,
the ability of firms to coordinate on price is partially mitigated by
the fact that, by its very nature, an agreement to maintain price above
the competitive level creates an incentive for each of the firms to
cheat on the agreement and lower price. By undercutting the agreed-upon
price, a firm could earn a higher profit than it would earn if it (along
with the others) maintained the agreement. We note that, as the major
incumbent LECs do not directly compete on price in the same geographic
markets (and, as noted above, would be less likely to do so after the
merger), they do not have this incentive to lower price.

123 In the context of comparative practices analysis, we expect that,
with respect to coordinating divergent incentives, having fewer
benchmark firms would also result in the remaining firms being better
able to coordinate their behavior. In this situation, the coordination
of behavior could be designed not to raise price, but, rather, to
conceal information from regulators and thereby impede regulatory
functioning. Unlike competing firms, each of which has a unilateral
incentive to cheat on the agreement in order to raise its profits, no
such incentive to cheat exists with respect to an agreement, tacit or
explicit, to behave in a uniform way to conceal information from a
regulator.

124 By reducing the number of benchmark firms, and thereby simplifying
coordination of agreements, a merger between major incumbent LECs
facilitates agreement among the remaining firms to conceal information
to thwart the effectiveness of benchmarking.[^240] The remaining firms
will find it easier to coordinate the withholding of certain types of
information and the elimination of divergent practices that regulators
and competitors could use in comparative practices analyses. Tacit
coordination among fewer major incumbent LECs makes it easier for the
remaining firms to agree not to provide a certain type of
interconnection or access arrangement in order to prevent regulators and
competitors from concluding that such arrangement is feasible because
another major incumbent is providing it. Likewise, the remaining firms
could agree not to charge a non-recurring charge less than a certain
price so as to avoid a regulator's use of a lower threshold to assess
reasonableness. In this way, further consolidation among the major
incumbent LECs would severely curtail regulators' abilities to constrain
any tacit or explicit coordination by these incumbents to impede
comparative practices analyses, especially as regulators seek to open
the incumbents' markets to competition.

### The Value of Comparative Practices Analyses

125 As illustrated by the examples that follow, courts, federal and
state regulators, and competitors have consistently recognized
comparative practices analysis as a crucial tool, and have employed such
analyses, to set industry standards and policy, detect discriminatory
behavior, and promote competition. In the *Bell Atlantic/NYNEX Order*,
the Commission noted that federal and state regulators have long
recognized benchmarking as a relatively non-intrusive means of
implementing pro-competitive policies and rules and of evaluating
incumbents' compliance with such requirements.[^241]

#### Comparative Practices Analyses under the Modified Final Judgment

126 Prior to their recent merger efforts, the RBOCs had been among the
most fervent proponents of the use of benchmarking to supplant other
more-intrusive forms of regulation.[^242] For example, when the RBOCs
petitioned for removal of the MFJ's line-of-business restrictions in
1987, each of the then-seven RBOCs argued that lifting the
line-of-business restrictions was justified because the performance of
one RBOC could be measured against that of the six others.[^243]
Ameritech, for example, asserted that the "division of the local
exchange networks among seven independent companies has greatly enhanced
the detectability of any monopoly abuse and the effectiveness of
regulation."[^244] In a subsequent filing, Ameritech, citing
"overwhelming evidence that divestiture-created benchmarks are being
used effectively by regulators, the DOJ and the industry as safeguards
against any potential anticompetitive conduct or regulation abuse,"
asserted that "\[n\]o amount of sophistry can suppress the importance of
benchmarks."[^245] Similarly, SBC contended that, with the creation of
seven regional companies as a result of the divestiture, "\[t\]he FCC
can now monitor the rates, performances, and business practices of the
seven \[RBOCs\] to detect potential anticompetitive activities."[^246]
SBC further asserted that the seven RBOC benchmarks provide "an
effective deterrent against even subtle attempts to abuse any advantages
that might arise from the ownership of local exchange telecommunications
facilities."[^247]

127 Federal courts, agreeing with the RBOCs' affirmations of the
importance of benchmarking, have also recognized the value of
comparative practices analyses among the major incumbent LECs. For
example, in considering the information services line-of-business
restriction, the D.C. Circuit explained:

\[T\]he existence of seven \[R\]BOCs increases the number of benchmarks
that can be used by regulators to detect discriminatory pricing. Indeed,
federal and state regulators have in fact used such benchmarks in
evaluating compliance with equal access requirements . . . and in
comparing installation and maintenance practices for customer premises
equipment.[^248]

128 In another case, the court relied in part on benchmarking in
rejecting a DOJ proposal to restrict RBOC marketing of customer premises
equipment (CPE) to residential and single-line business customers.
Specifically, the court noted that, "with seven different \[RBOCs\]
involved in installation and maintenance, claims of one Operating
Company that it had particular difficulties or problems with the
equipment of manufacturers it did not sell could be readily undermined
by a comparison with the practices of the other six companies."[^249]

129 In addition to recognizing the value of benchmarking, federal courts
regularly employed benchmarking by comparing practices among the RBOCs.
For example, in ordering Pacific Bell to provide access lines for
AT&T\'s coinless public telephones, the district court twice noted that
Pacific Bell appeared to be the only RBOC not providing the required
access.[^250] Ruling on a separate motion, the court noted that no other
RBOC had attempted, as Bell Atlantic had, to sell embedded CPE to the
General Services Administration prior to the divestiture-related
assignment of CPE accounts, assets and employees to AT&T.[^251]

#### The Commission's Use of Comparative Practices Analyses

130 The Commission has long used various forms of comparative practices
analyses in carrying out the objectives of the Communications Act.
Broadly speaking, comparing the practices of several major incumbent
LECs has enabled the Commission to determine whether an individual
incumbent's claim concerning technical feasibility is warranted, or to
monitor service quality with minimal regulatory intervention. Below are
a sample of the examples of the Commission's use of such comparisons to
implement the Communications Act and, most notably, the pro-competitive
mandates of the 1996 Act.

131 The Commission employed "best-practices" benchmarking in
implementing the local competition provisions of the 1996 Act. In
interpreting the requirement that incumbent LECs provide interconnection
and access to UNEs at any "technically feasible point,"[^252] for
example, the Commission concluded that successful interconnection or
access to a UNE at a particular point in one incumbent LEC\'s network is
substantial evidence that interconnection or access is technically
feasible at that point in other networks employing substantially similar
facilities.[^253] Similarly, the Commission found that successful
interconnection at a particular level of quality in one LEC\'s network
is substantial evidence of the feasibility of interconnection at the
same level of quality in another LEC\'s network.[^254]

132 This Commission also adopted a "best-practices" approach in
addressing collocation issues in its recent *Advanced Services Further
Notice*. Specifically, we concluded that any collocation method used by
one incumbent LEC is presumptively technically feasible for all other
incumbents.[^255] We stated that "\[t\]he incumbent LEC refusing to
provide such a collocation arrangement, or an equally cost-effective
arrangement, may only do so if it rebuts the presumption before the
state commission that the particular premises in question cannot support
the arrangement because of either technical reasons or lack of
space."[^256] We emphasized that "\[w\]e believe this 'best practices'
approach will promote competition."[^257] The Commission therefore
considered the use of comparative practices analyses to be an efficient,
pro-competitive method of evaluating the parameters of incumbents'
interconnection or access arrangements.

133 The *Advanced Services* proceeding also illustrates that an
incumbent LEC's unique approach can set the industry standard. In that
proceeding, we addressed the issue of how to allocate the "up-front"
costs incurred in preparing collocation space. Relying on an approach
developed by Bell Atlantic in its New York section 271-pre-filing
statement, under which each competitor was responsible only for its
pro-rata share of the cost of conditioning the collocation space, we
adopted Bell Atlantic's approach as a national standard and required
incumbent LECs to allocate space preparation and other collocation
charges on a pro-rated basis.[^258] The Commission's explicit reliance
on benchmarking in our recent orders implementing the advanced services
provisions of the 1996 Act highlights the continued vitality of
benchmarking as a market-opening tool for the future.

134 Just as best-practices benchmarking forms the foundation for the
Commission's analysis of technical feasibility and collocation issues,
average-practices benchmarking is the Commission's primary tool for
monitoring service quality and detecting unreasonable or discriminatory
costs or practices. In creating the Automated Reporting Management
Information System (ARMIS) to monitor the effect of price cap regulation
on large incumbent LECs' service quality and infrastructure development,
the Commission directed the Common Carrier Bureau to promote uniformity
in reporting factors so that the data collected would \"be similar
enough to permit ready benchmarking."[^259] In response to a request by
various incumbent LECs asking the Commission to reverse a Bureau
decision to use ARMIS reports as the benchmark for comparing service
quality among incumbent LECs, the Commission, affirming the Bureau\'s
decision, stated that uniform ARMIS reporting allows for \"useful
comparisons on incumbent LEC performance.\"[^260] Reaffirming the
importance of benchmarking in identifying instances where an incumbent
LEC has allowed its service quality to degrade in order to extract
greater profits from its capped rates, the Commission emphasized that
\"\[f\]rom the inception of the monitoring program, benchmarking has
been a primary goal."[^261]

135 As a final example highlighting the Commission's continued use of
comparative practices analyses in the post-1996 Act era, the Commission
has employed average-practice benchmarking in reviewing the cost support
filed by incumbent LECs in connection with new services. For example, in
investigating physical collocation tariffs, the Commission, recognizing
that most incumbent LECs had little or no relevant operating experience
or historical data, concluded that it was reasonable to pool all
incumbent LECs\' direct cost estimates in order to calculate an
industry-wide average.[^262] Then, if any individual incumbent LEC's
cost estimate substantially deviated from the benchmark average, the
Commission could set that LEC's tariff for further investigation into
reasonableness. The Commission has used a similar average-practice
methodology in other tariff review proceedings, including evaluating
non-primary residential line counts for presubscribed interexchange
carrier charges[^263] and number portability cost components.[^264]

#### State Regulators' Use of Comparative Practices Analyses

136 State regulators likewise have relied on various forms of
comparative practices analysis in carrying out their roles in monitoring
carrier activity in their state and opening local markets to
competition.[^265] State regulators periodically compare the practices
of incumbent LECs operating within their state. For example, an Illinois
Commerce Commission (ICC) arbitration decision between AT&T and GTE
included numerous examples in which the ICC directed GTE to adopt terms
for AT&T that Ameritech had agreed to with other parties.[^266]
Likewise, when Ameritech recently objected to the Ohio Public Utilities
Commission's requirement that it allow customers with past-due toll
balances to switch to a new interexchange carrier, the commission
observed that "every LEC except Ameritech has implemented our existing
toll blocking policy," and thus found no basis to exempt Ameritech "from
the requirements which every one of the other LECs is following."[^267]

137 State regulators at times also compare the practices of the major
incumbent LECs operating in other regions to the conduct of incumbents
in their state.[^268] For example, as AT&T points out, in rejecting the
claims of Ameritech that it could not provide competitors using
unbundled local switching with the billing information necessary to bill
for terminating access or for originating toll free access, the ICC
found "it quite instructive that many other RBOCs have voluntarily
agreed to or have been ordered by state commissions to provide such
information."[^269] Likewise, in the New York section 271 collaborative
hearings, after Covad indicated that no security problems arose in its
cageless collocation arrangements with U S WEST in Washington state,
Bell Atlantic retreated from its claims that security concerns and
network risks prevented it from providing cageless collocation.[^270]
Similarly, in reviewing Ameritech Indiana's central office floor space
charge, the Indiana Utility Regulatory Commission found "no reason to
believe that Ameritech's central offices are constructed at a level of
quality different than any other RBOC's central offices."[^271]

138 As an example of a state regulators' use of RBOC average-practice
benchmarking, the Public Utility Commission of Texas (Texas PUC), in
arbitrating Southwestern Bell Telephone Company's interconnection
agreements with five competitive LECs, found insufficient record
evidence for collocation costs and therefore deemed "it reasonable to
base interim rates on the average rates set in collocation agreements
entered into by a sample of other RBOCs."[^272] Similarly, the Texas PUC
adopted an aggregate methodology for assessing avoided cost discounts
when it found, *inter alia*, that SWBT's service-specific avoided cost
estimates, "on their face, are so inconsistent with the experiences of
the FCC and other states."[^273]

139 As a final form of state regulators' use of comparative practices
analyses, occasionally states compare divergent approaches among
different local operating companies owned by the same holding company.
For example, the Michigan PUC's requirement that Ameritech implement
number portability in Michigan uses Ameritech's progress in Illinois as
a benchmark.[^274] Because such comparisons would be impossible if the
local operating companies initially were to act in lock-step fashion
(*i.e.*, before a best practice is identified), this form of comparison
depends upon the local operating companies retaining independence to
adopt innovative practices, notwithstanding their common ownership by
one regional holding company.[^275] As this sample of benchmarking
examples illustrates, the ability to make benchmark comparisons, across
independent, or at least semi-autonomous, operating companies
constitutes an effective, and minimally intrusive, tool for state
regulators.

#### Competitors' Use of Comparative Practices Analyses

140 Comparative practices analyses are also crucial for the incumbents'
competitors which must rely on incumbent LECs for interconnection,
access and unbundled elements. This explicit need to rely on the
incumbents' facilities and services distinguishes the section 251
negotiation process from commercial negotiations in other competitive
markets.[^276] Consistent with the analysis above, competitive LECs
commenting in this proceeding assert that in their interconnection
negotiations with incumbent LECs, and in various state or federal
proceedings implementing the Communications Act, they compare the
incumbent LEC's price structure, provisioning, or claims about the
feasibility of a particular service against their experiences with other
incumbents.[^277]

141 Both MCI WorldCom and AT&T, as well as other competitive LECs,
provide examples of their use of benchmarking among the major incumbent
LECs. When Bell Atlantic faced problems with premature switch
translations and re-use of customer facilities, for example, MCI
WorldCom urged Bell Atlantic to use BellSouth's process for local number
portability cutovers (*i.e.*, deploying a direct interface from the
Number Portability Administration Center to its provisioning
systems).[^278] Similarly, after NYNEX developed a special "VETS"
testing vehicle for ensuring that competitors' NXXs are opened and dated
correctly, MCI WorldCom suggested to other incumbents, such as Pacific
Bell, that they adopt this improved internal NXX activation and testing
process.[^279] MCI WorldCom also objected to certain proposed
collocation requirements of one RBOC (BellSouth) by pointing out that
other RBOCs did not require those practices.[^280] Finally, in appealing
an interconnection agreement, MCI WorldCom argued against Bell
Atlantic-Massachusetts's assumption that feeder facilities constructed
of fiber-optic cable, rather than copper, were most cost-efficient for
all loops, regardless of length, by showing that no other incumbent LEC
had cost-justified the use of fiber-optic cable in loops with lengths
less than 9,000 feet.[^281] As these examples illustrate, MCI WorldCom's
ability to compare the practices of a large number of independent major
incumbent LECs has enabled it to refer certain incumbent LECs to proven
alternate, and more pro-competitive, practices.

142 AT&T also cites several instances in which it used the practice of
one RBOC as leverage to defeat claims by another RBOC regarding
technical feasibility. AT&T's examples include the following:

-   *Selective Routing of Operator and Directory Assistance Services*.
    When SBC claimed that selective routing of a competitive LEC's
    operator and directory assistance traffic to the competitive LEC's
    own operator centers was not technically feasible, AT&T introduced
    evidence that Bell Atlantic had agreed to perform such selective
    routing in Pennsylvania. SBC subsequently committed to develop the
    capability to perform the same function.[^282]

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-   *Mechanized Loop Testing*. AT&T, challenging SBC's contention in
    state arbitrations that it was technically infeasible to provide
    mechanized loop testing (MLT) to competitive LECs using unbundled
    local switching,[^283] pointed out that Bell Atlantic and BellSouth,
    which use the same switch technology as SBC, were able to provide
    competitive LECs with such MLT capability. As a result, at least two
    states, Texas and Missouri, have required SBC to provide MLT.[^284]

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-   *Collocation of Remote Switching Module*. When Bell Atlantic claimed
    that collocation of remote switching modules (RSMs) was not feasible
    because it would exhaust central office space and require extensive
    central office modifications for its unique grounding
    requirements,[^285] AT&T demonstrated that SBC had stipulated in its
    Texas arbitration that it would allow competitive LECs to collocate
    RSMs for access to unbundled elements without any restrictions on
    equipment.[^286] Ultimately, AT&T won the right to conduct RSM
    collocation in every Bell Atlantic state except Virginia.

-   *Interim Number Portability*. When Bell Atlantic resisted AT&T's
    requests that it provide two particular methods of implementing
    interim number portability, namely Route Indexing-Portability Hub
    (RIPH) and Directory Number Route Indexing (DNRI), AT&T pointed out
    that other RBOCs had agreed or been ordered to provide the methods
    and arranged for a representative from BellSouth to provide Bell
    Atlantic technical guidance on performing the translations required
    by RIPH or DNRI. After speaking with the BellSouth representative,
    Bell Atlantic agreed to provide DNRI, subject to joint technical and
    operational testing.[^287]

-   *Advanced Intelligent Network (AIN) Triggers*. In an arbitration
    with New York Telephone, AT&T responded to New York Telephone's
    concerns that AT&T's requested AIN access would raise security and
    network reliability issues by stating that the technology had been
    satisfactorily tested in a trial conducted by AT&T and
    BellSouth.[^288]

143 The Applicants themselves confirm the existence of this type of
benchmarking. For example, John Starkey, Vice President of Sales for
SBC, explains that competitive LECs often bring to SBC's attention the
practice of one SBC operating company, or of another RBOC. He further
acknowledges that SBC has been compelled to adopt such practices
throughout SBC's region to ensure a good flow-through rate.[^289] One of
Ameritech\'s affiants, Wharton B. Rivers, also cites an example where
AT&T successfully argued for a modification in Ameritech\'s policy
regarding the purchase of high capacity transport (services with DS1 or
greater capacity) by comparing the methods used by all the major
carriers and requesting that Ameritech implement SBC's procedures.[^290]
"Because of AT&T's request," Mr. Rivers explains, "many of \[SBC's\]
procedures that were superior to those we were previously using have
become standard with \[Ameritech\]."[^291] Thus, the examples provided
by competitors of SBC and Ameritech, as well as the Applicants
themselves, confirm the importance of benchmarking to competitors
seeking to offset incumbent LECs' informational and bargaining
advantages.

### Adverse Effects of SBC/Ameritech Merger 

144 We now examine the potential effect of the proposed merger on the
effectiveness of comparative practices analyses as a minimally-intrusive
market-opening tool. More specifically, we consider in turn the merger's
likely impact upon the diversity of approaches among major incumbent
LECs to comply with the Communications Act and adopt market-opening
measures (a) at the holding company level, (b) at the local operating
company level, and (c) at the industry level. We conclude that the
merger of SBC and Ameritech would have a significant adverse impact on
the ability of regulators and competitors to employ comparative
practices analyses, which ultimately would force regulators to
substitute more intrusive, more costly, and less effective methods of
regulation to the detriment of the public interest.

#### Loss of Ameritech as Independent Holding Company

145 We find that, with only six major incumbent LECs remaining today
(the RBOCs and GTE), the elimination of Ameritech as an independent
source of observation would seriously impair the ability of regulators
and competitors to use comparative practices analyses to facilitate
implementation of the Communications Act, particularly sections 251 and
271, the core provisions for promoting and assuring competition in local
telephony. Moreover, by reducing the number of major incumbent LECs, the
merger makes it less likely that deviations from the average benchmark
will be identified confidently as unreasonable and punishable. Finally,
if prior experience is any indication, the loss of Ameritech would
severely affect the likelihood that a maverick would emerge to present a
different approach or, at a minimum, to assist regulators and
competitors in evaluating the claims of other incumbents.

146 As with the Bell Atlantic/NYNEX merger, which the Commission
concluded would reduce experimentation and diversity of viewpoints in
the process of opening markets,[^292] the proposed merger removes
another independent source of experimentation and diversity. By
admitting that each company, pre-merger, has different practices, the
Applicants essentially acknowledge that there is diversity in the manner
in which these companies market and provision services, deploy new
technologies and respond to competitors. As a result of the merger,
regulators and competitors will lose the problem-solving opportunities
that flow from this diversity of approaches.

147 The record from prior RBOC mergers shows that, after both mergers,
the acquiring firm quickly eliminated certain policies of the acquired
company that were in conflict with those of the acquiring company.[^293]
For example, following their respective mergers, NYNEX and PacTel each
altered their prior support of a three-category approach for delineating
the scope of services for which carriers can use customer proprietary
network information to conform with the favored approach of their merger
partner.[^294] As KMC notes, following its merger with SBC, Pacific Bell
rescinded its pre-merger market trial of a "Calling Party Pays" billing
and collection arrangement with a cellular provider.[^295] Similarly,
Sprint points out that Bell Atlantic, following its acquisition of
NYNEX, reversed NYNEX's pre-merger practice of allowing assignment of
existing customer contracts to resellers without treating the
assignments as contract terminations triggering termination
penalties.[^296]

148 In particular, the proposed merger's elimination of Ameritech as an
RBOC benchmark would acutely affect regulators and competitors seeking
to ensure compliance with section 271. Retaining a significant number of
independent RBOCs is particularly important as regulators consider
whether, under section 271, an RBOC has opened its local market
sufficiently to qualify to provide in-region, interLATA services in a
given state.[^297] Indeed, benchmarking among the RBOCs may become even
more important after they have received section 271 authorization, as
regulators and competitors seek to prevent possible backsliding by the
RBOCs.

149 The loss of Ameritech's independence would be especially severe
because Ameritech frequently has taken an approach that differs from the
position taken collectively by the other RBOCs. The Commission has
emphasized that, by proposing a framework to eliminate legal, economic
and technical barriers to local competition, Ameritech's Customers First
Plan, announced in 1993, constituted a major advance in
telecommunications policy.[^298] Ameritech also exhibited a willingness
to adopt a flexible approach to competition by entering into a
cooperative venture with Northpoint Communications, Inc., a data
competitive LEC. This venture led to Ameritech's general support of the
Commission's proposal for a separate subsidiary approach to advanced
services, in contrast to the strong opposition from the other
RBOCs.[^299]

150 Ameritech also departed from the position taken by the other RBOCs
and GTE in the *Number Portability* proceeding where the other major
incumbents urged the Commission to allow incumbents to use the Query on
Release (QOR) method rather than the Location Routing Number (LRN)
method.[^300] In concluding, contrary to the other RBOCs' assertions,
that QOR offered no long-term cost savings relative to LRN, the
Commission specifically noted Ameritech's support of LRN by emphasizing
that "at least one incumbent LEC, Ameritech, has already decided that it
is beneficial to deploy LRN from the outset."[^301] Accordingly, the
proposed acquisition of Ameritech by SBC would eliminate an important
source of innovation and a major independent voice that has assisted
regulators and competitors in implementing the 1996 Act's market-opening
provisions.

#### Loss of Independence of Operating Companies

151 We find that, although the actual number of operating companies may
not diminish following the merger of SBC and Ameritech, the combined
entity will have greater incentive to unify the practices of these
companies, resulting in an overall loss of independence at the
operating-company level. Although we agree with the Applicants that, by
requiring data to be provided on an operating-company or study-area
level, this Commission and state authorities could retain the same
number of data points and limit the Applicants' abilities to aggregate
data following the merger,[^302] we find that collection of
operating-company specific or study-area specific data would be useless
for benchmarking purposes if all the local companies follow a uniform
policy set by the holding company. In that case, the result would be a
reduction in the number of independent approaches, this time at the
operating company level.

152 The operating companies involved in the instant merger are aligned
with two distinct holding companies, each having a distinct top-level
management philosophy. Each holding company also has adopted, or
required of its operating companies, different policies and practices,
particularly in negotiating interconnection agreements, which represent
a certain level of autonomy.[^303] Accordingly, in order to accept the
Applicants' argument that the merger would not reduce the number of
independent points of observation, we also would have to assume that the
merger would have no effect on the likelihood that the local operating
companies would adopt independent approaches that differ from one
another. Logic and evidence both point to the contrary. Post-merger,
because of its larger size, the merged firm would be affected more than
either company standing alone if regulators and/or competitors use
best-practices benchmarking to force the firm to adopt throughout its
region a market-opening measure adopted independently by one of its
operating companies. Accordingly, following its acquisition of
Ameritech's five operating companies, SBC will have a greater incentive
to ensure that all thirteen of its local operating companies' policies
are consistent.

153 The merged firm also will have a greater incentive to coordinate
decisions made at the local operating company level in order to affect
the outcome of average-practices benchmarking. The merger of SBC and
Ameritech would create the largest incumbent LEC controlling
approximately one-third of access lines nationwide. Because the merged
firm would be disproportionately large compared to other incumbent LECs,
the aggregate data reported by it would have a direct impact on the
industry's average benchmarks. The merged firm thus would have both the
capability and incentive to skew its decisions in order to affect the
average benchmark strategically. Moreover, the merged firm's size could
cause it to dominate the standards-setting process and establish *de
facto* standards that advantage itself and disadvantage potential
competitors or consumers. The proposed merger thus seriously would
undermine the value of average-practices benchmarking among incumbent
LECs.

154 SBC effectively admits that it will impose greater uniformity in
policies toward competitive LECs following consummation of its merger
with Ameritech. For example, Sandy Kinney, President of SBC's wholesale
operations and John Starkey, Vice President of Sales for SBC, stated
that SBC\'s policy is to adopt its \"best practices\"
company-wide.[^304] Ms. Kinney and Mr. Starkey also confirmed that,
although SBC must file separate interconnection contracts in each state,
SBC generally negotiates with competitive LECs on a region-wide basis,
unless competitive LECs request state-by-state negotiation, and then
modifies the standard agreement for specific states only as necessary to
comply with any differing state rules.[^305] SBC's representatives also
stated that the performance measures that it will adhere to as a result
of the section 271 collaborative process in California are a subset of
those to which it is bound in the Texas section 271 process.[^306] The
Applicants' statements that the merger will eliminate overlapping
functions and spread the adoption of best practices throughout the
holding company, detailed below in our analysis of the merger's claimed
public benefits, provide further evidence that the various operating
units' policies and operations will become more uniform
post-merger.[^307]

155 Even if the merged firm were to continue reporting data at the
operating company level, therefore, indications from SBC, as well as
logic and experience, suggest that a merger of SBC and Ameritech would
likely lead to more uniform policies being adopted at the operating
company level throughout the combined entity's region, again resulting
in fewer independent points of observation for regulators and
competitors.

#### Increased Risk of Coordination Among Remaining Major Incumbent LECs

156 The proposed merger, by reducing to five the number of major
incumbent LECs, also would increase the incentive and ability of the
remaining incumbents to coordinate their behavior, either explicitly or
implicitly, to impede benchmarking and resist market-opening measures.
As an initial matter, by merging Ameritech into SBC, the merger reduces
by one the number of independent holding companies whose behavior must
be coordinated, which simplifies the process of coordination.
Coordination requires that the incentives of all parties are aligned,
and reducing the number of companies reduces the number of incentives
that must be aligned.

157 Reducing the number of firms also increases each firm's incentive to
coordinate its behavior to undermine regulatory processes. As we have
mentioned, SBC will grow larger as a result of the merger, and therefore
stands to sustain a larger loss as the result of any comparative
practices analysis that constrains its behavior. This gives the merged
firm greater incentive to enter into tacit agreement with the remaining
firms to convey minimal information to regulators and/or competitors and
to eliminate outlying policies and practices that could become industry
benchmarks. Moreover, the merger will create a demonstrably large
incumbent LEC that can act as an industry leader for collusive purposes.

158 As a result of Ameritech's merger with SBC, the other major
incumbent LECs also will have more incentive to cooperate in attempts to
impede comparative practices analysis. Cooperative ventures, either
explicit or implicit, involve the risk that one or more parties will
deviate from the cooperative behavior, thereby spoiling the venture.
With the cooperation of fewer firms necessary, the merger reduces the
risk that a venture will fail, which translates into a lower risk for
each firm from participating in the venture. This reduction in risk
increases a firm's incentive to cooperate. By reducing the number of
major incumbent LEC benchmark firms to five, with each firm facing more
incentive to cooperate and little unilateral incentive to break an
agreement to impede benchmarking,[^308] the proposed merger will
facilitate any attempts, especially implicit attempts, to coordinate
behavior to conceal forms of competitive deterrence from regulators and
competitors. The merger of SBC and Ameritech therefore increases the
incentive and abilities of the merged firm and other incumbent LECs to
cooperate in becoming less effective benchmarks for regulators and
competitors seeking to promote competitive entry and rapid deployment of
advanced services.

### Continued Need for Major Incumbent LEC Benchmarks

159 We reject the Applicants' arguments that smaller incumbent LECs and
competitive LECs provide adequate benchmark alternatives to the major
incumbent LECs,[^309] and that parity requirements make the incumbent
LEC's dealings with itself the only relevant benchmarks in a post-1996
Act era.[^310] As discussed below, we find, to the contrary, that
benchmarking among the large incumbent LECs will continue to be a
crucial market-opening tool as regulators and competitors carry out the
objectives of the 1996 Act.

160 Comparative practices analyses are effective only when the firms
under observation are similarly situated, including the size of the
firms relative to the size of the market. With comparable firms ­--
*e.g*., in their customer base, access to capital, network
configuration, and the volume and type of demands from competitors ­--
regulators and competitors can establish more effectively that
approaches and rates adopted by one incumbent would be equally feasible
for other incumbents. Significant variation between the major incumbent
LECs and the other carriers cited by the Applicants preclude the use of
the latter categories as alternative benchmarks in evaluating the major
incumbent's LECs' compliance with their statutory obligations.

161 We agree with the broad principle that the methods of comparison may
evolve over the course of the transition to full competition in local
markets.[^311] For instance, it may turn out, as Applicants assert, that
the importance of benchmarking access charge rates will decline as
interexchange carriers reach customers through more competitive LECs
rather than incumbent LECs. [^312] Nonetheless, as explained above, we
find an acute present need for benchmarking to, among other tasks,
facilitate implementation of the market-opening measures of the 1996 Act
and promote the rapid deployment of advanced services. For these types
of comparisons, we predict that the high percentage of access lines
nationwide controlled by the RBOCs and GTE will keep them at the
forefront in establishing benchmark rates, terms and conditions for an
extended future period.

#### Inadequacy of Other Firms As Benchmarks Against Major Incumbent LECs

162 We reject the Applicants' contention that other types of firms serve
as adequate benchmarks to the major incumbent LECs.[^313] We are not
persuaded that the presence of small incumbent LECs and/or competitive
LECs eliminate the need for regulators and competitors to make direct
comparisons among the RBOCs and GTE.[^314] The Applicants' arguments
ignore vital differences in the 1996 Act's treatment of large incumbent
LECs, the RBOCs in particular, as compared with other incumbents and
competitive carriers. Equally important, structural and operational
differences between these carriers and the major incumbent LECs also
make direct comparisons between them inappropriate.

##### Differences in Regulatory Treatment

163 We conclude that the distinct obligations imposed on major incumbent
LECs, as compared with other LECs, under the 1996 Act undermines the
abilities of regulators and competitors to draw useful comparisons
between the conduct of the major incumbent LECs and these other
carriers. In short, small incumbent LECs and competitive LECs cannot
qualify as adequate alternatives to the RBOCs and GTE as benchmarks for
implementation of sections 251(c) and 271, the core market-opening
provisions of the 1996 Act.

164 The Applicants fail to explain how smaller incumbent LECs or
competitive LECs could substitute for other RBOCs in assessing
compliance with certain prominent provisions of the 1996 Act that apply
solely to the RBOCs. The ability to compare the RBOCs' policies and
practices in areas such as OSS performance, unbundling, and
interconnection arrangements, for example, is a practical tool for
regulators, competitors and DOJ in determining a BOC's compliance with
section 271, or in monitoring to prevent potential backsliding.[^315]
Similarly, analyzing the structure of other LECs not subject to a
statutory separate affiliate requirement for manufacturing activities,
or for the provision of in-region interLATA telecommunications services
and interLATA information services, will not aid regulators or
competitors in assessing an RBOC's compliance with section 272. At a
minimum, therefore, both regulators and competitors have a strong
continuing need for separate comparative practices analyses among
several RBOCs in order to ensure compliance with RBOC-specific
provisions of the 1996 Act.

165 Equally important, we find a pivotal distinction between the section
251 obligations imposed on the major incumbent LECs versus those of
rural incumbents or competitive LECs. In contrast to the major incumbent
LECs that are subject to section 251(c)'s market-opening
requirements,[^316] many of the alternate carriers cited by the
Applicants are not subject to full section 251(c) obligations. First, by
definition, competitive LECs do not fall within the 1996 Act's
definition of an "incumbent local exchange carrier" for the given
service area, nor do such carriers own the operative facilities for
which interconnection and access is sought.[^317] Instead, competitive
LECs are subject to the lesser requirements of section 251(b) that are
applicable to all LECs.[^318]

166 Second, many of the smaller incumbent LECs fall within section
251(f)'s exemption from certain section 251(c) obligations for rural
carriers.[^319] In the *SBC/SNET* *Order*, for instance, we concluded
that the proposed merger was not likely to affect the public interest
adversely in part because SBC and SNET were not comparable in size. The
Commission noted that "SNET is substantially smaller than the \'first
tier\' LECs \-- the BOCs and GTE \-- and has long been subject to
different regulatory treatment."[^320] Here, both SBC and Ameritech are
among the largest incumbent LECs, and those that formerly comprised the
Bell System, and thus are subject to the statutory obligations suitable
to those entities. We therefore find that regulators and competitors are
restricted largely to the class of large incumbent LECs, principally the
RBOCs and GTE, in making benchmark comparisons under section
251(c).[^321]

##### Differences in Structure and Operation

167 We also find that crucial distinctions in structure and operation
undermine the value of using smaller incumbents and competitors as
benchmarks for the RBOCs and GTE.

168 *Small Incumbent LECs*. We find that, because their service areas
include fewer large metropolitan areas and thus tend to be subject to
less competitive entry and less demand for budding advanced services,
smaller incumbent LECs are not likely to provide useful benchmarks for
measuring the market-opening performance of major incumbent LECs. In
contrast to the smaller incumbents, the major incumbents tend to operate
in markets characterized by high population density or a large number of
business lines, which generally are more attractive to new entrants. The
level of competitive activity in a given area can implicate the network
architecture or capability required of certain incumbent facilities such
as OSS and physical collocation. A small incumbent facing little demand
for interconnection, collocation or facilities for advanced services is
less likely to have traffic levels or performance measurements that
would render meaningful comparisons with a large incumbent who must
employ more sophisticated management systems to meet greater demand.
Moreover, different market structures may result in different network
configurations that limit the usefulness of comparisons. For example,
the loop costs of an RBOC may not be comparable to those of a small
rural incumbent LEC with longer average loops or less densely
concentrated customers.

169 Furthermore, by arguing that large size enables an incumbent LEC to
achieve economies of scale, upgrade its network and provide more
advanced services than smaller incumbent LECs,[^322] the Applicants
imply that the less developed networks and higher costs of smaller
incumbent LECs would make them inappropriate benchmarks for the large
incumbent LECs. As detailed in Section V.D. (Increased Discrimination)
below, the large footprints of the major incumbent LECs may offer these
carriers greater opportunities to engage in anticompetitive behavior
that would be difficult to detect using comparisons to smaller
incumbents. Finally, in average-practices benchmarking, no small
incumbent LEC could provide an adequate counterpoint to the combined
entity's control of one-third of the nation's access lines.

170 *Competitive LECs*. We are not persuaded that competitive LECs
presently stand as adequate firms with which to compare the
market-opening performance of incumbents. The Applicants' suggestion
that competitive LECs, whether or not facilities-based, can be used as
suitable benchmarks for the large incumbent LECs[^323] defies the logic
and structure of the 1996 Act. As discussed above, a primary motivation
behind benchmarking is to increase the level of information regarding
the incumbents' networks for competitors seeking access to those
facilities, as well as for regulators. Moreover, competitive LECs are
pursuing numerous strategies using a variety of wireline and wireless
technologies, and their limited facilities are far from comparable to
the millions of local lines controlled by the RBOCs and GTE.[^324]

171 Despite arguing that competitive LECs can serve as interconnection
benchmarks by providing wholesale service to other competitive
LECs,[^325] the Applicants provide no evidence demonstrating that
competitive LECs actually are serving as wholesale suppliers in such a
way as to generate useful comparisons for incumbent performance.
Moreover, even if some competitive LECs decide to act as wholesalers,
their incentives are likely to differ considerably from those of the
incumbents. These new entrants' strategies are directed at expanding
their reach and filling their vacant capacity, whereas incumbent LECs
are likely to focus first on protecting their customer base from erosion
by competitors. Competitive LECs which are voluntarily and eagerly
opening their networks to other carriers cannot provide useful
benchmarking information for the detection of incumbents' subtle forms
of resistance to market-opening measures.

172 We also reject the Applicants' assertion that sections 251 and 252
of the 1996 Act increase the information flow to competitors
sufficiently to eliminate the need for comparative practices
analyses.[^326] By asserting that the publication of interconnection
agreements supplants the need for benchmarking,[^327] the Applicants
brush past the complementary nature of the publication requirement and
comparative practices analyses. The publication of interconnection
agreements assists competitive LECs in making benchmark comparisons, not
only as between what one particular incumbent LEC offers to different
competitors but also as among the general practices of several different
incumbents. By increasing the flow of information to competitors and
regulators, sections 252(h) and 252(i) facilitate the ability of
competitors and regulators to engage in active benchmarking among the
incumbents. Thus, the entire section 251 process benefits from having
more rather than fewer large incumbent LECs to provide a diversity of
approaches in negotiating interconnection agreements.

173 All of the foregoing factors suggest that comparisons between a
major incumbent LEC and a small incumbent or a competitive LEC are less
likely to yield the kind of benefits that would flow from comparisons
among the RBOCs and GTE. In this regard, we note that the Applicants
fail to provide examples where a regulator or competitor has relied on
the performance of these claimed benchmark alternatives as adequate
benchmarks against an RBOC or GTE. We therefore reiterate our conclusion
that the large incumbent LECs, because they are of similar size and face
relatively similar market conditions, remain the principal sources of
benchmarks for their own behavior.

#### Inadequacy of Parity Requirements 

174 We are also unpersuaded by the Applicants' argument that maintaining
a large number of major incumbent LECs as benchmarks is no longer
necessary because, as they assert, rather than comparisons among major
incumbent LECs, the relevant benchmarks during the transition to
competitive local markets are parity comparisons focusing on how an
incumbent LEC treats competitive LECs vis-à-vis itself.[^328] According
to the Applicants, "performance measures designed to compare the access
and interconnection the Bell Operating Companies provide to CLECs on a
state-by-state basis with that provided to their own retail operations
have become the new 'benchmarks.'"[^329]

175 We certainly agree with the notion that an incumbent LEC's treatment
of its retail operations or its affiliates as compared with its
treatment of competitors can provide useful benchmarks for regulators
and competitors. In certain contexts, such as detecting discriminatory
behavior in interconnection, provisioning, and maintenance, parity
comparisons provide a useful, and minimally-intrusive, way to obtain
information regarding an incumbent's performance.[^330] As Sprint
observes, however, implementation of a parity rule itself may require
traditional benchmarking between major incumbent LECs[^331] \-- *e.g.,*
in setting mutually acceptable performance standards to determine if an
incumbent LEC has complied sufficiently with the parity requirement.

176 While we agree that parity rules are valuable, we nonetheless find
that parity considerations cannot substitute for all forms of
benchmarking. Parity rules will not serve the public and protect
competition if, for example, an incumbent LEC deems it profitable to
provide lackluster service or charge excessive rates to both its own
retail affiliates and its competitors. For example, without
discriminating, the incumbent LEC may profit from imposing high loop
charges, or access charges, on both its affiliates and its competitors,
because the charges to its affiliates constitute only an internal
transfer. While parity requirements attempt to level the playing field,
therefore, traditional comparative practices analyses remain necessary
to ensure that this level does not sink below an acceptable standard.

177 For innovative entrants, in particular, parity rules will not always
suffice. As Sprint notes, if the innovation requires a new form of
interconnection or access, "\[t\]he incumbent can slow-roll the
innovator, declining to provide the new kind of input, until the
incumbent has a similar or leapfrogging innovation available."[^332] As
discussed further in Section V.D.2.a) (Advanced Services) below, if a
competitive LEC seeks the provision of properly conditioned loops in
order to provide xDSL service, an incumbent LEC which is not ready to
provide xDSL service itself would have the incentive to deny this
competitor the properly conditioned loops. In this circumstance, parity
rules would provide no remedy for the competitive LEC, for the incumbent
LEC would not be providing to its retail arm anything that it was
denying its competitor. Exclusive reliance on parity rules, therefore,
could slow the provision of innovative services to the public.

178 For the foregoing reasons, we conclude that parity rules complement,
but do not supplant, the use of traditional comparative practices
analyses by regulators and competitors. Indeed, if parity alone
mattered, as the Applicants' analysis suggests, then all the remaining
RBOCs would be permitted to merge into one entity, leaving regulators
and competitors unable to compare distinct practices of several
independently-owned firms.

#### Sufficiency of Remaining RBOC Benchmarks

179 Finally, we reject the Applicants' argument that because
benchmarking requires only one firm to "break ranks" with others, the
proposed merger will not impair benchmarking by eliminating the only
remaining benchmark.[^333] In other words, the Applicants have stated
that the "benchmarking issue thus has been narrowed . . . to the
question of whether the 'loss' of Ameritech as an independently owned
RBOC would so affect the Commissions ability to determine whether a
proposed practice is technically feasible as to outweigh the benefits
presented by the merger."[^334] They go on to argue that there are no
examples of this Commission using only a single RBOC-to-RBOC comparison
as a benchmark.[^335] Thus, according to the Applicants, the loss of one
RBOC would not have changed the outcome of any benchmarking analysis
because other firms, or the BOCs, could still be used as benchmarks for
assessing technical feasibility. We disagree and find, to the contrary,
that the merger would result in dangerously few RBOC and major incumbent
LEC benchmarks.

180 The Applicants' assertion that the Commission's analysis has never
turned solely on RBOC-to-RBOC comparisons, or on an RBOC outlier,
disregards not only the examples of the Commission's use of comparative
practices analysis cited above, but also SBC's and Ameritech's prior
recognition and support of Commission benchmarking among the
RBOCs.[^336] More importantly, we reject the Applicants' implied
presumption that reducing the number of independently-owned RBOCs could
be harmful only if the Commission in its decision relies solely on an
RBOC-to-RBOC comparison. Analyzing the practices of the large incumbent
LECs, the RBOCs included, may reveal trends within the industry or other
qualitative factors that, although not determinative, may heavily
influence the Commission's reasoning. The Commission's regulatory
processes are cumulative, and rarely rely solely upon any one rationale
for action.

181 With technical feasibility concerns, in particular, the loss of one
source of observation could in fact eliminate the single observation
that would have proven a particular arrangement feasible.[^337] This is
especially true in making assessments regarding advanced services, where
the major incumbent LEC benchmark firms have taken different strategies,
or are in different stages, in terms of their own deployment or
cooperation with others. Furthermore, as shown above, there are examples
in which a single firm used as a benchmark.[^338] Thus, reducing the
number of potential benchmark firms increases the chance that regulators
and competitors will lose the ability to observe the decisive benchmark.

182 More importantly, we disagree with the Applicants' assertion that
the issue has been narrowed to the question of whether a proposed
practice is technically feasible.[^339] As we have stated above, aside
from determining the simple feasibility of a proposed activity,
benchmarking can be used to help determine the cost of a specific
service, estimate the future cost of providing new services, or decide
which out of a number of services is the most cost effective. In each of
these cases, more independent observations will yield more useful
information and improve the decisions of the regulator. To the extent
that the mergers reduces the level of observation, this process is
impaired. For example, finding that several major incumbent LECs can
provide a service at a particular cost and level of quality will be more
valuable than finding that only one major incumbent LEC can do so. With
new services and technologies, reaching appropriate decisions will
likely involve making predictive judgments regarding the costs and
future demand for the innovative service or technology. Although it is
impossible for regulators to predict the value of these variables with
certainty, having more rather than fewer independent estimates of such
values will yield more useful information.[^340]

183 Although we do not view the instant merger's reduction of the number
of major incumbent LECs (the RBOCs and GTE) from six to five to be an
automatic trigger of benchmarking harms, we cautioned in the *Bell
Atlantic/NYNEX Order* that these harms increase disproportionately with
each additional decline in the number of major incumbent LECs.[^341] As
explained above, along with further restricting diversity, each
successive reduction in benchmark firms materially increases the risk
that the remaining firms could successfully coordinate behavior,
implicitly or explicitly, to reduce the effectiveness of comparative
practices analyses. With only five remaining benchmark firms, this risk
is far greater than with six.[^342]

### Conclusion

184 We conclude that, by further reducing the number of separately-owned
large incumbent LECs, the proposed merger of SBC and Ameritech would
significantly harm the ability of regulators and competitors to rely on
comparative practices analyses to carry out their obligations under the
Communications Act. In particular, the proposed merger of SBC and
Ameritech poses a significant potential harm to the public interest by:
(1) removing a source of potential diversity from independent major
incumbent LECs during the transition to competition; (2) creating an
incentive for the combined firm to coordinate behavior at the operating
company level, thereby reducing other potential sources of innovation;
and (3) increasing the incentive and opportunity for collusion and
concealment of information among the few remaining major incumbent LECs.
All of these occurrences lead to an overall reduction in diverse
policies, practices and approaches that otherwise could have been used
to implement the Communications Act most effectively, particularly in
overseeing the transition to competitive local markets. As a result, the
Commission would have to substitute more intrusive regulation to enforce
the Communications Act, representing a less effective and more costly
solution for both the regulated firms and the public. Only firms
comfortable with a monopolistic environment would welcome such results.

185 As noted above, in allowing the Bell Atlantic/NYNEX merger, we
expressly cautioned that further consolidation among the RBOCs or
comparable incumbent LECs would present serious public interest
concerns.[^343] Because the harm to regulators' and competitors' ability
to use benchmarking to implement and enforce the Communications Act is
greater as the number of independent large incumbent LECs decreases, the
Applicants must prove countervailing public interest benefits of this
merger significantly exceeding those from previous incumbent LEC mergers
in order to demonstrate that this merger, on balance, serves the public
interest. Alternatively, we need to fashion very substantial
market-opening, benchmarking conditions to alleviate the grave harms
this merger poses to the regulatory processes and the operation of the
1996 Act's interconnection requirements.

## Increased Discrimination

### Overview

186 In the preceding section, we explained why this merger, as initially
proposed, would seriously weaken oversight of the Applicants' behavior
toward competitors. In this section, we explain why we also believe that
this merger will increase predation while weakening our ability to
combat it. We conclude that incumbent LECs, such as SBC and Ameritech,
have the incentive and ability to discriminate against competitors in
the provision of advanced services,[^344] interexchange services, and
circuit-switched local exchange services,[^345] and that such incentive
and ability will increase as a result of the merger. This increased
incentive to discriminate will result in a public interest harm, because
it will adversely affect national competitors\' provision of services in
the new, combined region, and, as a further result, will harm consumers
who ultimately will be forced to pay more for retail services, with
reduced quality and choice.

187 We believe the merger is likely to have particularly harmful,
discriminatory effects on competition in the provision of new types of
advanced services. Telecommunications markets today exhibit a continuing
shift from a circuit-switched to a packet-switched environment capable
of allowing the provision of a variety of new, advanced services.[^346]
Any discrimination against non-incumbent competitors who use these
advanced packet-switched technologies likely will cause a significant
setback to current and future efforts to encourage competition and
innovation in the provision of new types of advanced services. For
example, Sprint is particularly concerned that, post-merger, the larger,
combined entity will have both greater incentive and ability to stifle
Sprint\'s ION rollout.[^347] Advanced services markets are still
emerging and developing, so we must continue to ensure competition in
the provision of advanced services by multiple providers. Therefore, we
scrutinize carefully the possibility of an increase in incentive and
ability to discriminate against competitive providers of such services.
Protecting against an increased incentive and ability for incumbents to
discriminate against competing advanced services providers not only
furthers the Commission\'s ongoing efforts to encourage innovation and
investment in advanced services,[^348] but also comports with the
Commission\'s obligations under section 706 to \"encourage the
deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans.\"[^349]

188 We also are concerned with the effects of discrimination on
competition in the provision of interexchange services and local
exchange services. Specifically, we conclude that the combined entity
likely will discriminate to a greater extent against termination of
interexchange calls by competing providers in the combined region, as
well as against competitive LECs seeking to provide local exchange
services in the combined region. With respect to local exchange
competition, we believe that the likelihood of increased harmful
discrimination is particularly acute with respect to competitive
providers of local exchange services to mass market customers (smaller
businesses and residential customers).

189 In explaining our conclusions about the harms to competition in the
provision of advanced services, interexchange services, and local
exchange services, we describe why the increase in the number of local
areas controlled by the combined entity will increase its incentive and
ability to discriminate against its rivals seeking to provide retail
services within the combined region. As discussed in detail below, this
increased incentive and ability to discriminate will, at times, harm a
competitor's activities not only within the combined region but also in
other regions.[^350] According to Sprint, as a result of the merger, the
combined entity, in order to preserve or gain business for its own
retail services, will have increased incentives to discriminate against
competing carriers that depend on access to the incumbent LECs\'
monopoly inputs to provide retail services (specifically, local exchange
services, interexchange services, and bundled/new technology services).
Examples of such necessary inputs are: (1) for local exchange services
-- interconnection and UNEs; (2) for interexchange services \--
originating and terminating exchange access services (or UNEs used to
obtain them); and (3) for new/bundled services, all of the above.[^351]

190 Incumbent LECs in general have both the incentive and ability to
discriminate against competitors in incumbent LECs' retail markets. This
observation is the fundamental postulate underlying modern U.S.
telecommunications law. The divestiture of AT&T rested principally on
this observation. Two key sections of the 1996 Act \-- sections 251 and
271 \-- rest entirely on this point. Incumbent LECs have an incentive to
discriminate against rivals to gain the business that these rivals lose
as a result of such discrimination. This incentive exists in all retail
markets in which they participate. Incumbent LECs' ability to
discriminate against retail rivals stems from their monopoly control
over key inputs that rivals need in order to offer retail services.
Depending on the particular retail service, an incumbent LEC may
exercise its ability to discriminate using different means, as described
below. For instance, an incumbent LEC may discriminate against an
interexchange carrier by delaying access to the trunk capacity needed to
terminate calls.

191 In spite of the existing incentive to discriminate against rivals
providing retail services, both theoretical and empirical evidence
suggests that incumbent LECs may not be discriminating to the full
extent of their ability. For example, the benefits of increased levels
of discrimination may not justify the increased financial costs and
corresponding risks of detection and punishment. The fact that competing
firms are able to enter retail markets is amply represented in the
record before us, and confirms that any current discrimination is not at
a level that would totally preclude competition. As discussed below, the
merger, by increasing the incentive to discriminate, probably will
result in the merged entity further exploiting its ability to
discriminate against retail rivals.

192 In many cases, discriminatory conduct by an incumbent LEC in its
region affects a competitor in areas both inside and outside the
incumbent\'s region. Effects outside the region (externalities or
\"spillover\" effects)[^352] can directly or indirectly harm customers,
whose business the incumbent LEC is seeking to gain. Spillover effects
directly harm customers when the incumbent LEC's discrimination in one
region negatively affects a customer's communications between that
region and another region. For instance, if SBC discriminates against
the termination of long distance calls by an interexchange carrier in
one city such as Houston, customers of this interexchange carrier in
Chicago are directly affected, and may switch long distance providers as
a result. Spillover effects indirectly affect customers when an
incumbent LEC's discrimination in one region increases a national
rival's general costs, thereby indirectly impairing the ability of this
rival to provide service to customers in other regions. For instance, a
competitive LEC's entry into various areas usually entails fixed costs
such as research, product development, and marketing costs that must be
covered by the sum of the competitive LEC\'s area-specific profits. If
SBC raises this competitive LEC's costs in Houston, less money is
available to cover those fixed costs, and it is likely to become a less
effective competitor in other areas such as Chicago, or it may forego
entry into the Chicago market altogether.[^353] Regardless of the nature
of the spillover effects, the intended result of discrimination is to
reduce the ability of competitors to acquire and/or keep customers, that
is, to increase the barriers to entry that competitors of incumbent LECs
face.

193 Because after the merger the larger combined entity would realize
more of the gains from such external effects, the marginal benefit and
corresponding incentive to discriminate in each area would increase. As
a result, the level of discrimination engaged in by the combined entity
in each region within the combined territory would be greater than the
sum of the level of discrimination engaged in by the two individual
companies in their own, separate regions, absent the merger. Building on
the example in the preceding paragraph, before the merger, we must
assume that SBC discriminates against retail rivals in Houston based on
the benefits reaped in its region and that Ameritech does likewise in
Chicago. After the merger, SBC will have more incentive to discriminate
in Houston because the benefits of this discrimination to SBC would
extend further, all the way to Chicago. SBC will increase the level of
discrimination in Houston in spite of the fact that Ameritech was
already discriminating in Chicago; the level of discrimination in
Chicago was set by Ameritech based only on the smaller benefits of
keeping competitors out of Ameritech's region. Taking this theory to the
extreme, to demonstrate its effect on competition, we consider a
situation where all incumbents have merged, leaving only one incumbent
LEC. Under such a scenario, the remaining incumbent LEC's incentive to
discriminate against rivals would be increased to the maximum, because
the incumbent LEC could reap the benefit of discrimination in an
extremely large area. The level of discrimination can be increased
partly because, as discussed below, the combined entity will have an
increased ability to discriminate.

194 In addition to increasing the incentives to discriminate, we find
that the merger will enhance the ability of the combined entity to
engage in an increased level of discrimination. The combined entity will
be better able to discriminate against competitors by coordinating its
formerly separate local exchange operations and controlling both ends of
a higher percentage of calls (which is relevant to the provision of
interexchange services). As described above, regulators will have
greater difficulty monitoring and detecting this misconduct because of
the reduction in the number of benchmarks. Therefore, the combined
company not only will have more incentive to discriminate against
rivals, but also will have a heightened ability to inhibit competitors\'
provision of services within the combined region compared with the
ability of each company currently to discriminate within its region.

### Analysis

195 In the paragraphs that follow, we analyze the incentive and ability
to discriminate, both before and after the merger, with respect to
competitors providing advanced services, interexchange services, and
local exchange services in the SBC and Ameritech regions. Although we do
not separately analyze the incentive and ability to discriminate against
competitors providing bundled interexchange and local exchange services
in these regions, we note that our analyses in sections b) and c) below
apply equally to them as well.[^354]

196 We find that the combined entity is likely to increase the level of
discrimination that rivals must overcome to provide retail advanced
services, interexchange services, and local exchange services. In the
retail market for advanced services, incumbent LECs can engage in
discriminatory conduct with respect to competitors' provision of
services such as xDSL[^355] by refusing to cooperate with competitors'
requests for the evolving type of interconnection and access
arrangements necessary to provide new types of advanced services. The
combined entity, controlling a larger area, will engage in more such
discrimination against a competitor such as NorthPoint Communications
that is seeking to enter on a national basis, as it will realize more of
the benefits. In the retail market for interexchange services, incumbent
LECs with section 271 authority to offer interexchange services to
in-region customers will have an incentive to discriminate against the
termination of calls in its region by independent IXCs in order to
induce callers at the originating end to choose the incumbent LEC as the
interexchange provider. The combined entity, controlling a larger area,
terminates calls from a greater number of in-region customers and
therefore has more incentive to engage in such discrimination. This
discrimination is likely to be particularly acute with regards to
advanced or customized access services for which detection of
discrimination is most difficult. Finally, in the retail market for
local exchange services, the merger gives the combined entity an
increased incentive to engage in discrimination against competitive LECs
engaging in a national entry strategy, as it will realize the benefits
over a larger area. This discrimination is likely to be particularly
acute with respect to the provision of local exchange services to mass
market customers, for which there are few benchmarks of incumbent LECs'
best practices that could be used to detect such discrimination. For the
provision of all three types of services, the merger is likely to cause
public interest harms by reducing the amount of competition faced by the
merged entity.

#### Advanced Services

197 We find that the combined entity will have an increased incentive
and ability to discriminate against competitors providing retail
services that rely on new technology, particularly advanced services
like Sprint ION.[^356] The record reflects that competitive service
providers frequently run into difficulty the first time they seek to
provide a new service such as xDSL that is dependent on incumbent LEC
inputs, thus giving the incumbent LECs the ability to control the pace
of innovation. Examples of the types of things to which providers of
xDSL services have needed access include, but are not limited to: (1)
detailed loop information (such as information on loop qualification);
(2) conditioned loops; (3) remote terminals; (4) the incumbent LEC's
central office to collocate new technology; or (5) portions of
interconnection agreements that are tailored to the needs of xDSL.[^357]
These difficulties motivated the Commission's continuing efforts to
promote and ensure competitive provision of advanced services in the
*Advanced Services* rulemaking proceeding.[^358] Incumbent LEC
discrimination against competitive providers of xDSL services has
delayed competitive provision of these services and necessitated
regulatory intervention. As newer services come along, competitors will
continually need novel and unforeseeable forms of access from the
incumbent LEC. We conclude that the merger of SBC and Ameritech will
increase the incentive and ability of the merged entity to discriminate
in the provision of these forms of access to competitors.

198 A number of telecommunications providers, ranging in size from new
entrants to the largest firms in the industry, are beginning to offer
nationwide services based on advanced services. For instance, Sprint\'s
describes its ION offering as \"an innovative new service that promises
to bring an integrated package of advanced telecommunications services
to millions of subscribers.\"[^359] Sprint asserts that it has plans to
offer ION in metropolitan areas containing over 65 percent of the
population of the United States.[^360] Sprint describes this service as
a combined service that \"integrates traditional voice traffic, Internet
traffic, frame relay traffic, and other data traffic on one customer
access facility and carries the traffic in the Asynchronous Transfer
Mode data format through the Sprint network.\"[^361] Another carrier
offering a competitive advanced service is Covad. Covad recently
announced a nationwide, high-speed access service, called TeleSpeed
Remote, that enables remote branch offices and workers to be connected
to the main corporate network. Covad has plans to make this service
available in a total of 58 cities by the end of 1999.[^362] In this
section, we show that SBC and Ameritech's incentive to discriminate will
increase as a result of the merger, because, for example, discriminating
against Covad\'s TeleSpeed Remote service in one city such as Los
Angeles can affect the provision of TeleSpeed Remote in Chicago.

199 We disagree with Applicants that the economies of scale in
developing, negotiating, and implementing the interfaces, protocols, and
other access services Sprint asserts it needs to launch its services on
a nationwide basis would, instead, benefit from dealing with fewer,
larger, local exchange companies.[^363] Although administratively it
might be easier to deal with one incumbent LEC instead of two, the harms
resulting from the merger of the two incumbents would be greater than
the benefits of fewer negotiations. Indeed, the existence of multiple
incumbents enables competitors to bring to the bargaining table with one
incumbent lessons it has learned from negotiations with another
incumbent. This is particularly true for advanced services for which
some experimentation and innovation are required from the incumbent LEC.

##### Background

200 One of the fundamental goals of the 1996 Act is to promote
innovation and investment by all participants in the telecommunications
marketplace, in order to stimulate competition for all services,
including advanced services.[^364] Today, both incumbent LECs and new
entrants are at the early stages of developing and deploying innovative
new technologies to meet the ever-increasing demand for high-speed,
high-capacity advanced services. For the advanced services market to
develop in a robust fashion, it is critical that the marketplace for
these services be conducive to investment, innovation, and meeting the
needs of consumers.[^365]

201 Given the importance to the public interest of continuing to ensure
competition in the provision of advanced services,[^366] we are required
by section 706 to be particularly vigilant that a merger between two
incumbent LECs such as SBC and Ameritech will not harm the development
of competition for such advanced services. In a recent report to
Congress, the Commission found that advanced telecommunications
capability apparently are being deployed in a reasonable and timely
fashion. Nevertheless, this report captures the advanced services market
in its infancy, and the Commission must continue to facilitate the
development of advanced services competition by reducing barriers to
infrastructure investment so that companies in all segments of the
communications industry have the incentive to innovate and invest in
broadband technologies and facilities, bringing the benefits of this
competition to consumers.[^367] We find that incumbent LECs such as SBC
and Ameritech already have ample ability and incentive to discriminate
against advanced services providers; absent conditions, the increase in
the incentive and ability to discriminate caused by the instant merger
may frustrate substantially the realization of the 1996 Act's and the
Commission's goals with respect to advanced services.

##### Incentive and Ability to Discriminate

202 Because incumbent LECs either currently do, or in the future will,
compete with other providers of advanced services, they have an
incentive to discriminate against companies that depend on them for
evolving types of interconnection and access arrangements necessary to
provide new services to consumers. They also have the incentive to limit
or control the development of new services to the extent new services
compete with their current offerings. In addition, competitors often are
totally dependent on incumbent LECs for last mile wireline access to end
users.[^368] We show below that the incentive to discriminate against
advanced service providers is increased substantially by this merger.

203 We conclude that there is sufficient record evidence, described
below, to demonstrate that evolving types of interconnection and access
arrangements with incumbent LECs may be, or are likely to be, necessary
for competitors to provide new, innovative services to consumers.[^369]
We agree with Sprint that BOCs' "near monopoly in access to local
customers is the key to their continuing ability to impact local
competition by failing to provide quality access to those monopoly
facilities to companies such as Sprint."[^370] According to Sprint, in
order to offer its advanced Sprint ION service, it will need
modifications to standard access and interconnection arrangements.[^371]
For larger customers, Sprint asserts that its ION service will use
dedicated access lines purchased from the incumbent LEC, and for smaller
customers, the services will use an xDSL capable loop and collocation
space rented from the incumbent LEC, or resold incumbent LEC xDSL
service.[^372] Sprint asserts that, in the case of xDSL collocation, the
RBOC also controls the central office space where xDSL equipment must be
located to connect with the copper loops of the RBOC in order to
function.[^373]

204 Applicants respond that Sprint is \"unable to point to a single
\'innovative\' access or interconnection arrangement that it has
requested in connection with a new service offering that SBC or
Ameritech has said is not available.\"[^374] Moreover, Applicants refer
to a June 1998 Sprint press release in which Sprint announced that it
had reached \"\'key network access arrangements\'\" with Southwestern
Bell and Ameritech enabling it to launch its ION service in SBC and
Ameritech states.[^375] This announcement does not preclude future
difficulties for Sprint and other providers of advanced services,
because these access arrangements only enable the provision of ION
service to larger business customers using infrastructure already being
used by Sprint; these access arrangements will not enable Sprint to
provide ION service to smaller customers, or customers that do not have
access to this infrastructure.[^376] In addition, Sprint contends that
three sorts of problems have arisen in its effort to obtain innovative
access arrangements from incumbent LECs: (1) Operations Support Systems
(OSS)-related problems; (2) problems with access to incumbent LEC
central offices and other facilities to enable collocation of equipment;
and (3) the availability of suitably conditioned incumbent LEC
facilities provided on an unbundled basis.[^377] Sprint is concerned not
only by incumbent LECs' ability to discriminate against competitors or
potential competitors by denying access to necessary inputs, but also by
slow-rolling competitors in negotiations for such inputs.[^378]

205 We also note that the incumbent's control over the loop gives it the
ability to tailor the loop to any collocated or attached electronics,
thereby forcing competitors to provide service identical to the
incumbent's. Specifically, by choosing electronics that meet the
incumbent's market need, without regard to that of its competitors, the
incumbent may stifle competitors' ability to innovate. Discrimination
against competitors wishing to innovate and deploy technology different
than that deployed by the incumbent LEC often is not easily detected by
regulators. For example, for a competitor already providing advanced
services using the incumbent's loop, the incumbent LEC has the ability
to degrade the quality of the competitor's service by beginning to
deploy technologies that would interfere with competitors' technologies.
We also note that incumbent LECs will have the capability of offering
new services on an end-to-end basis, but because the incumbent LEC
controls end-to-end signaling, the incumbent LEC may make it difficult
for others to offer similar new services.

206 Although the Commission issues rules to prevent discrimination, and
will continue to do so, it is impossible for the Commission to foresee
every possible type of discrimination, especially with evolving
technologies. In this regard, we note that Applicants' reliance on
existing regulatory safeguards is misplaced. They contend that in other
contexts, carriers competing with incumbents in retail markets have been
dependent on the incumbent LECs for interconnection or other network
service, and have not faced discrimination and have been successful
despite this dependency.[^379] As examples, Applicants refer to cellular
service, personal communications service (PCS), paging service, voice
messaging service, provision of customer premises equipment, and
intraLATA toll service.[^380] With respect to the intraLATA toll market,
Applicants argue that, despite SBC and Ameritech each having terminated
"virtually every call they have originated for the past decade,"
competition has grown.[^381] According to Applicants, the success of
intraLATA toll competition "is strong evidence that the theoretical
problems of discriminatory treatment of BOC affiliates and their
competitors are adequately addressed by existing regulatory
safeguards."[^382] Sprint responds, however, that incumbent LECs instead
sought to delay intraLATA competition, "us\[ing\] the courts and
regulatory processes to delay competitive entry into intraLATA
markets."[^383] Even if Applicants are correct in their assertion that
discrimination is not a problem with respect to the intraLATA toll
market, it does not necessary follow that they do not have the incentive
and ability to discriminate against competitors providing advanced
services, nor does it follow that the merger will not increase this
incentive or ability. Indeed, the record here is replete with assertions
of discrimination against competing xDSL providers, and, as noted above,
discrimination against such providers has led to the Commission's
actions in the *Advanced Services Rulemaking Proceeding*.

##### Post-Merger Incentive and Ability to Discriminate

207 The merger increases, from pre-existing substantial levels, the
ability and incentive of the merged entity to discriminate against the
providers of advanced services. We agree with Sprint that there are
spillover effects to discrimination against national providers of
advanced services, and that, post-merger, the combined entity would
internalize external effects to some extent, thus increasing its
incentive to act in one area in a manner that produces these effects in
another. Economies of scale and scope, and network effects, imply that
when incumbent LECs weaken a competitive service in one region, this
weakens it in other regions as well.[^384] We also are concerned that
the harm to competitive advanced services providers resulting from an
increased incentive to discriminate will be particularly acute for those
services that exhibit network effects. For services such as Covad's
TeleSpeed Remote and Sprint's ION with \"multi-market dependence,\"
discrimination in one market \"will ripple throughout other
markets.\"[^385] In addition, advanced services such as Sprint ION may
rely on third-party suppliers to provide equipment and applications that
make the service more attractive to customers.[^386] The supply of such
third-party applications is dependent on the number of consumers of the
underlying service such as Sprint ION; again, discriminatory conduct
reducing the number of subscribers in one area reduces the value of the
service in other regions, as there will be fewer applications
available.[^387] We conclude that the merger's big footprint will create
more incentives for the merged entity to discriminate against
competitors whose networks become more attractive with more "on-net"
customers.

208 After the merger, the combined company will be able internalize
these external effects of discriminatory conduct in one area in the
combined region on another area in that region. By capitalizing on its
monopoly control over loops, for instance, the combined entity can
discriminate against an advanced services provider entering an area in
the combined region. This will reduce the customer base and revenues of
the advanced services provider, thereby reducing its ability to enter
another region. Because of the possibility of internalizing such
spillover effects, the incentive for the combined entity to discriminate
against competitors providing retail advanced services in particular
areas within the combined region will be greater than the sum of the
incentives for the companies operating alone. For example, pre-merger,
discrimination against Sprint's ION service in Los Angeles will only
benefit SBC outside Los Angeles to the extent that it impedes the
ability of Sprint to provide service in the rest of SBC's region. The
effect of such discrimination on the provision of ION in Ameritech's
region does not benefit SBC, and is, therefore, ignored by SBC in
deciding whether, and how much, to discriminate against Sprint.
Post-merger, however, the marginal benefit of discrimination in Los
Angeles increases as the combined entity receives the benefits of such
discrimination in Chicago. Similarly, the combined entity receives more
benefits from discriminating against Sprint in Chicago. As a result, the
combined entity will increase the level of discrimination against Sprint
in both Los Angeles and Chicago, which will reduce the competitiveness
of Sprint ION.

209 The increased ability of the combined entity to discriminate, at
least in the absence of stringent conditions, will result from: (1) the
reduction in the number of benchmarks, making it more difficult for
regulators to monitor and detect misconduct;[^388] (2) the ability of
the combined entity to coordinate and rationalize the discriminatory
conduct of the two companies (sharing "worst practices"), making
detection and proof of discrimination more difficult;[^389] and 3) the
efficiencies (economies of scope) that result from being able to share
strategies and arguments while fighting similar regulatory battles in
multiple state forums.[^390] For example, with fewer benchmarks, there
are fewer remaining incumbent LECs likely to "break rank" at industry
standards setting meetings if the combined entity is seeking to delay
discussion about new technologies competitors are seeking to deploy
using the local loop.

210 We reiterate that, given the formative stage of the advanced
services market and the importance of ensuring the development of
competition in the provision of advanced services by multiple providers,
we scrutinize carefully the possibility of an increase in incentive and
ability to discriminate against competitive providers of such services.
We acknowledge that, in some circumstances, the increase in incentive
and ability might be de miminis, such that there would be no resulting
public interest harm. In this situation, however, the increased
incentive and ability for incumbents to discriminate against competing
advanced services providers is such that a finding that there is no
significant harm to competitors and consumers not only would undercut
the Commission\'s ongoing efforts to encourage innovation and investment
in advanced services, but runs afoul of the Commission\'s obligations
under section 706 to \"encourage the deployment on a reasonable and
timely basis of advanced telecommunications capability to all
Americans.\" We also reiterate that, with a continuing shift from a
circuit-switched to a packet-switched environment, combined with
non-incumbent competitors, such as Covad, using advanced services
technologies to provide innovative new services, any discrimination
against these competitors likely will cause a significant setback to
current and future efforts to encourage competition and innovation.
Finally, we note that, with an increased incentive and ability to
discriminate come increased costs of enforcement, which ultimately are
borne by competitors and taxpayers.

211 Absent carefully tailored conditions, this risk of increased
discrimination against competitive LECs offering advanced services might
well be sufficient, standing alone, to force us to conclude that this
merger is impermissible. This is a key reason why SBC has proposed --
and we will accept -- several conditions protecting the advanced
services market. SBC's offer to establish a separate subsidiary for
advanced services is directly responsive to our concerns that we reduce
the risk of discrimination while not engaging in detailed regulatory
oversight.

####  Long Distance Services

212 In this section we examine potential effects of the merger on the
provision of interexchange services. Commenters allege that
discrimination may take two forms: price and non-price. We examine these
cases separately and conclude that the merged firm's increased incentive
and ability to engage in non-price discrimination will harm competition
in the provision of interexchange services, and, therefore, consumers of
such services. With respect to price discrimination, specifically
discrimination through a price squeeze, we conclude that there are
adequate safeguards in place to guard against such conduct, both with
and without the merger.

##### Non-Price Discrimination

213 On this issue, we are reminded initially of the complaints against
AT&T's discrimination towards nascent competitive long distance carriers
that led to the breakup of the Bell System. The old vertically
integrated Bell system, with its large footprint, made it difficult for
interexchange rivals to obtain access to necessary inputs, thus
prompting its ultimate breakup.[^391] As described by Judge Greene, the
government's case "alleged that AT&T used its control over its local
monopoly to preclude competition in the intercity market."[^392] Judge
Greene explained: "\[w\]ith the divestiture of the Operating Companies
AT&T will not be able to discriminate against intercity competitors,
either by subsidizing it own intercity services with revenues from the
monopoly local exchange services, or by obstructing its competitors'
access to the local exchange network. The local operating companies will
not be providing interexchange services, and they will therefore have no
incentive to discriminate."[^393] The success of the divestiture can be
seen in the strength of competition in the interexchange market, leading
to lower rates for all consumers.

214 Once SBC and Ameritech have met the requirements of section 271,
they will be permitted to enter the long distance market. They will view
interexchange carriers as retail competitors, not only as access
customers. This will give these firms incentives, like those AT&T used
to possess, to deny, delay, or degrade access service to interexchange
carrier competitors. Because the merger of SBC and Ameritech will
reconstitute about one-third of the Bell system's local network, we must
examine carefully the claim that the merged firm will gain an increased
ability to harm its interexchange rivals.

215 We find that the merged entity will have an increased incentive to
discriminate against interexchange carriers after the merger. To
illustrate with an example, an interexchange carrier may have a customer
wishing to have a dedicated long distance connection between its
headquarters in Cleveland and a subsidiary in Los Angeles. Before the
merger, SBC has no incentive to discriminate in the provision of access
at the Los Angeles end, because such discrimination may simply create
business for Ameritech if the company in Cleveland decides to switch
carriers. After the merger, however, discrimination by the combined
entity in Los Angeles may result in more business for the combined
entity in Cleveland. Of course, SBC may not know that the customer
originating the call is in Cleveland. Nevertheless, as its region grows
the chance of the originating customer being in its region
correspondingly grows, increasing the incentive to discriminate at the
terminating end of such calls.[^394]

###### Incentive and Ability to Discriminate

216 For the reasons discussed below, we conclude that, once BOCs such as
SBC and Ameritech receive authority to provide in-region, interexchange
services, they will have the incentive and ability to discriminate
against competing interexchange carriers that depend on the BOCs'
exchange access services to provide interexchange services to consumers.
A BOC, by eliminating efficient interconnection, may gain market share
in the interexchange market using discriminatory tactics.[^395] We find
that, regardless of the merger, after receiving section 271 authority,
there will be an incentive for a BOC to discriminate against
*origination* of interexchange calls. This is true because, for calls
originating in-region, a BOC will be able to benefit from discrimination
by securing more customers on the originating side. A BOC has the
incentive to discriminate against *termination* of a particular call
only to the extent that the call originated in the same incumbent's
region. If an incumbent LEC providing terminating access to an
interexchange carrier denies or degrades that access, then the incumbent
LEC competing with the interexchange carrier at the originating end also
may benefit.[^396] We focus on terminating access discrimination here
because we find that SBC and Ameritech's incentive for this type of
discrimination will increase significantly as a result of the merger.

217 The record reflects that incumbent LECs, such as SBC and Ameritech,
given their monopoly control over exchange access services, currently
have the ability to discriminate against rivals providing interexchange
services, in favor of their own interexchange operations, by denying,
degrading, or delaying access on the originating and terminating ends,
just as in the pre-divestiture situation.[^397] The pre-divestiture
situation described above demonstrates not only an incentive to
discriminate against interexchange carriers once they become
competitors, but also the ability to do so.[^398]

218 Moreover, we agree with Sprint and MCI that recent developments in
local networks have enhanced incumbents\' ability to engage in technical
discrimination in favor of their long distance affiliates, in particular
with respect to larger business customers.[^399] The interexchange
competitors we must consider here are not those "of the early days of
interexchange competition . . . \[that\] were largely satisfied if they
could obtain the basic forms of interconnection required to achieve
equal access and to offer 'plain vanilla' long distance services."[^400]
Rather, we must take into account that long distance carriers, due to
"changing customer requirements . . . by necessity, have increased their
use of network-based intelligence . . . \[to offer\] differentiated,
software-based services \[which\] depend\[\] upon the cooperation of the
local exchange carrier."[^401]

219 The specific developments in the local network that have enhanced
incumbents' ability to technically discriminate against rival
interexchange providers that need different and generally more complex
forms of network interconnection are: (1) the deployment of common
channel signaling systems;[^402] (2) the development of advanced
intelligent networks (AIN), or software driven networks; and (3) further
developments in multi-media applications (such as applications involving
combinations of voice, data, image, and video traffic).[^403] BOCs will
be able to "fine tune" their networks to favor their own interexchange
operations and their own end user customers, by, for example,
discriminating in negotiating and agreeing to make necessary changes in
local switches.[^404] BOCs also may discriminate by, among other things,
(1) refusing to provide interconnection at critical points in their
intelligent network based on alleged harm to the network or refusing to
convey certain types of control messages across the AIN; or (2) "slow
rolling" their competitors who make requests for interconnection or
technical information.[^405]

220 We conclude, therefore, that the ability for SBC and Ameritech to
discriminate, once they receive authority to provide in-region,
interexchange services, will be greatest for customized or advanced
interexchange access services for which detection of discrimination is
most difficult. With the increased network complexity, and the
possibility for new types of discrimination, comes also an increased
difficulty in detecting discrimination. In such a situation, past
experience with the interconnection of plain vanilla, or POTS service,
becomes increasingly less useful as a regulatory tool for preventing,
detecting, and remedying discrimination.[^406]

221 We finally note that typically, such new advanced features are
developed initially for business consumers, and later offered to
residential consumers. Therefore, discrimination that adversely affects
the competitive availability of advanced services to businesses also
affects the timing, cost, and even availability of such services for
residential consumers.

222 Applicants respond that "the increasing deployment of modern
signaling systems (Signaling System 7 \[SS7\]), AIN capabilities and ATM
network components permitting multimedia telecommunications does not
increase the risk of discrimination."[^407] Applicants assert that there
is nothing inherent in technological advances that facilitates
discrimination,[^408] and that RBOCs do not have a monopoly on new
technologies.[^409] We disagree. We find that the technical advances
described by Sprint and MCI do facilitate discrimination by making
detection more difficult. To the extent that an interexchange competitor
asks for an access arrangement that is customized or innovative, it may
be difficult to show that the incumbent LEC is discriminating in the
provision of a similar access service being provided to its own
affiliate, if the affiliate is not actually requesting a similar
service.

223 In addition, Applicants assert that selective call degradation is
often not possible[^410] and that efforts to degrade competitors\' calls
likely would degrade calls of the incumbent\'s customers as well,[^411]
particularly when the incumbent is reselling a competitor's
interexchange service.[^412] Any attempt at degradation, according to
Applicants, also would be readily noticeable both to competitors and
regulators.[^413] Applicants miss the point. Selective call degradation
(the question of how SBC and Ameritech could know which calls to
degrade) is not the issue. Rather, we focus on the ability of a BOC such
as SBC or Ameritech to discriminate against competitors' on the
terminating end by denying competitors access to inputs necessary to
terminate interexchange calls in the incumbent's region, or by delaying
access to such inputs. For example, the BOC may fail to provision enough
equipment for a competing interexchange carrier so that a higher
percentage of the competitor's calls are blocked from terminating in the
incumbent's region. When a competitor orders trunks in the incumbent's
end office, the incumbent may fail to make available the number of
trunks requested by the competitor, or it may delay installing the
trunks in the end office. This type of discrimination is more subtle and
less detectable than blatant selective call degradation. Also the
discrimination need not involve call degradation of an existing service,
rather it may involve slow rolling the provisioning or upgrading of that
service.

224 Applicants also contend that incumbents may not find it in their
interest to discriminate, because by doing so the incumbent easily could
alienate large customers such as AT&T who may turn to competitive access
providers.[^414] Although it is true that competitive access providers
offer an alternative to incumbent LECs for some such customers, it is
not true for all such customers.[^415] Therefore, incumbent LECs have an
incentive to engage in discrimination against termination of
interexchange calls where such alternatives are less available.

###### Post-Merger Incentive and Ability to Discriminate

225 But for the merger, SBC would have no incentive to discriminate
against termination of interexchange calls originating in Ameritech's
region. This is true because SBC would not benefit at the originating
end (by gaining more customers) from such discrimination on the
terminating end.[^416] After the merger, however, calls that had
originated in Ameritech's region will now originate in the combined
region, and the combined entity could therefore realize the benefits of
discrimination on the terminating end, making it more likely that a
customer on the originating end would choose the combined entity for
interexchange service. The same is true for Ameritech with respect to
calls originating in SBC's region. Therefore, we agree with Sprint that,
as a result of the merger, the combined entity will have an incentive to
discriminate against termination of certain calls that neither
individual company would have absent the merger.[^417] The issue here is
that end users will be less likely to choose a competing carrier at the
originating end whose service does not appear as good as the incumbent's
service that is free from terminating problems. The issue is not, as
Applicants assert, the effect on choice of interexchange carrier by the
terminating customer.[^418]

226 We agree with parties arguing that, with respect to interexchange
calls, the merged firm (after receiving section 271 authority) will have
an increased incentive to discriminate in terminating the calls of
competing interexchange carriers, stemming from the fact that benefits
will flow from controlling both ends of a higher percentage of
interexchange calls.[^419] According to Sprint, the combined entity
would terminate 45 percent of minutes that the combined entity controls
on the originating end, a 50 percent increase from the 30 percent of
minutes for which Ameritech currently controls both the originating and
terminating ends.[^420] Applicants respond that the merger will increase
the percentage of interLATA traffic originating and terminating
in-region by only 2.8 percentage points for SBC (41.3 percent to 44.1
percent) and 6.9 percentage points for the combined company (37.2
percent to 44.1 percent).[^421] Applicants assert that this increase "is
no greater an increase than in the SBC/\[Pacific\] Telesis merger, where
the Commission found that an increase of 'only six to seven percentage
points' did not pose any anticompetitive risk."[^422] We disagree with
the Commission's conclusion in the *SBC/Pacific Telesis Order,* that
there was no anticompetitive risk from the increase in the percentage of
minutes for which the combined entity would control both the originating
and terminating end, and we therefore reverse that conclusion.[^423]
Here, the harm would be significant because of the substantial number of
customers that will be affected by the discrimination made possible by
the increase in the percentage of interLATA traffic originating and
terminating in the combined SBC/Pacific Telesis/Ameritech region.[^424]
We therefore agree with MCI WorldCom that, because interexchange
carriers would be more dependent on a single entity for exchange access
than they would absent the merger, hard-to-detect methods of non-price
discrimination would be even more crippling to competing long distance
companies.[^425]

227 We agree with MCI WorldCom that the ability to engage in less
detectable and more significant non-price discrimination would be
greatly enhanced by the merger. For the same reasons discussed above
with respect to advanced services, we conclude that, as a result of the
merger, the ability to discriminate against rivals in the origination
and termination of interexchange calls will be enhanced. The reduction
in the number of benchmarks, the ability to coordinate and rationalize
the discriminatory conduct of the two companies, and the economies of
scope in fighting regulatory battles in multiple state fora, all should
enable the combined entity to utilize its increased incentive to
discriminate, thus reaping the benefits of such conduct in the combined
region.[^426] At the very least these factors will make it more
difficult to safeguard against discrimination.

228 We recognize that the Commission concluded in the *Bell
Atlantic/NYNEX Order* that given existing safeguards, the merger between
Bell Atlantic and NYNEX would not result in an increased incentive and
ability to engage in non-price discrimination against long distance
competitors. We find that the larger scale of the instant merger,
however, increases the risks to long distance competition. Non-price
discrimination is a violation of several provisions of the
Communications Act, as well as a number of rules adopted by the
Commission.[^427] Although we believe that these safeguards should help
reduce a BOC's ability to discriminate,[^428] we conclude nevertheless
that in this case, the incentive and ability to engage in such
discrimination will increase as a result of the merger between SBC and
Ameritech. As is often the case with mergers, the increase in harm
ultimately becomes big enough as the number of firms drops. Thus, the
relative lack of harm that the Commission found in the *Bell
Atlantic/NYNEX Order* does not persist through all succeeding mergers.
In addition, the scale of the merged firm resulting here will far exceed
the scale of the Bell Atlantic/NYNEX combined entity. We also note that
in the *Bell Atlantic/NYNEX Order*, the Commission did not specifically
address the issue of discrimination on the terminating end of long
distance calls, an issue that we consider to be significant here.

229 This merger would partially reverse the breakup of the Bell System
prompted by complaints against AT&T's discrimination towards nascent
competitive long distance carriers. As noted above, the old Bell system,
with its large footprint, made it difficult for rivals to obtain access
to necessary inputs, thus prompting its ultimate breakup. This merger
would result in a large footprint that would take a big step toward
recreating the Bell System whose discrimination against interexchange
carriers led to divestiture in the first place. We find this
inconsistent with our mandate under the Act to reduce regulatory
involvement in telecommunications markets.

230 We find that several of the conditions SBC proposes likely will
stimulate competition, and thus are consistent with our desire to avoid
both increased discrimination and increased regulation. The
market-opening conditions that we agree to today will provide the one
sure remedy for the incumbent LEC's threat of discrimination: the
competitive LEC's promise of an alternative access provider. When local
markets are open, discrimination in access cannot succeed because others
will compete to provide fair access. Thus, these conditions are
consistent with our pro-competitive, deregulatory mandate, by
substituting competition for regulation as the means to constrain the
market power of the incumbent LECs, including the merged entity.

##### Price Discrimination (Price Squeeze) 

231 In addition to non-price discrimination, opponents of the proposed
merger have raised arguments about a particular form of strategic
pricing involving the Applicants\' leveraging monopoly control over
bottleneck local loop facilities to inhibit competition from long
distance rivals. AT&T, MCI, and CompTel argue that once the combined
entity begins selling in-region long distance service through an
interexchange affiliate, it will take advantage of the \"high\" prices
for interstate exchange access services (above cost prices), over which
it has monopoly power (albeit constrained by regulation), by offering
\"low\" prices for retail long distance services in competition with the
other long distance carriers, thereby setting up a price squeeze.[^429]
Because interstate exchange access services are a necessary input for
long distance services, opponents argue that the relationship between
the combined entity\'s \"high\" exchange access prices and its
affiliate\'s \"low\" prices for long distance services forces competing
long distance carriers either to lose money or to lose customers even if
they are more efficient than the combined entity\'s long distance
affiliate at providing long distance services.[^430] For the reasons
discussed below, we conclude that price squeeze tactics are likely to
fail under the circumstances presented here as a predatory tactic aimed
at eliminating competition among interexchange competitors.

232 As discussed above with respect to non-price discrimination, we
conclude that because incumbent LECs, such as SBC and Ameritech, either
currently, or, in the future will, compete with interexchange carriers
such as MCI and AT&T for the provision of interexchange services, they
have the incentive to discriminate through a price squeeze against such
companies that depend on the incumbents' exchange access services to
provide interexchange services to consumers. Likewise, as with respect
to their increased incentive to engage in non-price discrimination as a
result of the merger, we conclude that SBC and Ameritech will have an
increased incentive to discriminate against the termination of calls
through a price squeeze that neither individual company would have
absent the merger.

233 We find, however, that, given the existing regulatory safeguards,
they do not have a significant ability to act on this incentive. In the
*Bell Atlantic/NYNEX Order,* the Commission considered the combined
entity\'s ability to engage in a price squeeze against competitors
providing retail interexchange services, and found that, "in light of
the conditions we impose today, together with the reasons set forth in
the *Access Charge Reform Order*, we believe that price squeeze tactics
are likely to fail under the circumstances presented here as a predatory
tactic aimed at eliminating competition among interexchange
competitors."[^431] Although the Commission did not focus on specific
discrimination on the terminating end in the *Bell Atlantic/NYNEX
Order*, we reach the same ultimate conclusion here \-- that adequate
safeguards are in place to prevent price squeezes. [^432]

234 Although, as noted elsewhere, we do not wish to rely on regulatory
safeguards to prevent public interest harms, we note here that one
important safeguard mitigates harms in this case. In the *Access Charge
Reform Order*, the Commission addressed the contention that an
incumbent\'s interexchange affiliate could implement a price squeeze
once the incumbent began offering in-region, interexchange toll
services, and concluded that, although an incumbent LEC\'s control of
exchange and exchange access facilities may give it the incentive and
ability to engage in a price squeeze, the Commission has in place
adequate safeguards against such conduct.[^433] The Commission
determined in the *Access Charge Reform Order* that the existence of
price caps reduces the ability to raise prices on access.[^434] In
addition, we note that, as a result of the *Access Charge Reform Order*
and *Price Cap 4th Report and Order*, access charges are being
reduced.[^435] We also note that, because it is relatively easy to
compare a BOC's access charges with its own retail prices, price
discrimination is relatively easy for the Commission and others to
detect, and therefore, is unlikely to occur.[^436] In addition, several
important non-regulatory safeguards exist. As the Commission noted in
the *AT&T/TCI Order*, the presence of extensive sunk facilities in both
the local and interexchange markets suggests that the merged firm would
be unable successfully to raise prices if any competitors were driven
out of the market by the price squeeze.[^437] The Commission stated in
the *Access Charge Reform Order*: \"\[w\]e take comfort in the fact that
such remedies exist should an anticompetitive price squeeze occur in
spite of the safeguards we have adopted.\"[^438]

235 Existing regulatory and non-regulatory safeguards greatly reduce the
ability of incumbent LECs, such as SBC and Ameritech, to engage in a
price squeeze. Therefore, we conclude that there is no substantial
probable public interest harm resulting from the increased incentive
that SBC and Ameritech may have to discriminate against the termination
of calls through a price squeeze as a result of the merger.

#### Circuit-Switched Local Exchange Services

236 For the reasons discussed below, we conclude that the merger will
increase the combined entity's incentive and ability to discriminate
against competitive LECs seeking to provide local exchange services in
the combined region. We believe that this increased discrimination
particularly will be aimed at, and harmful to, competitive providers of
local exchange services to mass market customers (smaller businesses and
residential customers).[^439] Competitive LECs providing local services
to larger business customers have more experience negotiating with
incumbents from which they can benefit. Discrimination against
competitive providers of local exchange services to larger business
customers is still possible, however, because competitive local exchange
carriers need access to termination from the incumbent even for such
larger customers.

237 We also note that the local exchange market is just that, a
[local]{.underline} market. For the most part, companies competing with
the incumbent LEC in the provision of retail local exchange service
compete on a local basis, focusing on a particular area or region. For
such carriers, discrimination in one region should not affect their
success in other regions. For other competitive LECs, however, competing
for local exchange service transcends local areas and takes a more
national scope.[^440] For such national competitive LECs, reputation,
scale and scope, and technology are significant for their national
strategy; a company's reputation in one region may affect its reputation
in another region, and experience it gains with a new technology in one
region may help it in another region. As an example, e.spire is a
facilities based competitive LEC with 32 fiber networks in 20 states
over which it provides local exchange and exchange access
services.[^441] Efforts by SBC to discriminate against e.spire in any of
the five SBC states in which e.spire currently operates, or to prevent
its entry into new markets, by raising e.spire\'s costs or harming its
reputation, may limit e.spire\'s entry attempts into other regions,
including Ameritech\'s.[^442] E.spire asserts that both SBC and
Ameritech have engaged in discriminatory conduct.[^443] It is this group
of competitors, with a national scope, with which we are concerned.

##### Incentive and Ability to Discriminate

238 Because incumbent LECs compete with competitive LECs for the
provision of retail local exchange services, incumbent LECs have the
incentive to discriminate against competitive LECs that depend on the
incumbents' inputs (such as interconnection and UNEs) to compete. We
find that a discriminatory interconnection policy will be profitable for
an incumbent LEC insofar as its revenue gains in the provision of retail
local exchange services exceed whatever revenues it forgoes from
wholesale interconnection with rivals.[^444]

239 The record reflects that incumbent LECs\' control over access to
interconnection and other essential inputs gives them the ability to
discriminate against rivals providing local exchange services.[^445]
According to Sprint, incumbent LECs can discriminate against rival local
carriers either by raising the price of interconnection charged to
rivals (price discrimination) or by impairing their access to
interconnection and other essential inputs.[^446] We agree with Sprint
that, because interconnection prices are subject to regulatory
oversight, an incumbent's ability successfully to engage in price
discrimination against competitive LECs seeking to enter its region is
significantly weaker than its ability successfully to engage in
non-price discrimination by, for example, discriminating in
interconnection or refusing to negotiate with the competitor.[^447] As
evidence of incumbents' ability to engage in non-price discrimination
against rival competitive LECs, Sprint asserts, for example, that
incumbents have: (1) engaged in unreasonable collocation
practices;[^448] (2) provided poor access to their last mile and
collocation space facilities;[^449] (3) failed to provide sound and
capable OSS for competitive LEC uses; and

\(4\) failed to provide parity service regarding installation and
maintenance of facilities.[^450] In addition, as noted above, e.spire
has alleged discriminatory conduct by both SBC and Ameritech.[^451]

240 Discrimination against competitive providers of local exchange
services is more likely to occur with respect to provision of such
services to mass market customers than to larger business customers.
This is true because there are more competitors serving larger business
customers, with more experience dealing with incumbents for provision of
such services. In addition, section 252(i), which allows a competitive
LEC to opt into the interconnection agreements of other competitive
LECs, and pick and choose portions of the agreements the competitive LEC
finds attractive, is likely to be more helpful for providers of local
exchange service to larger business customers, as the agreements were
more likely to have been negotiated by providers also using them for
serving larger business customers.[^452] Finally, because competitive
LECs have little experience in successful provision of local exchange
services to mass market customers, there exist few examples of incumbent
LECs' best practices in provisioning inputs for competitive LECs to use
for serving mass market customers that could be used as benchmarks to
detect discriminatory and unreasonable behavior.

241 It is important to recognize, however, that to serve mass-market
customers and larger businesses alike, competing local exchange carriers
need access to inputs necessary to terminate local calls in the
incumbent's network. Just as we determined that incumbents may deny or
delay access to such inputs for competitors' provision of interexchange
services, they also may do so for competitors' provision of local
exchange services to all types of customers. The incumbent LEC, for
example, may fail to provision enough equipment for a competing LEC so
that a higher percentage of the competitor's calls are blocked from
terminating in the incumbent's region. When a competitor orders trunks
in the incumbent's end office, the incumbent may fail to make available
the number of trunks requested by competitor, or it may delay installing
the trunks in the end office. This type of discrimination is more subtle
and less detectable than blatant selective call degradation.

242 We believe, however, that, on a going forward basis, as SBC and
Ameritech receive section 271 authority, their ability to discriminate
successfully against rival local service providers should
diminish.[^453] We note that, in an En Banc hearing, Steven Carter, SBC
Operations, Inc. President-Strategic Markets, asserted that completion
of the merger and launch of the National-Local Strategy "gives \[SBC\]
an added incentive, perhaps, to work just a little harder to make sure
that we do comply and fulfill 271 appropriately."[^454] As a result,
Applicants argue that competitive LECs will have "further assurance of
non-discriminatory local access, the ability to purchase UNEs and the
ability to resell services."[^455] This would seem to imply, as argued
by Sprint, that in the meantime, competitive LECs will not have such
further assurance of nondiscriminatory local access.[^456] Even after
receiving section 271 authority, the threat of discrimination remains in
force, however, particularly for the relatively few competitors seeking
to provide local exchange services to the mass market.

##### Post-Merger Incentive and Ability to Discriminate

243 As we found in the context of retail advanced services and
interexchange services, we agree with Sprint's general theory that there
are external effects to discrimination against the provision of retail
local exchange services on a multi-region basis, and that, post-merger,
the combined entity, in control of a larger local region, would realize
more of the gains from such external effects, thus increasing its
incentive to act in a manner in one area that produces these effects in
another.[^457] For national competitive LECs, such as large
interexchange carriers, that plan to offer local service on a large
scale in numerous major regions, entry into various areas likely will
entail common research, product development, and marketing costs that
must be covered by the sum of the competitive LEC\'s area-specific
profits. For such national carriers, the discrimination practiced in one
region may impair the competitor's national or multi-regional
plans.[^458] Therefore, actions that decrease the profitability of the
competitive LEC in one area may make it forgo entry into another area,
or make it a less effective competitor in another area.[^459] Applicants
counter that "there is simply no evidence that any \[competitive LEC\]
has been deterred from entering one \[incumbent LEC's\] territory
because of another \[incumbent LEC's\] behaviour . . . \[competitive
LECs\] select the markets in which they will compete and go where they
see the best opportunities."[^460]

244 Applicants also contend that "\[e\]qually plausible external effects
lead to the opposite policy conclusion -- that by internalizing the
externality, the merger will lead to [less]{.underline} discrimination
rather than more."[^461] As an example, Applicants offer an incumbent
LEC that discriminates against a competitive LEC in St. Louis, thereby
preventing or raising its cost of entry. Applicants assert that, in such
a situation, "\[i\]t is just as likely that such discriminatory behavior
will lower the probability of successful \[competitive LEC\] entry in
St. Louis and raise the probability that the \[competitive LEC\] will
enter in Chicago. . . . In this case, the externality from
discrimination would be positive, and internalizing that incentive
through the merger would reduce the incentive to discriminate rather
than increase it."[^462] Nonetheless, especially given the increase in
competitive LECs with national entry strategies, we conclude that, as
discussed above with respect to services such as Sprint ION, weakening a
carrier's chance of providing competitive local exchange service in one
region weakens its chances of doing so in other areas as well, due to
economies of scale and scope.[^463] Post-merger, the combined company
will be able internalize the external effects of discriminatory conduct
in one area in the combined region on another area in that region.
Because of the possibility of internalizing such spillover effects, the
incentive for the combined entity to discriminate against competitors
providing retail local exchange services in particular areas within the
combined region will be greater than the incentive for each company, as
a single entity.

245 For the same reasons discussed above with respect to advanced
services and interexchange services, we conclude that, as a result of
the merger, the ability to discriminate will be enhanced through, for
example, the reduction in the number of benchmarks.

##### Public Interest Harms

246 The increased incentive and ability for the combined entity to
discriminate against rival providers of retail local exchange services
in the combined region will result in varying degrees of harm.
Generally, we note that the harms of such discrimination are, as with
the risk of discrimination against interexchange competitors as
discussed in detail above, caused in part by recent developments in
local networks which have increased the risk of technical discrimination
against rival local exchange providers, and the corresponding difficulty
in detecting new types of discrimination.[^464] Competitive providers of
local exchange services to mass market customers currently have
relatively little market success. The harm to these carriers, and,
therefore, to consumers, is greater than the harm to competitive
providers of such service to larger business customers, given that
carriers serving larger business have more experience to date in dealing
with incumbents. Although the harms of incumbent LEC discrimination
against competitors providing local exchange services to larger
businesses continues to diminish, it is still significant with respect
to discrimination against these competitors' termination of local calls
in the incumbent's region (as it is also for competitors serving mass
market customers), as discussed above.

247 Many of the conditions proposed by SBC and adopted today directly
address these concerns. For example, the conditions regarding
performance measures, OSS reform, and collocation should constrain
substantially the merged entity's ability to engage in discrimination
against rival local exchange providers.

#### Other Issues

##### Internet Backbone Services

248 MCI WorldCom and CompTel argue that the combined entity will be able
to exploit its monopoly power over essential Internet inputs to harm
competition in the provision of Internet backbone services.[^465] MCI
WorldCom further argues that this threat is especially significant given
(1) the emergence of advanced services as an important means of
accessing the Internet, and the incumbent LECs' leveraging of their
monopoly over such services to obtain more Internet business, and (2)
the incumbent LEC's efforts to impose "excessive access charges" to
Internet traffic.[^466]

249 We disagree with MCI WorldCom that, as a result of the merger, the
combined entity will leverage monopoly control over local inputs into
the provision of Internet services.[^467] As discussed above, we do
conclude that, as a result of the merger, the combined entity will have
an increased incentive and ability to discriminate against rivals
providing advanced services, such as xDSL services, and that a
significant public interest harm will result from this increased
incentive and ability. We find the link from potential control over xDSL
services to any market power over Internet services somewhat attenuated,
and, therefore, disagree with MCI WorldCom.

250 In order to gain market power over Internet backbone services, the
combined entity would need to obtain a critical mass of customers as an
Internet service provider. As noted by SBC and Ameritech, the ISP
industry is extremely competitive;[^468] we find no compelling evidence
that SBC and Ameritech could gain significant market share for their
ISP, even by bundling Internet access services with residential xDSL
service.[^469] We further agree with Applicants that incumbent LECs
cannot apply access charges unilaterally to ISP calls;[^470] as the
merger does not increase the combined entity's ability to impose such
access charges, we find MCI WorldCom's concerns inapplicable at this
time.[^471] Therefore, we disagree with MCI WorldCom and CompTel that
the merger is likely to cause public interest harm in the provision of
Internet services.

##### Empirical Evidence

251 *Background*. In a submission of the Applicants, Dennis Carlton and
Hal Sider present empirical evidence they claim contradicts Sprint's
assertions that the SBC-Ameritech merger will give the merged firm
greater incentive to discriminate against downstream rivals.[^472]
Carlton and Sider argue that if the Sprint hypothesis were correct,
evidence of such behavior would have appeared in the aftermath of the
two recent RBOC mergers, SBC/PacTel and Bell Atlantic/NYNEX. They claim
instead that competitive LEC activity in LATAs within the merged RBOCs'
regions, as measured by the number of firms that have been assigned
numbering codes, is not lower either than competitive LEC activity in
other RBOCs' regions, or lower than it would have been but for the
relevant mergers, controlling for differences in population size,
population growth, and area.[^473]

252 *Discussion*. We find these results unpersuasive on a number of
grounds. In terms of methodology, we find their chosen variables
inadequate to validate their claims. Using the number of firms that have
been assigned numbering codes in each LATA is an inadequate measure of
competitive LEC activity for a number of reasons. First, as they
themselves recognize, "assignment of a numbering code in a particular
area does not indicate that the carrier assigned the code is providing
service in the area."[^474] Second, to the extent that such a carrier is
providing service, the possession of numbering codes provides no
indication of the number of customers that each competitive LEC is
serving. Therefore, this variable does not adequately reflect the degree
to which competitive LEC activity in one region may or may not be
affected by incumbent LEC discrimination. Further, we question Carlton
and Sider's use of the variables population size, population growth, and
area to adequately control for "economic and demographic
characteristics."[^475] Population size and growth, for instance, may
have no correlation to the variables that make a particular LATA
attractive to the competitive LECs serving larger business customers.
Therefore, in their comparisons of LEC activity in different BOCs'
regions, they are unable to control accurately for many characteristics
that may attract competitive LECs. In sum, we find that using Carlton
and Sider's data, it is difficult to reach a conclusion regarding the
level of competitive LEC activity, and ultimately the corresponding
amount of discrimination, in the regions of the merged RBOCs.

253 We find further that, in spite of the foregoing, lack of conclusive
evidence that the past RBOC mergers resulted in increased discrimination
does not preclude any such effects resulting from the instant merger.
First, we find that the potential public interest harms resulting from
the instant merger are greatest for advanced services and interexchange
services, services that RBOCs had little or no incentive to discriminate
against at the time of the prior RBOC mergers. Therefore any evidence
regarding previous mergers' effects on discrimination against
competitive LEC entry may not be relevant. Second, with respect to the
degree of competitive LEC activity, Carlton and Sider themselves cite to
BOC incentives to accommodate competitive LECs in order to enter the
long distance market. These incentives may counteract any incentives to
discriminate against competitive LECs and thereby explain the lack of
evidence of discrimination found by these authors.[^476] Finally, we
agree with Hayes et. al. that the size of the merged entity at question
in the instant proceeding may exceed a threshold level with respect to
the incentives to discriminate.[^477] The combined SBC-Ameritech, with
the ability to deny, degrade, or delay competitive LEC access to almost
one-third of the nation's access lines may have a much greater
unilateral effect on a potential rival's national entry strategy, and
therefore such discrimination may become more attractive.[^478]

#### Conclusion

254 For the reasons discussed above, we conclude that, as a result of
the merger, SBC and Ameritech, as a combined entity, will have an
increased ability and incentive to discriminate against rival providers
of advanced services, and particularly new types of advanced services,
in the combined region. We also conclude that the combined entity will
have an increased incentive and ability to discriminate against rival
providers of interexchange services, local services, and bundled local
and long distance services. Although the Commission issues rules to
prevent discrimination, and will continue to do so, it is impossible for
the Commission to foresee every possible type of discrimination,
especially with evolving technologies; therefore, we cannot rely on a
regulatory solution to address unforeseeable competitive harms that
might arise as a result of the merger. In our order, we adopt a number
of conditions, initially proposed by SBC, that both guard specifically
against the discrimination harms identified above and do so in a
deregulatory manner, without imposing cumbersome, detailed regulatory
oversight.

#  ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS

255 In addition to assessing the probable public interest harms of this
merger, we also must consider whether the merger is likely to generate
redeeming public interest benefits.[^479] For example, we ask whether
the merged entity is likely to pursue business strategies resulting in
demonstrable and verifiable benefits to consumers that could not be
pursued but for the merger. Public interest benefits also include any
cost saving efficiencies arising from the merger if such efficiencies
are achievable only as a result of the merger, are sufficiently likely
and verifiable, and are not deemed the result of anti-competitive
reductions in output or increases in price.[^480] Finally, merger
specific benefits may also include beneficial conditions either
proffered by the Applicants, by other parties, or imposed by the
Commission. We address the Applicants' commitment to implement the
National Local Strategy below.[^481]

256 In this Order, we have concluded that the proposed merger of SBC and
Ameritech is likely to result in substantial harms to the public
interest. In considering whether the overall effect of the merger
nevertheless is to advance the public interest, we employ a balancing
process that weighs probable public interest harms against probable
public interest benefits. Applicants, therefore, can carry their burden
of demonstrating that the proposed transaction is in the public interest
under the Communications Act only if the transaction on balance will
enhance and promote, rather than eliminate or retard, the public
interest. As the harms to the public interest become greater and more
certain, the degree and certainty of the public interest benefits must
also increase commensurately in order for us to find that the
transaction on balance serves the public interest.[^482] This sliding
scale approach requires that where, as here, potential harms are indeed
both substantial and likely, the Applicants' demonstration of claimed
benefits also must reveal a higher degree of magnitude and likelihood
than we would otherwise demand.

257 In their initial application, the Applicants enumerated a series of
potential public interest benefits that they claim offset any
anticipated public interest harms. We find that, of these claimed public
interest benefits, few are in fact merger-specific, likely and credible.
We conclude that the harms to the public interest likely to result from
the merger outweigh the likely benefits.

258 The initial application claims three primary public interest
benefits of the merger. First, Applicants assert that the merger will
enable them to implement their out-of-region National-Local Strategy (in
which the merged firm will enter 30 out-of-region cities as a
competitive LEC), which they assert, in turn, will spark local exchange
competition around the country and in certain foreign markets. Second,
the Applicants claim that the merger will generate efficiencies in the
forms of procurement savings, consolidation efficiencies, implementation
of best practices, faster and broader roll-out of new products and
services, and benefits to employees and communities. Third, they
maintain that the merger will produce public interest benefits in other
product markets, including wireless services, Internet services, long
distance and international services and global seamless services for
large business customers.[^483] We discuss each of these in turn, and
conclude that the Applicants have provided insufficient evidence to
support any of their claims and that they have not demonstrated that, on
balance, the merger is in the public interest, convenience and
necessity.

## National-Local Strategy

259 *Background.*[^484] According to the Applicants, the National-Local
Strategy is "the essentially simultaneous, facilities-based entry of the
combined company into each of the Top 30 major U.S. markets outside of
the area in which the combined company would be the incumbent
carrier."[^485] As originally formulated, the Strategy commits the
merged entity to entering these 30 out-of-region metropolitan markets
within three years following consummation of the merger.[^486]
Additionally, it calls for extending the Applicants' facilities-based
geographic reach to 14 major foreign markets within five years of the
close of the proposed merger.[^487]

260 The Applicants maintain that the National-Local Strategy
contemplates a "smart build" strategy in constructing facilities that
are most needed and combining them with leased transport where available
and with UNEs where necessary.[^488] More specifically, the Applicants
plan to install initially over 60 switches for the large and mid-size
business segment in the 30 new markets. Subsequently, they plan to
install over 80 additional switches for the small business and
residential customer segment,[^489] and to construct an intra-city fiber
network of between 75 and 125 fiber miles in each of the 30 targeted
markets,[^490] (along with leasing inter-city trunks from third
parties.)[^491] Applicants acknowledge that the architecture of the
network and the facilities used will vary from market to market, and
that they will build facilities, buy capacity, partner with another
competitive LEC, and/or use some combination of these approaches.[^492]
Although it is not clear from the record whether the Applicants will buy
or lease switches, nor whether they will lease or construct their own
fiber, it does appear that they intend to construct some facilities.

261 In international markets, the Applicants plan to target large
multinational customers in certain European, South American and Asian
markets.[^493] In these markets, Applicants contemplate initially
installing one switch per city by 2001, and subsequently installing an
additional 13 switches for a total of 27 by the end of their business
plan.[^494] According to the Applicants, they plan to lay fiber in these
cities, with 1,400 kilometers of fiber installed within two years of the
merger's close and more than 2,000 kilometers installed by the end of
the plan.[^495]

262 Many large firms headquartered in current Ameritech or SBC territory
have additional business locations out of Ameritech's and SBC's
regions*.* The Applicants' rationale behind the National-Local Strategy
is to follow large and mid-size in-region multi-location business
customers of the combined firm out-of-region into markets around the
country and globe where those businesses have satellite offices or plant
facilities.[^496] The Applicants' strategy appears to be to offer these
customers a full range of local, vertical, long distance, data and other
services.[^497] In this fashion, the Applicants hope to become an
end-to-end provider of a full range of telecommunications services to
large business customers with multiple locations. These customers would
function as "anchor tenants," justifying the Applicants' entry into
markets and facilitating the eventual deployment of voice and data
services to small businesses and residential customers within those
markets.[^498]

263 *Rationale for the Merger.* SBC claims that the merger with
Ameritech, standing alone, "is certainly not a compelling business
opportunity for SBC." Rather, SBC regards the merger as "the means" and
the National-Local Strategy "as the objective."[^499] The Applicants
further state that SBC's Board of Directors did not approve the merger
"as an end in itself," but rather "as necessary for the company's
pursuit of its National-Local Strategy."[^500] According to the
Applicants, the real value creation for SBC shareholders "lies entirely"
in the Applicants' successful execution of, and resulting benefits from,
the National-Local Strategy.[^501]

264 The Applicants contend that neither SBC nor Ameritech individually
could pursue the National-Local Strategy as currently envisioned. In
support of this claim, Applicants first submit that "\[n\]either SBC nor
Ameritech currently has the scale, scope, resources, management and
technical ability to implement the proposed national and global strategy
on its own." [^502] The Applicants further maintain that "neither
\[company\] alone could suffer the earnings dilution that would
accompany implementation of this plan."[^503]

265 Thus, the Applicants assert that the merger is necessary to achieve
the National-Local Strategy. Specifically, the Applicants believe that
only through a merger will the combined company have: (1) the customer
base (economies of scale); (2) the financial resources and reduced
earnings dilution; (3) the geographic reach (economies of scope); and
(4) the managerial and employee talent necessary to implement
successfully the National-Local Strategy. We examine these claims more
fully below**.**

266 *Claimed Benefits.* Applicants assert that the combined company's
implementation of the National-Local Strategy will facilitate enhanced
out-of-region local exchange competition, which, in turn, will escalate
in-region local exchange competition.[^504] Specifically, the Applicants
maintain that their joint entry into 30 new out-of-region markets will
"jump start competition for business and residential customers
throughout the country."[^505] The Applicants claim that a key benefit
is that "\[n\]o other major competitive LEC currently provides service
in each of the 30 markets that the new SBC plans to enter."[^506] This
salvo of new nationwide local exchange competition, the Applicants
suggest, will pressure interexchange carriers, competitive LECs and the
other incumbent LECs to compete not only in their own markets, but also
in SBC's and Ameritech's home markets as well.[^507] In addition, the
Applicants submit that implementation of the National-Local Strategy
will inject local exchange competition into 14 major foreign
markets[^508] and will create a new, major U.S. participant in the
global telecommunications marketplace.[^509] Finally, the Applicants
maintain that a key public interest benefit from the National-Local
Strategy's implementation is the creation of thousands of new jobs, both
domestically and internationally.[^510]

> 267 *Discussion.* Elsewhere in this Order, we have concluded that the
> merger proposed by the Applicants portends probable and substantial
> harm to the public interest, as defined by the goals, values, and
> purposes of the Communications Act. The National-Local Strategy,
> Applicants assert, will provide public interest benefits that outweigh
> these harms. To make their case, the Applicants must also demonstrate
> that their merger is a reasonably necessary means to enable them to
> achieve these benefits, i.e. that the benefits are specific to the
> merger. Should the Applicants be able to pursue the Strategy -- or its
> equivalent -- without merging, consumers could achieve the benefits of
> the National-Local Strategy without suffering the harms of the merger.
> A mere recitation by the Applicants that they will provide some
> benefit if and only if their license transfer is approved cannot
> suffice to show that such a benefit is merger specific. Rather, we
> need sufficient evidence from the Applicants that the benefit is
> dependent on the merger if the benefit is to be included in an overall
> assessment of the effects of the license transfer.
>
> 268 In the following subsections, we conclude that the merger is not
> plausibly necessary to obtain the benefits of this Strategy. That is,
> we are not persuaded that the National-Local Strategy is a
> merger-specific benefit. First, we reject the argument that the merger
> increases the incentive of the two Applicants to pursue an
> out-of-region strategy. Second, the evidence does not support the
> Applicants' claim that, absent the merger, they would not have the
> ability to pursue an out-of-region strategy. Finally, we conclude that
> even though the National-Local Strategy is not a merger-specific
> benefit, successful implementation of the National-Local Strategy will
> bring some benefits to the local exchange marketplace, though not to
> the extent claimed by the Applicants. The single merger-specific
> benefit appears to be the increased speed with which the Applicants
> can expand into the country's top 50 markets. Even this benefit is
> tempered, however, because SBC effectively is merging with the
> incumbent in seven of those markets, which generates the substantial
> harm of eliminating a significant potential competitor in those
> markets.

269 Our evaluation of the National-Local Strategy centers around two
inquiries: (1) Are the benefits promised by the Strategy
merger-specific, in that they can be obtained only as a result of the
merger? (2) Are the probable benefits consumers will receive from the
Strategy large enough so that these benefits might be weighed, if
necessary against the merger's probable harms?

### The Benefits are Not Merger-Specific

270 We conclude that, whatever benefits might arise from the Applicants'
proposed National-Local Strategy, these benefits cannot be used to
justify the merger because the merger is not a sufficiently necessary
condition \-- either of the parties could implement this strategy on
their own. The Applicants do not need to merge to become successful
out-of-region competitive LECs, nor does their merger increase the
likelihood that either or both will seek to implement a National-Local
Strategy. We find only one claimed benefit to be merger-specific, and
that is the speed with which the Applicants can reach their 50 market
goal contemplated in the National-Local Strategy. We conclude that no
other benefits of the National-Local Strategy, as it is proposed in the
initial application, are merger-specific.

#### The National-Local Strategy is Not Unique 

271 The Applicants maintain that the National-Local Strategy is in some
way unique because it is a "significant" out-of-region local exchange
strategy. [^511] The Applicants in fact submit that it is the very
uniqueness of the Strategy that necessitates this merger.[^512]

272 We note that in a previous section entitled "Analysis of Competitive
Effects in Local Exchange and Exchange Access Services," we concluded
that the merger causes a public interest harm by eliminating SBC and
Ameritech as among the most significant potential participants in the
mass market for local exchange and exchange access services in each
other's regions. Additionally, we concluded in the mass market for local
exchange services that not only are both firms most significant market
participants in geographic areas adjacent to their own regions, but also
in out-of-region markets in which they have a cellular presence.[^513]

273 As out-of-region competitors, therefore, we consider SBC and
Ameritech to be unusually qualified. In this section, however, we
address the strategy itself that these unusually qualified competitors
plan to implement. We conclude that while the Applicants themselves may
be particularly strong competitors relative to other new entrants, that
their facilities-based strategy for going out-of-region is far from
unique.

274 We note that smaller companies are pursuing similar facilities-based
strategies offering similar product packages. For example, NEXTLINK
claims that its goal is to provide integrated, end-to-end solutions for
all of its customers' communications needs over its own network, which
currently operates 23 local networks in 38 U.S. cities.[^514] Allegiance
Telecom, Inc. seeks to be a premier provider of telecommunications
services to business, government and other institutional users in major
metropolitan areas. Allegiance offers an integrated set of voice and
data products to customers in thirteen U.S. cities, with plans to enter
eleven more cities for a total of 24 by the end of 2000.[^515] Other
carriers pursuing multi-market local exchange strategies include:
Frontier, which offers facilities-based bundled voice and data services
in 23 major markets today;[^516] Focal, which offers facilities-based
local switched voice services in 29 metropolitan statistical
areas;[^517] WinStar, which offers facilities-based bundled voice and
data services in 30 markets today;[^518] and AT&T and MCI WorldCom,
which claim to offer facilities-based bundled voice and data services in
90-100 cities reaching 70-90% of all business subscriber lines.[^519]

275 We also note that many of these companies have plans to expand into
more markets in timeframes comparable to those contemplated by the
Applicants. For example, WinStar, a competitive LEC with a market
capitalization of only \$2.3 billion, has announced plans to enter, on a
facilities-basis, 30 additional major domestic markets in two years and
an additional 50 major international markets within five years.[^520]

276 The Applicants claim that they are the only major competitive LEC
planning to serve the specific 30 out-of-region markets contemplated by
their National-Local Strategy. We note, in the aggregate, however, that
numerous competitive LECs *already* are providing bundled services in
those markets while the Applicants' Strategy is still in the planning
stages and will not see commercial roll-out until next year. In fact,
Applicants' own research shows that there are numerous competitive LECs
in their target out-of-region markets.[^521] To put the Applicants'
Strategy into perspective, below we provide a matrix[^522] of the number
of competitive LECs operating as of the end of 1998 in each of the 30
out-of-region markets identified by the Applicants.[^523]

  -------------------------------------------- --------------------------
  **Market Name**                              **Competitive LECs**

  Albany, NY                                   7

  Atlanta, GA                                  20

  Baltimore, MD                                11

  Birmingham, AL                               5

  Boston, MA                                   21

  Buffalo, NY                                  5

  Cincinnati, OH                               5

  Denver, CO                                   15

  Greensboro, NC                               7

  Honolulu, HI                                 3

  Las Vegas, NV                                8

  Louisville, KY                               6

  Memphis, TN                                  7

  Miami, FL                                    12

  Minneapolis, MN                              7

  Nashville, TN                                8

  New Orleans, LA                              10

  New York, NY                                 30

  Norfolk, VA                                  3

  Orlando, FL                                  11

  Philadelphia, PA                             16

  Phoenix, AZ                                  14

  Pittsburgh, PA                               4

  Portland, ME                                 3

  Providence, RI                               3

  Rochester, NY                                7

  Salt Lake City, UT                           9

  Seattle, WA                                  13

  Tampa/St.Petersburg, FL                      13

  Washington, DC                               22
  -------------------------------------------- --------------------------

277 That no single competitive LEC currently offers competitive services
in each of the 30 markets misses the point; many of these competitive
LECs offer coverage in markets not targeted by the Applicants, which the
Applicants choose to overlook. Additionally, the Applicants' claim that
establishing a presence in these top 30 out-of-region markets enhances
their ability to compete for the business of large multi-location
business customers similarly misses the point. The vast majority of
these markets have multiple competitors all vying for the same business
customers targeted by the Applicants. We conclude, therefore, that the
Applicants' National-Local Strategy is neither unique in scope nor in
its primary target customers.

#### Effect of the Merger on Applicants' Ability to Provide Out-Of-Region Services

278 The Applicants contend that their ability to carry out the
National-Local Strategy is vastly reduced absent the merger.[^524]
Having concluded *supra* that the Applicants are significant potential
competitors in each other's regions as well as in their out-of-region
cellular territories,[^525] we find to the contrary that each of the
Applicants is fully capable of undertaking a strategy of the size and
scope of the National-Local Strategy. Dozens of competitive LECs,
without the size, resources or assets of either SBC or Ameritech are
presently pursuing significant entry plans in multiple markets.
Moreover, the record reveals that, of the competitive LECs and several
investment analysts interviewed by the Commission,[^526] not one
believes that a company the size of the proposed merged entity is
necessary to succeed as a competitive LEC. We note that the Applicants
appear to acknowledge that size is not necessarily commensurate with a
carrier's ability to enter or to compete. For example, according to the
Applicants, once they begin providing services in the territories of
other incumbent LECs, these incumbents will retaliate by competing in
the Applicants' territory.[^527] Notably, the Applicants do not contend
that these incumbent LECs must first merge in order to do so, despite
the fact that those other incumbent LECs will be notably smaller than
the combined SBC/Ameritech. To assert that these multi-billion dollar
Applicants need to merge in order to pursue the National-Local Strategy
therefore is contrary to both experience and common sense.

279 Nevertheless, Applicants offer four reasons why this merger is
necessary to enhance their ability to implement their Strategy: 1) an
insufficient customer base; 2) insufficient geographic reach; 3)
likelihood of excessive earnings dilution if pursued on a standalone
basis; and 4) insufficient managerial and employee talent.

280 We find that geographic reach, while an important consideration in a
national or international expansion strategy for a regional or local
player, plays at best a modest role in terms of this merger. After all,
this merger gives SBC only seven of the 37 additional markets SBC
intends to enter to achieve its coverage of the top 50 domestic markets.
Had geographic coverage been the principal driver of SBC's expansion
plans, SBC could have purchased a competitive LEC such as WinStar, which
has facilities already built in 30 of the top markets. Such an
acquisition certainly would bring SBC substantially closer to its goal
of reaching the top 50 markets than does the Ameritech acquisition.

281 Similarly, we find that insufficient managerial and employee talent,
while an important consideration, does not play an important role in
this merger. Although SBC picks up over 40,000 employees with this
merger,[^528] many of whom are experienced managers, if the lack of
personnel were the number one issue constraining SBC's ability to deploy
a competitive LEC strategy in numerous new markets today, it would not
buy an incumbent LEC whose personnel are least likely to have deployed
competitive LEC operations in new markets, and who face the prospect of
having to move locations to those new markets. Rather, it is more
probable it would purchase a competitive LEC with experienced personnel
and operations in those markets SBC plans to enter if the need for
personnel to run such operations were the major consideration.

282 We therefore focus our discussion on the two reasons that appear to
be the key drivers of this merger: an insufficient customer base and the
threat of excessive dilution.

##### Insufficient Customer Base

283 The Applicants contend that the merger is necessary to create a
sufficient in- region customer base to follow into out-of-region
markets. [^529] We conclude, on the basis of substantial marketplace
evidence, that the Applicants have failed to demonstrate that they must
have almost 50 percent of the nation's Fortune 500 companies
headquartered in its regions in order to launch successfully an
out-of-region strategy.[^530]

284 Specifically, Applicants claim that they need a larger customer base
because their out-of-region plan involves a facilities-based entry
strategy for which a "sufficiently broad base of customer relationships"
is needed to support the large capital investments necessary to deploy
new switches and networks.[^531] Although we recognize that spreading
fixed capital costs across a broader number of customers effectively
reduces the cost per customer of geographic expansion, we question the
Applicants' assertion that neither company individually has a
sufficiently broad and large customer base to venture
out-of-region.[^532] We note that the Applicants have identified
numerous other companies that provide a range of services for business
customers on a national or regional basis, including AT&T, e.spire,
Focal Communications, Frontier, Intermedia Communications, Level 3, MCI
WorldCom, McLeodUSA, NEXTLINK, Qwest, RCN, Sprint, Teligent and
Winstar.[^533] Although the competitors on this list vary in size, each
of these companies operates in multiple markets around the country.
Although some may pursue only niche strategies in terms of products
offered and customers targeted,[^534] we find that most of these
companies are pursuing expansionist strategies without business customer
bases even approaching the levels of either SBC or Ameritech alone. We
also note that the Applicants themselves admit the feasibility of SBC's
entering the 15 largest MSAs out of SBC's region on its own, presumably
with the customer base it has today.[^535] Finally, Applicants also
claim that their out-of-region ventures will lead other incumbent LECs
to invade Applicants' regions. They do not assert, however, that these
incumbent LECs will need to acquire enhanced customer bases before they
retaliate, which implies that SBC and Ameritech currently are large
enough on a standalone basis to pursue out-of-region strategies.

285 When specific examples are considered, we find that the Applicants'
assertion that going out-of-region requires a large customer base far
larger than either currently possesses distorts market reality. The
Applicants identify Phoenix, Arizona as an "excellent example" of how
the follow-the-customer strategy would work. [^536] The Applicants
identify over 2,100 Phoenix locations owned or operated by businesses
headquartered in the Ameritech and SBC regions. Of these locations, 60%
or over 1,250 belong to businesses headquartered in the Ameritech
region. The remaining 40% or close to 850 locations belong to businesses
headquartered in the SBC region. The Applicants conclude that absent the
merger, neither SBC nor Ameritech "would have a sufficiently large
customer base to follow into Phoenix."[^537]

286 We find it incredible that neither SBC nor Ameritech has a
sufficiently large customer base to enter the Phoenix market on its own.
Competitors of far smaller size and resources are entering markets of
the size of Phoenix on a facilities-basis and with substantially smaller
customer bases. For example, as of the end of 1998, 14 facilities-based
competitors were already in the Phoenix market.[^538] Indeed we doubt
that, absent the merger, the Applicants would ignore the competitive
threat to their customer bases in-region by not going out-of-region to
those markets such as Phoenix where each Applicant would find densely
located outposts of many of its in-region customers.

##### Excessive Earnings Dilution[^539]

287 Applicants maintain that established companies such as SBC and
Ameritech are valued by financial markets based on their earnings
performance and not on another metric such as cash flow which is
typically used to value younger companies with little or no
earnings.[^540] The Applicants argue that the cost of implementing the
Strategy would be too dilutive to earnings for their more
conservative-minded shareholders to tolerate. [^541] Furthermore, the
companies argue that this merger will mitigate the dilutive impact by
increasing the shareholder base over which costs can be spread, by
increasing the revenue base to absorb the out-of-region costs, and by
reducing the number of new markets that the company would have to enter
de novo to serve the top 50 markets.[^542]

> 288 First, we question the Applicants' claims regarding the extent of

dilution resulting from implementation of the Strategy. We note the
Applicants intend to utilize a "smart build" strategy for entering the
30 out-of-region markets. By "smart build," the Applicants contemplate
placing multiple switches in each market, and then utilizing available
inter-city and local transport capabilities to most efficiently manage
their capital. Only where such transport is not available will the
Applicants construct their own fiber networks.[^543]

289 We find that this "smart build" strategy, which emphasizes
installation of one's own switches, but delays construction of one's own
fiber capacity until sufficient numbers of customers are won and the
economics of demand dictate that such construction makes economic sense,
is not unique. [^544] To the contrary, numerous other competitive LECs
are pursuing such a strategy. [^545] This strategy contrasts with either
investing up front in fiber in anticipation of recouping the investment
in the future, or with pursuing a lease-only strategy whereby entrants
lease the fiber as a long-term strategy. The attraction to competitive
LECs of the "smart build" strategy over other strategies is the
short-term prospect of fast market entry, quick revenue generation,
deferral of substantial capital costs and the mitigation of dilution,
and the long-term prospect of ramping up one's own fiber deployment,
which facilitates realization of economies of scale, lower variable
costs and improved margins. This view is consistent with that of the
Applicants as they look to go out-of-region.[^546] Even Applicants' note
that their "smart build" approach is analogous to the strategy utilized
by competitive access providers when they first entered the local
exchange market.[^547]

290 We also note that the Applicants predicate their National-Local
Strategy on following existing in-region multi-location business
customers into out-of-region markets. The existence of a large customer
base, which most other competitive LECs lack, reduces the Applicants'
customer acquisition costs relative to what other competitive LECs
incur. Furthermore, the Applicants are not forced at the outset to
invest in an all-out local market strategy in all 30 markets which most
other competitive LECs would be forced to do if they sought to offer
services comparable to those in the National Local Strategy. The cost
and attendant dilution of the National-Local Strategy, therefore, are
much less than they are for most competitive LECs.[^548] If it typically
takes two to three years for a "smart build" competitive LEC to achieve
break even on a cash flow basis in a given market,[^549] we would expect
that time period to be compressed for the Applicants. On a
market-by-market basis, we find that expected dilution for the
Applicants is not only *not* excessive, it is a substantial improvement
upon the earnings dilution likely experienced by competitive LECs.

291 Second, although the merger is projected to be accretive to earnings
after 2001, even the relative dilution in the early years suggests that
the National-Local Strategy in and of itself is not excessively or
intolerably dilutive for the Applicants and their shareholders. Although
we note that the National-Local Strategy may seem dilutive *on an
aggregate basis* for all 30 markets, the Applicants provided guidance to
Wall Street at the time of the merger announcement that suggested that
the Strategy would dilute earnings by no more than one percent per year
for the next several years.[^550] According to the Applicants, SBC would
experience approximately twice the dilution if it implemented the
National-Local Strategy without the merger,[^551] implying earnings
dilution of two percent per year over the next several years. This
proposed merger between SBC and Ameritech, by contrast, is projected to
dilute earnings by seven percent in 2000 and by three percent in 2001
due to the issuance of additional shares necessary to pay the
approximately 27% premium.[^552] Nevertheless, shareholders for both
companies approved this proposed merger.

292 Third, we note that the Applicants each have pursued substantial and
dilutive projects in the past. For example, SBC's purchase of Pacific
Telesis in 1997 was valued at \$17 billion and was earnings dilutive for
two years to an extent comparable with the currently proposed
merger.[^553] In terms of internal projects, SBC and its Pacific Telesis
subsidiary have spent almost \$900 million in the last three years on
capital expenditures for their PCS business. EBITDA[^554] losses in that
time period were approximately \$360 million, with losses of \$229
million in 1997 alone.[^555] Similarly, Ameritech's cable overbuilds
involve substantial capital expenditures and are expected on a
franchise-by-franchise basis to be earnings dilutive for the first four
years.[^556] More specifically, analyst estimates of Ameritech's cable
business project capital expenditures of \$3.5 billion over the next 10
years and EBITDA losses for 1999 alone of \$159 million.[^557] By
comparison, the National-Local Strategy calls for capital expenditures
of more than \$2 billion over ten years, or approximately \$200 million
per year.[^558] We conclude that shareholders of both companies have
weathered and tolerated comparable dilution from expensive projects in
the past. We remain unconvinced that shareholders would not be so
inclined in the context of the National-Local Strategy.

> 293 Finally, we reject the Applicants' argument that the merger
> mitigates the Strategy's dilutive impact by reducing the number of new
> markets that the company has to enter *de novo* to serve the top 50
> markets. SBC's merger with Ameritech reduces from 37 to 30 the number
> of new markets that SBC needs to enter out-of-region to attain the top
> 50 markets goal. The associated capital expenditures required for
> market entry therefore would not apply to these seven markets. Most of
> the operating expenses, by contrast, would apply since they largely
> represent ongoing costs that would occur post-market entry. Although
> the reduction in overall capital expenditures from entering seven
> fewer markets is directly tied to the merger, the merger itself
> involves a substantial premium of almost \$13 billion paid by SBC to
> Ameritech in the form of additional shares issued. So while the
> Applicants argue on the one hand that they need more shareholders to
> reduce earnings dilution (by spreading the costs of the National-Local
> Strategy over a larger base), they admit that the very method of
> gaining these shareholders, via this merger, will dilute earnings due
> to the issuance of more shares for the premium paid. We cannot fully
> separate the increased cost to shareholders of the premium paid from
> the decreased cost to shareholders due to the merger benefit of
> reducing the number of new markets the combined company will enter
> out-of-region. In short, we conclude that the reduction in cost is
> countered in part by the increase in cost from the premium paid. We
> also conclude that the reduction in cost from having to enter seven
> fewer markets comes at the great expense of losing a potential
> competitor in those markets.

#### The Merger Does Not Enhance Applicants' Incentive to Enter Out-of-Region Markets

294 Having concluded that the Applicants individually are able today to
pursue substantial out-of-region strategies without this merger, we turn
to whether the merger in some way enhances the Applicants' incentive to
go out-of-region. Where ability in this context refers to whether each
Applicant has the wherewithal to pursue a standalone competitive LEC
strategy, incentive, by contrast, refers to whether the Applicants have
an economic desire to do so.

295 The fundamental motivation for the National-Local Strategy,
according to the Applicants, is the recognition that they must compete
for the business of large national and global customers both in-region
and out-of-region."[^559] They maintain that they "cannot remain idle
while \[their\] competitors capture the huge traffic volumes generated
by a relatively small number of larger customers."[^560] For
Southwestern Bell Telephone Company, one of SBC's operating companies,
the top one percent of its business customers represent eight percent of
the company's total revenues.[^561] For Ameritech, the top one percent
represent eleven percent of the company's total revenues.[^562] SBC
asserts that it has lost a significant amount of existing business, as
well as new business opportunities, to competitive LECs.[^563] Ameritech
maintains that, although it rarely loses 100% of an in-region large
customer's entire telecommunications spending, it does lose out on
potential revenue because it is prohibited from participating in the
growth of new services or in bidding for the higher-margin
services.[^564]

296 The Applicants fail to provide sufficient evidence to persuade us of
the extent of the competitive threat that they face. Although the
Applicants provide aggregate data related to resold and unbundled
loops,[^565] they provide little data in the way of lost customers,
number of lines lost per customer, line additions that might offset line
losses.[^566] With regard to the provision of end-to-end services to
large business customers, SBC claims it does not have the data necessary
to calculate the percentage of its or Ameritech's business customers, or
business opportunities, that either company has lost to those carriers
that currently offer and market end-to-end service to business
customers.[^567] Similarly, Ameritech argues that it has no information
on SBC's competitive losses to those same carriers, and that it has not
previously calculated such losses for itself, though it presumes that
they are considerable.[^568] We conclude that, although the Applicants
may be suffering some lost lines to their competitors, these losses are
not occurring at such a rate as to lead to disinvestment and/or rate
increases, as the Applicants suggest.[^569]

297 We further find misleading the presumption that Applicants must
cover 70-80% of their large business customers' local and long distance
expenditures in order to compete to retain those customers.[^570] The
Applicants claim that a local presence in the top 50 markets with local
exchange offerings is critical to compete. Yet, there is evidence to
suggest that local exchange service is less important relative to long
distance services for these large business customers. For example, one
noted Wall Street analyst reports that, of the \$82 billion in switched
telephony revenues generated by large and medium businesses in 1998,
approximately 75% were for long distance/international services and the
remaining 25% were for local exchange services.[^571]

298 None of this, however, is to deny that the Applicants clearly have
the incentive to enter out-of-region markets and to gain section 271
approval absent the merger. Not only are the Applicants at a competitive
disadvantage in the long distance voice market, they are at serious
disadvantage to large and small competitive LECs alike in the data
market where over 85% of large and medium business customer expenditures
are for long-haul services.[^572] We find, therefore, that the
Applicants' suggestion that the merger and consequent pursuit of the
National-Local Strategy gives them added incentive to meet the necessary
market opening conditions in-region to achieve section 271
approval[^573] is inconsistent with the market reality.

299 Finally, we note that evidence of prior out-of-region activity by
both Applicants suggests that each already has exhibited the incentive
to expand absent this merger.[^574] We already concluded above that
Ameritech's Managed Local Access Program gave Ameritech both the
incentive and capability to become a significant potential entrant
serving large businesses in certain markets in California, Missouri and
Texas. Additionally, we concluded that Ameritech would have entered the
St. Louis residential market with a wireline/wireless service offering
but for the merger with SBC. We concluded that SBC had the incentive and
capabilities to make it a significant potential market participant in
the mass market for local services in Chicago.[^575] We also note that
SBC's acquisition of SNET led one noted Wall Street analyst to conclude
that SNET would be the vehicle by which SBC would attack the Northeast
integrated services markets, New York and Boston in particular.[^576]

300 We find that the Applicants, irrespective of this merger, have
demonstrated definitively that they have a critical need to respond to
losses in the business market by expanding their geographic reach and
providing a full suite of telecom services. We further find that the
Applicants already have acted on this incentive, as demonstrated by
their out-of-region plans mentioned above. We conclude, therefore, that
the Applicants' incentive to expand out-of-region is demonstrable and
substantial absent this merger, and that the merger can do little to
enhance this incentive.

### Magnitude of the Claimed Benefits

301 We have concluded that the Applicants' out-of-region strategy is
neither dependent on the merger, nor unique. We also have concluded that
the merger in and of itself does not materially enhance the Applicants'
already substantial abilities and incentives to pursue out-of-region
strategies on an individual basis. Thus, we find that the single primary
benefit of the merger, in the context of the National-Local Strategy, is
speed. The Applicants can achieve their goal of establishing a presence
in the top 50 U.S. markets somewhat faster by acquiring Ameritech than
by rolling out competitive services in Ameritech's present markets as
well as the additional 30 markets outside of Ameritech's and SBC's
territories. Applicants claim that faster implementation of the Strategy
materially increases the likelihood that the Strategy will be
successful.[^577]

302 We next evaluate the magnitude of actual benefits resulting from an
accelerated implementation of the Applicants' National-Local Strategy.
The Applicants maintain that the benefits are substantial and accrue to
business and residential customers alike both out-of-region, as well as
in-region. In the following subsections, we evaluate the Applicants'
arguments, focusing on a) the Strategy's dependency on interLATA
authority, and b) the Applicants' claims of public interest benefits
resulting from the National-Local Strategy.

#### The National-Local Strategy is Dependent on In-Region InterLATA Authority[^578]

303 The Applicants assert that the National-Local Strategy "is
predicated on SBC/Ameritech's ability to offer a package of interLATA
voice and data services" both in-region and out-of-region.[^579]
Consequently, this Strategy requires them to obtain authority to provide
in-region long distance.[^580] Without section 271 approval to offer
long distance voice and data services, the Applicants would suffer from
the same product constraints that prevent them today from competing for
all of the voice and data business of their customers. For example,
Applicants are already disadvantaged in responding to requests for
one-stop shopping capabilities due to, among other factors, interLATA
limitations.[^581] We conclude, therefore, that for the National-Local
Strategy to be successfully implemented, the Applicants' own evidence
indicates that they must possess and offer a full suite of services,
which in turn is dependent not on the merger, but on the Applicants
gaining section 271 approval in-region.

304 Applicants state that the "relationship between the receipt of
section 271 authority and the implementation of the Strategy is a
question of timing." [^582] We note that this, in turn, will affect the
timing of the National-Local Strategy roll-out. In February 1999, SBC
claimed that it expects to have section 271 authority in its largest
states within the next 12-18 months, which is consistent with its
current plans for the roll-out of the Strategy in the initial
markets,[^583] which brings us to February to August 2000. SBC also
anticipates that, once section 271 authority is obtained in its largest
states, it will secure the authority in the remaining states "in short
order."[^584] In contrast, Ameritech makes no claim about when it
anticipates obtaining section 271 authority. Although SBC plans to begin
the roll-out of the Strategy before it has received section 271
authority in all of the combined companies' states, it has not
determined a "minimum" number of such states. [^585]

305 Furthermore, according to the Applicants, the economics of the
merger require that the merged company rapidly receive interLATA
authority.[^586] Through the National-Local Strategy, the Applicants aim
to serve successfully the needs of multi-location customers for local,
long distance, data, Internet and customized private network services.
According to a recent report produced by a Wall Street bank, long
distance accounts on average for approximately 80% of blended voice and
data revenues generated by large business customers, with long distance
representing 85-90% of data for these customers.[^587] Data is
outgrowing voice as a percentage of revenues 15 to 1, and, therefore,
interLATA authority is critical in order to participate in this growing
demand for data transmission.[^588] According to one noted Wall Street
analyst, those BOCs that get into long distance earlier will have a
better chance of protecting their large business accounts and
penetrating further their large business accounts. [^589] Clearly, the
inability to provide long distance services will create an enormous gap
in the bundled product offering and thus missed revenue opportunities.

306 Although it is understandable that the Applicants' plans are not yet
fully determined, the uncertainty regarding section 271 approvals makes
it difficult for us to evaluate the extent of the claimed benefits and
makes them speculative at best. Although we expect the Applicants to
push aggressively to meet their roll-out schedule, it is impossible to
predict obstacles they may encounter in obtaining their section 271
authority. Any delays to section 271 approvals impede the roll-out of
the National-Local Strategy. Such delays to the Strategy, therefore,
result in delayed benefits to consumers. We therefore conclude that the
dependency of the National-Local Strategy on section 271 approvals is a
substantial constraint to both the full implementation and success of
the plan.

#### Analysis of Applicants' Claims Regarding the Effect of the National-Local Strategy on Competition 

##### Out-of-region Competition 

307 The Applicants argue that their National-Local Strategy will benefit
business and residential customers by offering them a significant, new,
facilities-based competitive choice for a fully-integrated package of
services."[^590] Also, according to the Applicants, the addition of
another entrant will force other incumbent LECs, whose markets the
Applicants plan to enter, to respond by expediting their own efforts to
provide in-region long distance.[^591]

308 *Large and Mid-Size Businesses.* Applicants argue that the only
carriers currently competing on a national-local basis for the 1,000
largest business customers in America are the vertically-integrated
interexchange carriers. The Applicants, therefore, maintain that the
addition of another entrant, the merged SBC/Ameritech, would bring more
competition to these customers seeking end-to-end solutions locally,
nationally and globally.[^592]

309 The addition of another entrant to these new markets should benefit
the competitive landscape in those markets. We question, however, the
extent of the benefit. Even the Applicants admit that the large business
and government customers enjoy the largest number of options for their
local exchange and other telecommunications needs.[^593] They state that
"\[t\]hese are the customers most avidly pursued by the competitive
LECs."[^594] The Applicants further state that SBC's National-Local
Strategy "is only one of several recent responses" to new competitive
dynamics in the telecommunications industry.[^595] As examples, the
Applicants cite competitive LECs that are pursuing similar strategies
and targeting customers in similar geographic markets: Allegiance
Telecom, AT&T, Covad, e.spire, Electric Lightwave, Focal, GST
Telecommunications, Hyperion, ICG Communications, Intermedia
Communications, Sprint, Time Warner Telecom, WinStar, and MCI
WorldCom.[^596]

310 We find that the Applicants' National-Local Strategy has substantial
company in competitors that have not only announced, but also deployed,
facilities in the geographic markets and to serve the customer base
contemplated by the Applicants. We conclude, therefore, that the
benefits of an additional entrant targeting the large/medium business
customer base in the top 50 markets are modest.[^597]

311 *Residential Customers and Small Businesses.* Applicants contend
that out-of-region small business and residential customers also will
benefit from SBC/Ameritech's entry as an additional facilities-based
entrant providing local, long distance and data services.[^598]

312 Specifically, the Applicants plan to target "about 25 percent of the
total residential and small business customers in out-of-region areas
and expect to service 16.5 percent of this target group after 10
years."[^599] This translates into an overall penetration rate of four
percent of the residential customers in these 30 markets and closer to
six percent of the small businesses in these markets. The residential
customers that the Applicants will target are heavy users of
telecommunications services that are most likely to want bundles of
local exchange, long distance and other services.[^600] The Applicants
initially plan to serve these residential customers primarily with a mix
of UNEs and later via unbundled loops, with a small portion being served
by resale.[^601] The Applicants contend that a significant percentage of
residential and small business customers are within reach of the first
out-of-region offices that the merged company plans to equip with
switches and fiber.[^602]

313 We find that the Applicants' provide little evidence to support
these assertions. The Applicants claim that a significant percentage of
residential and small business customers are near central offices first
targeted by the Strategy; yet they provide no supporting evidence, with
the exception of a few maps depicting two geographic markets, one of
which is not even slated to be in the first phase of market roll-outs.
We therefore have no basis to determine how many residential and small
business customers are likely to benefit from the Applicants'
National-Local Strategy, or when they will benefit.

314 We also find that the Strategy contemplates targeting only the top
quartile of residential customers, based on telecommunications
expenditures.[^603] While we are encouraged by the promise of greater
residential competition in these markets, this is not, as the Applicants
suggest, the panacea for residential competition intended by the 1996
Act.[^604]

##### In-region Competition

315 The Applicants' claims that their merger will stimulate increased
in-region competition are not fully persuasive either. They state that
their National-Local Strategy will put the company in direct competition
with all major interexchange carriers, incumbent LECs and other
competitive LECs outside its region.[^605] Consequently, the Applicants
believe that their out-of-region expansion will also generate
competitive responses from these competitors who will attempt to follow
their customers into SBC's territory.[^606] More specifically, the
Applicants based the National-Local Strategy on the assumption that
"incumbent BOCs" in particular would have to respond to defend not only
their business in their own region, but in the Applicants' regions, as
well.[^607] In support of this contention, the Applicants cite economic
literature suggesting that actions by one firm might have a
"demonstration effect" that validates the firm's strategy for other
firms, thereby reducing the risk and uncertainty to those other firms of
adopting similar strategies.[^608] The Applicants expect, therefore,
other BOCs to retaliate by competing initially for large business
customers in SBC-Ameritech territory[^609] in an attempt to follow
select customers or by undertaking efforts to achieve similar economies
of scale, scope and geographical diversity as the new SBC.[^610]

316 Of course, the Applicants cannot have it both ways. On the one hand,
they argue that the merger is the catalyst for their own out-of-region
expansion. On the other, they maintain that their own expansion will
trigger imitative retaliatory responses by other BOCs. For other BOCs to
pursue a similar out-of-region strategy, the Applicants' own logic
dictates that other BOCs, too, will need to merge to facilitate their
expansion.

317 Furthermore, while we are encouraged by the promise of greater
competition, we once again question the extent of such competition due
to retaliation in in-region markets. First, we are skeptical that
residential customers will benefit from retaliatory responses that
likely will target large business customers, at least initially. Second,
we reiterate that the Applicants themselves have said that the large
business market already enjoys the largest number of competitive
options. It seems to us that retaliatory responses, therefore, would not
have a substantial impact. We note that even the Applicants share this
view.[^611]

## Efficiencies

318 We concluded above that the Applicants' pursuit of the
National-Local Strategy, and the associated benefits to local exchange
markets resulting from this Strategy, are largely not merger-specific.
In this section, we evaluate the second component of the Applicants'
claimed benefits \-- efficiencies resulting from the merger in the form
of revenue enhancements and cost savings.

319 In the *Bell Atlantic-NYNEX Merger Order*, the Commission outlined
the types of efficiencies that it would consider as the public interest
benefits of a proposed merger.[^612] The Commission generally recognized
that efficiencies generated through a merger can mitigate public
interest harms if such efficiencies enhance the merged firm's ability
and incentive to compete and, therefore, result in lower prices,
improved quality, enhanced service or new products. The Commission
further noted, however, that beneficial efficiencies include only those
efficiencies that are merger specific, *i.e.*, those that would not be
achievable but for the proposed merger. Thus, the Commission held that
efficiencies that can be achieved through means less harmful to the
public interest than the proposed merger cannot be considered to be true
merger benefits. The Commission further stated that efficiencies are
particularly significant if they improve market performance in a
relevant market and thereby reduce the harms otherwise presented by the
proposed merger. The Commission recognized also, that in order to
mitigate public interest harms, efficiencies cannot result from
anti-competitive reductions in output or service.

320 The Commission also recognized in the *Bell Atlantic-NYNEX Merger
Order* that efficiencies resulting in reductions to marginal costs, as
opposed to fixed or overhead costs, were more likely to offset
unilateral or coordinated effects by counteracting the merged firm's
incentive to elevate price, or enhancing the incentive of a maverick
firm to lower price or by creating a new maverick firm.[^613] The
Commission determined in that proceeding that only a small fraction of
the Applicants' asserted costs savings qualified, in that they reduce
marginal costs, rather than fixed or overhead costs.[^614]

321 As the Commission has previously noted, the Applicants bear the
burden of showing both that the merger-specific efficiencies will occur,
and that these efficiencies and any other public interest benefits
sufficiently offset any harms resulting from the merger such that the
Commission can conclude that the transaction is in the public
interest.[^615] Thus, Applicants cannot carry their burden if their
efficiency claims are vague or speculative, and cannot be verified by
reasonable means.[^616] Therefore, the public interest benefits of a
merger include any efficiencies arising from the transaction if such
efficiencies are merger-specific, are sufficiently likely and
verifiable, and are not the result of anti-competitive reductions in
output or increases in price.[^617]

322 The Applicants maintain that the merger will produce significant
cost savings and additional revenues due to synergies in new product
development and marketing, purchasing discounts, and the elimination of
duplication.[^618] According to the Applicants, the resulting increased
cash flow will make the combined company a more effective competitor,
enhance and expand services to existing customers, and help support the
financial requirements for the merged company's in-region,
out-of-region, and global plans.[^619] The Applicants estimate that by
the third year after the closing of this merger, the merger will enable
the combined company to realize total efficiency gains on an annual
basis of \$2.5 billion, including almost \$800 million in additional
revenues and over \$1.7 billion in cost savings.[^620]

323 Although we conclude that this merger would expedite the achievement
of many of the Applicants' claimed efficiencies, we find that only a
portion of them are indeed merger-specific. We further find that, of
those efficiencies that are merger-specific, fewer still are
efficiencies that can be passed through to consumers in a verifiable
fashion. Because we already have concluded in this Order that this
merger, absent conditions, is likely to result in substantial harms to
the public interest, we conclude here that the claimed efficiencies that
are merger-specific are not sufficient to outweigh these public interest
harms.

### Cost Savings

> 324 The Applicants claim that the proposed merger will produce annual
> cost savings of \$1.43 billion, which includes \$1.17 billion in
> expense savings and \$260 million in capital savings.[^621] These cost
> savings will be realized in the areas of administrative overhead,
> support functions and telephone company operations.

325 The claimed efficiencies fall into several categories, including: 1)
elimination of duplicative or redundant personnel or functions, 2)
economies of scale, 3) economies of scope, and 4) adoption of best
practices.[^622] Specifically, the Applicants assert that the largest
cost savings will come from support operations (\$771 million), such as
volume discounts on equipment purchases (\$381 million) and
consolidation of billing/ordering functions (\$227 million).[^623] The
Applicants also project cost savings of \$313 million from combining the
operations of the SBC and Ameritech telephone operating companies.
According to the Applicants, such savings will be derived from
provisioning and maintenance (\$115 million), switching operations and
network engineering (\$45 million), and other miscellaneous sources
(\$153 million). [^624] The Applicants also claim cost savings from
combining administrative functions (\$201 million)[^625] and from
combining the two companies' activities in businesses such as Yellow
Pages, wireless service, and Internet service (\$146 million).[^626]

326 We find that certain types of cost savings are indeed
merger-specific. For example, elimination of duplicative or redundant
administrative functions, or the reduction in future equipment
purchases,[^627] are direct consequences of the merger. The same is true
for some types of best practices, such as when superior methods of
provisioning service and maintaining operations are transferred between
companies, and economies of scale or scope that could not be achieved
but for the merger.

327 Although such cost savings may be merger-specific, verifiable and
even likely, some may be the result of decreases in output. For
instance, in *Bell Atlantic-NYNEX*, we found that the elimination of
parallel research and development efforts would eliminate a form of
non-price competition in which firms attempt to differentiate products
either in function or quality.[^628] Both SBC and Ameritech, like Bell
Atlantic and NYNEX, engage in research and development and the merger,
by consolidating these functions, could reduce this competitive
differentiation.

328 Additionally, although some cost savings may be merger-specific,
verifiable and even likely, they may not necessarily be passed through
to consumers in the form of lower prices or new or improved
services.[^629] For example, elimination of a redundant controller is
merger-specific. It is verifiable and indeed quite likely. But such a
reduction in fixed costs, however, may or may not be passed on to
consumers. In the absence of explicit pass-throughs which are publicly
committed to by the Applicants, we find it difficult to evaluate just
how much of such cost savings actually would benefit the public
interest.

329 The redundant controller example highlights a general problem -
although the Applicants have assigned dollar amounts to the various
claimed cost savings, they provide little supporting evidence to
persuade us that these savings will occur or, if so, in what magnitude.
The Applicants maintain that their prior experience with the Pacific
Telesis merger should serve as a useful indicator of their ability to
fulfill their cost savings projections.[^630] Although we recognize
SBC's success with realizing synergies from the Pacific Telesis merger,
prior experience is not a sufficient substitute for rigorous analysis of
the facts or presentation of persuasive evidence. Without sufficient
evidence to support their claimed cost savings, we find it difficult at
best to evaluate their claims.

330 The Applicants also state that in excess of \$1.45 billion of
investment is necessary to achieve these savings.[^631] The Applicants
provide no further breakout detailing the nature, extent and impact of
these investments, however, and they provide little information as to
when these investments will be made and completed.[^632]

331 Finally, the Applicants argue that these efficiencies will generate
extra cash flows that then will be used to benefit the public interest.
They maintain that realizing the claimed efficiencies will enable them
to become a more effective competitor, enhance and expand services to
existing customers, and help support the financial requirements for the
new company's in-region, out-of-region, and global plans.[^633] We do
not disagree that increased cash could be used to accomplish these aims.
But, as we reject the majority of claimed cost savings on the grounds
that they are either not merger-specific or not easily verifiable, we
also reject the attendant benefits as not being merger-specific.

332 We conclude, therefore, that while some portion of the cost savings
do satisfy the established criteria, they do not contribute sufficiently
to amend our overall conclusion that this merger is not in the public
interest, absent the possibility of appropriate, substantial conditions.

### Revenue Enhancements

> 333 The Applicants estimate additional revenues of \$778 million on an
> annual basis by the third year after merger closing.[^634] They claim
> that these are efficiency gains stemming from the adoption of best
> practices by both companies. For example, the Applicants contend that
> SBC's strength in research and development, along with its expertise
> in developing and marketing attractive service packages, will enable
> Ameritech to achieve significant new revenue opportunities in selling
> vertical services.[^635] Similarly, the Applicants claim that
> Ameritech's strength in selling Centrex services will enable SBC to
> increase penetration and sales of Centrex in its own territory.[^636]

334 The Applicants estimate annual revenue growth of \$778 million from
the implementation of best practices between the companies. [^637]
Specifically, the Applicants expect increased sales of vertical features
(\$230 million), additional lines (\$134 million), directory publishing
(\$98 million), data services (\$65 million), wireless services (\$50
million), and all other products and services that the companies offer,
such as Centrex (\$120 million).[^638]

335 In general, the Commission has not recognized claimed revenue
synergies as merger-specific because additional revenues can also be
generated through increases in price or increases in quantity. As the
Applicants assure us that their projections assume no price increases,
the thrust of our inquiry will focus on increases in output which will
be generated, according to the Applicants, by the adoption of best
practices by both companies. The Applicants claim that the result of
these efforts will be an incremental \$778 million in revenue on an
annual basis.

336 First, we find that the Applicants fail to account for any increases
in input costs due to the corresponding increases in output. For
example, the claimed increases in vertical features penetration results
from the transfer of best practices from SBC to Ameritech.[^639] This
transfer comes at a cost, whether it involves retraining Ameritech's
sales force or recrafting vertical features packages, or by some other
change. As the Justice Department's *Merger Guidelines* state,
cognizable efficiencies are assessed "net of costs produced by the
merger or incurred in achieving those efficiencies."[^640] The net
contribution to the merged company from the claimed revenue synergies,
therefore, would be something substantially less than the \$778 million
claimed by the Applicants.

337 Second, although the Applicants have quantified the projected
incremental revenue associated with transfers of best practices between
the companies, they fail to provide supporting calculations
demonstrating how they arrived at those quantifications. The Applicants
point to SBC's merger with Pacific Telesis as evidence of prior
experience in these matters.[^641] Although we recognize that SBC may
have gained valuable experience in this regard, we do not accept such
experience as a sufficient substitute for providing the supporting
calculations. Additionally, even the Applicants admit that regardless of
past experience, "no one can predict with 100 percent certainty when or
if all the estimated synergy benefits will occur."[^642]

338 Third, best practices, even if fully implemented, can be difficult
to verify. We conclude, therefore, that these claimed revenue synergies
are speculative at best, are difficult to verify, and lack the
supporting evidence to persuade us as to their likelihood and
verifiability. In any event, neither party needs to merge with the other
in order to learn about selling vertical services or Centrex services.
Surely simply hiring experienced personnel or forming a limited joint
venture should be sufficient.

### Long Distance

339 The Applicants expect a net benefit of \$300 million from additional
revenues and reduced costs in the combined company's long distance
operations after it receives in-region, interLATA authority.[^643] They
cite three main factors, including: 1) increased intra-region traffic
over their own networks which reduces unit costs; 2) larger wholesale
purchase discounts from increased long distance traffic; and 3)
increased long distance revenues from the combination of large business
customer bases and implementation of the National-Local Strategy.[^644]

340 We recognized in the *Bell Atlantic-NYNEX Merger Order* that savings
in the costs to provide long distance services counted as
efficiencies.[^645] However, any increases in intra-regional traffic and
increased long-distance revenue claimed by the Applicants could simply
be the result of shifting traffic from competitors' networks to their
own. This is not a reduction in the cost of providing services and
therefore does not constitute a merger specific efficiency. With respect
to being able to obtain larger wholesale discounts, the Applicants have
not shown that such discounts (if they can be verified) could not be
achieved by alternate less harmful means.

## Other Product Markets

341 The National-Local Strategy's emphasis on jump-starting local
exchange competition around the country remains the Applicants' primary
claimed public interest benefit of the proposed merger. [^646] The
Applicants, however, also maintain that the merger itself will generate
synergies and pro-competitive benefits that will benefit ancillary
product markets, including markets for Internet services, wireless
services, long distance and international services, global seamless
services for large business customers, video services and alarm
monitoring services. [^647]

> 342 With respect to wireless services, the Applicants state that the
> merger expands their geographic reach, thereby enabling them to offer
> a more seamless and broader footprint to customers. Additionally, the
> Applicants submit that, as a merged entity, they can offer customers
> consistency of advanced features, which is dependent on an integrated,
> regional network to reduce unit costs and maximize efficiencies.[^648]
>
> 343 The Applicants also maintain that the merger will stimulate
> greater competition in the national market for Internet
> services.[^649] According to the Applicants, today they hold less than
> 2% of this national market on a combined basis.[^650] Although they
> currently provide only dial-up access services, both SBC and Ameritech
> are deploying high-speed data networks and services. Moreover, SBC has
> an equity stake in Williams Communications, which owns one of the
> largest nationwide fiber networks. The Applicants conclude that the
> only effect of the merger in this market will be to help them to
> compete better against more dominant competitors.[^651]

344 The Applicants contend that the merger will help reduce
concentration and promote competition in the long distance and
international services market. The Applicants use the following logic to
support their contention: the merger makes possible the Applicants'
pursuit of the National-Local Strategy; the National-Local Strategy, in
turn, calls for offering a full bundle of data and voice services,
including long distance and international services.[^652] The full
competitive benefit in the long distance and international services
market, therefore, is dependent on the merger. By capturing a share of
out-of-region long distance traffic, coupled with in-region traffic once
section 271 authorizations are secured, the Applicants believe they can
add to competitive choices in these markets that they claim is still
dominated by AT&T, MCI WorldCom and Sprint.[^653] They believe that
internationally, U.S.-based business customers should benefit from the
Applicants' expanded geographic reach into 14 major foreign markets by
paying lower international termination rates and other such costs.[^654]
Applicants also maintain that as they follow their large customers
out-of-region domestically, the realities of the marketplace will also
require that they follow them to foreign markets.[^655] We have
discussed the international component of the National-Local strategy
above.

345 Finally, the Applicants claim that as they expand out-of-region and
begin to provide bundled services, the long distance providers and
competitive LECs will have to compete to preserve their existing long
distance and full-service customers.[^656] As the Applicants themselves
have noted, they are currently able to provide long distance service
out-of-region immediately,[^657] though they have refrained from doing
so. Further, as the Commission found in the Bell Atlantic/NYNEX merger
order, the experience of other incumbent LECs in offering in-region
interexchange service suggest that the Applicants can be quite effective
competitors once they receive section 271 authority.[^658] We,
therefore, do not find their argument that the merger will generate more
long distance competition persuasive.

346 In the global seamless services market for large business customers,
the Applicants claim that the merger will create a strong new competitor
with the reach, resources and scale to bring new competition to a market
populated by only a handful of major competitors worldwide. This merger
will benefit large business customers that not only have domestic
telecommunications needs, but transnational requirements as well.
According to the Applicants, their increased ability to compete globally
through this transaction will spur competition not only in the large
business market, but also in the small business and residential
markets.[^659]

347 We conclude that the merger brings few tangible merger-specific
benefits to these other product markets. In general, we find that the
only merger-specific benefits to these markets are those related to
speed of expansion and reductions in unit costs, such as with
consistency of advanced features in the wireless services market. Other
than these benefits, we find that each company could expand
geographically or offer the products on its own. Specifically, each
company individually could expand its respective wireless footprints
through other acquisitions or joint ventures that do not threaten
equivalent public interest harms. Each company could offer out-of-region
Internet services today, so expanding its customer base of dial-up
customers could be achieved absent this merger. Each company could offer
long distance services out-of-region and abroad today absent the merger.
In-region, each company's ability to offer long distance services is
subject to section 271 authorizations which are not dependent on this
merger. Each company could secure large business customers today in the
global seamless services market by leveraging its substantial
international holdings and by introducing a full suite of local and long
distance voice and data products. These activities, therefore, are not
dependent on the merger and could be accomplished individually.

# CONDITIONS

348 We conclude above that the proposed merger of SBC and Ameritech
poses significant potential public interest harms by: (a) removing one
of the most significant potential participants in local
telecommunications mass markets both within and outside of each
company's region; (b) eliminating an independent source for effective,
minimally-intrusive comparative practices analyses among the few
remaining major incumbent LECs as the Commission implements and enforces
the 1996 Act's market-opening requirements; and (c) increasing the
incentive and ability of the merged entity to discriminate against
rivals, particularly with respect to advanced services. We also conclude
that these concerns are not mitigated by the proposed transaction's
potential public interest benefits. Thus, if our analysis ended at this
point, we would have to conclude that the Applicants have not
demonstrated that the proposed transaction, on balance, will serve the
public interest, convenience and necessity.

349 As noted above, on July 1, 1999, the Applicants supplemented their
initial Application to include a package of voluntary commitments that
they intended would alter the public interest balance in their
favor.[^660] After receiving extensive public comment on their proposed
conditions, SBC and Ameritech clarified and modified their commitments
on August 27, 1999, and in subsequent filings.[^661] We believe that the
Applicants' package of conditions, with the modifications by this
Commission, alters the public interest balance of the proposed merger by
mitigating substantially the potential public interest harms while
providing additional public interest benefit. Accordingly, with the full
panoply of conditions that we adopt in this Order, and assuming the
Applicants' ongoing compliance with these conditions, we find that the
Applicants have demonstrated that the proposed transfer of licenses and
lines from Ameritech to SBC will serve the public interest, convenience
and necessity.

## Open Process

350 As a threshold matter, we affirm that considering conditions in
license and line transfer proceedings is an appropriate and, in
circumstances such as this merger, a necessary process in our
application review. It is seductively simple, yet short-sighted, to
believe that our role is limited to voting an application up or down,
measuring an application solely against whether it violates a specific
provision of the Act or a specific Commission rule. Such a view rests on
the assumption that our market-opening rules will work equally well
regardless of the number of major incumbent LECs or RBOCs and of who
owns them. As we discussed at some length in Section IV of this Order,
however, this would be an incorrect view of our rules, and the current
realities of the telecommunications industry.

351 Accordingly, following the Applicants' acceptance of the process
outlined in the Chairman's April 1st letter, Commission staff discussed
with the Applicants a set of voluntary conditions that might both
alleviate our public interest concerns and strengthen the merger's
public interest benefits. It is, of course, up to the Commission -- not
the staff -- to judge whether such conditions are sufficient. Throughout
these discussions, Commission staff and the parties understood that,
although productive dialogue required separate meetings among staff and
various parties, this agency is a public agency and it conducts its
business in public. Accordingly, our staff followed procedures that were
designed to permit effective negotiations in the context of an open
reporting process. To these ends, the staff first met with
representatives of SBC and Ameritech, with each meeting memorialized by
a letter included in the public file of this proceeding that summarized
the topics discussed. Then, in order to learn the views of interested
parties, our staff conducted a public forum on conditions on May 6,
1999[^662] at which numerous citizens, representatives of citizen
groups, and industry members spoke. The staff also met extensively, in
individual sessions, with dozens of individuals, groups and firms, both
before and after the Applicants placed on the public record, for full
public commentary, an initial version of their supplemental proffered
conditions.

352 The success of these "open negotiation" procedures is, we think,
evident from the Applicants' supplemental proffer of conditions. A
comparison between the Applicants' initial proposed conditions, filed on
July 1, 1999, and the contents of the May 6th public forum and the
reports of Commission staff's early *ex parte* meetings with consumer
representatives and industry participants evidence how substantially the
public input influenced those proposals. When compared with their July
filing, the Applicants' subsequent proffers show on their face that
public input substantially altered and shaped the Applicants' final
proposal.

353 Having explained why the staff engaged in discussions over
conditions and why the staff operated in an "open negotiation" process
designed to permit constructive bargaining, we turn now to a description
of the conditions voluntarily submitted by SBC and Ameritech in their
final joint supplement to their initial Application. Subsequently, we
explain why we have decided to accept these voluntary conditions, and to
approve the proposed merger subject to those conditions.

## Adopted Conditions

354 We adopt, with some modification, the proffered commitments of SBC
and Ameritech as express conditions of our approval of the transfer of
licenses and lines from Ameritech to SBC.[^663] For the reasons set
forth below, we conclude that, assuming the Applicants' ongoing
compliance with these conditions, SBC and Ameritech have demonstrated
that their proposed transaction, on balance, will serve the public
interest, convenience and necessity. We summarize these conditions
below.

355 As indicated below, these conditions are designed to accomplish five
primary public interest goals: (a) promoting equitable and efficient
advanced services deployment; (b) ensuring open local markets; (c)
fostering out-of-territory competition; (d) improving residential phone
service; and (e) ensuring compliance with and enforcement of the
conditions. These goals flow from our statutory objectives to open all
telecommunications markets to competition, to promote rapid deployment
of advanced services, and to ensure that the public has access to
efficient, high-quality telecommunications services. Achieving these
goals will also serve to ameliorate the potential public interest harms
of the transaction described above.

356 Even though some of the conditions may relate to other requirements
that SBC and Ameritech are or will be subject to under the Act or our
rules, the conditions that we adopt in this merger proceeding are not
intended to prejudge, or override, Commission action in other
proceedings. The Commission may, for example, adopt additional
requirements in other more general proceedings that affect matters
addressed by these conditions. In that case, because the conditions are
intended to be a floor and not a ceiling, SBC and Ameritech would be
subject to the general requirements as well as these conditions. We
emphasize that the merged firm must comply with any applicable
Commission orders or rules in addition to the requirements of these
conditions.[^664]

357 Nor are the conditions that we adopt today intended to be considered
as an interpretation of sections of the Communications Act, especially
sections 251, 252, 271 and 272, or the Commission's rules, or any other
federal statute including the antitrust laws. The conditions are
designed to address potential public interest harms specific to the
merger of the Applicants, not the general obligations of incumbent LECs
or the criteria for BOC entry into the interLATA services market. For
example, the structure of the separate advanced services affiliate that
is required under the conditions would not be adequate for
SBC/Ameritech's provision of in-region, interLATA services following
section 271 authorization.[^665] Similarly, the Carrier-to-Carrier
Performance Plan is not meant to substitute for any enforcement
mechanisms that the Commission may adopt in the section 271 context
(*i.e.*, anti-backsliding measures), nor substitute for state
performance measure plans. All of the conditions that we adopt today are
merger-specific and not determinative of the obligations imposed by the
Act or our rules on SBC, Ameritech or any other telecommunications
carrier. In particular, we note that our adoption of SBC/Ameritech's
proposed conditions does not signify that, by complying with these
conditions, SBC/Ameritech will satisfy its nondiscrimination obligations
under the Act or Commission rules.

358 The conditions are also not intended to limit the authority of state
commissions to impose or enforce requirements that go beyond those
adopted in this Order. Because these conditions serve as a baseline, the
Applicants must abide by any applicable state rules, even if those rules
address matters that are included within these conditions, unless the
merged entity would violate one of these conditions by following the
state rule.[^666] We do not preclude states from imposing additional
rules, regulations, programs or policies that are not inconsistent with
these conditions. As discussed below, however, to the extent that a
requirement in these conditions duplicates a requirement imposed by a
state pursuant to its review of the proposed merger, parties can elect
to receive the benefit under either these conditions or the identical
state conditions.

359 We approve this merger on the assumption and expectation that all of
the conditions that we adopt today will remain effective and enforceable
for 36 months, or the period specified in the condition if different.
Accordingly, for conditions that take effect a certain period of time
after the merger closing, SBC/Ameritech's obligations under those
conditions would extend from their effective date for a full 36-month
period of benefit, which would fall later than 36 months after the
merger closing.

360 We expect that SBC/Ameritech will implement each of these conditions
in full, in good faith and in a reasonable manner to ensure that all
telecommunications carriers and the public are able to obtain the full
benefits of these conditions. If SBC/Ameritech does not fulfill its
obligation to perform each of the conditions, pursuant to our public
interest mandate under the Communications Act we must ensure that the
merger remains beneficial to the public. We intend to utilize every
available enforcement mechanism, including, if necessary, revocation of
the merged firm's section 214 authority,[^667] to ensure compliance with
these conditions. To this end, should the merged entity systematically
fail to meet its obligations, we can and will revoke relevant licenses,
or require the divestiture of SBC/Ameritech into the current SBC and
Ameritech companies.[^668] Although such action would clearly be a last
resort, it is one that would have to be taken if there is no other means
for ensuring that the merger, on balance, benefits the public.

361 Our approval of this Application subject to conditions should not be
considered as an indication that future applicants always will be able
to rely on similar public interest commitments to offset potential
public interest harms.[^669] Each case will present different facts and
circumstances. Some potential mergers may present serious public
interest harms such that no package of commitments, each of which may
benefit some aspect of the public interest, could offset the harms. In
any case, however, the burden rests always with the applicants to
demonstrate that any proposed transaction will, on balance, further the
public interest, convenience and necessity.

362 We also reiterate our growing concern about the impact of the
declining number of major incumbent LECs. As the Commission has stated,
further consolidation among the major incumbent LECs could gravely
impair our implementation of Congress's directive to open all
telecommunications markets to competition. After the Bell Atlantic/NYNEX
merger reduced the number of remaining RBOCs to five, this Commission
expressly cautioned that future applicants seeking approval of a merger
between major incumbent LECs "bear an additional burden in establishing
that a proposed merger will, on balance, be pro-competitive and
therefore serve the public interest, convenience and necessity."[^670]
The instant transaction, approved with a stringent set of conditions,
removes yet another independent major incumbent LEC, thereby further
escalating the burden on any future major incumbent LEC merger
applicants.

### Promoting Equitable and Efficient Advanced Services Deployment

363 *Separate Affiliate for Advanced Services*. Under this condition,
SBC and Ameritech will create, prior to closing the merger, one or more
separate affiliates to provide all advanced services[^671] in the
combined SBC/Ameritech[^672] region on a phased-in basis. At present, we
note that SBC and Ameritech are only permitted to provide intraLATA
advanced services.[^673] Establishing an advanced services separate
affiliate will provide a structural mechanism to ensure that competing
providers of advanced services receive effective, nondiscriminatory
access to the facilities and services of the merged firm's incumbent
LECs that are necessary to provide advanced services. Because the merged
firm's own separate advanced services affiliate will use the same
processes as competitors, and pay an equivalent price for facilities and
services, the condition should ensure a level playing field between
SBC/Ameritech and its advanced services competitors.[^674] Given this
expectation, we anticipate that this condition will greatly accelerate
competition in the advanced services market by lowering the costs and
risks of entry and reducing uncertainty, while prodding all carriers,
including the Applicants, to hasten deployment.[^675]

364 The separate advanced services affiliate will be distinct from
SBC/Ameritech's in-region telephone companies and operate largely in
accordance with the structural, transactional, and nondiscrimination
requirements of sections 272(b), (c), (e), and (g).[^676] The condition,
however, specifies certain activities that will be permitted between the
SBC/Ameritech incumbent LEC and the separate affiliate, some of which
differ from section 272's requirements.

365 Specifically, the SBC/Ameritech incumbent LEC and its advanced
services affiliate may jointly market the other's services and perform
certain customer care services.[^677] In addition, the incumbent may
perform certain operation, installation, and maintenance (OI&M)
functions,[^678] pursuant to a tariff, written affiliate
agreement,[^679] or approved interconnection agreement, and provide
billing and collection services,[^680] pursuant to a written agreement,
for its separate affiliate on a nondiscriminatory basis. The incumbent
may engage in line sharing[^681] with its affiliate on an exclusive,
interim basis as long as it provides unaffiliated entities with the
"surrogate line-sharing" discount described below for the use of a
second loop to provide advanced services. The incumbent LEC may also
transfer to the separate affiliate specified advanced services
equipment[^682] on an exclusive basis during a limited grace period.
Starting 30 days after the merger closing, all new advanced services
equipment must be purchased and owned by the separate affiliate. The
affiliate may also use the SBC/Ameritech incumbent LEC's name,
trademarks or service marks on an exclusive basis, and employees of the
separate affiliate may be located in the same buildings and on the same
floors as the incumbent LEC's employees. Moreover, although
SBC/Ameritech will comply with the Commission's section 272 accounting
safeguards,[^683] it will be permitted to deviate from these only to the
extent that it will not have to comply with the Commission's transaction
disclosure requirements under section 272(b)(5) with respect to
transactions conducted pursuant to interconnection agreements between an
SBC/Ameritech incumbent and its advanced services affiliate. To ensure
that all transactions between the advanced services affiliate and the
incumbent are conducted on an arms-length basis, SBC/Ameritech's
compliance with this separate affiliate condition will be subject to a
rigorous annual audit.[^684]

366 After a transition period, the responsibility to provide advanced
services in the SBC/Ameritech service area will rest with the separate
affiliate, and the activities that it and the incumbent may undertake
are specifically set forth in the conditions. Nevertheless, the
conditions permit an SBC/Ameritech incumbent to perform certain
activities on behalf of its affiliate on an exclusive basis for the
period of time during which SBC/Ameritech transitions to this separate
affiliate structure. Specifically, for a limited period, SBC/Ameritech
may provide network planning, engineering, design or assignment services
associated with advanced services to its affiliate, and receive and
isolate troubles affecting an advanced services customer on behalf of
the affiliate.

367 SBC/Ameritech's obligation to provide all advanced services through
a separate affiliate will sunset after either: (a) the later of 42
months after the merger's closing, or 36 months after the incumbent
ceases to process trouble reports for the affiliate on an exclusive
basis; (b) the date on which Congress has enacted legislation that
specifically prohibits the Commission from requiring an incumbent LEC to
establish a separate advanced services affiliate and the Commission has
modified its rules and regulations in a manner that would materially
alter the structure or interaction between the incumbent and affiliate
from that set forth in the conditions;[^685] or (c) nine months after a
final, non-appealable judicial decision determines that the separate
advanced services affiliate is deemed a successor or assign of the
incumbent, unless that decision is based substantially on conduct by or
between an SBC/Ameritech incumbent and its affiliate that was not
expressly permitted by these conditions.

368 If, after one of these three sunset events occurs, SBC/Ameritech
decides to no longer provide advanced services through a separate
affiliate in a particular state, then SBC/Ameritech will continue
certain other obligations until 48 months after the merger closing date.
In that case, SBC/Ameritech must, for example, provide all advanced
services through a separate office or division that will continue using
the same OSS interfaces, processes and procedures that are made
available to unaffiliated entities (including using the Electronic Data
Interchange (EDI) interface for processing a substantial majority of
pre-order inquiries and orders). In addition, SBC/Ameritech will
continue the surrogate line-sharing and advanced services OSS discounts,
and its incumbent LECs will continue to provide unaffiliated carriers
with the same OI&M services that its retail operations use, as well as
those OI&M services that previously were made available under the
conditions.

369 *Surrogate Line-Sharing Discount*. By separating a line into a voice
channel and an advanced services channel and carrying both voice and
advanced services traffic simultaneously, line sharing potentially
enables each service to be provided by a different carrier.[^686]
Although the Applicants have not proposed in this proceeding to allow
other carriers to provide data services over the same loop on which SBC
or Ameritech provides voice service, they have proposed to allow their
separate advanced services affiliate to do so. The conditions permit
SBC/Ameritech to provide line sharing to its advanced services affiliate
on an exclusive basis until SBC/Ameritech provides line sharing to
unaffiliated carriers in the same geographic area. Nevertheless, in
order to ensure that competitors receive a benefit comparable to this
"interim line sharing" between an SBC/Ameritech incumbent LEC and its
affiliate, SBC/Ameritech will offer other carriers a second loop at a
substantial discount. In this manner, the conditions require
SBC/Ameritech to offer competing carriers the economic equivalent of
line sharing until line sharing becomes available to unaffiliated
carriers.[^687] In addition, the performance measurements adopted as
part of this Order will encourage the rapid installation of the
surrogate line. For example, measures 6c and 8 ensure that loops will be
installed in a nondiscriminatory and timely manner.

370 Specifically, where SBC/Ameritech and its separate advanced services
affiliate engage in "interim line sharing," the merged firm will charge
unaffiliated providers of advanced services surrogate charges for an
additional unbundled loop, provided that the loop is used solely for the
provision of advanced services (conforming to an industry-standard
spectral mask)[^688] to a customer that is receiving voice-grade
service,[^689] either on a retail or wholesale basis, from an
SBC/Ameritech incumbent LEC.[^690] The "surrogate line-sharing charges,"
which SBC/Ameritech also will charge to its separate advanced services
affiliate for interim line sharing, represent a 50-percent discount from
the monthly recurring charge and the nonrecurring line or service
connection charge. This discount not only puts unaffiliated advanced
services providers on comparable economic footing with the merged firm's
separate advanced services affiliate, but, pending actual implementation
of line sharing, it allows these carriers to obtain reduced loop costs
that otherwise would not be available to them. We note that, in the
event that SBC/Ameritech is required to line share with competitors, the
Applicants will temporarily waive all nonrecurring charges associated
with the installation of a new shared line in order to ease the
transition for those competitors using a second loop under the surrogate
line sharing discount. In addition, SBC/Ameritech will continue to
provide this discount until the line is actually shared.[^691] We find
that this condition will spur deployment of advanced services by
SBC/Ameritech, as well as other carriers, while ensuring that these
other carriers receive treatment from an SBC/Ameritech incumbent LEC
comparable to that provided to the SBC/Ameritech separate affiliate.

371 *Advanced Services OSS*. In addition to the general OSS conditions
outlined below, SBC/Ameritech will develop and deploy common electronic
OSS interfaces across all 13 SBC/Ameritech states to be used by any
telecommunications carrier, including the merged firm's advanced
services affiliates, for pre-ordering and ordering facilities used to
provide advanced services. This condition will guard against
discrimination by the merged entity toward its rivals while, at the same
time, lower those rivals' costs of providing competing advanced
services. The requirements of this condition track the phases involved
in unifying SBC's and Ameritech's general OSS interfaces described
below. Subject to certain implementation schedules, the merged firm
will: (1) prepare a plan of record outlining the steps that will be
taken in developing and deploying the electronic OSS advanced services
interfaces (Phase I); (2) collaborate with participating
telecommunications carriers to reach agreement on the interfaces,
enhancements, and business requirements to be implemented (Phase II);
and (3) develop and deploy the agreed-upon interfaces, enhancements, and
business requirements within a specified period of time (Phase III).
Phases I and III are associated with voluntary incentive payments to
encourage rapid deployment. SBC and Ameritech therefore will either meet
the planning (Phase I) and deployment (Phase III) commitments within the
prescribed time period, or make voluntary incentive payments of \$10,000
per business day per state, or up to \$110,000 per day across all 13
states, for a missed target date. The total voluntary payments will not
exceed \$20 million across all states. Once deployed, the Applicants
will maintain the enhancements and additional interfaces for not less
than 36 months. The Chief of the Common Carrier Bureau may authorize an
independent third party arbitrator to resolve disputes stemming from the
collaborative process or SBC/Ameritech's implementation of the
agreed-upon interfaces, enhancements and business requirements.

372 Until SBC/Ameritech has developed and deployed the advanced services
OSS enhancements, interfaces, and business requirements described above,
and the SBC/Ameritech separate advanced services affiliate uses the EDI
interface for pre-ordering and ordering a substantial majority[^692] of
the facilities it uses to provide advanced services, SBC/Ameritech will
offer telecommunications carriers a 25-percent discount from the
recurring and nonrecurring charges for unbundled loops used in the
provision of advanced services. This discount is intended to compensate
other carriers for the unenhanced OSS and to provide SBC/Ameritech with
an incentive to improve the systems and processes as quickly as
possible.

373 *Access to Advanced Services Loop Information*. This condition
should promote rapid deployment of advanced services by ensuring that
carriers have access to the information they need to market and sell
their advanced services offerings. Competing carriers have stated that
they need, at the pre-ordering stage, a method of obtaining information
about the local loop to make informed decisions about whether and how
they can provide advanced services to a customer.[^693] Thus, the
condition reiterates SBC/Ameritech's general obligation under the
Communications Act to provide unaffiliated telecommunications carriers
with nondiscriminatory access to the same loop information that is
available to its own retail operations. The condition goes on, however,
to require SBC/Ameritech to provide specific information regarding its
loops to requesting telecommunications carriers without regard to the
information that is available to SBC/Ameritech's retail
operations.[^694]

374 First, SBC/Ameritech will provide competitors electronic, pre-order
access to address-specific loop pre-qualification information (*i.e.*,
the theoretical loop length) before the merger's closing in most SBC
states, and within 22 months of the closing in the Ameritech
states.[^695] Second, within one year of the merger's closing,
SBC/Ameritech will provide in all SBC/Ameritech states pre-order
Internet access to loop pre-qualification information based upon a zip
code of end users within a wire center. This will assist
telecommunications carriers in targeting geographic areas capable of
receiving advanced services. Third, no later than 90 days after the
merger closing, SBC/Ameritech will provide requesting telecommunications
carriers, including its separate advanced services affiliate, with
additional loop make-up information in response to an address-specific
request. Depending on the request, SBC/Ameritech will provide, by manual
means until it is available electronically, information contained on an
individual loop record, which may include: the actual loop length;
length by gauge; the presence of bridged taps, load coils, and
repeaters, and their approximate location and number; the presence of
pair-gain devices, digital loop carriers or digital added main lines;
and the presence of disturbers in the same or adjacent binder
groups.[^696] SBC/Ameritech will price the provision of this loop makeup
information in compliance with any applicable Commission pricing rules
for UNEs. Although SBC/Ameritech is allowed under the condition to
provide such loop information by manual means pending electronic
delivery, the condition (like all others) does not prevent a state from
imposing additional consistent requirements.[^697]

375 *Loop Conditioning Charges and Cost Studies*. Numerous parties
allege that the rates charged by incumbents for conditioning loops are
unreasonably high and preclude competitors from offering advanced
services to many potential customers, particularly residential and small
business customers where the conditioning costs may exceed prospective
net income.[^698] This condition is designed to ensure that
SBC/Ameritech will not erect a barrier to the competitive deployment of
advanced services by charging excessive rates for loop conditioning.
Within 180 days of the merger's closing, SBC/Ameritech will file with
state commissions cost studies and proposed rates for conditioning loops
used in the provision of advanced services, prepared in accordance with
the methodology contained in the Commission's pricing rules for
UNEs.[^699] Pending approval of state-specific rates, SBC/Ameritech will
immediately make available to carriers loop conditioning rates (provided
that they are greater than zero) contained in any effective
interconnection agreement to which an SBC/Ameritech incumbent LEC is a
party, subject to true-up.[^700] In addition, subject to true-up,
SBC/Ameritech will impose no loop conditioning charges on loops less
than 12,000 theoretical feet during this period. Moreover, advanced
services providers will have a choice in the amount and extent of
conditioning on any particular loop.

376 *Nondiscriminatory Rollout of xDSL Services*. As a means of ensuring
that the merged firm's rollout of advanced services reaches some of the
least competitive market segments and is more widely available to
low-income consumers, SBC and Ameritech will target their deployment of
xDSL services to include low-income groups in rural and urban
areas.[^701] Specifically, for each SBC/Ameritech in-region state,
SBC/Ameritech will ensure that at least 10 percent of the rural wire
centers where it, or its separate advanced services affiliate, deploys
xDSL service will be low-income rural wire centers, meaning those wire
centers with the greatest number of low-income households. Similarly, at
least 10 percent of the urban wire centers where the merged firm or its
separate advanced services affiliate deploys xDSL service in each
in-region state will be low-income urban wire centers. These
requirements will become enforceable for any given state 180 days after
the merger closes and after SBC/Ameritech and/or its advanced services
affiliate has deployed xDSL service in that state in at least 20 urban
wire centers (to activate the urban requirement) or 20 rural wire
centers (to activate the rural requirement). After the respective
effective date, SBC/Ameritech will provide nondiscriminatory deployment
of xDSL services for at least 36 months thereafter. SBC/Ameritech will
consult with the appropriate state commission, within 90 days of the
merger's closing, to classify all SBC/Ameritech wire centers in that
state as urban or rural.[^702] Furthermore, to assist in monitoring the
merged firm's equitable deployment of xDSL, SBC/Ameritech will publicly
file a quarterly report with the Commission describing the status of its
xDSL deployment, including the identity and location of each urban and
rural wire center where it has deployed xDSL.[^703]

### Ensuring Open Local Markets

377 *Carrier-to-Carrier Performance Plan*. As a means of ensuring that
SBC/Ameritech's service to telecommunications carriers will not
deteriorate as a result of the merger and the larger firm's increased
incentive and ability to discriminate and to stimulate the merged entity
to adopt "best practices" that clearly favor public rather than private
interests, SBC/Ameritech will publicly file performance measurement data
for each of the 13 SBC/Ameritech in-region states with this Commission
and the relevant state commission on a monthly basis. The data will
reflect SBC/Ameritech incumbent LECs' performance of their obligations
toward telecommunications carriers in 20 different measurement
categories. These categories cover key aspects of pre-ordering,
ordering, provisioning, maintenance and repair associated with UNEs,
interconnection, and resold services. Many of the twenty measurement
categories are divided into numerous disaggregated sub-measurements,
thereby tracking SBC/Ameritech's performance for different functions and
different types of service^.^[^704] Furthermore, the list of
measurements reported by SBC/Ameritech under this condition is not
static. This list is subject to addition or deletion, and the
measurements themselves are subject to modification, by the Chief of the
Common Carrier Bureau, through a joint semi-annual review with
SBC/Ameritech.[^705]

378 Under this condition, SBC/Ameritech will either achieve the stated
performance goal for the agreed-upon measures in each state or, if
SBC/Ameritech fails to provide service that meets the stated performance
goal, make a voluntary incentive payment to the U.S. Treasury in an
amount varying according to the level and significance of discrimination
detected. These voluntary incentive payments are subject to monthly
state-specific caps that total, across all states, as much as \$250
million in the first year, \$375 million in the second year, and \$500
million in the third year (*i.e.,* a total of up to \$1.125 billion over
three years), with a credit for amounts paid to states and competitive
LECs under state-imposed performance monitoring plans or under
liquidated damages provisions of interconnection agreements.[^706] As
discussed below, SBC/Ameritech's potential liability may be reduced by
up to \$125 million in the third year if SBC/Ameritech completes and
deploys OSS enhancements before their target date, depending upon the
enhancement and how early it is completed.

379 The specific performance measures that SBC and Ameritech will
implement are based primarily upon performance measures developed in a
Texas collaborative process involving SBC's application for in-region,
interLATA relief. The performance measures in California and Nevada will
be reported using rules that were developed in a collaborative process
in California. Rather than develop a new set of measures for this merger
proceeding, we find that relying upon these performance measures and
corresponding business rules, which may be modified over time, will
achieve the goals of the Carrier-to-Carrier Performance Plan and
conserve time and resources. We emphasize that use of such measures in
this merger review proceeding is not meant to affect, supplant, or
supersede any existing or future state performance plan. The adoption of
these measures in the present merger context does not signify that these
performance measures would be sufficient in the context of a section 271
application.

380 These limited performance measures are intended to offset or prevent
some of the merger's potential harmful effects; they are not designed or
intended as anti-backsliding measures for purposes of section 271. The
present performance plan must be viewed in the context of the entire set
of proposed safeguards that comprise the overall merger conditions
package. As SBC and Ameritech explain, this merger-related
Carrier-to-Carrier Performance Plan is designed to cover the "range of
activities that have the most direct and immediate impact on
\[competitive LECs\] and their customers," and is not intended "to cover
each and every facet of local competition, to supplant state performance
programs, nor to preempt state consideration of performance measures for
section 271 purposes."[^707] Indeed, we expect -- and we encourage --
each state to adopt rigorous and extensive performance monitoring
programs in connection with section 271 proceedings. Under these
conditions, therefore, SBC/Ameritech's obligations under the plan in a
given state will terminate upon the company's authorization to provide
in-region, interLATA service in that state. The condition will expire
otherwise 36 months after the payment obligation arises in the state.

381 *Uniform Enhanced OSS*. Effective, nondiscriminatory access to OSS
is critical for achieving the 1996 Act's local competition objectives.
This condition will guard against discriminatory treatment by the merged
entity to its rivals, as well as reducing the costs and uncertainty of
providing competing services. Under this condition, SBC and Ameritech
will establish, in consultation with competitive LECs, uniform OSS
interfaces and systems across their combined 13 in-region states that
are based on the best practices (from their competitors' perspective) of
the two companies.

382 Specifically, the companies will develop and deploy uniform
application-to-application interfaces[^708] (*e.g.*, EDI), uniform
graphical user interfaces, uniform business rules or software solutions
to ensure that local service requests submitted by other carriers are
consistent with SBC/Ameritech's business rules, and a uniform change
management process, which will be deployed in each SBC/Ameritech state
unless rejected by that state. In general, for each obligation, the
merged firm will: (1) prepare a plan of record outlining the steps that
will be taken in unifying the OSS of each operating company (Phase I);
(2) collaborate with participating competitive LECs to reach agreement
on the interfaces, enhancements, business requirements, and change
management process to be implemented (Phase II); and (3) develop and
deploy the agreed-upon interfaces, enhancements, and business
requirements within a specified period of time (Phase III). Phases I and
III are associated with voluntary incentive payments to encourage rapid
deployment. SBC and Ameritech will either meet the planning (Phase I)
and deployment (Phase III) requirements within the prescribed time
period, or make voluntary incentive payments to the U.S. Treasury of
\$10,000 per business day per state, or up to \$110,000 per day across
all 13 states, for a missed target date. The total voluntary payments
will not exceed \$20 million per obligation across all states. Once
deployed, the Applicants will maintain the enhancements and additional
interfaces for not less than 36 months.[^709] The Applicants also will
provide direct access to SBC's Service Order Retrieval and Distribution
system and Ameritech's and SNET's equivalent service order processing
systems, as well as enhancements to SBC's existing electronic bonding
interface for maintenance and repair. Under this condition, states may
choose whether to accept SBC/Ameritech's plan for uniform change
management.[^710]

383 We share SBC/Ameritech's concern that disputes between SBC/Ameritech
and its rivals might substantially delay the availability of these
important OSS enhancements. Therefore, we agree that the Chief of the
Common Carrier Bureau should be empowered to authorize an independent
third party arbitrator to resolve disputes stemming from the
collaborative process or SBC/Ameritech's proper implementation of the
agreed-upon interfaces, enhancements and business requirements.[^711] In
addition, we note that SBC/Ameritech has incentive to complete the OSS
enhancements as quickly as possible. Specifically, if SBC/Ameritech
completes and deploys the OSS enhancements prior to the deployment
target dates, the total amount of its potential liability for voluntary
incentive payments under the Carrier-to-Carrier Performance Plan may be
reduced by up to \$125 million in the third year, depending upon the
enhancement and how early it is completed.

384 *Restructuring of OSS Charges*. This condition is designed to assist
smaller competitors and new entrants by requiring the merged firm to
recover electronic OSS costs on a strict usage basis rather than through
a flat monthly fee. Because SBC currently charges a flat monthly fee for
access to electronic OSS, parties feared that SBC would spread this
practice to Ameritech's region following the merger. Under the
condition, therefore, for a period of at least 36 months, SBC/Ameritech
will restructure OSS charges to eliminate any flat-rate, up-front charge
for the right to use the company's standard electronic interfaces for
accessing OSS (*i.e.*, flat-rate monthly charges for access to SBC's
Remote Access facility and Information Services Call Center, amounting
to approximately \$3600 per month).[^712] This condition is not meant to
affect the merged firm's ability to recover any OSS-related costs
associated with UNEs and resold services through its pricing of such
elements and services in accordance with applicable federal and state
requirements.[^713] SBC/Ameritech is not required to eliminate extra
charges for manual processing of service orders, provided that an
electronic means of processing such orders is available to carriers. If,
however, no electronic interface for processing orders of 30 lines or
less is available to a carrier, SBC/Ameritech will eliminate any extra
charge for manual processing and shall charge instead the rate for
processing similar orders electronically.[^714]

385 *Training in the Use of OSS for Qualifying Carriers*. As a means of
reducing the barriers to new entry in its region, SBC/Ameritech will
provide special OSS assistance to any "qualifying" competitive LEC (a
competitive LEC having less than \$300 million in total annual
telecommunications revenues).[^715] Specifically, the merged firm will
designate and make available for 36 months at no additional cost a team
of OSS experts to assist these qualifying carriers with OSS
issues.[^716] The condition also obligates SBC/Ameritech to identify and
develop training and procedures beneficial to such qualifying carriers.
Disputes regarding whether a carrier qualifies as competitive LEC under
this condition will be resolved by the appropriate state commission.

386 *Collocation Compliance*. Competing carriers contend that
collocation provisioning and costs have been a major impediment to
competitive provisioning of local service.[^717] To address this
concern, SBC and Ameritech have agreed to implement a number of measures
to ensure that the companies provide collocation to telecommunications
carriers in a lawful and timely manner.[^718] Before the merger closing
date, SBC and Ameritech will file a tariff or offer to amend
interconnection agreements in each SBC/Ameritech state to demonstrate
compliance with the Commission's collocation rules.[^719] In addition,
prior to the merger closing date, an independent auditor, approved by
the Chief of the Common Carrier Bureau, will conduct a review and
determine whether each company is offering collocation terms and
conditions, and has in place methods and procedures, that comply with
the Commission's rules.

387 After the merger closing, an independent auditor will develop and
implement a comprehensive audit of the merged company's compliance with
the Commission's collocation requirements for the first eight months
after the closing. The independent auditor will present its final audit
report to the Commission, and publicly file a copy with the Secretary,
no later than ten months after the merger closing date. If the auditor's
report reveals problems with SBC/Ameritech's collocation practices and
policies, we fully expect that SBC/Ameritech will implement immediately
any necessary corrective action. After reviewing the auditor's findings,
the Commission may, of course, decide to take additional action as
deemed necessary and appropriate. As an additional incentive for the
merged firm to provide efficient collocation,[^720] SBC/Ameritech will
waive the nonrecurring charges for physical, virtual, adjacent and
cageless collocation arrangements if the firm misses the collocation due
date by more than 60 days.[^721]

388 *Most-Favored Nation Arrangements*. This condition, designed to
facilitate market entry throughout SBC/Ameritech's region as well as the
spread of best practices (as that term is understood by SBC/Ameritech's
competitors), has two components. First, where it is feasible given
technical limitations, SBC/Ameritech will offer telecommunications
carriers operating within its service area any interconnection
arrangement or UNE that SBC/Ameritech, as a competitive LEC outside of
its incumbent service area, secures from the incumbent LEC and that was
not previously made available by the incumbent.[^722] SBC/Ameritech will
make the interconnection arrangement or network element available on the
same terms and conditions as the incumbent, with prices determined on a
state-specific basis.[^723] Second, where it is feasible given technical
limitations, SBC/Ameritech will make available to any requesting
telecommunications carrier in any of its 13 states any interconnection
arrangement or UNE in any other of the same 13 states that was
negotiated[^724] by an affiliate of SBC, subject to state-specific
pricing.[^725] When a carrier selects an interconnection arrangement or
network element for an in-region state in which no rate for a comparable
arrangement or element has been established, SBC/Ameritech will make the
arrangement or element available at the rates in the originating state
on an interim basis until the requisite rates are developed.[^726]
Disputes regarding the availability of an interconnection arrangement or
unbundled element will be resolved through negotiation between the
parties or by the relevant state commission pursuant to section 252.

389 *Multi-State Interconnection and/or Resale Agreements*. Negotiating
a separate interconnection agreement between the same parties in
multiple states can impose substantial unnecessary costs and delays on
competitors and provides incumbent LECs with an incentive to game the
process.[^727] Because this merger increases the number of states in
which SBC operates from eight to 13, it will increase the merged firm's
incentive and ability to impose unnecessary negotiation costs on its
competitors. To neutralize this incentive, in addition to promoting
market entry and assisting telecommunications carriers that want to
operate in more than one SBC/Ameritech state, SBC/Ameritech will offer
requesting telecommunications carriers an interconnection and/or resale
agreement covering multiple SBC and/or Ameritech states,[^728] subject
to technical feasibility and state-specific pricing.[^729] SBC/Ameritech
will make a sample generic multi-state agreement available to any
requesting carrier no later than 60 days after the merger closing.
Carriers may elect that generic agreement for any number of
SBC/Ameritech states, or may negotiate a different multi-state agreement
with SBC/Ameritech. In conjunction with the in-region most-favored
nation provision described above, carriers that negotiate an
interconnection agreement with an SBC/Ameritech incumbent LEC in one
state may require SBC/Ameritech to sign the same agreement (exclusive of
price) throughout the SBC/Ameritech region.

390 *Carrier-to-Carrier Promotions*. To offset the loss of probable
competition between SBC and Ameritech for residential services in their
regions and to facilitate market entry, the Applicants propose three
promotions designed specifically to encourage rapid development of local
competition in residential and less dense areas. SBC/Ameritech will
offer these promotions equally to all telecommunications carriers with
which it has an existing interconnection and/or resale agreement in an
SBC/Ameritech state. Within ten days of the merger closing,
SBC/Ameritech will provide each such telecommunications carrier a
written offer to amend the carrier's interconnection agreement in that
state to incorporate the promotions. The offering window for each
promotion will begin 30 days after the merger closing date and run
through the later of: (a) 24 months; (b) the date on which SBC/Ameritech
is authorized to provide in-region, interLATA services in the relevant
state; or (c) the date on which SBC/Ameritech provides facilities-based
service to at least one customer in 15 out-of-territory markets.
Notwithstanding this offering window, the conditions specify the maximum
number of lines per state for which SBC/Ameritech must provide the
promotion.[^730] As indicated below, SBC/Ameritech will make each
promotion available equally to any telecommunications carrier that makes
a timely request, and each promotion will last 36 months from the date
that the promotional loop, resold service or platform is installed or
operational.

391 *Carrier-to-Carrier Promotions*: *Unbundled Loop Discounts*. First,
SBC/Ameritech will offer a promotional discount on the monthly recurring
charges for unbundled local loops used in the provision of residential
local service and not used in combination with SBC/Ameritech's local
switching. The promotional discounted prices are set forth in the
conditions and are, on average within each state,[^731] 25 percent below
the lowest applicable monthly recurring price established by the state
commission.[^732] SBC/Ameritech will make the promotional loop discount
available equally to all telecommunications carriers that request the
discount prior to expiration of the offering window or satisfaction of
the line threshold limitation, and the promotion will last 36 months for
each loop requested in that period.

392 *Carrier-to-Carrier Promotions*: *Resale Discounts*. As another
means of encouraging residential competition in less dense areas,
SBC/Ameritech will offer a promotional resale discount on
SBC/Ameritech's retail telecommunications services, where such services
are resold to residential customers. The promotional resale discount
shall be 32 percent from retail rates for an initial period of not less
than 24 months, and, for the remaining period of the promotion, a rate
equal to 1.1 times the standard wholesale discount rate established for
that service by the state commission (*i.e.*, an additional discount of
ten percent). SBC/Ameritech will make the promotional resale discount
available equally to all telecommunications carriers that request the
discount prior to expiration of the offering window or satisfaction of
the line threshold limitation, and the promotion will last 36 months.

393 *Carrier-to-Carrier Promotions*: *UNE Platform*. Competitors have
asserted that the availability of end-to-end combinations of UNEs is
essential for residential competition. To spur residential competition,
SBC/Ameritech will offer end-to-end combinations of all network elements
required to be unbundled as of January 24, 1999 (including the UNE
platform) to competitive LECs providing residential local service[^733]
regardless of the outcome of the Commission's UNE Remand proceeding. The
price for the promotional UNE platform shall be negotiated or
established by the appropriate state commission in accordance with
federal and state pricing rules for UNEs.[^734] SBC/Ameritech will make
the promotional UNE platform available equally to all telecommunications
carriers that request it prior to expiration of the offering window or
satisfaction of the line threshold limitation,[^735] and the promotion
will last 36 months from the date the promotional UNE platform is
provisioned.

394 *Offering of UNEs*.[^736] In order to reduce uncertainty to
competing carriers from litigation that may arise in response to the
Commission's order in its UNE Remand proceeding,[^737] from now until
the date on which the Commission's order in that proceeding, and any
subsequent proceedings, becomes final and non-appealable, SBC and
Ameritech will continue to make available to telecommunications carriers
each UNE that was available under SBC's and Ameritech's interconnection
agreements as of January 24, 1999, even after the expiration of existing
interconnection agreements, unless the Commission removes an element
from the list in the UNE Remand proceeding or a final and non-appealable
judicial decision determines that SBC/Ameritech is not required to
provide that UNE in all or a portion of its operating territory.[^738]

395 *Alternative Dispute Resolution Through Mediation*. As a means of
streamlining and expediting resolution of carrier-to-carrier disputes,
SBC/Ameritech will offer telecommunications carriers, subject to the
appropriate state commission's approval and participation, an option of
resolving interconnection agreement disputes through a state-supervised
mediation dispute resolution process.[^739] This mediation process
supplements, rather than supersedes, any other options at the carrier's
disposal for addressing interconnection disputes with SBC or Ameritech,
including negotiated dispute resolution mechanisms. We note that no
state or competitive LEC is required to adopt or participate in this
process.[^740]

396 *Shared Transport*.[^741] Under this condition, no later than the
merger closing date, Ameritech will file tariffs to provide shared
transport to telecommunications carriers using a surrogate billing
method in each Ameritech state. Within one year of the merger closing
date, SBC/Ameritech will provide shared transport utilizing an advanced
intelligent network software solution in each Ameritech state. This
condition also obligates Ameritech to provide shared transport until a
final order of the Commission or a final and non-appealable judicial
decision determines that SBC/Ameritech is not required to provide shared
transport in all or a portion of its operating territory.[^742]

397 *Access to Cabling in Multi-Unit Properties*. In order to provide
information regarding possible options for additional competition in the
provision of local service to multi-unit properties, SBC/Ameritech will
conduct a trial in five cities that will provide telecommunications
carriers with access at a single point of interconnection to cabling
owned or controlled by SBC-Ameritech in multi-tenant residential and
business properties.[^743] As a separate commitment, SBC/Ameritech will
design and install all new cabling owned or controlled by SBC/Ameritech
in a manner so that it can be accessed by any telecommunications carrier
at a single point of interconnection, located at the minimum point of
entry.[^744]

### Fostering Out-of-Territory Competition

398 *Out-of-Territory Competitive Entry (National-Local Strategy)*. As a
condition of this merger, within 30 months of the merger closing date
the combined firm will enter at least 30 major markets outside SBC's and
Ameritech's incumbent service area as a facilities-based provider of
local telecommunications services to business and residential customers.
This will ensure that residential consumers and business customers
outside of SBC/Ameritech's territory benefit from facilities-based
competitive service by a major incumbent LEC. This condition effectively
requires SBC and Ameritech to redeem their promise that their merger
will form the basis for a new, powerful, truly nationwide multi-purpose
competitive telecommunications carrier. We also anticipate that this
condition will stimulate competitive entry into the SBC/Ameritech region
by the affected incumbent LECs.

399 Under this condition, SBC and Ameritech will select the 30
out-of-territory markets from the list of 50 major markets that they
included in their proposal.[^745] As part of the combined firm's entry
into each of these new markets, SBC and Ameritech will either meet
certain verifiable entry requirements in each market (*i.e.*, installing
or obtaining switching capability; providing facilities-based service to
each of three business or residential customers; collocating in each of
ten wire centers; offering facilities-based service to all business and
all residential customers served by each of those ten wire centers; and
offering service, whether by resale, unbundled elements or facilities,
to all business and all residential customers within the entire service
area of the incumbent RBOC or Tier 1 incumbent LEC in the market[^746]),
or make voluntary incentive payments to a state-designated fund (or as
governed by state law) in the amount of \$110,000 per day for each
missed entry requirement, for a total of \$1.1 million per entry
requirement per market. SBC/Ameritech would therefore be obligated to
pay \$39.6 million if it missed all 36 entry requirements in a market,
or nearly \$1.2 billion for missing the entry requirements in all 30
markets. The Applicants' implementation schedule requires the combined
firm to enter Boston, Miami and Seattle within 12 months after the
merger closing, an additional 12 markets within 18 months of closing,
and all 30 markets by the later of 30 months after the merger closing
date or 60 days following the company's authorization to provide
in-region, interLATA services in states representing at least 60 percent
of all access lines served by the combined firm's incumbent LECs.

### Improving Residential Phone Service

400 *Pricing of InterLATA Services*. As a direct benefit to consumers,
particularly low-income consumers and low-volume long distance callers,
this condition provides that SBC/Ameritech will not charge residential
customers a minimum monthly or minimum flat rate charge for long
distance service for a period of not less than three years.[^747] This
requirement should not only benefit those customers that make few long
distance calls, but also should help to ensure that long distance
services continue to be available to all consumers at competitive
prices.[^748]

401 *Enhanced Lifeline Plans*. Designed specifically to ensure that the
benefits of the merger extend to low-income residential customers
throughout all of SBC's and Ameritech's regions, this condition requires
the merged firm to offer each of its 13 in-region states a plan to
provide discounts on basic local service for eligible customers.[^749]
SBC/Ameritech will offer a low-income Lifeline universal service plan
modeled after the Ohio Universal Service Assistance (USA) Lifeline plan
that Ameritech and Ohio community groups negotiated in 1994 and later
revised to adjust to the 1996 Act. It will also incorporate elements
from the December 1998 Ohio Commission Order addressing the Ohio USA
plan. Specifically, SBC/Ameritech will offer to provide a discount equal
to the price of basic residential measured rate service, excluding local
usage, in each state, up to a maximum discount of \$10.20 per month
(including all federal, state and company contributions). Although the
Applicants' initial commitment was limited to the subscriber
eligibility, discounts and eligible services features of the Ohio USA
Lifeline plan, after the public comment period, SBC and Ameritech
extended the offer to include certain other commitments.[^750]

402 Under the revised condition, SBC/Ameritech will permit a Lifeline
customer with past-due bills for local service to restore local service
after payment of no more than \$25 and an agreement to repay the balance
of local charges in six equal monthly payments. Lifeline customers also
will not be required to pay a deposit for local service if they elect
toll blocks. SBC/Ameritech will allow prospective Lifeline customers to
verify their eligibility on a written form, and SBC/Ameritech will give
those forms to state agencies that administer qualifying programs so
that the agencies can distribute the forms to their clients.[^751]
SBC/Ameritech also will negotiate with state agencies administering
qualifying programs to procure an on-line verification process. Easing
the financial burden for prospective Lifeline customers, SBC/Ameritech
will provide both a toll-free telephone number for prospective customers
to inquire about or subscribe to the program and a toll-free fax line
for customers to send program documentation, and new customers will not
be required to pay a deposit to obtain local service. SBC/Ameritech will
publicize the program in each state with an annual promotional budget
that is proportional to the annual promotional budget in Ohio.[^752] In
addition to including Lifeline information on customer service center
voice response units where practical and appropriate, SBC/Ameritech also
will automatically upgrade current Lifeline customers to the new program
where it is evident that doing so will unambiguously improve the
customer's situation. For each state that accepts SBC/Ameritech's offer,
the company will maintain the plan for a period of not less than 36
months.

403 *Additional Service Quality Reporting*. As a safeguard against
potential deterioration in SBC's or Ameritech's quality of service as a
result of the merger, and to promote affirmative service quality
improvements, this condition requires SBC/Ameritech to report additional
benchmark and service-quality information. First, SBC/Ameritech will
report, on a quarterly basis, the quality of service that it provides to
customers. SBC/Ameritech will develop and file with this Commission and
state commissions quarterly state-by-state service quality reports in
accordance with the National Association of Regulatory Utility
Commissioners (NARUC) Technology Policy Subgroup's November 1998
"Service Quality White Paper."[^753] Through this reporting program,
SBC/Ameritech will make publicly available in a timely manner key
information about its service quality, including installation and repair
performance, switch and transmission facility outages, consumer
complaints, and answer time performance.[^754] We anticipate that, by
providing consumers and states with information about SBC/Ameritech's
service quality, this condition will, at a minimum, deter any potential
service quality degradation and motivate the merged firm to improve its
service quality where possible.[^755]

404 In addition, SBC/Ameritech will file reports showing the service
quality provided to interexchange carriers, which will include data
regarding the installation and maintenance of switched, high speed
special, and special access services.[^756] By receiving such
information on a quarterly basis, the Commission and others can take
appropriate action in the event such reports show service quality
degradation. SBC/Ameritech also will continue reporting ARMIS data on an
operating-company basis in order to preserve the number of observable
points of operating-company behavior for benchmarking purposes.

405 *NRIC Participation*. Through this condition, we expect that
SBC/Ameritech will demonstrate and further its commitment to maintain
reliable, high-quality networks and services. The Applicants will
continue their participation in the Network Reliability and
Interoperability Council (NRIC), a committee organized to make
recommendations to the Commission on how to ensure "optimal reliability,
interoperability and interconnectivity of, and accessibility to, public
telecommunications networks."[^757] SBC/Ameritech's continued
participation will provide assurance that the merged firm will review
the causes of network outages in a timely manner and adopt industry best
practices designed to promote reliable, high quality services.

### Ensuring Compliance with and Enforcement of these Conditions

406 The Commission is firmly committed to enforcing the Communications
Act and the public interest standard that forms its foundation.
Attaching conditions to a merger without an efficient and judicious
enforcement program would impair the Commission's ability to protect the
public interest. The conditions therefore establish compliance and
enforcement mechanisms that not only will provide SBC/Ameritech with a
strong incentive to comply with each of its requirements, but also will
facilitate the Commission's oversight of the Applicants' obligations
under these conditions. As a general matter, the conditions place the
responsibility of taking active steps to ensure compliance on
SBC/Ameritech by: (1) establishing a self-executing compliance
mechanism; (2) requiring an independent audit of the Applicants'
compliance with the conditions; and (3) providing self-executing
remedies for failure to perform an obligation.

407 *Compliance Program*. For the benefits of the conditions to outweigh
the potential public interest harms of the merger, SBC/Ameritech must
take aggressive steps to implement every aspect of these conditions and
to comply with both the letter and the spirit of its obligations. In our
view, the benefits of these conditions depend entirely upon the
Applicants' compliance. Because the conditions that we adopt today are
spelled out in detail with their satisfaction measured by objective
criteria, and because failing to comply with the conditions could expose
SBC/Ameritech to a material loss of revenue, we believe that
SBC/Ameritech has a strong incentive to implement an aggressive and
effective compliance program.[^758]

408 As part of the conditions, SBC and Ameritech will establish a
corporate compliance program to identify all applicable compliance
requirements, establish and maintain the internal controls needed to
ensure compliance, evaluate the merged firm's compliance on an on-going
basis, and take any corrective actions necessary to ensure full and
timely compliance.[^759] SBC/Ameritech will appoint a "Compliance
Officer" with sufficient rank and experience to supervise its corporate
operations and to ensure that the business units carry out their
responsibilities under the conditions.[^760] This Compliance Officer
will prepare and publicly file with the Commission an annual compliance
report addressing the corporation's compliance with the conditions and
the sufficiency of the corporation's internal controls for ensuring
continued compliance.[^761]

409 We expect that SBC and Ameritech will put into place a reasonably
designed, implemented, and self-enforced compliance program that will
detect potential noncompliance in time for SBC/Ameritech to notify the
Commission and take corrective action before such noncompliance impairs
the benefits of these conditions. To provide additional assurances to
the public regarding SBC/Ameritech's compliance, however, the Commission
plans to conduct targeted audits of various aspects of the Applicants'
compliance programs.[^762] Only a strong corporate compliance program,
in conjunction with the independent audit and other enforcement
mechanisms, will enable consumers to realize the full benefit of the
conditions.

410 *Independent Auditor*. Because the public interest benefit of these
conditions depends entirely upon SBC/Ameritech's compliance, the
conditions also establish an independent oversight program. SBC and
Ameritech will retain an independent auditor[^763] to conduct an annual
audit to provide a thorough and systematic evaluation of SBC/Ameritech's
compliance with the conditions and the sufficiency of SBC/Ameritech's
internal controls.[^764] Acting pursuant to its delegated authority, the
Common Carrier Bureau will approve the independent auditor and oversee
the conduct of the independent audit, which will include reviewing the
scope and quality of the auditor's work.[^765] The independent auditor's
final report, which will be publicly available, will contain sufficient
detail for the Commission and the public to understand the extent of the
auditor's testing and evaluation procedures. In addition, the findings
in the auditor's report, or the review of the auditor's working papers,
could form the basis of enforcement actions.[^766] SBC/Ameritech and the
independent auditor also will meet for a post-audit conference to assess
the conduct of the audit and the need for any modifications to the audit
program. Based on these requirements, we find that the conditions
provide for effective Commission oversight of the audit process and a
mechanism for revising the audit programs and procedures based on our
experience over time.[^767]

411 The independent auditor will conduct its examination in accordance
with the standards of the American Institute of Certified Public
Accountants ("AICPA").[^768] Specifically, the independent auditor will
conduct a "compliance attestation,"[^769] which requires issuing a
report that "expresses a conclusion about the reliability of a written
assertion that is the responsibility of another party."[^770] For most
conditions, the independent auditor will conduct this examination using
the "examination engagement"[^771] method to evaluate SBC/Ameritech's
compliance, and to issue a "positive opinion" (with exceptions noted) in
its final report. The conditions, however, require the more thorough
"agreed-upon procedures" engagement[^772] to evaluate SBC/Ameritech's
compliance with the separate advanced services affiliate requirements.
In this way, the conditions emulate the Federal-State joint audit
required by section 272(d).[^773]

412 The independent audit requirement establishes an efficient and
cost-effective mechanism for providing reasonable assurances of
SBC/Ameritech's compliance with its obligations under the
conditions.[^774] SBC/Ameritech is required to inform the auditor of its
progress at meeting the specific deadlines and requirements set forth in
the conditions, which will enable the independent auditor to detect
potential noncompliance in a timely manner. Pursuant to its obligations
as the designated auditor, the independent auditor will notify the
Commission immediately of the problem areas and any corrective action
undertaken.[^775] By requiring SBC and Ameritech to pay for the audit,
the conditions place the costs of compliance on the Applicants instead
of their competitors or taxpayers. We note that, pursuant to our
regulatory fee schedule, SBC/Ameritech will reimburse the U.S. Treasury
for any review and audit work performed by the Commission staff.[^776]

413 *Voluntary Payment Obligations*. For many of the conditions, the
Applicants proposed a voluntary incentive payment structure, which could
expose SBC/Ameritech to significant financial liability, if the merged
firm fails to satisfy an obligation in a timely manner. For example, as
described above, under its National-Local Strategy, SBC/Ameritech will
make voluntary incentive payments, valued at a maximum of \$39.6 million
per market, for missing a market's entry requirements. In addition,
SBC/Ameritech will incur similar voluntary payment obligations for
failing to provide service to competitive LECs that meets the standards
of the Carrier-to-Carrier Performance Plan (up to a total of \$1.125
billion over three years, with an offset for early OSS deployment), and
for failing to meet the deployment schedule for its OSS enhancements (up
to a total of \$20 million per obligation). We expect that the size and
scope of these potential voluntary payments will provide a strong
incentive for SBC/Ameritech to ensure that it fully complies with both
the letter and the spirit of the conditions.[^777] The conditions
recognize that SBC/Ameritech is strictly liable for making any and all
payments arising out of its nonperformance.[^778] Moreover, failing
either to satisfy the underlying obligation or to make timely voluntary
payments will subject the Applicants to potential liability in the same
way SBC/Ameritech would be liable for violating any other Commission
order, rule, or regulation.

414 We expect that SBC/Ameritech will take all necessary measures, such
as amending tariffs and interconnection agreements, to give the
conditions their full legal effect in a timely manner. Although we note
that the Commission may grant an extension of time for a requirement
under the conditions, SBC/Ameritech bears a heavy burden of
demonstrating good cause.[^779] We expect that this heavy burden of
persuasion, coupled with the compliance mechanisms and significant
financial exposure, will ensure that the public enjoys the full benefits
of these conditions in a timely manner. We also expect that the
self-executing remedial measures, such as SBC/Ameritech's voluntary
incentive payment obligations, will limit any delay arising from
extensive litigation arising from potential violations.

415 *Other Mechanisms*. We emphasize that the enforcement and compliance
programs established in these conditions in no way supersede or replace
the Commission's enforcement and investigative powers, but merely
supplement our usual processes. The Commission may, at its discretion
and subject to its normal procedures, take additional enforcement action
against SBC/Ameritech for failing to comply with any provision of this
Order, including extending the sunset provisions, imposing fines and
forfeitures,[^780] issuing cease-and-desist orders, modifying the
conditions,[^781] awarding damages,[^782] or requiring appropriate
remedial action. In addition, members of the public may pursue a claim
in accordance with either section 207 or section 208 of the Act.[^783]
We do not expect that any enforcement penalties or compliance mechanisms
will become merely an acceptable cost of doing business, and we note
that the conditions require all such costs to be excluded from
SBC/Ameritech's rates. In this way, the enforcement plan rightly ensures
that consumers will not be forced to bear the costs of SBC/Ameritech's
mistakes.

416 *Sunset*. Unless otherwise specified, each obligation under these
conditions will sunset after 36 months of benefit, which may be tolled
or extended by the Commission for a period of time commensurate with any
noncompliance by SBC/Ameritech. Maintaining a full three-year period of
benefit is critical for the conditions to ameliorate the potential
public interest harms of the merger. Thus, in the event that
SBC/Ameritech fails to comply fully with its obligations, the Commission
may, in its discretion, either on its own motion or in response to a
petition, toll the effective sunset date of the relevant condition, and
related conditions, to ensure that the public enjoys the full three-year
term of the benefits.

417 *Effect of The Conditions*. As discussed above, these conditions are
intended to be a floor and not a ceiling. The Applicants must abide by
state rules, even though the rules may touch on identical subjects,
unless the merged entity would violate one of these conditions by
following the state rule. The conditions are also not intended to limit
the authority or jurisdiction of state commissions to impose or enforce
additional requirements stemming from a state's review of the proposed
merger.[^784] To the extent that a requirement in these conditions
duplicates a requirement imposed by a state such that these conditions
and state conditions grant parties similar rights against SBC/Ameritech,
the affected parties must elect either to receive the benefit under
either these conditions or state law. For example, SBC/Ameritech will
not be required to provide two promotional loop discounts simultaneously
for the same loop. If, on the other hand, SBC/Ameritech fails to meet a
stated performance standard under the Carrier-to-Carrier Performance
Plan for a measurement that is replicated in a state performance plan,
SBC/Ameritech would face repercussion under both plans.

418 Although the merged firm will offer to amend interconnection
agreements or make certain other offers to state commissions in order to
implement several of the conditions, nothing in the conditions obligates
carriers or state commissions to accept any of SBC/Ameritech's offers.
The conditions, therefore, do not alter any rights that a
telecommunications carrier has under an existing negotiated or
arbitrated interconnection agreement. Moreover, the Applicants also
agree that they will not resist the efforts of state commissions to
administer the conditions by arguing that the relevant state commission
lacks the necessary authority or jurisdiction.[^785]

## Benefits of Conditions

419 We conclude that, with the conditions that we adopt in this Order,
the merger of SBC and Ameritech is likely to be beneficial for consumers
and spur competition in the local and advanced services markets. Given
that the conditions will substantially mitigate the potential public
interest harms of the proposed merger and will result in affirmative
public benefit, we conclude that the Applicants have demonstrated that
the proposed merger, on balance, will serve the public interest,
convenience and necessity.

### Mitigating Harm from Loss of Potential Competition

420 As noted above, the proposed merger will remove, in many local
markets throughout SBC's and Ameritech's territories, a current
significant competitive threat and a probable future entrant. Armed with
the inside knowledge of how to overcome roadblocks to local competition,
SBC and Ameritech are especially qualified to compete successfully
against other incumbent LECs.

421 We find that, while not substituting fully for the loss of direct
competition between SBC and Ameritech, the conditions we adopt will
significantly mitigate any potential public interest harms. After the
merger, these conditions require the merged firm to open its markets to
others while at the same time entering markets outside of its region.
Specifically, the conditions require the merged SBC/Ameritech to enter
30 out-of-region markets as a competitive LEC within 30 months of the
merger's closing. Although we concluded above that the Applicants'
initial pledge to implement the National-Local Strategy offered no
merger-specific competitive benefit, as augmented by the conditions, the
plan will motivate the combined company to enter markets more quickly
than the companies, separately, would have entered absent the merger.
For example, the Applicants shortened the timetable pledged in their
initial Application by six months and have agreed to voluntary incentive
payments that could amount to nearly \$1.2 billion if SBC/Ameritech
fails to implement the strategy in all thirty markets. Thus, the merged
firm will face significant economic repercussion if it fails to achieve
a certain level of entry in each market according to a specified
implementation schedule. These benefits to some extent counterbalance
the loss of direct competition between SBC and Ameritech, particularly
if the outcome of SBC/Ameritech's implementation of the condition is
faster retaliation within its home region by the major incumbent LECs
whose home territories the merged firm invades.[^786]

422 Further, by reducing the risk and costs associated with entry into
SBC and Ameritech territories, particularly with respect to residential
and advanced services markets, other conditions stimulate entry into
these markets, thereby offsetting the loss of probable competition
between the Applicants resulting from the merger. Several conditions
lower the entry barriers in the SBC and Ameritech regions, especially
for residential competition. For example, we anticipate that the
carrier-to-carrier promotions for residential service will spur other
entities to enter these markets and establish a presence in residential
markets that can be sustained after expiration of the promotional
discounts. In addition, SBC/Ameritech's most-favored nation obligations,
which covers certain arrangements that the company obtains as a
competitive LEC outside its region as well as arrangements imported from
other in-region states, and its agreement to enter into multi-state
interconnection agreements should assist competitors in entering new
markets within the SBC/Ameritech region. Similarly, the
Carrier-to-Carrier Performance Plan will provide competing carriers with
additional protections by strengthening SBC/Ameritech's incentive to
provide quality of service at least equivalent to the merged firm's
retail operations or a benchmark standard. Moreover, both the OSS and
the collocation provisions will reduce the cost of entry into
SBC/Ameritech territories. These conditions make competition in
SBC/Ameritech's region more likely, thereby offsetting in part the
competitive threat that each Applicant posed to the other.

### Mitigating Harm from Loss of Benchmarks

423 As indicated above, by removing a major incumbent LEC, the merger of
SBC and Ameritech would result in fewer sources of diversity and
experimentation at the holding company, operating company, and industry
level from which regulators and competitors could draw comparisons
particularly useful in implementing the 1996 Act's pro-competitive
mandates. We doubt that any set of conditions could substitute fully for
the loss of one of the few remaining major incumbent LEC benchmarks. The
harm from such comparative practices analyses, however, to some extent
is mitigated by conditions that require the spread of best practices
throughout the merged firm's service areas or the reporting of
information regarding the incumbent's networks and performance that is
useful to regulators and competitors.

424 We anticipate that several conditions will require the merged firm
to spread best practices throughout its region. Significantly, "best
practices," as we use the phrase here, will be identified in full or in
part by the Applicants' customers and regulators, not by SBC and
Ameritech. Both the out-of-region and in-region most-favored nation
requirements are designed explicitly to assure carriers some ability to
obtain beneficial arrangements, whether specifically requested by
SBC/Ameritech as an out-of-region competitor or simply offered by the
firm in an in-region state, throughout the merged firm's 13-state area.
With respect to OSS, SBC/Ameritech will establish uniform OSS interfaces
and systems across its 13 in-region states that, in the Applicants' own
words, "are based on the best practices of the two companies."[^787]
This commitment to implement OSS best practices offers assurance that
the merged firm will take into account practices of certain operating
companies that other carriers have found useful or beneficial in
establishing uniform interfaces, enhancements and business requirements.

425 Another example of the spread of best practices concerns shared
transport. Pursuant to the condition requiring the provision of shared
transport in Ameritech territory, which Ameritech has vigorously
resisted implementing in the past,[^788] SBC/Ameritech has committed to
implement and offer in the Ameritech states the same version of shared
transport that SBC has implemented in Texas. Similarly, the merged firm
will offer a Lifeline plan based on features of the Ameritech Ohio plan
to each of the merged firm's in-region states. SBC/Ameritech's
commitment to provide all advanced services through a separate
affiliate, essentially adopting Ameritech's long-standing approach to
advanced services, also represents a departure from SBC's former
opposition to any such requirement.[^789]

426 The conditions also require SBC/Ameritech to continue participation
in the NRIC, which issues periodic reports concerning the reliability of
public telecommunications network services, and regularly compiles
detailed lists of industry best practices designed to reduce the number
and scope of network outages. Through its continued participation in the
NRIC, we fully expect SBC/Ameritech to study and, to every extent
possible, implement the industry best practices for network reliability.
In this way, we anticipate that SBC/Ameritech will be able to, at a
minimum, maintain a high state of reliability after the merger and take
aggressive steps to address network reliability in those areas where the
company may need improvement.

427 Aside from the spread of existing best practices, several conditions
will help to offset the potential loss of future diversity and
experimentation resulting from the merger. For example, addressing an
issue that drew comments from several parties, SBC and Ameritech have
agreed to conduct a trial with interested competitive LECs in five large
cities to identify the procedures and associated costs required to
provide carriers with access to LEC owned or controlled cabling behind a
single point of interconnection within multi-dwelling unit premises.
Similarly, although Ameritech previously had established separate
affiliates to provide advanced services, the merged firm is subject to
specific obligations under the separate affiliate structure that will
result in a flow of information to federal and state regulators, as well
as competitors, concerning the Applicants' provision of advanced
services.

428 In addition to promoting experimentation and spreading best
practices, the conditions also help ameliorate any potential loss of
observable information to regulators and competitors. In particular, the
Carrier-to-Carrier Performance Plan will generate valuable information
for regulators and competitors for use in implementing and enforcing the
Communications Act. The merged firm will also continue to report ARMIS
data separately for each of its operating companies, and will now report
such data on a quarterly basis. The requirement that the Applicants
develop and file state-by-state service quality reports in accordance
with the recommendations of the NARUC Technology Policy Subgroup will
facilitate comparative practices analysis by providing additional data
for this Commission and state commissions in carrying out their
statutory responsibilities and in detecting potential violations of the
Communications Act. The Applicants also are obligated under the
conditions to provide quarterly state-specific service quality reports
regarding the quality of services provided to interexchange carriers,
and to file a statement of the cost savings associated with the merger.

### Mitigating Harm from Potential Increased Discrimination 

429 We find that several commitments will alleviate the concern that the
merged firm will use its combined size and market power to discriminate
more effectively against its rivals in its in-region markets for local
services as well as advanced services. As stated by one commenter, an
effective means of ensuring that the merged firm cannot engage in
anticompetitive conduct against smaller entrants is to "make sure that
the company is already permitting effective entry into the SBC and
Ameritech regions."[^790] The conditions that we adopt today are
carefully targeted at the types of discrimination the merger was
otherwise most likely to engender. Moreover, they substantially reduce
entry barriers to the merged entity's region.

430 The combined entity's incentive to discriminate, stemming from its
larger geographic footprint, is especially likely, if left unchecked, to
translate into an ability to discriminate against the provision of
advanced services.[^791] The requirements that the merged firm provide
such services through a separate affiliate, and comply with reporting
and performance obligations, decreases the ability of SBC/Ameritech to
discriminate successfully, and thereby neutralizes some of
SBC/Ameritech's increased incentive to discriminate with respect to
advanced services. Significantly, the merged entity will have to treat
rival providers of advanced services the same way that it treats its own
separate advanced services affiliate.

431 The Applicants' commitments to establish uniform advanced services
and other OSS interfaces also should reduce somewhat the costs and other
barriers that local or advanced services competitors face in entering
multiple markets within the SBC and Ameritech regions. This uniformity
should also reduce the merged firm's ability to impair a national, or
regional, competitive LEC's strategy that is at the heart of the merged
firm's increased incentive to discriminate.[^792] We expect that other
conditions, most notably the collocation compliance and surrogate line
sharing discount, also will reduce the costs and uncertainty of
providing advanced services in SBC/Ameritech's region, and thereby
remedy to a certain extent any effects of increased discrimination for
national competitive LEC entrants.

432 The Carrier-to-Carrier Performance Plan also partially alleviates
the Applicants' increased incentive and ability to discriminate against
rivals following the merger. By requiring the merged firm to report
results of 20 performance measures, and achieve the agreed-upon standard
or voluntarily make incentive payments, the plan provides heightened
incentive for the company not to discriminate in ways that would be
detected through the measures. Competing carriers operating in or
contemplating entry into SBC/Ameritech territory will have an increased
measure of confidence that the company will not engage in discrimination
that would be detected through such measures. If the results reveal
unequal treatment, the voluntary payment scheme, as NorthPoint notes,
will "create a direct economic incentive for SBC/Ameritech to cure
performance problems quickly."[^793]

433 The Carrier-to-Carrier Performance Plan is specifically designed to
permit monitoring for discriminatory conduct in SBC/Ameritech's
provision of elements and services utilized by the incumbent or other
carriers in providing advanced services. Certain measures, such as the
average installation interval for DSL loops (performance measure \# 8)
and the average response time for loop makeup information (performance
measure \# 9), were designed specifically to address the needs of
advanced services providers. For many of the other measures, data will
be reported distinctly for DSL loops. The availability of this
information will assist entities that are contemplating providing
advanced services in the SBC/Ameritech 13-state region, as well as
helping carriers already operating in the region to monitor and address
any potential increased discrimination.

434 As explained above, with SBC's new access to customer accounts in
Ameritech's region (*e.g.*, Dallas business customers with branch
offices in Chicago), and vice-versa, the merged firm gains an advantage
in servicing multi-location business customers. Allowing competitors to
import most-favored nation arrangements across SBC-Ameritech's in-region
states helps to safeguard against this increased potential for
discrimination while reducing the merged firm's advantage of servicing
multi-location customers.[^794]

435 The enforcement mechanisms contained in these conditions also will
aid in the detection of discriminatory behavior by SBC/Ameritech. In
particular, the conditions require the more thorough type of audit, an
agreed-upon procedures engagement, for the separate advanced services
affiliate provisions. Like the section 272(d) audit, the independent
auditor will conduct a systematic and thorough examination into
SBC/Ameritech's compliance with the structural, transactional,
nondiscrimination and other requirements of the separate advanced
services affiliate.

### Additional Benefits from Conditions

436 While these conditions mitigate, in many important ways, the
potential public interest harms of the proposed transaction, we also
find that the conditions will result in affirmative public interest
benefits that tip the public interest balance of the proposed
transaction in the Applicants' favor. Collectively, these conditions
will, we believe, create a powerful momentum for increasing competition
and choice in telecommunications markets inside and outside SBC's and
Ameritech's territories.

437 As an initial matter, nearly all of the obligations under the
conditions apply throughout SBC's and Ameritech's 13 in-region states,
and others even extend to markets outside of the companies' traditional
service areas. Because our public interest analysis is not limited to
potential public benefit within a select geographic area or market, but
also considers potential public interest benefits of applying conditions
such as those imposed in this Order to a wider area, the breadth of the
conditions helps the Applicants in carrying their burden of
demonstrating how the merger advances competition.

438 We also find it significant that the conditions in general will last
for a 36-month period. As addressed in the conditions, the duration of
each commitment is tied not to our approval or the merger closing date,
but to the initiation of the benefit of the condition. In other words,
the commitments are designed to provide 36 months of benefit once
SBC/Ameritech's obligations take effect. In the fast-changing world of
telecommunications industries, these commitments, in our judgment, will
last for a sufficient period to have real impact, but not so long as to
threaten imposing obsolete responses to future issues.

439 *Fostering Out-of-Territory Competitive Entry*. We described earlier
the Applicants' post-merger National-Local Strategy and why we could not
regard its undoubted benefits as merger-specific. These conditions do
not alter the basic fact that the parties do not need to merge in order
to form out-of-region competitive LECs. The conditions do, however,
greatly increase both the likelihood and the magnitude of a post-merger
out-of-region entry strategy. These certainly enhance the public
interest.

440 *Lower Entry Barriers for Residential Competition*. In broad terms,
we anticipate that the conditions will prove beneficial in jumpstarting
residential competition by lowering entry barriers for residential
competition. The carrier-to-carrier promotions are specifically designed
to induce more entry into residential markets quickly. The Applicants'
commitments regarding carrier-to-carrier promotions, collocation, OSS,
and multi-state interconnection agreements will, in our judgment,
greatly reduce the costs of entry over the long run. In addition, the
commitment to reform the process of cabling new multi-tenant dwellings
and business properties will increase access to customers by competitors
not otherwise relying on the incumbent's wireline network.

441 *Accelerating Advanced Services Deployment.* Several conditions are
aimed at increasing the availability of and broadening choices for
advanced services for all Americans. The extensive commitments regarding
advanced services all help to attain a single overriding goal: to
encourage entry into the provision of advanced services by numerous
firms, as well as the Applicants, while protecting against the risk that
SBC/Ameritech might cripple these services in their infancy by
discriminating against rival advanced services providers. The provisions
for equitable sharing of loop information, for a surrogate line-sharing
discount, for a separate affiliate for the Applicants' provision of
advanced services, and for a new, open and nondiscriminatory OSS system
will reduce the costs, including the risks, of entering these markets.

442 *Improving Service to Residential and Low-Income Consumers*.
Low-income consumers, in rural and urban areas alike, will realize
direct benefits from the enhanced Lifeline plans offered to them and
from the assurance that they will share in the benefits of new advanced
services offerings. Moreover, through the Applicants' additional service
quality reporting, the Commission, states, and consumers will have
information needed to monitor the merged firm's service quality on a
timely basis.

## Other Requested Conditions or Modifications to Proffered Conditions

443 Several commenters suggest additional conditions or modifications to
the Applicants' package of voluntary proposed conditions. To the extent
that a party requested a condition that we do not impose today, or
suggested a change in the Applicants' proposal that we did not
incorporate, we explain our rationale for declining the request below.
We begin by discussing the separate advanced services affiliate, and
whether the structure set forth in the conditions would render it a
"successor or assign" of the incumbent LEC.

### Separate Affiliate for Advanced Services

444 Several commenters question whether the separate advanced services
affiliate structure described in the Applicants' July filing contains
adequate safeguards to ensure that the SBC/Ameritech advanced services
affiliate will function separately from the incumbent like any other
competitive LEC.[^795] Although commenters are divided over the merits
of the separate affiliate condition, we find that SBC/Ameritech's
provision of advanced services through a separate affiliate will spur
the deployment of advanced services by all entities. We conclude that
the separate affiliate structure contained in the conditions that we
adopt today, which has changed significantly since the July filing, will
ensure that advanced services are deployed efficiently. At the same
time, the structure will safeguard against SBC/Ameritech leveraging its
control over certain bottleneck facilities into the nascent advanced
services market.

445 As discussed below, on the basis of the conditions as written, we
find that the affiliate structure creates a rebuttable presumption that
an SBC/Ameritech advanced services affiliate will not be a "successor or
assign" of an incumbent LEC under section 251(h)(1) or a BOC under
section 3(4)(B) of the Act.[^796] At the same time, however, we note
that if an SBC/Ameritech incumbent LEC and its advanced services
affiliate behave in a manner inconsistent with the intent of the
conditions or engage in activities beyond those expressly permitted in
the conditions, the company bears the risk that the affiliate will be
deemed a successor or assign of the incumbent LEC and, therefore,
subject to incumbent LEC regulation under section 251(c). Accordingly,
if an SBC/Ameritech advanced services affiliate is found to be a
successor or assign[^797] based on activities that are expressly
permitted in these conditions, then, nine months after such a finding
becomes final and non-appealable, SBC/Ameritech will no longer be
obligated under the conditions to provide all advanced services through
a separate affiliate, although it may choose to do so, but will continue
to bear certain obligations.[^798] If, however, the separate advanced
services affiliate is deemed to be a successor or assign based
substantially on conduct by or between an SBC/Ameritech incumbent and
its affiliate that was not expressly permitted by these conditions, then
SBC/Ameritech shall continue providing advanced services through the
affiliate, operating as a successor or assign, for the full duration of
the condition.

#### Section 251(h)(1) Statutory Framework

446 In the *Advanced Services Order and NPRM*,[^799] the Commission
recognized that a determination as to whether a carrier is an incumbent
LEC is based on the statutory definition set forth in section 251(h). As
discussed below, section 251(h)(1) of the Act defines an incumbent local
exchange carrier as a local exchange carrier[^800] that was providing
local exchange service as of the date of enactment of the 1996 Act and
was a member of an exchange carrier association on such date,[^801] or
that is a "successor or assign" of such a carrier.[^802] Section
251(h)(2) provides that the Commission may deem, by rule, that a LEC is
comparable to, and therefore should be treated as, an incumbent if the
following three criteria are met: (1) the LEC occupies a position in the
market for telephone exchange service comparable to an incumbent LEC;
(2) the LEC has "substantially replaced" an incumbent; and (3) treating
the LEC as an incumbent "is consistent with the public interest,
convenience, and necessity and the purposes of \[section 251\]."[^803]
Furthermore, section 3(4)(B) of the Act defines a "Bell Operating
Company" as including "any successor or assign of any such company that
provides wireline telephone exchange service."[^804] Thus, under the
Act, a "successor or assign" of an incumbent LEC, or in this case a BOC,
will be subject to the obligations imposed upon incumbent LECs in
section 251(c).

447 We recognize that one interpretation of section 251(h)(1) is that,
in order to fall within its definition, two conditions must be met: (1)
the LEC must have provided service in the area as of February 8,
1996;[^805] and (2) it must have been a member of NECA on that
date[^806] or became a successor or assign of a NECA member after that
date.[^807] Under this interpretation, an entity that was a successor or
assign of a NECA member would not be deemed an incumbent LEC under
251(h)(1) unless that entity itself was also providing local exchange
service in the NECA member\'s area on February 6, 1996.[^808] In other
words, an affiliate established after the date of enactment, regardless
of whether it replaces or substantially continues the operations of the
incumbent, would never meet the definition of an incumbent LEC under
251(h)(1) under this interpretation because it was not in existence,
thus could not have been providing telephone exchange service, as of
February 8, 1996.[^809] We find that this formulation appears to distort
the notion of "successor or assign" that is at the heart of the
statutory provision.[^810]

448 We find the more reasonable interpretation of section 251(h)(1) to
mean that an entity may become an incumbent LEC by being a successor or
assign of a LEC[^811] that, as of February 8, 1996, was providing local
exchange service in a particular area[^812] and was a member of
NECA,[^813] even if that entity was not itself providing local exchange
service in the area or a member of NECA as of that date.[^814] This
interpretation of "successor and assign" is not only more consistent
with the goals of section 251, but conforms more closely to the
traditional notion of "successor or assign."[^815] We therefore decline
to follow the approach set forth in *MCI Telecomm. Corp.*,[^816] as we
believe such interpretation produces a result plainly at variance with
the policy of the legislation as a whole.[^817]

449 In this proceeding, therefore, we must examine whether the
SBC/Ameritech advanced services affiliate that will be created and
operated in accordance with the conditions would be deemed a successor
or assign of the SBC/Ameritech incumbent LEC, which was providing
service and was a member of NECA as of February 8, 1996. As discussed
below, we reach a rebuttable presumption that the SBC/Ameritech advanced
services affiliate should not be deemed a successor or assign of an
incumbent LEC under section 251(h)(1).

#### Legal Analysis of "Successor or Assign"

450 As an initial matter, we note that the Commission has never
determined the circumstances under which one entity will be considered a
successor or assign of another under section 251(h)(1) or section 3(4)
of the Act. This issue is, therefore, a matter of first impression for
the Commission. In order to provide guidance to the Applicants regarding
the interconnection obligations that will be required of the advanced
services affiliate, we analyze section 251(h)(1) as it applies to the
affiliate structure set forth in the conditions.

451 To determine whether an advanced services affiliate would be deemed
an incumbent LEC pursuant to section 251(h)(1), or a BOC pursuant to
section 3(4), we first look to the text of the statute to determine the
circumstances under which an entity would become a successor or assign.
Neither the Act nor its legislative history defines the terms "successor
or assign" in either context. Employing our traditional tools of
statutory construction, therefore, we look to the purposes of the Act,
and section 251 in particular, to determine a reasonable meaning of the
terms in their context.[^818] We also examine case law for guidance on
how federal courts have interpreted these terms.

452 One of the fundamental goals of the Act is to promote innovation and
investment in the telecommunications marketplace by all participants,
both incumbents and new entrants, and to stimulate competition for all
services, including advanced services.[^819] We therefore interpret the
terms "successor or assign" as used in section 251 in a manner that
promotes, rather than frustrates, the pro-competitive and
innovation-enhancing purposes of that section and section 706(a) of the
1996 Act. The primary pro-competitive objective of section 251 is to
open the local exchange market to competition in all services to ensure
that consumers reap the benefits of broad-based and long-lasting
competition. In particular, section 251 requires all incumbent LECs to
provide nondiscriminatory access to their network facilities,[^820]
thereby allowing competing carriers to enter local markets by purchasing
parts of the incumbent\'s network, and to allow resale of their services
at wholesale rates. Section 251 also facilitates investment and
deployment of innovative technologies by encouraging new carriers to
enter markets previously foreclosed to them with a wide array of diverse
services.[^821] Thus, we must interpret the terms "successor or assign"
in a manner that furthers increased competition among various service
providers, while encouraging investment in new services and deployment
of innovative technologies.

453 Typically, a successor or assign legal analysis is triggered after
an entity ceases to exist.[^822] For example, when an existing entity
creates another entity to replace it, it may be appropriate to consider
whether the new entity has "stepped into the shoes" of the previously
existing entity. In our context, however, we must assess circumstances
under which an incumbent LEC may develop a new line of business in a
new, less regulated entity, or transfer a nascent business to such an
entity, while continuing other core lines of business in the incumbent
LEC. Essentially, we must ensure that the existing entity has ceded
sufficient control of the new entity so that we are able to recognize
the new entity as its own operation.

454 We recognize, as the Supreme Court confirmed in *Howard Johnson Co.
v. Detroit Local Joint Executive Bd.*, that a determination as to
whether an affiliate is a successor or assign is ultimately fact-based,
and the terms take their meaning from the particular legal context in
which they are used.[^823] In considering the particular facts and the
legal context, however, courts generally have looked for "substantial
continuity" between two companies such that one entity steps into the
shoes of, or replaces, another entity.[^824] In particular, in the labor
law case of *Fall River Dyeing & Finishing Corp. v. NLRB*, the Supreme
Court, in determining whether substantial continuity existed between two
companies such that one company was the successor of another, focused on
whether the company had "acquired substantial assets of its predecessor
and continued, without interruption or substantial change, the
predecessor\'s business operations."[^825]

455 For the instant inquiry, we find it instructive to consider the
affiliate structure that Congress established in another part of the Act
to accomplish similar policy objectives. In particular, we are guided by
the affiliate structure chosen by Congress in section 272. Section 272
requires BOCs to provide certain manufacturing activities and
origination of certain interLATA telecommunications services and
interLATA information services only through a separate affiliate.[^826]
Congress set forth certain structural and transactional safeguards, as
well as nondiscrimination and audit requirements, to prevent a BOC from
leveraging its market power in the local market into adjacent, more
competitive markets in an anticompetitive manner.[^827] A section 272
affiliate must, for example, operate independently from the BOC;
maintain separate books, records, and accounts; have separate officers,
directors, and employees; not obtain credit recourse to the BOC; and
conduct all transactions on an arm's length basis, reduced to writing,
and available for public inspection.[^828] Although we are not bound by
section 272 here, the underlying policy rationales of separation in that
context, as discussed in prior Commission orders, are similar to those
in the instant context.[^829] Indeed, in this case, consideration of
section 272's requirements will enable us to avoid re-inventing the
wheel with respect to previous Commission consideration of separation
criteria.

456 We find that a separate affiliate structure for advanced services
should not be more stringent than necessary to effectuate the overriding
statutory purpose of promoting local competition and the deployment of
advanced services by all carriers. While section 272's intent, to
prevent an incumbent from leveraging market power in an anticompetitive
manner and thereby frustrating the purposes of the Act, has some bearing
on our analysis of the degree of separation between the SBC/Ameritech
incumbent and its advanced services affiliate, other considerations are
also present in the context of advanced services.[^830] In particular,
the Commission has an affirmative duty to encourage the rapid deployment
of advanced services pursuant to section 706(a) of the 1996 Act.[^831]
The conditions therefore attempt to strike a balance that ensures that
the separation requirements and safeguards are not outweighed by
countervailing burdens that may tend to stifle the deployment of
innovative technologies. While we are concerned that, to not be deemed
an incumbent LEC, section 251's purposes require a degree of separation
between an incumbent LEC and its advanced services affiliate, we also
seek to preserve, if possible, innovative business structures and
certain economies of scale and scope that will spur rapid deployment of
advanced services by all carriers, as specifically envisioned by
Congress.

457 Based on the case law and goals of the 1996 Act, and guided by the
separation principles established by Congress in section 272, we
conclude that, in determining whether an advanced services affiliate is
a successor or assign of an incumbent LEC, we must consider whether,
given the totality of the circumstances, "substantial continuity" exists
between the incumbent LEC and the affiliate. In order to ensure that
there is no substantial continuity between an incumbent and its advanced
services affiliate, we look for the presence of certain indicia.
Specifically, we evaluate whether: (1) there is identifiable physical
separation between the entities; (2) the incumbent LEC has not
transferred to its affiliate substantial assets or assets that are
necessary for the continuation of the incumbent\'s traditional business
operations;[^832] (3) transactions between the incumbent and affiliate
are conducted at arms-length and are transparent; and (4) the affiliate
does not derive unfair advantage from the incumbent.[^833] This approach
is intended to ensure that an advanced services affiliate is not, in
effect, standing in the shoes of an incumbent LEC and therefore rendered
a "successor or assign" of the incumbent. If, for example, the
affiliate\'s operations become too intertwined with the incumbent,
thereby frustrating the pro-competitive purposes of section 251, the
incumbent would be in a position to evade its obligations under section
251(c). We evaluate whether these indicia are present in the
SBC/Ameritech advanced services affiliate structure below.

#### Successor or Assign Analysis Applied to SBC/Ameritech Advanced Services Affiliates

458 We expect that, on the basis of the conditions as written, there
will be no substantial continuity between the SBC/Ameritech incumbent
LEC and its advanced services affiliate. Accordingly, we find that a
rebuttable presumption is established that SBC/Ameritech's advanced
services affiliate will not be a "successor or assign" of an incumbent
LEC[^834] or a BOC,[^835] and therefore not be subject to incumbent LEC
regulation under section 251.[^836] Our conclusion, however, is a
rebuttable presumption based exclusively on our analysis of the
permitted activities described in the conditions. As discussed above, a
successor or assign analysis is ultimately fact-based,[^837] and, at
this time, SBC/Ameritech's advanced services affiliate has yet to engage
in actual transactions with the incumbent or establish a course of
conduct that will shed light on the degree of continuity. We do not yet
know, for example, whether SBC/Ameritech will choose to lessen the risk
that its advanced services affiliate will be deemed a successor or
assign by adhering to a more stringent structural separation model than
that outlined in the conditions.[^838] We assume, however, for the
purposes of the instant discussion, that SBC/Ameritech and its
affiliates will conduct their operations by engaging in all of the
activities permitted in the conditions.

459 Commenters urge us to require SBC/Ameritech to provide advanced
services through a separate affiliate that complies fully with the
structural and transactional requirements of section 272.[^839] As an
initial matter, we note that section 272, by its terms, applies only to
manufacturing activities, in-region originating interLATA services, and
interLATA information services.[^840] Accordingly, the structure of an
SBC/Ameritech affiliate that provides advanced services need not be
dictated by section 272's framework.[^841]

460 The Applicants' proposal nonetheless adheres to most of the
structural and transactional requirements of sections 272(b), (c), (e),
and (g), as interpreted by the Commission. Deviations from these
requirements are expressly set forth in the description of activities
permitted between the SBC/Ameritech incumbent LEC and its advanced
services affiliate. Under the conditions, the separate advanced services
affiliate will be permitted: (1) to engage in joint marketing with the
SBC/Ameritech incumbent on an exclusive basis, which includes customer
contacts up to and including the sale (*i.e.*, the incumbent may perform
advanced services customer inquiries, sales, and order-taking); (2) to
engage in certain customer care activities with the incumbent on an
exclusive basis (*i.e.*, the incumbent may notify customers of service
order progress, respond to customer inquiries regarding the status of an
order, change customer account information, and receive customer
complaints other than those regarding receipt and isolation of trouble);
(3) to use the incumbent's brand name on an exclusive basis; (4) to
obtain billing and collection services from the incumbent on a
nondiscriminatory basis; (5) to obtain operation, installation and
maintenance (OI&M) services from the incumbent on a nondiscriminatory
basis; (6) to receive, within a limited grace period, from the incumbent
an initial transfer of assets used to provide advanced services; and (7)
to locate employees in the same buildings and on the same floors as
employees of the incumbent, provided that the underlying building
facilities are owned or leased by the affiliate. In addition, the
conditions permit the SBC/Ameritech incumbent to perform certain
activities on behalf of its affiliate on an exclusive basis for the
period of time during which SBC/Ameritech transitions to this separate
affiliate structure. Specifically, for a limited period, SBC/Ameritech
may provide network planning, engineering, design or assignment services
associated with advanced services to its affiliate, and receive and
isolate troubles affecting an advanced services customer on behalf of
the affiliate. Additionally, the SBC/Ameritech incumbent is permitted to
line share with its advanced services affiliate on an exclusive basis
until it provides line sharing to unaffiliated providers of advanced
services.

461 Using the indicia outlined above, we find that, assuming the
SBC/Ameritech advanced services affiliate strictly adheres to the
structure set forth in the conditions, or to a more stringent separation
structure, a rebuttable presumption is established that there will be no
substantial continuity between the SBC/Ameritech incumbent and its
advanced services affiliate and that the affiliate will thus not be a
successor or assign of the incumbent LEC.[^842] We believe that the
affiliate structure set forth in the conditions will ensure that an
SBC/Ameritech advanced services affiliate occupies a position in the
market comparable not to an incumbent, but rather to a non-incumbent
advanced services competitors.

462 *Identifiable Physical Separation*. We find that SBC/Ameritech's
compliance with the structural requirements of section 272(b)[^843]
ensures an identifiable level of physical separation between the
incumbent and its affiliate. Under these rules, the incumbent and its
affiliate will not jointly own transmission and switching facilities,
nor the buildings and land where switching and transmission facilities
are located.[^844] The affiliate will also not obtain credit under any
arrangement that would permit a creditor, upon default, to have recourse
to the assets of the incumbent.[^845] Additionally, the advanced
services affiliate will maintain separate officers, directors, and
employees from the incumbent.[^846] Although the SBC/Ameritech advanced
services affiliate is permitted to locate employees in the same
buildings and on the same floor as the incumbent's employees, the
conditions contain additional restrictions that mitigate the risk of
abuse or malfeasance in this case. Despite the potential proximity, the
affiliate must use only the same OSS systems, processes and procedures
that are available to unaffiliated entities, and the incumbent's
employees will conduct transactions with the affiliate in the same
manner in which they conduct transactions with unaffiliated entities.
For example, in communicating with the affiliate, the incumbent's
employees must use the same mode of communication that they use with
unaffiliated carriers (*e.g*., phone calls or email). Furthermore,
complying with the Commission's accounting safeguards protects
ratepayers of SBC/Ameritech's regulated services from bearing the risks
and costs associated with the affiliate.

463 *Asset Transfers*. We find that SBC/Ameritech will not be
transferring substantial assets or assets that are necessary to continue
the incumbent's traditional business operations.[^847] The conditions
permit the limited transfer of certain advanced services equipment to
the affiliate, but require that such transfers comply with the
Commission's affiliate transactions rules and accounting safeguards,
including the obligation that the transfer of facilities used to provide
advanced services be made at the higher of net book cost or estimated
fair market value.[^848] This safeguard ensures that the actual value of
the asset is reflected in the transfer, and will prevent SBC/Ameritech
from discriminating in favor of its affiliate through below-cost
transfers. In addition, although not explicitly discussed in the
conditions, we recognize that, shortly after the affiliate is created,
SBC/Ameritech will also be transferring other types of assets to its
separate affiliate including customer accounts, initial capital
contribution, and real estate, as well as employees.[^849] This limited
transfer of assets and employees necessary for the provision of advanced
services will not result in the transferring of a substantial portion of
the incumbent's assets[^850] or the shifting of the incumbent's
traditional business operations. The incumbent will continue to provide
traditional voice-based circuit-switched local services, as well as
other services, through the use of the assets and employees that remain
with the incumbent. Moreover, to the extent that our transactional
safeguards are applicable to these other asset transfers as well, such
safeguards continue to pre-ensure arms-length dealings.[^851] We
therefore find that a limited one-time transfer of such assets and
employees does not frustrate the statutory purpose of section 251, nor
manifest substantial continuity between the incumbent and its advanced
services affiliate. Rather, such transfers will further the
pro-competitive goals of the Act, section 706(a) of the 1996 Act in
particular, by facilitating a more efficient and competitive deployment
of advanced services to consumers.

464 Although the SBC/Ameritech incumbent is permitted to transfer
equipment to its affiliate, the permitted transfers only encompass
equipment that is used to provide advanced services. SBC/Ameritech is
explicitly not permitted to transfer UNEs or other equipment used
primarily to provide basic local services.[^852] All equipment transfers
between the incumbent and affiliate also must be conducted within a
limited grace period.[^853] We note also that the equipment transfers
are further limited by the requirement that any new advanced services
equipment must be purchased by the affiliate after 30 days from the
merger's closing. Allowing this limited transfer of advanced services
equipment will facilitate the affiliate's creation and prevent the
affiliate from having to duplicate investments that have already been
made by the SBC/Ameritech incumbent. Moreover, the limited transfer will
allow the affiliate to begin deploying advanced services to consumers
more quickly.

465 *Transactional Safeguards*. We find that adequate protection against
improper cost allocation exists in the affiliate structure contained in
the conditions. Structural separation, by itself, greatly assists in
deterring improper cost allocation.[^854] Additional protection against
improper cost allocation, however, is provided by SBC/Ameritech's
adherence to the requirements of sections 272(b)(5) and (c)(2), and the
Commission's implementing rules.[^855] Complying with the affiliate
transactions rules in this case therefore protects ratepayers of
regulated services from bearing the risks and costs associated with
competitive ventures while allowing for the provision of advanced
services in a competitive manner by all providers.[^856]

466 Specifically, consistent with section 272(b)(5), the conditions also
provide that the SBC/Ameritech incumbent will conduct all transactions
with its advanced services affiliate on an arm\'s length basis, with
transactions reduced to writing and timely posted on the company's
Internet website in accordance with the Commission's rules.[^857] In
this way, the relations between an SBC/Ameritech incumbent and its
advanced services affiliate will be highly transparent, which will
facilitate monitoring and enforcement of the condition's requirements.
The only respect in which the SBC/Ameritech incumbent and its affiliate
are permitted to deviate from these requirements is with regard to the
facilities and services that the affiliate will order out of its
interconnection agreement with the incumbent. Although these
transactions will not be made available consistent with the transaction
disclosure requirements of section 272(b)(45), SBC/Ameritech will comply
with all of the Commission's other transaction requirements. Moreover,
the interconnection agreement itself will be made publicly available
pursuant to the requirements of section 252, and SBC/Ameritech must
provide all such services and facilities to unaffiliated parties on a
nondiscriminatory basis. Moreover, the transactions will be audited by
the independent auditor as part of the thorough advanced services
affiliate audit. This audit, which will be conducted on an annual basis
by an independent auditor in accordance with industry standards, as well
as through any spot audits that may be conducted by Commission staff as
part of the Commission's regulatory oversight, should readily detect any
improper cost allocation.[^858] Given that these safeguards will assist
in detecting and deterring cross-subsidization and discrimination, we
find that transactions between the incumbent and affiliate are not
likely to manifest substantial continuity between the entities.

467 *Unfair Advantage*. For the most part, SBC/Ameritech will comply
with the requirements of section 272(c)(1) and will not discriminate
between its advanced services affiliate and any other entity in the
provision or procurement of goods, services, facilities, or information,
or in the establishment of standards.[^859] These safeguards are
intended to ensure that an affiliate will not derive unfair advantages
from the incumbent. The SBC/Ameritech advanced services affiliate must,
for example, obtain facilities necessary for the provision of advanced
services, such as local loops and collocation space, at the same rates
and using the same operations support systems interfaces and procedures
that are available to other competitive LECs. This gives the
SBC/Ameritech incumbent strong incentive to provide the necessary inputs
in an efficient, cost-effective manner that will benefit all providers
of advanced services and, ultimately, the public at large. Additionally,
the incumbent's provision of inputs to its advanced services affiliate
will serve as an important benchmark against which to measure its
performance to unaffiliated carriers.

468 We find that an SBC/Ameritech advanced services affiliate will not
derive unfair advantages from the activities between it and the
incumbent that are permitted under the conditions. First, with respect
to joint marketing, we note that section 272(g) expressly contemplates
that a BOC and its section 272 affiliate can jointly market and sell the
other's services, and, pursuant to section 272(g)(3), this joint
marketing would not violate the nondiscrimination provisions of section
272(c). Presumably, the section 272 affiliate would not be a successor
or assign of a BOC under section 251(h) and 3(4). We see no reason that
the SBC/Ameritech advanced services affiliate should be treated more
strictly than a section 272 affiliate. Moreover, permitting the
SBC/Ameritech incumbent and its advanced services affiliate to engage in
joint marketing activities will further the 1996 Act's objective of
spurring rapid deployment of advanced services to consumers by
facilitating the SBC/Ameritech affiliate's and incumbent's ability to
tailor the services offered in a manner that best suits the consumer's
needs.[^860] Given the nascency of the advanced services market, joint
marketing between an incumbent and its advanced services affiliate would
not confer an unfair advantage on the affiliate, particularly as other
entities are also able to engage in such marketing activities.

469 Although a closer question is presented by the exclusive provision
of customer care services (defined in the conditions as notification of
service order progress, response to customer inquiries regarding the
status of an order, changes to customer account information, and receipt
of certain customer complaints), we find that sharing these services
will not unfairly advantage the affiliate. Specifically, we find that
prohibiting such sharing of services would add unnecessary costs and
burden the affiliate in such a manner that its ability to be an
effective advanced services provider would be diminished. Moreover, we
believe that it would lead to customer confusion if a customer were not
permitted to track the progress of an order or modify account
information by placing a single phone call to the incumbent.

470 We conclude that, if we were to prohibit the sharing of joint
marketing and customer care services in this context, the ability of an
incumbent LEC and its advanced services affiliate to achieve the
economies of scale and scope inherent in offering an array of services
would be diminished without conferring benefits to justify the
prohibition.[^861] Moreover, we do not believe that the competitive
benefits of allowing an incumbent LEC and its advanced services
affiliate to achieve such efficiencies are outweighed by an incumbent
LEC\'s potential to engage in discrimination or improper cost
allocation. As described above, an incumbent LEC must allocate the cost
of such services between itself and its advanced services
affiliate.[^862] In addition, an agreement for an SBC/Ameritech
incumbent to provide joint marketing and customer care services to its
affiliate, or vice versa, constitutes a transaction between the
incumbent and affiliate. Accordingly, such transactions must be
conducted on an arm\'s length basis, reduced to writing, and made
available for public inspection. Such transactions, of course, also will
be inspected by the independent auditor, as noted above.

471 Allowing the SBC/Ameritech advanced services affiliate to use the
incumbent's brand name in this situation is also consistent with and
furthers the 1996 Act's objective to promote competition and innovation
in the local market. As with joint marketing, we note that section 272
does not prohibit the use of the BOC's brand name by its affiliate. In
this context, by permitting the advanced services affiliate to use a
widely-recognized brand name, SBC/Ameritech will be in a position to
bring new packages of services, lower prices, and increased innovation
to customers in a more expedient manner. Moreover, given the nascency of
the advanced services market, we do not believe it is unfair to permit
the affiliate to use the incumbent's brand name as other competitors may
have an equally well-recognized brand name, or an equivalent opportunity
to develop one. Accordingly, we find no basis for restricting the
affiliate's use of the incumbent's brand name in this case.

472 We decline to limit the advanced services affiliate's ability to
purchase UNEs from, or resell the retail services of, an SBC/Ameritech
incumbent LEC.[^863] The advanced services affiliate will not be not
precluded from providing local exchange services, such as local,
circuit-switched services,[^864] as long as it provides such services
bundled in conjunction with advanced services. The affiliate will also
be allowed to provide incumbent LEC resold services in the same manner
as any other competitive LEC. As long as the affiliate obtains services
and facilities from the incumbent LEC pursuant to a tariff or valid
interconnection agreement, the affiliate will stand in the same position
as any competitive advanced services provider and should therefore have
the same flexibility as competitors to provide "one-stop shopping" to
its customers. We find that the increased flexibility resulting from the
affiliate's ability to provide both advanced services along with
traditional local exchange services serves the public interest, because
such flexibility will encourage the advanced services affiliate to
provide innovative new services.[^865] Moreover, we note that the
conditions contain safeguards which should deter the affiliate from
pricing its retail services below the wholesale price it pays to the
incumbent.[^866]

473 Although the conditions permit SBC/Ameritech and its affiliate to
share operation, installation, and maintenance (OI&M) services, we do
not find that such sharing will confer upon the affiliate an unfair
advantage in the provision of advanced services. We reach this
conclusion for several reasons. First, although sharing of these
services is permitted, the conditions also provide that such services
will be made available to unaffiliated entities on a nondiscriminatory
basis. As such, there should be no difference in price or quality
between the OI&M services provided to the affiliate vis-a-vis
unaffiliated entities. Second, although we recognize that in the section
272 context the Commission prohibited the sharing of these functions, we
do not find such a prohibition to be required in the advanced services
context. For example, because the loop is used to provide both telephone
exchange services and advanced services, greater network integration is
required in the provision of advanced services than in the provision of
long distance services. Given this, allowing the SBC/Ameritech incumbent
to share these services with its affiliate, on the same basis that it
shares them with unaffiliated entities, will permit greater economies of
scope and enable the affiliate to be a more efficient competitor. Third,
as described above, the merger conditions require a rigorous internal
compliance program and annual audits. We believe that these mechanisms
will adequately deter SBC/Ameritech from favoring its affiliate in the
provision of OI&M services (as well as other services).

474 For similar reasons, we do not find that permitting the
SBC/Ameritech incumbent to provide billing and collection services to
its advanced services affiliate and other unaffiliated entities on a
nondiscriminatory basis would unfairly advantage the affiliate. We note
that the billing and collection services provided by the incumbent to
the affiliate will be made available to other advanced services
providers on a disaggregated basis that allows these unaffiliated
carriers to select the particular services that they desire from the
incumbent. Allowing this nondiscriminatory provision of billing and
collection services by the incumbent not only enables the affiliate to
receive greater economies of scope, but it may also enable unaffiliated
providers to be more efficient competitors, thereby accelerating the
deployment of advanced services by all carriers. Again, we find that the
conditions' internal compliance program and annual audit requirements
should deter and detect any preferential treatment.

475 We also find that the SBC/Ameritech advanced services affiliate will
not derive unfair advantage from the incumbent through the activities
that are permitted for a short, transitional period. We recognize that
because SBC/Ameritech had previously been performing such activities on
an integrated basis, it will take some time, both logistically and
technically, to remove these functions from the incumbent. We are
therefore persuaded that the incumbent's provision of these activities
on an interim basis to the affiliate is a reasonable measure to
effectuate the creation of the advanced services affiliate and its
orderly transition. Moreover, we note that the separate affiliate
requirement will not sunset until 36 months after the incumbent ceases
to process trouble reports on behalf of the affiliate on an exclusive
basis. As such, the conditions provide an incentive for the transitional
period to be a very limited one.

476 Although the discriminatory provision of line sharing ordinarily
would give us concern that the affiliate is deriving unfair advantage
from the incumbent, our concern is tempered in this case for two
reasons. First, exclusive line sharing is only an interim measure that
will disappear when the SBC/Ameritech incumbent provides line sharing to
unaffiliated entities. Second, during the period in which an
SBC/Ameritech incumbent provides interim line sharing to an affiliate,
competing providers will receive the economic equivalent of this
"interim line sharing" through a 50 percent discount on the use of a
second loop to provide advanced services. We are therefore persuaded
that the incumbent's provision of line sharing exclusively to the
affiliate does not confer an unfair advantage upon the affiliate in this
case.

### Requests Regarding Other Conditions

477 *Surrogate Line-Sharing Discount*. We reject the suggestion of
several carriers that we require the merged firm to make line sharing
available immediately to competitors.[^867] The Commission recently
issued a further notice of proposed rulemaking that sought comment on
operational, pricing and other practical issues associated with line
sharing.[^868] We find it more suitable to address these complex issues
in the context of the ongoing industry-wide rulemaking rather than this
merger proceeding.

478 We also decline to require that SBC/Ameritech delay offering line
sharing to its separate advanced services affiliate through its "interim
line-sharing" proposal until it offers line sharing on a commercial
scale to competitors.[^869] We do not find that permitting interim line
sharing between an SBC/Ameritech incumbent and its affiliate will
unfairly advantage the affiliate vis-à-vis competitors because through
the surrogate line sharing discount, unaffiliated carriers will be on
comparable economic footing with the SBC/Ameritech advanced services
affiliate.

479 *Access to Advanced Services Loop Information*. Some competing
carriers object that SBC/Ameritech is allowed 22 months after the merger
closing date to provide electronic access to advanced services loop
information (*i.e.,* the theoretical loop length) in the Ameritech
states.[^870] As noted above, unlike SBC, Ameritech purportedly does not
already have the necessary information in electronic form. Because, in
the Ameritech region, the SBC/Ameritech separate advanced services
affiliate will be disadvantaged in the same manner as competing advanced
services providers without electronic access to loop pre-qualification
information, we believe that SBC/Ameritech will have every incentive to
expedite its fulfillment of this condition.

480 *Nondiscriminatory Rollout* *of xDSL Services.* Some parties suggest
that this condition should affirmatively require SBC/Ameritech to adhere
to a timetable for deploying xDSL technology to rural and low-income
areas.[^871] Other commenters question when the Applicants' obligation
under this condition would become effective, and suggest that the
Commission require at least one low-income rural and urban wire center
among the first ten wire centers where the merged firm rolls out xDSL
service.[^872] Given the high market demand for advanced services, and
that a number of other conditions are designed to spur deployment of
advanced services and to benefit low-income consumers, we decline to
subject SBC/Ameritech to a specific timetable for advanced services
deployment, or to enforce the condition prior to deployment in twenty
wire centers. We note, however, that SBC/Ameritech will report the
status of its xDSL deployment, including deployment to low-income areas,
to the Commission on a quarterly basis.

481 *Carrier-to-Carrier Performance Plan*. We reject the suggestion of a
number of commenters that we impose the complete list of measurements
adopted by the Texas PUC or other state commissions, such as
California.[^873] We also decline to adopt other specific performance
measurements advocated by certain parties,[^874] or to make specific
changes in the proposal, such as altering the benchmarks or statistical
methodology.[^875] We reiterate that the Carrier-to-Carrier Performance
Plan constitutes the Applicants' voluntary proposal for monitoring and
remedying the specific potential public interest harms identified in the
instant merger, including the potential for increased discrimination by
the larger merged entity and the loss of another major incumbent LEC
benchmark. In contrast, performance programs that are being developed by
state commissions in the context of section 271 proceedings serve a
different purpose and may be designed to cover more facets of local
competition and to prevent a BOC from backsliding on section 271
obligations. The Carrier-to-Carrier Performance Plan that we adopt today
serves a more limited purpose, and hence has a more limited scope.
Moreover, we note that, to account for necessary revisions or updates,
the plan includes a semi-annual review of the plan's measurements by the
Chief of the Common Carrier Bureau and SBC/Ameritech. Significantly, the
Carrier-to-Carrier Performance Plan is only one component of a broad
package of voluntary merger safeguards proposed by the Applicants.
Measures that are sufficient as part of a comprehensive package of
safeguards in the present merger context may not be adequate in the
section 271 context.

482 Similarly, we decline to require parity across measurements between
different states, as suggested by the Indiana Utility Regulatory
Commission.[^876] We find that the plan is sufficient, for merger
purposes, to reduce the larger entity's increased incentive for
discrimination by giving its individual operating companies incentives
to treat competitors as they would SBC's or Ameritech's own retail
operations. Other merger commitments, such as the most-favored nation
and OSS conditions, address uniformity and the spread of best practices
across the merged firm's 13-state region.

483 Although some commenters also note that SBC/Ameritech's obligation
to make voluntary incentive payments under the plan commences later in
Connecticut than in the other SBC/Ameritech states,[^877] SBC has
indicated that in light of its recent acquisition of SNET, it needs
additional time to implement the payment obligations in that state.
Given this, and that the voluntary payment obligations for Connecticut
will extend for the full 36 month period, we find it reasonable for SBC
to allow additional time to conform its systems in Connecticut.

484 *Uniform Enhanced Operations Support Systems*. Although several
parties contend that the OSS enhancement implementation timelines are
too long and should be shortened,[^878] we are persuaded by the
Applicants' assertion that timelines contained in their commitments
"reflect the bare minimum time needed for successful implementation of
the required elements."[^879] Given that unification of the OSS systems
of SWBT, PacTel, SNET and Ameritech is a substantial undertaking, and
recognizing that the benefit of the OSS enhancements will be realized
for at least a full 36-month period, we deem the implementation
timelines reasonable. We expect SBC/Ameritech to design and build
reliable, error-free systems that will serve the needs of competitors
and their customers as efficiently as possible.[^880] Moreover, we note
that SBC/Ameritech has an incentive to expedite deployment of these
enhancements. For example, until SBC/Ameritech develops and deploys the
advanced services OSS enhancements and interfaces, and until those
systems are actually used by its separate advanced services for the bulk
of its pre-ordering and ordering, competitors will receive a 25-percent
discount on the recurring and nonrecurring charges for loops used in the
provision of advanced services. In addition, the maximum amount of
SBC/Ameritech's voluntary incentive payments in the third year of the
Carrier-to-Carrier Performance Plan decreases proportionately as the
firm implements the OSS enhancements, interfaces, and business
requirements ahead of schedule.

485 Competitors also assert that the July proposal's remedy of \$100,000
per business day, capped at \$10 million, for failure to meet the OSS
implementation schedules is not an adequate incentive for a company the
size of a combined SBC and Ameritech. With subsequent filings, the OSS
voluntary incentive payments are now \$110,000 per business day, capped
at \$20 million, which we find adequate to incent the company to satisfy
its obligations in a timely manner. In addition, unlike the initial
proposal, with the August Clarification, the payments will reach back to
the initial failure date, should a failure occur, which removes
incentive on SBC/Ameritech's part to delay arbitration.

486 Competitive carriers also seek to have the Commission require
third-party testing of the OSS enhancements and interfaces to ensure
that they are uniform, comply with applicable standards and guidelines,
and are scalable and workable, meaning that they support seamless
end-to-end interoperability for all five core OSS functions.[^881]
Although comprehensive third-party testing may be useful in other
contexts, such as section 271 proceedings, we decline to require
SBC/Ameritech to submit its OSS enhancements and interfaces to
third-party testing as part of these conditions.[^882] We find adequate
enforcement mechanisms at our disposal should SBC/Ameritech not develop
and deploy OSS enhancements and interfaces consistent with the
requirements of the conditions. Moreover, SBC/Ameritech has committed to
make significant voluntary incentive payments if it fails to deploy OSS
upgrades and enhancements in substantial compliance with the
collaborative agreement. This potential exposure should provide adequate
incentive for the merged firm to develop and deploy efficiently OSS
enhancements and interfaces that fully comply with the collaborative
agreement and are scalable and workable.

487 We also reject the other more specific changes to the OSS conditions
suggested by commenters. Several parties claim, for example, that the
conditions should define SBC/Ameritech's precise obligations under each
phase and for each obligation.[^883] We find that these are details that
will be addressed in the collaborative process. Ideally, the details of
implementing the uniform OSS enhancements and interfaces will be worked
out expeditiously in these workshop sessions. We find no reason to
prevent the voluntary participants, with the assistance of a neutral
arbitrator, if necessary, and oversight of the Common Carrier Bureau,
from determining the best manner in which to implement the requirements
of these conditions.[^884]

488 *Training in the Use of OSS for Qualifying Carriers*. CompTel
suggests that the Commission should lower the threshold for a carrier to
qualify for assistance under this condition,[^885] while other carriers
ask that this Commission, rather than state commissions, verify a
competitive LEC's status as a qualifying carrier.[^886] We decline to
take either suggestion. We find that limiting eligibility to those
competitive LECs that earn less than \$300 million in annual revenues
should adequately target those carriers in most need of assistance, and
thereby stimulate competitive entry.[^887] Further, we find that, given
state commissions' roles in certifying competitive LECs and monitoring
their activity within the state, they are best-suited for verifying the
status of a particular competitive LEC.

489 *Collocation Compliance*. We decline to alter the nature and design
of the collocation audits. Commenters suggest that the Commission should
exert more control to ensure neutrality and completeness,[^888] and that
the audit period should be extended.[^889] As indicated above, we find
that the independent audit procedures set forth in the conditions, with
participation by the Common Carrier Bureau, will ensure that
SBC/Ameritech is in compliance with all collocation requirements.

490 *Most-Favored Nation Arrangements*. We also reject requests by
commenters to change SBC/Ameritech's most-favored nation obligations.
Parties claim, for example, that the limitation in the out-of-region
provision that SBC/Ameritech must only provide an interconnection
arrangement or network element that had not previously been available by
that incumbent is unnecessarily restrictive.[^890] Instead, they urge us
to require SBC/Ameritech to offer, if requested, each interconnection
arrangement or UNE that SBC/Ameritech avails itself of outside of its
service territory, or every arrangement or UNE that is being offered by
the host incumbent. The change requested by these carriers, therefore,
could require SBC/Ameritech to provide in-region every interconnection
arrangement or UNE that is being offered by each incumbent in all 30
out-of-territory markets. We are concerned that such a requirement would
be inefficient and undermine the National-Local Strategy's goals. If
such a requirement were imposed, SBC/Ameritech might select cities to
enter by limiting the number of incumbent LECs whose territory it
enters, or by only entering areas where the incumbent offers less
diverse arrangements. Either strategy would undermine our expectation
that the merged firm will enter diverse geographic markets and become a
powerful competitive LEC as part of its National-Local Strategy. The
condition as written balances these policy considerations by ensuring
that SBC/Ameritech will not seek special arrangements outside its
territory that it would not offer to competitors inside its territory.

491 Several competitive LECs also urge us to require SBC/Ameritech to
make available in all 13 SBC/Ameritech states any interconnection
arrangement or network element that is available in any SBC or Ameritech
state, whether voluntarily negotiated or arbitrated.[^891] We decline to
expand the condition to arbitrated arrangements because doing so might
interfere with the state arbitration process under sections 251 and 252
of the Communications Act. We note that where SBC/Ameritech has
stipulated in arbitration proceedings that specific arrangements have
been determined through negotiation, these voluntary arrangements will
be available for "most-favored nation" treatment. If we required
SBC/Ameritech to import arbitrated terms and conditions from one state
into all others, then one state could effectively interpret the merged
firm's obligations under sections 251 and 252 for all other
states.[^892] For similar reasons, we decline to extend the condition to
reach the Proposed Interconnection Agreement (PIA) in Texas.[^893]

492 We also decline the request by some commenters that the condition
apply to interconnection agreements negotiated by Ameritech, Pacific
Bell or SNET prior to each entity's acquisition by SBC.[^894] We find it
reasonable for this condition to be implemented on a going-forward
basis, applying only to arrangements negotiated by an affiliate of SBC.
In this way, SBC/Ameritech, bearing in mind its commitment to implement
best practices, will be on notice as to which systems and procedures
could become uniform across its region. Furthermore, we find that the
technical feasibility exemption is not a loophole,[^895] for the
relevant state commission can ascertain what is possible in light of
state law and the technical capability of SBC/Ameritech's systems within
that state.

493 *Carrier-to-Carrier Promotions*. We also reject commenters'
suggestions that we eliminate the restrictions on the availability of
the carrier-to-carrier promotions. For example, commenters seek removal
of the limitation that competitors receiving the promotional unbundled
loop discount can only use these loops for voice services, as well as
the residential restriction and line limitation contained in each of the
three promotions.[^896]

494 We find that, by targeting the promotions to the residential market,
these conditions will bring more competitive offerings to residential
customers that have less choice today than large or medium-sized
business customers. Our desire to promote residential competition is
consistent with Congress's intent, through enacting the 1996 Act, to
spur facilities-based competition to serve residential customers.[^897]
Moreover, we find that the promotions' limited duration and line
limitations will motivate competing carriers to enter the residential
market faster to secure the benefit of the promotions, thereby
accelerating the availability of competitive offerings to residential
consumers.[^898] Once a carrier secures the promotion, however, it is
guaranteed the promotional terms for a full three-year period. Because
our intent is for these promotions to ignite competition in the
residential local exchange or exchange access markets in SBC's and
Ameritech's regions, we decline to expand this particular condition to
cover loops used in the provision of advanced services. Indeed, we note
that competitors that choose to use an unbundled loop to provide
advanced services receive greater discounts elsewhere in the
conditions.[^899]

495 We also reject arguments by certain competitive LECs that the
carrier-to-carrier promotions are unlawful in that they contradict core
premises of the Communications Act and Commission rules.[^900] First,
based on the manner in which SBC/Ameritech will execute its obligations,
we do not find that the residential and voice service restrictions
transgress the Act or corresponding Commission rules.[^901]
Specifically, SBC/Ameritech will implement the promotions by voluntarily
offering to amend its interconnection agreements with telecommunications
carriers to incorporate the promotional terms.[^902] Moreover,
SBC/Ameritech will make this offer in a nondiscriminatory manner to all
telecommunications carriers with which it has an interconnection
agreement in any SBC/Ameritech state.

496 The 1996 Act and corresponding Commission rules give incumbent LECs
and their competitors certain latitude to enter into customized
contractual arrangements, subject to section 252(i)'s requirement that
any negotiated arrangement must be made available to all interested
carriers. Section 252(a)(1) provides that "an incumbent local exchange
carrier may negotiate and enter into a binding agreement with the
requesting telecommunications carrier or carriers without regard to the
standards set forth in sections (b) and (c) of section 251."[^903]
Likewise, although section 252(e)(2) requires a finding of compliance
with section 251 when state commissions review arbitrated agreements,
there is no corresponding requirement with respect to negotiated
agreements.[^904]

497 Some commenters[^905] contend that the line limitation on the number
of discounted loops, resale and platform offerings that will be made
available to competitive LECs would violate the "pick and choose" rule
of section 252(i), as well as the general nondiscrimination requirements
of section 251(c)(3) and 251(c)(4)(B).[^906] We note that, under the
specific terms of the merger conditions, these promotions are being
offered to competitors in a nondiscriminatory fashion. Specifically, in
each of its states, SBC/Ameritech will offer the promotion
simultaneously to all telecommunications carriers that have an existing
interconnection and/or resale agreement with SBC or Ameritech, and, for
carriers that accept the promotion at any time within 10 business days
of the initial offer, SBC/Ameritech will simultaneously file the
amendments with the relevant state commission for approval. These
measures should ensure that all competitive LECs operating in
SBC/Ameritech's region will be afforded an equal opportunity to
participate in the promotions. Moreover, carriers that begin operating
in SBC/Ameritech's region, or decide to participate in the promotions,
after this initial offer period will have the opportunity to participate
in the offerings, and SBC/Ameritech will respond to their inquiries
within 10 days. To this end, SBC/Ameritech will notify all carriers
operating in the state when 50 percent and 80 percent of the maximum
lines in that state are reached.

498 *Offering of UNEs*. Several commenters criticize SBC and Ameritech
for not committing to provide indefinitely the UNEs described in section
51.319 of the Commission's rules, regardless of the outcome of the UNE
Remand proceeding.[^907] Certain cellular carriers also ask that the
condition explicitly recognize extended local calling area arrangements,
commonly known as reverse billing arrangements, in order to prevent the
merged firm from terminating Ameritech's existing extended local calling
area arrangements.[^908] We emphasize that this condition has practical
effect only in the event that the Commission's rules in the UNE Remand
proceeding are stayed or vacated. Until that time, SBC/Ameritech will
comply with the unbundling rules mandated by the Commission in the UNE
Remand proceeding.

499 *Alternative Dispute Resolution Through Mediation*. We reject
Covad's request that we expand the ADR process to permit multi-state
mediations of similar or common issues.[^909] As noted above, a core
component of the optional alternative dispute resolution process set
forth in the conditions is the voluntary participation of state
commission staff, which, we anticipate, will assist carriers in getting
disputes resolved quickly. Multiple states, therefore, may choose to be
involved but we do not require such participation in this Order.

500 *Access to Cabling in Multi-Unit Properties*. Parties generally
support the conditions related to accessing cabling in multi-unit
premises, but request that the Commission make the trial more
comprehensive. ALTS, for example, comments that the proposed trial
excludes buildings that contain only medium-sized and large commercial
tenants.[^910] We find that the cabling trials are sufficient to address
their intended purpose, which is verifying the technical feasibility and
costs of such offerings, and therefore decline to alter the features of
the trials. Moreover, we believe that the Applicants' commitment to
provide carriers with access to LEC owned or controlled cabling behind a
single point of interconnection for multi-unit properties and campuses
of garden apartment dwellings will significantly further competitors'
access to cabling. We also note that, in addition to these conditions,
SBC/Ameritech will comply with any rules resulting from the UNE Remand
proceeding.

501 *Out-of-Territory Competitive Entry (National-Local Strategy)*. Some
commenters claim that the condition establishing milestones for the
Applicants' National-Local Strategy does not go far enough in advancing
residential competition, and therefore urge us to strengthen
SBC/Ameritech's residential entry requirements.[^911] The Consumer
Coalition, for example, suggests that, rather than simply buying up
competitive LECs, the merged firm should have to meet at least half of
its build-out commitments with new facilities.[^912] Imposing these
additional restrictions would severely limit the Applicants' ability to
undertake innovative business strategies or ventures with other firms.
We anticipate that the presence of SBC/Ameritech, a large, experienced
incumbent LEC, as a facilities-based competitor in 30 markets will
foster competition in those market. We find that the entry requirements
included within the Applicants' proposed condition are sufficient to
ensure that SBC/Ameritech provides meaningful, facilities-based service
outside its territories.

502 *Enhanced Lifeline Plans*. We reject the requests of some commenters
that we impose additional requirements on SBC/Ameritech's offer of
enhanced Lifeline plans.[^913] We also decline to obligate the merged
firm to provide community voice mail services or community technology
centers for residential customers in low-income areas.[^914] Although
these additional requirements would benefit low-income consumers, SBC
and Ameritech point out that such matters are being addressed at the
state level.[^915] We find that the Applicants' commitment to offer
states an enhanced Lifeline plan, which was significantly strengthened
after the comment period, will provide substantial direct benefits to
low-income residential consumers.

503 *Independent Auditor*. We disagree with arguments by commenters that
we should not rely on independent audits because the auditor may not
retain an appropriate degree of independence.[^916] The Commission is
not delegating its enforcement and investigative authority, or its
responsibility to enforce the Act, to either the independent auditor or
the Applicants.[^917] Instead, we are adopting the Applicants' plan that
involves using an independent audit as a cost-effective tool to
supplement the Commission's normal processes and procedures. The
Commission has the authority to use independent auditors to supplement
our usual investigative the authority,[^918] and we have extensive
experience with this method for ensuring compliance with our
rules.[^919] Independent audits, combined with targeted on-site audits
conducted by Commission staff and thorough reviews of the auditor's
working papers, have proven largely successful in ensuring compliance
with the Commission's accounting safeguards.[^920] Furthermore, the
independent audit requirement in the 1996 Act indicates that independent
audits are useful tools for evaluating compliance with structural,
transactional, and nondiscrimination requirements.[^921] Likewise, we
view the success that other federal agencies have had with independent
audit programs as further evidence that the audit provisions will be an
effective tool for ensuring compliance with the conditions.[^922]

504 By relying on auditing industry standards, the condition ensures
that SBC/Ameritech will engage a technically proficient licensed
auditor, and that the auditor will exercise due care in performing the
audit and obtain sufficient evidence needed to support its
findings.[^923] Because the auditor will evaluate the sufficiency of
SBC/Ameritech's internal control structure, the conditions provide for
an assessment of the merged firm's ability to comply on an ongoing
basis, and thereby establish a heightened compliance standard.
Furthermore, Commission oversight of the audit process and the public
disclosure of the auditor's report further convince us that the
independent auditor will perform the engagement to our
satisfaction.[^924] We anticipate that Commission review of the
auditor's working papers, and the public disclosure of the auditor's
detailed final report, will provide additional assurances regarding the
thoroughness of the audit and the auditor's independence.[^925] The
Commission can take appropriate action, including terminating the
independent auditor, in the event problems arise related to the conduct
of the audit.

505 Although the independent audit will provide a systematic means of
evaluating SBC/Ameritech's compliance, we are aware of inherent
limitations in the audit process.[^926] Most notably, an independent
audit does not guarantee discovery of noncompliance or illegal
acts.[^927] Because detection of noncompliance is not guaranteed, an
auditor's report that fails to note any exceptions does not preclude an
individual from filing a complaint with the Commission or the courts and
a subsequent finding of noncompliance.[^928] Finally, we stress that the
independent auditor's failure to uncover noncompliance does not free
SBC/Ameritech from its responsibility to ensure compliance with the
conditions.

506 We decline to adopt commenters' suggestions that we establish a
formal mechanism for participation in the audit process by state
commissions and others.[^929] The audit provisions contained under these
conditions, however, are not implemented pursuant to section 272(d). We
recognize that the state commissions have valuable insight into on-going
issues and problems in the telecommunications industry,[^930] and we
stress that the Commission will work closely with the state commissions
on an informal basis regarding SBC/Ameritech's compliance with these
conditions. Pursuant to long-standing delegated authority, the Common
Carrier Bureau may cooperate with state commissions by coordinating
compliance and enforcement activities and sharing information gathered
in the course of audits.[^931] Moreover, we note that, under the
conditions, SBC/Ameritech will ensure that the independent auditor
provides access to its working papers to state commissions, thereby
alleviating some concerns raised by the states.

507 Although the conditions establish clear deadlines for completing the
audit planning and preparation work, and for submitting the independent
auditor's report, some commenters raise concerns with the September 1
deadline, arguing generally that the submission deadline will provide a
lengthy delay in learning about potential problem areas.[^932] These
concerns are addressed by the obligation to use AICPA standards, which
require the independent auditor to perform procedures designed to
identify additional information about SBC/Ameritech's compliance after
the end of the relevant calendar year but before the submission of the
final report.[^933] In addition, we expect that the requirement for
SBC/Ameritech to notify the independent auditor and the Commission of
its on-going progress, as well as the other public disclosure
requirements and the corporate compliance program, will ensure prompt
and complete notification of potential problem areas. Furthermore, with
respect to concerns regarding the timing of the independent audit of the
advanced services affiliate provisions,[^934] we note that under the
conditions the implementation schedule is accelerated if the merger
closing date occurs late in the calendar year.[^935] Finally, the
conditions establish a mechanism by which the Commission can evaluate
the effectiveness of the audit program and determine the need for any
modifications or improvements.

508 *Enforcement*. We have carefully evaluated the conditions to ensure
that the Applicants have not proposed mere paper promises. We find that
the corporate compliance program, independent audit, public disclosure
requirements, and specificity of the conditions will ensure that these
conditions produce meaningful and effective change. Despite some
objection from commenters,[^936] we find that that the conditions
contain clear and specific language defining SBC/Ameritech's
obligations, which will greatly facilitate compliance and enforcement
efforts that may arise. The conditions also specify deadlines and
implementation schedules for several of SBC/Ameritech's obligations. We
recognize that our experience administering these conditions over time
may reveal overlooked ambiguities. As with all of the Commission's
regulations, we have the authority to interpret these conditions.[^937]
We plan to interpret any ambiguity in manner consistent with the
underlying intent of the conditions and in accordance with our normal
processes and procedures.

509 Several commenters urge the Commission to require satisfaction of
all or most of the conditions prior to consummation of the merger.[^938]
Claiming that the merger is a reaction to current industry trends, the
Applicants respond that further delay would drain the companies'
business operations and impede strategic and day-to-day
decision-making.[^939] We have balanced these considerations and find
that the conditions contain specific, concrete requirements which will
facilitate post-merger enforcement. The conditions also require
completion of certain tasks prior to consummation of the merger, which
include: (1) filing a collocation tariff and/or offering to amend
interconnection agreements to reflect standard terms and conditions for
collocation; (2) incorporating separate advanced services affiliates,
seeking necessary state certifications and approvals and negotiating and
filing interconnection agreements between SBC/Ameritech incumbent LECs
and their advanced services affiliates; (3) filing an OSS Process
Improvement Plan with the Commission; and (4) engaging an independent
auditor for the ten-month collocation audit and the first annual
compliance review. A number of the obligations imposed upon SBC and
Ameritech also take effect within 10 or 30 days of the merger's closing
date. We find that the pre-merger obligations are adequate to ensure
that SBC and Ameritech will have set in motion, prior to the merger,
processes and actions that are necessary to bring the conditions to
fruition in a speedy manner. Given the comprehensive enforcement
mechanisms contained in the conditions, we also decline to require the
merged firm to post a bond to ensure compliance with these
conditions.[^940]

510 *Sunset*. Some parties object that the three-year expiration of the
Applicants' proposed conditions is inadequate,[^941] and suggest that
the conditions should remain in place as long as necessary to serve
their intended purpose.[^942] We note that in August the Applicants
clarified their commitments to provide, in general, at least 36 months
of benefit for each condition. We find that this three-year period of
benefit is sufficient for this merger proceeding, given the rapidly
changing telecommunications industry.[^943]

511 *Effect of Conditions*. A common concern expressed by state
commissions, competitors and several other parties is that the
Applicants' commitments will set the bar for other state and federal
proceedings, particularly ongoing or anticipated proceedings to
implement sections 251 and 271 of the Act.[^944] This is certainly not
our intention; nor should these conditions have that effect. As
explained above, the conditions that we adopt today are in no way
intended to define what is required under, for example, sections 251 or
271, and SBC/Ameritech's compliance with these conditions does not
signify that it will satisfy its nondiscrimination obligations under the
Act or Commission rules. We emphasize that the performance measures that
are part of this merger-related conditions package should not be viewed
by states, BOCs, or competitors as sufficient, let alone optimal,[^945]
measures to demonstrate a BOC's compliance with section 271 or to
satisfy the public interest standard in that context. Rather, these
measures constitute a package of voluntary commitments proposed by the
Applicants to resolve issues and concerns that are peculiar to this
merger.[^946]

512 Some parties also object to the paragraph in the Applicants'
proposal that states that the expiration of a condition will not be
considered in the Commission's public interest analysis of a section 271
application.[^947] We note that these conditions are stand-alone
obligations adopted as conditions to our approval of SBC/Ameritech's
application to transfer licenses and lines. Provided that SBC/Ameritech
complies fully with the letter and spirit of the conditions, the
expiration of any obligation in accordance with the conditions will not
affect other proceedings.

513 *Section 271 Approval Pre-Merger*. Several commenters in this
proceeding, including the attorneys general of Indiana, Michigan,
Missouri and Wisconsin, have suggested that we require SBC and Ameritech
to obtain authorization to provide in-region, interLATA services in at
least a majority of each company's in-region states prior to
consummation of the merger.[^948] According to these commenters, the
section 271 approval process assures the Commission that SBC and
Ameritech have sufficiently opened their local markets to competition.
Requiring section 271 authorization pre-merger, these commenters claim,
would have the benefit of being directly responsive to the competitive
conditions that underlie the harms, while providing strong incentive for
the companies to complete their market-opening obligations imposed under
the 1996 Act, and avoiding enforcement problems created by prior
post-merger conditions.[^949] The commenters also note that the
Applicants, themselves, consider section 271 approval as a necessary
prerequisite for success of their National-Local Strategy.[^950]

514 Although imposing such a condition may provide the Commission with
assurance regarding the openness of the Applicants' markets, we do not
consider pre-merger section 271 approval to be the only means at the
Commission's disposal in this merger proceeding to achieve a level of
confidence that the Applicants have opened their market sufficiently and
that the proposed transaction will advance the public interest. In the
instant proceeding, we find that the Applicants have voluntarily
submitted a set of conditions that suffice to demonstrate that the
merger, on balance, will serve the public interest. We therefore decline
to impose a pre-merger section 271 approval condition in this
proceeding. Similarly, we reject the suggestion of some parties that we
require SBC and Ameritech to demonstrate pursuant to section 271 that
effective competition exists throughout its entire region, rather than
in the state for which the company applied for section 271
authorization.[^951]

515 *Level 3 Structural Split*. We also reject Level 3's request that we
condition the merger on "planning" for loop divestiture, or a structural
solution that isolates the BOCs from control of the local loops.[^952]
We find that the conditions contain adequate safeguards, such as
requiring a separate affiliate for the provision of advanced services,
that mitigate SBC/Ameritech's increased incentive and ability to
discriminate against rivals as a result of the merger.

516 *Divestiture of Alarm Services*. We discuss in Section VIII.C below
the Alarm Industry Communications Committee's (AICC's) claim that
section 275 of the Communications Act requires Ameritech to divest
ownership of its SecurityLink alarm services subsidiary to an
independent, unaffiliated entity prior to the merger.[^953]

517 *Enhanced Extended Links*. We decline to require SBC and Ameritech
in this proceeding to offer enhanced extended links as an UNE.[^954] We
find that the legal, technical and policy implications of deeming
enhanced extended links as UNEs are better addressed in the context of
an industry-wide rulemaking.[^955] Moreover, we note that some state
commissions have required incumbent LECs to offer enhanced extended
links.

518 *Other Conditions*. We also reject, as contrary to the 1996 Act, the
request that we require the Applicants to resell voicemail
services.[^956] We also find it inappropriate to require the merged firm
to affirmatively urge repeal of state legislative measures that prevent
public power utilities from providing telecommunications services.[^957]
To the extent that other commenters suggest conditions aimed at curbing
specific conduct on the part of SBC and/or Ameritech, such as winback,
directory listings and paging practices or compliance with reciprocal
compensation provisions,[^958] we find that these concerns are best
addressed in the context of enforcement proceedings.

# OTHER ISSUES

## Wireless Services

### Wireless Service Offerings

519 Various subsidiaries of SBC hold commercial mobile radio service
(CMRS) licenses. PBMS provides in-region personal communications
services (PCS) and SWBW operates both in-region cellular and PCS
franchises. SBMS provides out-of-region cellular services in Chicago,
Boston, Baltimore/Washington D.C., and upstate New York.[^959] Through
its recent acquisition of SNET, SBC provides cellular, PCS, and paging
services in portions of New England.[^960] SBC has also recently
acquired Comcast Cellular Corp., which has cellular operations in the
mid-Atlantic region and in the greater Chicago area.[^961] Ameritech
operates 42 cellular franchises, serving 3.5 million customers in
markets totaling 20 million residents. In addition, Ameritech now offers
PCS in the Cleveland and Indianapolis MTAs.[^962] Ameritech also
provides paging services to 1.5 million customers collectively within
its five-state wireline territory, Minnesota and Missouri.[^963]

### Relevant Markets

520 Both parties provide mobile voice telephone service over cellular
and PCS networks and two-way mobile data (CDPD) over cellular
networks.[^964] Ameritech currently provides cellular, paging, wireless
data and security monitoring services in SBC's region.[^965] Aside from
its cellular operations, SBC's commercial offerings of wireless services
in Ameritech's territory are limited to the resale of paging services.
The Wireless Bureau has previously found that interconnected mobile
voice telephone services, paging/messaging services, and two-way
wireless data services constitute relevant product markets.[^966] Hence,
we examine the effects of the merger on the public interest in mobile
voice telephone services, wireless data services, and paging services.
We also address concerns raised with respect to commercial disputes
involving wireless operations generally.

### Mobile Voice Telephone Services

521 SBC and Ameritech both hold cellular telephone licenses in 14
cellular service areas in the greater St. Louis and Chicago metropolitan
areas.[^967] Thus, the proposed merger implicates the Commission's
cellular cross-interest rule, which generally prohibits an entity from
holding a direct or indirect ownership interest in licensees for channel
blocks in overlapping cellular geographic service areas ("CGSA").[^968]
The proposed merger also raises issues under the CMRS spectrum cap,
which generally prohibits a licensee from having an attributable
interest in more than 45 MHz of CMRS licensed spectrum in the same
geographic area.[^969] SBC/Ameritech have committed to divest one of the
overlapping systems in each of these 14 Metropolitan Statistical Areas
(MSAs) and Rural Service Areas (RSAs).[^970]

522 On May 14, 1999, the Wireless Telecommunications Bureau, by
delegated authority, announced that Ameritech had filed applications
seeking Commission consent to transfer to GTE Consumer Services Inc.
(GCSI) control of cellular properties that overlap with SBC and Comcast
properties.[^971] On August 20, 1999, the Bureau granted these
applications.[^972] Consummation of that transaction pursuant to this
approval will remedy cellular cross-ownership and spectrum cap concerns
raised by the SBC/Ameritech transaction. Therefore, we will grant this
application subject to the condition that Ameritech closes its deal with
GCSI before or simultaneous with the closing of the SBC/Ameritech
transaction.

523 We note that Ameritech's divestiture of assets is also consistent
with the DOJ Consent Decree entered into by Applicants in connection
with this proposed merger. DOJ also reserved the right to approve the
proposed buyer of the divested assets to ensure that the divestiture
would not harm competition by substituting a less robust
competitor.[^973] This concern was also voiced by several parties who
feared that Ameritech would attempt to impede competition by assigning
its cellular licenses to one or more parties unable to compete
effectively against the combined SBC/Ameritech.[^974] DOJ has approved
Ameritech's divestiture of the licenses to GCSI and we agree that
competition would not likely be harmed in these wireless markets.[^975]
Thus, we find that the commenting parties' concerns have been addressed.

### Two-way Wireless Data Services

524 We find no basis for concern that the proposed merger will harm
competition in the markets for wireless data services. First, SBC does
not presently offer CDPD in any region where its cellular network
overlaps that of Ameritech, so the proposed merger would not harm
existing competition. Second, any concerns regarding the loss of
potential competition are addressed by the divestiture of cellular
assets as described above. Finally, no concern was raised by any
commenter.

### Paging Services

525 Some parties contend that we should not grant this application
because SBC has failed to abide by the Commission's interconnection
rules.[^976] The Paging and Messaging Alliance of the Personal
Communications Industry Association (PMA) submits that SBC continues to
charge paging providers for SBC-originated traffic and refuses to pay
compensation to paging carriers for terminating SBC-originated
calls.[^977] PMA also states that when SBC assumed control of Pacific
Bell, negotiations with Pacific Bell regarding the terms of
interconnection came to an immediate halt.[^978] SBC reports that the
issue of interconnection is a "good faith" dispute that is currently
pending before a federal court, before the FCC and before the California
PUC.[^979] SBC believes that the reciprocal compensation provisions of
the Act were intended to apply only to two-way communication.[^980]
Except in California, therefore, where a California PUC Order
specifically addresses this issue, SBC does not pay reciprocal
compensation for one-way paging. This matter is the subject of a
separate proceeding at the Commission and need not be resolved in the
context of this license transfer review.[^981]

### Other Competitive Issues

526 Several parties claim that we should not grant these applications
because of pending disputes with SBC. We find, however, that none of
these commenters has raised concerns that would preclude our grant of
this application. Several commenters allege that SBC's acquisition of
Ameritech may jeopardize the ability of AirTouch to provide "calling
party pays" service.[^982] However, the California PUC recently denied a
petition by AirTouch to compel Pacific Bell to provide billing and
collection for a CPP trial based on Pacific Bell's tariff for billing
and collection of wireless services.[^983] The denial was based on
language in a prior California PUC decision prohibiting a LEC from
billing its wireline customers at wireless rates for calls placed to
wireless phones.[^984] As we previously discussed in our order approving
the SBC/SNET merger,[^985] however, we find that this is not an
appropriate forum for resolving these disputes.

## International Issues

527 Subsidiaries of both SBC and Ameritech are authorized under section
214 of the Act to provide U.S. international service on an out-of-region
basis.[^986] Both SBC and Ameritech also have ownership interests in
carriers that operate on the foreign end of U.S. international routes.
Some of these interests rise to the level of an \"affiliation\" within
the meaning of section 63.09. This application raises the issue whether
the public interest would be served by permitting the merged entity to
provide U.S. international service on these affiliated routes and, if
so, under what terms. We consider first the foreign carrier affiliations
of SBC and the issues raised by those affiliations in this transfer
proceeding. We then consider the affiliations of Ameritech and issues
raised by those affiliations.

### SBC Foreign Carrier Affiliations

528 As a result of the merger, Ameritech\'s international carrier
subsidiaries would become newly-affiliated with all of SBC\'s foreign
carrier affiliates.[^987] SBC\'s foreign carrier affiliates operate in
South Africa (Telkom South Africa Ltd.) and Switzerland (diAx).[^988]
Ameritech holds section 214 authorization to serve each of these foreign
points, and the Applicants request that we authorize a transfer of
control of all of Ameritech\'s international authorizations to
SBC.[^989] Our approval of the Application thus would permit
SBC-controlled subsidiaries to serve these affiliated routes. This
Application raises for our consideration the issue whether the public
interest would be served by permitting SBC to provide U.S. international
service between the United States and South Africa and Switzerland
through its acquisition of control of Ameritech\'s international section
214 certificates. If we approve the proposed transfer of control of
Ameritech\'s authorizations to SBC, we also must inquire whether SBC\'s
affiliates in South Africa or Switzerland have sufficient market power
to warrant classifying the combined entity\'s U.S. international carrier
subsidiaries as \"dominant\" U.S. international carriers on either of
these routes. We conclude that the public interest would be served by
transferring control of Ameritech\'s international section 214
authorizations to SBC, subject to classification of SBC subsidiaries as
dominant international carriers in their provision of service on the
U.S.-South Africa route.

529 The rules and standards adopted in the Commission\'s *Foreign
Participation Order* govern our decision whether, and on what terms, to
authorize SBC to provide service on routes where SBC has affiliations
with foreign carriers.[^990] In that decision, the Commission adopted an
open entry standard for applicants that request authority to serve a
World Trade Organization (WTO) member country in which the applicants
have a foreign carrier-affiliate. Previously, the Commission applied the
\"effective competitive opportunities (ECO)\" test to certain applicants
that sought to provide service on routes where an affiliated foreign
carrier possessed market power.[^991] In the *Foreign Participation
Order*, the Commission eliminated the ECO test in favor of a rebuttable
presumption that applications for international section 214 authority
from applicants affiliated with foreign carriers in WTO member countries
do not pose concerns that would justify denial of the application on
competition grounds.[^992] The Commission retained the ECO test for
certain applicants that seek to serve non-WTO countries in which the
applicant has an affiliation with a foreign carrier possessing market
power.[^993] The Commission also considers other public interest factors
that may weigh in favor of, or against, granting an international
section 214 application, including national security, law enforcement,
foreign policy and trade concerns.[^994]

530 Both South Africa and Switzerland are members of the WTO.
Accordingly, we find that SBC is entitled to a presumption that its
foreign carrier affiliations do not raise competition concerns that
would warrant denial of its request to serve the U.S.-South Africa and
U.S.-Switzerland routes through its acquisition of control of
Ameritech\'s international section 214 certificates. We note that no
party has filed comments that address specifically the international
transfer application, and we find no public interest factors that would
warrant denying SBC\'s request to acquire control of Ameritech\'s
international section 214 authorizations.

531 We next examine whether it is necessary to impose our international
dominant carrier safeguards on SBC\'s international carrier subsidiaries
in their provision of service on these affiliated routes.[^995] Under
rules adopted in the *Foreign Participation Order*, we regulate U.S.
international carriers as dominant on routes where an affiliated foreign
carrier has sufficient market power on the foreign end to affect
competition adversely in the U.S. market.[^996] A U.S. carrier
presumptively is classified as non-dominant on an affiliated route if
the carrier demonstrates that the foreign affiliate lacks 50 percent
market share in the international transport and local access markets on
the foreign end of the route.[^997] Section 63.18 of the rules requires
SBC, as transferee in this proceeding, to demonstrate that it qualifies
for non-dominant classification on any affiliated route for which it
seeks to be regulated as a non-dominant international carrier. The Joint
Application recognizes that SBC\'s affiliate in South Africa, Telkom
South Africa Ltd., is the incumbent telecommunications carrier in South
Africa, and unlike the case of its Switzerland affiliate, SBC does not
assert that Telkom South Africa lacks market power. We therefore amend,
effective upon consummation of the proposed merger with SBC, the
international section 214 authorizations held by Ameritech
Communications, Inc. (ACI), File Nos. ITC-96-441 and ITC-97-289, to
apply dominant carrier regulation, as specified in section 63.10 of the
rules, to its provision of the authorized services on the U.S.-South
Africa route.[^998]

532 We note that SBC and Ameritech subsidiaries currently have section
214 authority to resell the switched services of unaffiliated U.S.
international carriers to South Africa and are classified as
non-dominant in their provision of such service. We find that, upon
consummation of the merger, each of SBC\'s subsidiaries will warrant
continued regulation as non-dominant providers of switched services to
South Africa for so long as each provides such services only through the
resale of unaffiliated U.S.-authorized carriers\' switched
services.[^999] SBC subsidiaries are and will be required, however, to
file quarterly reports of their switched resale traffic on this
route.[^1000]

533 We find that SBC has provided sufficient information to demonstrate
that its affiliate in Switzerland lacks market power and that it
therefore warrants non-dominant carrier treatment on the
U.S.-Switzerland route. SBC represents that its affiliate lacks 50
percent market share in the international transport and local access
markets in Switzerland,[^1001] and there is no evidence in the record
that contradicts this statement or otherwise suggests that SBC\'s
affiliate has market power.

### Ameritech Foreign Carrier Affiliations

534 Ameritech has investment interests in several foreign carriers that
rise to the level of an affiliation under section 63.09 of the
rules.[^1002] Ameritech identifies the following foreign carrier
affiliates: MATAV Rt (Hungary), Tele Danmark A/S (Denmark), Talkline
(Germany and the Netherlands), BEN Netherland B.V. (the Netherlands),
and UAB Mobilios Telekomunikacijos or \"Bite\" (Lithuania).[^1003] In
the case of Tele Danmark, Talkline, and Bite, Ameritech\'s investment
interests constitute controlling interests.[^1004]

535 As a result of the proposed merger, SBC would acquire indirectly
Ameritech\'s ownership interests in MATAV, Tele Danmark, Talkline, BEN
Netherlands and Bite. The controlling interests that SBC would acquire
in Tele Danmark, Talkline, and Bite trigger a pre-merger notification
requirement under section 63.11(a) of the rules. This provision
requires, in relevant part, that authorized carriers notify the
Commission sixty days prior to acquiring, directly or indirectly, a
controlling interest in a foreign carrier.[^1005] As explained in the
*Foreign Participation Order*, the prior notification requirement of
section 63.11 gives the Commission the opportunity to evaluate new
affiliations under the entry standards adopted in that order.[^1006]

536 In this case, section 63.11(a) directs us to determine whether, upon
consummation of the proposed merger, it would continue to serve the
public interest to allow SBC\'s carrier-subsidiaries to serve Denmark,
Germany, the Netherlands and Lithuania, where SBC proposes to acquire
controlling interests in foreign carriers as a result of its merger with
Ameritech. Applying the entry standard of the *Foreign Participation
Order*, we conclude that the public interest would continue to be served
by SBC\'s provision of service, through all its authorized subsidiaries,
on U.S. international routes to Denmark, Germany and the Netherlands.
Each of these countries is a member of the WTO,[^1007] and we find no
other public interest factors that would warrant a different conclusion.
SBC does not assert, however, that Tele Danmark lacks sufficient market
power in Denmark to affect competition adversely in the United States.
We therefore amend, effective upon consummation of the proposed merger
with Ameritech, the international section 214 authorizations held by
certain of SBC\'s currently authorized subsidiaries to apply dominant
carrier regulation, as specified in section 63.10 of the rules, to their
provision of the service on the U.S.-Denmark route.[^1008] We note that
ACI already is classified as a dominant carrier in its provision of
service on this route.

537 We find that, after the merger, SBC subsidiaries would be subject to
continued regulation as non-dominant carriers to Germany and the
Netherlands. The record indicates that Talkline currently provides
mobile communications services in Germany and resold cellular service in
the Netherlands.[^1009] As we have previously found in our 1998 Biennial
Regulatory Review of international common carrier regulations, foreign
carriers that operate solely on a resale basis, or that have only mobile
wireless (and no wireline) facilities, are unlikely to raise market
power concerns.[^1010]

538 Although SBC proposes to acquire Ameritech\'s controlling interest
in Bite in Lithuania, which is not a member of the WTO, we find that the
public interest would continue to be served by SBC\'s authorization to
provide service on this route. Bite is authorized in Lithuania to
provide mobile wireless service only.[^1011] On this basis, and in the
absence of any other evidence of market power, we conclude that Bite
lacks sufficient market power to affect competition adversely in the
United States.[^1012] Accordingly, we find that SBC\'s investment is
consistent with the entry policies adopted in the *Foreign Participation
Order* for carriers from non-WTO countries.[^1013] We also find that,
after the merger, SBC subsidiaries would be subject to continued
regulation as non-dominant international carriers between the United
States and Lithuania.

## Alarm Monitoring

### Overview

539 The Alarm Industry Communications Committee (AICC) argues that, if
SBC is permitted to take control of Ameritech's alarm monitoring
business, by means of acquiring Ameritech, and makes it a wholly-owned
subsidiary, SBC will be engaging in the provision of alarm monitoring
services in violation of section 275(a)(1) of the Communications
Act.[^1014] For the reasons discussed below, we conclude that it is
unnecessary to require Ameritech to divest its alarm monitoring assets
as a condition to our approval of its merger with SBC. This conclusion
is based on our determination that, if SBC and Ameritech were to
consummate their planned merger without Ameritech divesting its alarm
monitoring assets and ceasing to provide alarm monitoring service, the
combined entity would not violate the prohibition in section 275(a)(1)
against BOCs, other than those permitted by section 275(a)(2), providing
alarm monitoring services for five years after the date of enactment of
the Telecommunications Act of 1996. We therefore reject AICC's request
that we precondition our merger approval on, among other things
discussed below, Ameritech divesting its alarm monitoring assets and
ceasing to provide alarm monitoring services.

540 The 1996 Act provides for delayed entry by BOCs into the alarm
monitoring business until five years after the date of enactment.
Specifically, section 275(a)(1) states: "\[n\]o Bell operating company
or affiliate thereof shall engage in the provision of alarm monitoring
services before the date which is 5 years after the date of enactment of
the Telecommunications Act of 1996."[^1015] Section 275 provides a
grandfathering clause, however, allowing BOCs that were providing alarm
monitoring service as of November 30, 1995, to continue doing so.
Specifically, section 275(a)(2) states: "\[p\]aragraph (1) does not
prohibit or limit the provision, directly or through an affiliate, of
alarm monitoring services by a Bell operating company that was engaged
in providing alarm monitoring services as of November 30, 1995, directly
or through an affiliate."[^1016] Section 275(a)(2) also states:

> \[s\]uch Bell operating company or affiliate 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.[^1017]

541 We note that the restriction in section 275(a)(1) applies to a BOC
(such as the SBC BOCs or Ameritech BOCs) or BOC affiliate.[^1018] The
grandfathering exception in section 275(a)(2) also applies to a BOC or
BOC affiliate. The alarm monitoring services at issue are provided by
SecurityLink. SecurityLink currently is an affiliate of the five
grandfathered Ameritech BOCs. After the merger, SecurityLink will also
be an affiliate of the non-grandfathered SBC BOCs. For purposes of
brevity, when we refer to "SBC" or "Ameritech" providing alarm
monitoring services, or being grandfathered or exempt from the
restriction against BOCs providing such services, we will in fact be
referring to the SBC BOCs or Ameritech BOCs, or to SecurityLink as their
affiliate.

542 The Commission has concluded in its rulemaking proceeding
implementing section 275 that the scope of section 275(a)(2) is best
addressed on a case-by-case basis in which the Commission is able to
consider all of the facts that may apply to a particular
transaction.[^1019] In that Order, the Commission found that, because
Ameritech is the only BOC that was authorized to provide alarm
monitoring service as of November 30, 1995, it is the only BOC that
qualifies for "grandfathered" treatment under section 275(a)(2).[^1020]
Ameritech provides intraLATA alarm monitoring pursuant to an approved
CEI plan[^1021] and interLATA alarm monitoring services pursuant to a
waiver of the Modification of Final Judgement.[^1022] The Commission
currently has pending before it several cases in which it has ordered
Ameritech to show cause why it should not be required to divest
Ameritech's purchases of unaffiliated providers of alarm monitoring
service.[^1023] On August 31, 1999, the Commission released an order
denying Ameritech's request that the Commission forbear from applying
section 275(a) of the Act to apply both to alarm monitoring service
transactions already completed and to future transactions by
Ameritech.[^1024]

### Analysis

####  "Engaged in the Provision" of Alarm Monitoring Services under Section 275(a)(1).

543 The first question we must consider is whether, by means of
Ameritech being a wholly-owned subsidiary of SBC[^1025] that provides
alarm monitoring services through its affiliate, SecurityLink,[^1026]
SBC would be "engage\[d\] in the provision" of alarm monitoring services
within the meaning of that term under section 275(a)(1). There is no
dispute in the record that, if SBC acquires Ameritech, SecurityLink
would remain a BOC affiliate (affiliated with the SBC BOCs, as well as
the Ameritech BOCs) and would be "engage\[d\] in the provision of" alarm
monitoring services within the meaning of the term in section 275(a)(1).
SecurityLink would be under common ownership and control with the SBC
BOCs and the Ameritech BOCs.[^1027]

#### "Grandfathering" under Section 275(a)(2).

544 *Introduction.* Given that the SBC BOCs would indeed be "engage\[d\]
in the provision of" alarm monitoring services under section 275(a)(1)
through SBC's newly acquired affiliate, SecurityLink, we now consider
whether SBC, by means of acquiring Ameritech, along with the Ameritech
BOCs and their alarm monitoring subsidiary, also acquires Ameritech's
grandfathered status under section 275(a)(2) such that the SBC BOCs
would not be unlawfully "engag\[ing\] in the provision of" alarm
monitoring services under section 275(a)(1).

545 We note that the varying interpretations in the record, described
below, of whether a grandfathered BOC loses its exemption under section
275(a)(2) if the exempt entity is acquired by a non-grandfathered BOC
demonstrates the need for Commission statutory interpretation. For
example, AICC asserts that if SBC acquires Ameritech along with its
SecurityLink alarm monitoring subsidiary, Ameritech's exemption under
section 275(a)(2) to provide services through SecurityLink does not pass
to SBC.[^1028] Rather, according to AICC, once control of Ameritech
passes to SBC, Ameritech "effectively loses its grandfathered
status."[^1029] Applicants respond that the opposite is true because,
under Applicants' reading of that statute, "'control' simply is not a
statutory condition for qualifying under section 275(a)(2) -- a Bell
operating company or its affiliate was either providing alarm monitoring
services in 1995 or not."[^1030] Applicants argue that because section
275(a)(2) creates a "permanent" exception for a BOC, like the Ameritech
BOCs, that provided alarm monitoring services as of November 30, 1995,
and because after the merger Ameritech, its operating companies, and
SecurityLink all will continue to exist, the exemption under section
275(a)(2) "will continue to apply by its plain language."[^1031]
Applicants further argue that because SBC, once it acquires Ameritech,
will become a "successor or assign" to Ameritech under section 153(4),
it will be "a successor to Ameritech's interests," including its
grandfathering rights to own SecurityLink.[^1032] There is no dispute
that Ameritech is entitled to its exempt status. For the reasons
discussed below, we conclude that Ameritech does not lose its
grandfathered status merely because of its acquisition by a BOC to whom
the grandfathering exemption in section 275(a)(2) does not apply.

546 *Statutory Analysis.* Section 275 is silent on the issue of whether,
when an alarm monitoring entity that is affiliated with a grandfathered
BOC also becomes affiliated with a non-grandfathered BOC, the exempt
status of the grandfathered BOC transfers to the non-grandfathered BOC.
The legislative history does not provide illumination on the matter. We
must, therefore, examine the statutory purpose and structure of section
275 to give meaning to the scope of the restriction and exception
thereto.[^1033] Using the traditional tools of statutory construction,
we look to the purpose of the Act, and section 275 in particular, to
devise a reasonable interpretation of the applicability of the exemption
in section 275(a)(2).[^1034]

547 Although the legislative history does not speak to the applicability
of grandfathering rights in section 275(a)(2) to the situation at hand,
the legislative history does indeed shed some light on Congress' concern
in deciding to impose a 5-year moratorium on BOC provision of alarm
monitoring services, and on Congress' general purpose in grandfathering
existing BOC provision of alarm monitoring services.

548 Congress, in enacting section 275, appeared concerned about ensuring
a "level playing field" between the BOCs and the alarm monitoring
industry.[^1035] The Judiciary Committee Report on the Antitrust Consent
Decree Reform Act of 1995 would have allowed a BOC to apply with the
Department of Justice to provide alarm monitoring services 3 years after
the date of enactment. It included an exception, however,
"'grandfathering' any alarm monitoring services being provided by a Bell
operating company on or before the date of enactment."[^1036] In
reasoning about the need for grandfathering, the Report stated: "\[I\]t
is the intent of this Committee that any such company be permitted to
manage and conduct their alarm monitoring services as would any other
industry participant, without arbitrary restrictions on customer
acquisition or growth of the business."[^1037] It appears that Congress
created this exception ultimately adopted in section 275(a)(2) in order
not to burden companies currently providing alarm monitoring services by
requiring them to sell that business.

549 We must construe the exception in a way that does not void it of any
meaning. Engaging in this construction, we conclude that section
275(a)(2) is most reasonably interpreted [not]{.underline} to require
BOCs, such as the Ameritech BOCs, that were providing alarm monitoring
services as of November 30, 1995 (and that are, therefore, explicitly
permitted to continue providing such services) to sell their alarm
monitoring affiliate and cease providing these services merely because
that alarm monitoring affiliate also has become affiliated with
non-exempt BOCs, such as the SBC BOCs. As Applicants point out, after
the merger, Ameritech, notwithstanding that it will be a subsidiary of
SBC, will continue to exist and the relationship among Ameritech, its
BOCs, and SecurityLink will not change.[^1038]

550 For the grandfathering provision in section 275(a)(2) to have any
significance, Congress must have intended for the exemption in section
275(a)(2) to be a "permanent" one, as Applicants assert it is.[^1039] We
note that the Michigan Consumer Federation supports a requirement that
Ameritech divest its alarm monitoring assets prior to merging with SBC,
arguing that the nature of the grandfather provision is like a
"snapshot," *i.e.,* we should only consider whether SBC was providing
alarm monitoring services as of November 30, 1995.[^1040] We believe,
however, that a decision not to require Ameritech to divest its exempt
alarm monitoring assets would preserve the "snapshot" nature of the
section 275(a)(2) exemption as far as Ameritech is concerned. Forcing
Ameritech to divest its alarm monitoring affiliate would effectively
terminate the exemption for Ameritech.

551 As noted above, it appears that Congress created the exception in
section 275(a)(2) in order not to burden companies providing alarm
monitoring services by requiring them to sell their business. A
requirement that Ameritech divest its alarm monitoring assets now would
do just this. There would be no less of a burden now than Congress
envisioned there would have been at the time it enacted the 1996 Act.
Indeed, the burden may even be greater now, given that, in all
likelihood, selling the business now would mean the loss of more
customers than it would have three years ago.

552 Such an understanding of Congressional intent is supported by
principles of statutory construction. In the instant case there is a
potential conflict between sections 275(a)(1) and (a)(2) which we must
resolve. Currently, SecurityLink is providing alarm monitoring services
as an affiliate of the grandfathered Ameritech BOCs. After the merger,
Security Link will also be an affiliate of the non-grandfathered SBC
BOCs. Therefore, after the merger, SecurityLink will be providing alarm
monitoring services both as an affiliate of BOCs subject to the section
275(a)(2) exemption from the general prohibition against BOCs or their
affiliates providing alarm monitoring services and as an affiliate of
BOCs subject to the general prohibition in section 275(a)(1). Because
neither the statute nor the legislative history sheds light on how this
apparent conflict might be resolved, we must resolve the conflict in a
way that makes sense of the statute as a whole.[^1041] For the reasons
discussed below, we determine that, as a matter of statutory
construction, the more specific exemption in section 275(a)(2) should
prevail over the more general prohibition in section 275(a)(1). We
believe this outcome is consistent with Congress' apparent intent not to
burden BOCs currently engaged in the provision of alarm monitoring
services by forcing them to sell their business.

553 The ultimate issue in assessing AICC's and Applicants' competing
interpretations of section 275 is whether the rule in section 275(a)(1)
or the exception in section 275(a)(2) is the more specific and,
therefore, the controlling provision. As the Supreme Court stated in
*Morales v. Transworld Airlines*, "it is a commonplace of statutory
construction that the specific governs the general."[^1042] In
interpreting this canon, the Supreme Court more recently has stated:
"\[t\] his Court has understood the present canon ('the specific governs
the general') as a warning against applying a general provision when
doing so would undermine limitations created by a more specific
provision."[^1043] We agree with Applicants that section 275(a)(2) is
the more specific and hence controlling provision.[^1044] An exception
necessarily is more specific than the general rule to which it
applies.[^1045] Section 275(a)(2) is plainly an exception: it provides
that "\[p\]aragraph (1) does not prohibit or limit the provision,
directly or through an affiliate, of alarm monitoring services by a
\[grandfathered\] Bell operating company."[^1046] In addition, the
proximity of sections 275(a)(1) and (a)(2) in the statute further
support application of the rule that the more specific governs the
general.[^1047] We see no compelling reason to conclude that, in these
circumstances, the general rule is more specific than the exception.

554 AICC argues that "acceptance of SBC and Ameritech's 'successor or
assign' argument would significantly expand the grandfathering provision
of Section 275(a)(2)."[^1048] Applicants respond by pointing out that
section 275 does not impose size limitations on alarm monitoring
entities or on the geographic area in which a grandfathered BOC or BOC
affiliate may provide alarm monitoring services.[^1049] In this regard,
nothing in section 275's language suggests that Congress was concerned
about in-region discrimination by the BOC controlling the bottleneck
over the last mile: the general prohibition in section (a)(1) prohibits
ownership of alarm monitoring services out-of-region as well as
in-region, and the exception in section (a)(2) applies to in-region as
well as out-of-region. In addition, as evidenced by section 271,
Congress knew how to draft language to prevent BOCs from providing new
in-region services, such as long distance, but did not follow this
pattern in drafting section 275. Congress may have chosen to exclude
most BOCs from the provision of alarm monitoring out of more general
competitive concerns. As noted above, Congress, in enacting section 275,
appeared concerned about ensuring a "level playing field" between the
BOCs and the alarm monitoring industry.[^1050] Adopting Applicants'
interpretation of section 275 would not seem to undermine this purpose
or indeed to affect the competitive balance at all. No more of the alarm
monitoring industry would be affiliated with the BOCs than before.

555 It is under the rubric of specific statutory language trumping
general statutory language that we address AICC's comparison of the
instant situation with that in the Bell Atlantic/GTE merger. AICC argues
that one reason we must require Ameritech to divest its alarm monitoring
assets if it merges with SBC is to be consistent with the in-region
interLATA issue in the pending Bell Atlantic/GTE license transfer
application.[^1051] AICC argues that the issues are similar because in
both there is a transfer of obligations when an acquiring entity becomes
a successor or assign of the acquired entity. AICC points out that Bell
Atlantic and GTE recognize that GTE's freedom from restrictions on
providing interLATA services does not extend to Bell Atlantic merely
because Bell Atlantic would be acquiring GTE.[^1052] If Bell Atlantic
acquires GTE, Bell Atlantic would not succeed to GTE's interLATA
authority, and Bell Atlantic's statutory restriction on entering the
in-region interLATA market would govern the resulting
combination.[^1053] In AICC's view, just as GTE's freedom from in-region
interLATA restrictions would not transfer to Bell Atlantic, and,
therefore prevail over the restriction in section 271, the Ameritech
BOCs' section 275(a)(2) grandfathered rights should not transfer to the
SBC BOCs, and prevail over the restriction in section 275(a)(1).[^1054]
We disagree with AICC. Unlike section 275(a)(2) for alarm monitoring
services, there is no specific exception in section 271 that trumps the
general prohibition against BOCs providing in-region interLATA services.
Therefore, the rule of statutory construction addressing specific and
general language in a statute does not even come into play in the Bell
Atlantic/GTE scenario.

556 We reject AICC's argument that, in effect, the Commission already
has determined that the rule of section 275(a)(1) is the more specific
provision that takes precedence over the exception in section 275(a)(2).
In support of this contention, AICC cites the Commission's statement
that "\[s\]ection 275(a)(2)... has no applicability to non-grandfathered
BOCs."[^1055] Read in context, however, this statement does not support
AICC's contention. The cited sentence concludes a discussion of what
constitutes being "engage\[d\] in the provision of" alarm monitoring
services for purposes of section 275(a)(1). In this context, the cited
sentence indicates that section 275(a)(2)'s limitation on the steps that
a grandfathered BOC may take to expand its business "has no
applicability" in determining what constitutes "engag\[ing\] in
provision of" alarm monitoring services under section 275(a)(1)'s
prohibition. This portion of the Order has no bearing on whether section
275(a)(2) may otherwise be considered in determining whether a BOC is
subject to the general prohibition on engaging in alarm monitoring or
falls within the exception in section 275(a)(2).

###  AICC Motion on Smith Alarm 

557 We note that AICC also filed a motion requesting that the Commission
require Ameritech and SBC to submit to the Commission, and to make
available to others pursuant to the protective order in this
proceeding,[^1056] all documents relating to their relationship with
Smith Alarm Systems, Inc. (Smith Alarm), an unaffiliated, privately-held
alarm monitoring service provider based in Dallas, TX, that, according
to AICC is the 15^th^ largest provider of alarm monitoring services,
with annual revenues exceeding \$32 million.[^1057] AICC asserts that
it:

> is concerned by published reports and recent statements by Ameritech
> executives which confirm that: Ameritech has paid a reported \$6
> million for an option to purchase Smith Alarm in March 2001, at a
> price which already has been negotiated; and Ameritech has agreed to
> bankroll Smith Alarm in pursuing additional alarm monitoring
> acquisitions.[^1058]

AICC also asserts that it "believes that Smith Alarm has an explicit or
implicit agreement to purchase any assets that Ameritech is required to
divest as a result of FCC orders -- assets which, as a result of
Ameritech's option to purchase Smith Alarm, would soon return to
Ameritech."[^1059] AICC is concerned that, given these arrangements,
even if the Commission were to require Ameritech to divest its alarm
monitoring assets as a precondition to approval of the SBC/Ameritech
merger, any divestiture would be a sham.[^1060] AICC also argues that,
in addition, "Ameritech's option/lending arrangement \[with Smith
Alarm\] is itself a violation of Section 275 . . . by giving Ameritech
'financial control' over an unaffiliated alarm monitoring service
entity."[^1061]

558 Applicants, in addition to responding that AICC's allegations are
incorrect, also argue that Ameritech's business relationship with Smith
Alarm is not relevant to this merger proceeding.[^1062] First,
Applicants assert that Ameritech has not entered into a loan agreement
with Smith Alarm, and that the article to which AICC refers does not
state as much.[^1063] Applicants also deny that Smith has agreed to
purchase any assets which Ameritech is ordered to divest.[^1064]
Ameritech further argues that, consistent with previous Commission
determinations, a merger proceeding is not the proper forum to address
issues such as these which are related to effective enforcement of
section 275.[^1065] In support of their proposition, Applicants cite to,
among other things, the *MCI WorldCom* Order.[^1066] Applicants assert
that "even when an argument may 'raise \[\]serious concerns,' the
Commission has refused 'to delay consummation of \[a\] merger in order
to resolve them.'"[^1067]

559 We need not, and cannot on this record, reach a conclusion on the
merits of AICC's concern about Ameritech's involvement with Smith Alarm.
We agree with Applicants that issues such as these are not appropriate
for resolution in the context of a merger proceeding. We note that, for
purposes of this merger proceeding, the result is the same -- issues
such as those relating to Ameritech's ties to Smith Alarm, or any other
alarm monitoring entity, are better addressed in a separate proceeding,
with a full record developed on the relationship with a particular alarm
monitoring entity. As a result, therefore, we will state the obvious --
that we expect, once SBC and Ameritech merge, that the combined entity
will abide by the Communications Act, including section 275, and all
Commission rules.

## Cable Overbuild Issues

560 A few commenters express concern that SBC may discontinue
Ameritech's cable overbuilds operated by Ameritech New Media (ANM),
thereby reducing competition in the video services market after the
merger.[^1068] Sprint also asserts that the proposed transfer is
unlawful under section 652 of the Communications Act.[^1069] We address
these issues below.

561 *Cable Overbuilds.* Sprint notes that SBC has not addressed its
plans with respect to Ameritech's significant in-region cable
overbuilds.[^1070] Sprint and others cite SBC's discontinuance of cable
operations in the past as cause for concern that SBC will cease ANM's
cable overbuilds in the Midwest.[^1071] SBC responds that the merger
will merely change the ultimate corporate parent of ANM from Ameritech
to SBC, and will not affect the obligations of ANM to manage and operate
its cable systems. Further, SBC states that it has made no plans
regarding changes to ANM or its operations, and that it intends to
evaluate ANM's ongoing performance once detailed post-merger planning
can occur.[^1072]

562 We conclude that the possible discontinuance of ANM's cable
overbuilds does not raise issues cognizable under the antitrust laws or
the Commission's public interest standards under sections 214(a) and
310(d).[^1073] Further, speculation about a possible future decision by
SBC to exit the cable business is not triggered by the structure of any
ownership changes that will occur because of the transfer. Rather, the
issue arises solely based on historical evidence that SBC may have
different business plans than Ameritech. We decline to extend our public
interest analysis to dictate the merged entity's cable business
strategy.

563 *Section 652*. Sprint contends that section 652 bars SBC from
acquiring, as part of the merger, any cable systems operated by
Ameritech because SBC's telephone service area will include Ameritech's
telephone service area after the merger.[^1074] Section 652 of the
Communications Act, entitled \"Prohibition on Buy Outs,\"[^1075] was
enacted as part of the 1996 Act.[^1076] Section 652(a) states that no
\"local exchange carrier or any affiliate of such carrier owned by,
operated by, controlled by, or under common control with such carrier
may purchase or otherwise acquire directly or indirectly more than a 10
percent financial interest, or any management interest, in any cable
operator providing cable service within the local exchange carrier\'s
telephone service area.\"[^1077] Section 652(b) places a corresponding
prohibition on cable operators.[^1078]

564 We conclude that section 652 is not applicable to the proposed
transaction.[^1079] Ameritech, as an incumbent LEC, has begun
overbuilding incumbent cable operators in its telephone service region.
SBC, as the acquiring incumbent LEC, would not be acquiring the local
cable operator in these areas, but simply would stand in Ameritech\'s
shoes as an incumbent LEC offering competing service.[^1080] Congress
was not opposed to the provision of cable service by a LEC, Congress
simply did not want that provision of service to occur by the
acquisition of the local cable operator.[^1081] If a LEC chooses to
provide video programming on its own, the LEC is not prohibited.
Likewise, a LEC is not prohibited from choosing to construct a new
system to provide programming or services, even with the local cable
operator.[^1082] Ameritech has built its own cable systems. The merged
entity will continue to own those same cable systems. SBC acquires
Ameritech's cable overbuilds as part of the very same transaction in
which SBC's telephone service area expands to include Ameritech's local
exchange carrier operations. Accordingly, SBC is not making any purchase
or acquisition of a cable operator that would constitute a prohibited
buyout under section 652.

## Service Quality Issues

565 A number of commenters raise concerns regarding potential service
quality problems resulting from the merger. These parties generally
argue that service quality data and anecdotal evidence regarding Pacific
Bell\'s performance in California demonstrate that mergers among large
incumbent LECs adversely affect the public interest by hampering the
delivery of service to consumers.[^1083] SBC objects to these arguments,
and provides a variety of information to demonstrate that its earlier
merger with PacTel resulted in improved service quality.[^1084]

566 As a general matter, service quality information consists of data
regarding the provisioning of telecommunications services, the
maintenance and repair of telecommunications equipment and facilities,
the frequency of various types of network trouble, trunk blockage,
switch outages, and the performance of the local loop.[^1085] The
Commission has traditionally relied on monitoring the quality of
telecommunications service to ensure that consumers enjoy high quality,
rapid communications.[^1086] Through the annual Automated Reporting
Management Information System (\"ARMIS\") filing requirements, price cap
incumbent LECs submit data depicting the quality of service provided to
their customers.[^1087] In addition to the ARMIS reporting requirements,
carriers report to the Commission information about the frequency and
scope of network outages.[^1088] Commenters point to formal and informal
complaint rates to support their claims that PacTel's service
deteriorated after its merger with SBC.[^1089] SBC and Pacific Bell's
ARMIS data suggest that there were some service quality problems in the
PacTel regions following the SBC/PacTel merger. For example, Pacific
Bell reported an average repair time of 38.8 hours for 1997, which is
below its premerger performance of 29.3 hours, and its 1998 ARMIS
submissions showed continued problems with repair time.[^1090] In
February 1999, SBC submitted additional information on the record, some
of which further corroborated the service quality concerns,[^1091] and
some of which showed improvement.[^1092]

567 We reject claims that we should prohibit these license transfers
because of speculation that service quality in the Ameritech region will
deteriorate as a result of the merger. Evidence in the record reveals
that SBC has increased its commitments to improving service quality by
hiring more employees, investing in infrastructure, and adopting
enhanced operating practices.[^1093] We conclude that these commitments
and the further commitments proffered by SBC and Ameritech in
supplementing the instant application sufficiently mitigate the service
quality concerns raised in the record. The commitments proffered by SBC
and Ameritech include several measures designed to prevent potential
service quality degradation after the merger. Moreover, we anticipate
that the quarterly reporting requirements, which are based on
recommendations from the states, will provide the Commission, state
public service commissions, and the public with key service quality data
in a timely manner. In this way, we expect that these conditions will
assist the states in promoting a high quality telecommunications service
by providing uniform information.[^1094] Further, providing the service
quality data will assist the Commission in taking appropriate action in
the event we find that service quality suffers after the merger.

## Public Interest Issues Involving SBC\'s Acquisition of the Ameritech Licenses and Lines 

568 Section 310(d) of the Communications Act provides that no station
license may be transferred, assigned, or disposed of in any manner
except upon a finding by the Commission that the \"public interest,
convenience and necessity will be served thereby.\"[^1095] Among the
factors that the Commission considers in its public interest inquiry is
whether the applicant for a license has the requisite \"citizenship,
character, financial, technical, and other qualifications.\"[^1096] The
Commission has previously determined that, in deciding character issues,
it will consider certain forms of adjudicated, non-FCC related
misconduct that includes: (1) felony convictions; (2) fraudulent
misrepresentations to governmental units; and (3) violations of
antitrust or other laws protecting competition.[^1097] With respect to
FCC-related conduct, the Commission has stated that it would treat any
violation of any provision of the Act, or of the Commission\'s rules or
polices, as predictive of an applicant\'s future truthfulness and
reliability and, thus, as having a bearing on an applicant\'s character
qualifications.[^1098] In prior incumbent LEC merger orders, the
Commission has used the Commission\'s character policy in the broadcast
area as guidance in resolving similar questions in transfer of licenses
proceedings.[^1099]

569 A number of commenters maintain that SBC has a history of vigorously
resisting competition in its existing monopoly markets.[^1100] These
commenters assert that approval of the merger will enable SBC to expand
the reach of this corporate culture to the five-state Ameritech region.
Other commenters maintain that SBC has engaged in \"endless litigation
and frivolous appeals\" designed to delay state regulatory commission
decisions.[^1101] The record is replete with specific examples cited by
commenters alleging anti-competitive conduct by SBC.[^1102] For example,
800 Resale Carriers maintains that, in violation of the Commission\'s
*800 Readyline Orders*, and sections 69.105 and 69.205 of the
Commission\'s rules,[^1103] SBC has refused to rebate overcharges
imposed upon hundreds of resellers of 800 service dating back to 1986
and amounting to hundreds of millions of dollars.[^1104] Further, the
Paging and Messaging Alliance of PCIA states that, in violation of
specific provisions of the Act, and the Commission\'s rules, SBC
continues to charge CMRS carriers who provide paging services for
SBC-originated traffic, and refuses to pay compensation to paging
carriers for terminating calls originated by SBC.[^1105]

570 SBC responds that many of the allegations cited in the record
concern matters that are already being addressed by this Commission, a
state regulatory agency, and/or a federal court.[^1106] For example,
allegations that: (1) Pacific Bell refuses to make available to paging
companies interconnection terms and conditions that it has offered to
others;[^1107] (2) SBC fails to pay reciprocal compensation to Internet
service providers and paging providers;[^1108] (3) SBC\'s performance
measures are inadequate;[^1109] (4) Pacific Bell refuses to provide the
billing and collection services necessary to implement CPP;[^1110] and
(5) SBC has used intellectual property claims to deny new entrants
access to network elements,[^1111] concern subjects that are currently
being considered in other proceedings.

571 We conclude that none of the foregoing allegations provides a basis
for finding that applicants lack the fitness to acquire licenses and
authorizations currently held by Ameritech. The Commission has
previously stated that typically it will not consider in merger
proceedings \"matters that are the subject of other proceedings before
the Commission because the public interest would be better served by
addressing the matter in the broader proceeding of general
applicability."[^1112] Although it may be true that certain conduct by
Applicants had the effect of delaying and minimizing the emergence of
competition in their respective local markets, none of these acts were
found to be a violation of any law. Thus, we decline to consider them as
part of our analysis of SBC\'s fitness to acquire licenses and
authorizations currently held by Ameritech. We emphasize that, in
reaching this conclusion, we are in no way condoning actions by an
incumbent LEC that have the potential to impede the 1996 Act\'s goal of
facilitating competition in all telecommunications markets. Indeed, as
noted below, without SBC's voluntary commitments aimed at opening its
local markets to competition, the public interest benefits of the
proposed merger would not outweigh the significant public interest
harms. We believe that SBC and Ameritech's commitments on issues such as
collocation, OSS enhancements, shared transport, and offering of UNEs,
and performance measurements, should facilitate the development of
competition in the combined SBC/Ameritech region.[^1113]

572 Moreover, we also note that many allegations concerning SBC's
conduct have been specifically rebutted by evidence proffered by
Applicants. For example, SBC points out that the district court granted
summary judgment in favor of SBC on AT&T\'s claim that SBC improperly
influenced Ernst & Young to withdraw from providing consulting services
for AT&T.[^1114]

573 On the basis of the foregoing, there is no basis for concluding
SBC's or Ameritech's behavior to date precludes our finding that the
proposed license and lines transfers serve the public interest.

## Requests for Evidentiary Hearing

574 Several commenters in this proceeding request that the Commission
designate the proposed merger, or specific issues raised by the merger,
for a trial-type evidentiary hearing before an administrative law judge
to determine whether approval of the transfer of control request
resulting from the proposed merger would serve the public
interest.[^1115]

575 Under the Communications Act, the Commission is required to hold an
evidentiary hearing on transfer of control applications in certain
circumstances.[^1116] Parties challenging an application to transfer
control by means of a petition to deny under section 309(d) must satisfy
a two-step test.[^1117] First, the petition to deny must set forth
'specific allegations of fact sufficient to show that . . . a grant of
the application would be prima facie inconsistent with \[the public
interest\];'.[^1118] Second, the petition must present a 'substantial
and material question of fact.'[^1119] If the Commission concludes that
the protesting party has met both prongs of the test, or if it cannot,
for any reason, find that grant of the application would be consistent
with the public interest, the Commission must formally designate the
application for a hearing in accordance with section 309(e).[^1120]

576 To satisfy the first prong of the test, a petitioning party must set
forth allegations, supported by affidavit, that constitute "specific
evidentiary facts, not ultimate conclusionary facts or mere general
allegations . . .."[^1121] The Commission determines whether a
petitioner has met this threshold inquiry in a manner similar to a trial
judge's consideration of a motion for directed verdict: "if all the
supporting facts alleged in the affidavits were true, could a reasonable
fact finder conclude that the ultimate fact in dispute had been
established."[^1122]

577 If the Commission determines that a petitioner has satisfied the
threshold standard of alleging a *prima facie* inconsistency with the
public interest, it must then proceed to the second phase of the inquiry
and determine whether, "on the basis of the application, the pleadings
filed, or other matters which \[the Commission\] may officially notice,"
the petitioner has presented a "substantial and material question of
fact."[^1123] If the Commission concludes that the "totality of the
evidence arouses a sufficient doubt" as to whether grant of the
application would serve the public interest, the Commission must
designate the application for hearing pursuant to section 309(e).[^1124]

578 In evaluating whether a petitioner has satisfied the two-part test
established in section 309(d),[^1125] the D.C. Circuit has indicated
that where petitioners assert only "legal and economic conclusions
concerning market structure, competitive effect, and the public
interest," such assertions "manifestly do not" require a live
hearing.[^1126] Moreover, in deferring to the Commission's determination
not to hold an evidentiary hearing in *United States v. FCC*, the Court
stated that "to allow others to force the Commission to conduct further
evidentiary inquiry would be to arm interested parties with a potent
instrument for delay."[^1127] In that case, the D.C. Circuit deferred to
the Commission's conclusion that the potential benefits of such a
hearing would be outweighed by the delay and its attendant costs.[^1128]

579 As an initial matter, we note that some parties seeking an
evidentiary hearing in this merger proceeding did not satisfy the
procedural requirements of section 309(d)(1).[^1129] First, several
commenters included their requests for evidentiary hearings in general
comments regarding the Application, not in a petition to deny, as
section 309(d)(1) requires.[^1130] We further note that although JSM
Telepage, Inc., Paging & Messaging Alliance, and Time Warner Telecom
Corporation have properly filed petitions to deny, these parties failed
to support any allegations by affidavits. Finally, some parties have met
the procedural requirements of

§ 309(d)(1) including 800 Resellers Carrier, AT&T, Sprint, and the Texas
Office of Public Utility Counsel. We note, however, that a number of
issues raised in the record do not reflect disputes over material facts,
but rather focus on issues concerning competitive impact of the merger
and the public interest. These types of issues "manifestly do not"
require a live hearing.[^1131]

580 We conclude that none of the requests for evidentiary hearing has
raised a substantial and material question of fact that would require an
evidentiary hearing.[^1132] The parties dispute the overall competitive
impact of the merger and the ultimate public interest determination
which, according to the D.C. Circuit, are claims that "manifestly do
not" require a hearing.[^1133] Certain parties have requested
evidentiary hearings to evaluate the Applicants' intra-corporate
motives, particularly with respect to Ameritech's plans to enter the St.
Louis market.[^1134] CoreComm, for example, argues that the Commission
"is not bound by the applicants' self-serving statements with respect to
their pre-merger competitive plans, but must inspect internal documents
and subject the applicants to discovery and cross-examination."[^1135]
Hyperion argues that "the decision whether the acquiring firm is an
actual potential competitor is, in the last analysis, an independent one
to be made by the trial court \[or the FCC in this case\] on the basis
of all relevant evidence properly weighed according to its
credibility."[^1136] To the extent that these requests are grounded in
inferences and conclusions to be drawn from Ameritech's plans to enter
the St. Louis market, rather than in concrete facts regarding such
entry, we note that this is the ultimate task that is before the
Commission in making its public interest determination. The Commission
extensively investigated the documentary evidence regarding Ameritech's
plans to enter the St. Louis market, and made inferences therefrom, in
making its determination on the merger's potential public interest
harms.[^1137] Mere assertions from the commenters of corporate motives,
without specific factual allegations, cannot require the grant of a
petitioner's request for an evidentiary hearing.

581 We conclude that, even where parties rely on conflicting allegations
regarding Ameritech's planned entry into St. Louis, these matters
concern the competitive impact of the merger and are not, as asserted,
substantial and material questions of fact. Accordingly, we find that no
party has satisfied the two-step test set forth in section
309(d),[^1138] both procedurally and substantively. The voluminous
record before us in this proceeding, including the numerous comments and
ex parte filings we have received, and the public forums we have
conducted, has provided sufficient evidence to conclude no substantial
and material question of fact has been raised and that grant of the
Applicants' request, as supplemented with the conditions imposed in this
Order, serves the public interest, convenience and necessity.[^1139]

#  ORDERING CLAUSES

582 Accordingly, having reviewed the applications and the record in this
matter, IT IS ORDERED, pursuant to Sections 4(i) and (j), 214(a),
214(c), 309, and 310(d) of the Communications Act of 1934, as amended,
47 U.S.C. §§ 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the
applications filed by SBC Communications and Ameritech Corporation in
the above-captioned proceeding are GRANTED subject to the conditions
stated below.

583 IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a),
214(c), 309, and 310(d) of the Communications Act of 1934, as amended,
47 U.S.C. §§ 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the above
grant shall include authority for SBC to acquire control of:

a\) any authorization issued to Ameritech's subsidiaries and affiliates
during the Commission's consideration of the transfer of control
applications and the period required for consummation of the transaction
following approval;

b\) construction permits held by licensees involved in this transfer
that mature into licenses after closing and that may have been omitted
from the transfer of control applications; and

c\) applications that will have been filed by such licensees and that
are pending at the time of consummation of the proposed transfer of
control.[^1140]

584 IT IS FURTHER ORDERED that as a condition of this grant SBC and
Ameritech shall comply with the conditions set forth in Appendix C of
this Order.

585 IT IS FURTHER ORDERED that, pursuant to Section 4(i) of the
Communications Act of 1934, as amended, 47 U.S.C. § 154(i), grant of the
SBC/Ameritech Application is subject to the condition that, before or on
the same day as the closing of the SBC/Ameritech transaction, Ameritech
assign to GTE Ameritech's interest in cellular licensees in those areas
identified herein where SBC's and Ameritech's interests currently
overlap and that are the subject of the Wireless Telecommunications
Bureau's *Memorandum Opinion and Order*, DA 99-1677, granting consent to
such assignment.

586 IT IS FURTHER ORDERED that the Section 214 authorizations granted to
Ameritech Communications, Inc. (ACI), File Nos. ITC-96-441 and
ITC-97-289, are amended, effective upon consummation of Ameritech\'s
merger with SBC, to apply dominant carrier regulation, as specified in
Section 63.10 of the rules, to ACI\'s provision of the authorized
services on the U.S.-South Africa route.

587 IT IS FURTHER ORDERED that the following Section 214 authorizations
granted to subsidiaries of SBC are amended to apply dominant carrier
regulation, as specified in Section 63.10 of the rules, to their
provision of the authorized services on the U.S.-Denmark route effective
upon consummation of Ameritech's merger with SBC: Pacific Bell
Communications, File No. ITC-96-689; SBC Global Communications, Inc.,
File Nos. ITC-96-692 & ITC-98-423-T/C; Southwestern Bell Communications
Services, Inc., File No. ITC-97-770 (renumbered ITC-214-19971108-00689);
SNET America, Inc., File No. 96-172; SNET Diversified Group, Inc., File
No. 96-538.

588 IT IS FURTHER ORDERED that pursuant to Section 212 of the
Communications Act and Part 62 of the Commission's rules, 47 C.F.R. Part
62, all of SBC's post-merger carrier subsidiaries will be "commonly
owned carriers" as that term is defined in the Commission's rules.

589 IT IS FURTHER ORDERED that all motions to accept late-filed comments
filed in CC Docket No. 98-141 are GRANTED.

590 IT IS FURTHER ORDERED that all petitions to deny the applications of
SBC and Ameritech for transfer of control, and all requests to hold an
evidentiary hearing, are DENIED for the reasons stated herein.

591 IT IS FURTHER ORDERED that SBC and Ameritech's request for a blanket
exemption from any applicable cut-off rules in cases where Ameritech's
subsidiaries or affiliates file amendments to pending Part 22, Part 24,
Part 25, Part 90 and Part 101 or other applications to reflect the
consummation of the proposed transfer of control is GRANTED.

592 IT IS FURTHER ORDERED that pursuant to section 1.103 of the
Commission's rules, 47 C.F.R. § 1.103, this Memorandum Opinion and Order
is effective upon adoption.

APPENDIX A: Public Record Filings

## List of Commenters and Filings

The Commission received 7 petitions to deny the SBC-Ameritech
application, 28 comments, and 9 reply comments, filed by the parties
listed below.

**Petitions to Deny Filed by**: (7)

1.  AT&T

2.  JSM Tele-Page, Inc.

3.  Paging and Messaging Alliance of PCIA

4.  Sprint

5.  Texas Public Utility Counsel

6.  Time Warner

7.  800 Resale Carriers

**Comments Filed by:** (28)

1.  Alarm Industry Communications Committee (AICC)

2.  Consumer Coalition (Indiana Office of Utility Consumer Counselor,
    Missouri

Office of the Public Counsel, Ohio Consumers\' Counsel, Texas Office of

the Public Utility Counsel, and The Utility Reform Network)

3.  Consumer Federation of America/Consumers Union

4.  CoreComm

5.  Citizens for a Sound Economy

6.  Communications Workers of America

7.  Edgemont Neighborhood

8.  e.spire

9.  Focal

10. Hyperion

11. Indiana URC

12. Kansas Corp. Commission

13. Keep America Connected

14. KMC

15. Level 3

16. MCI WorldCom, Inc.

17. McLeod

18. Michigan Consumer Federation

19. Missouri PSC

20. National Assoc. of Telecommunications Officers and Advisors (NATOA)

21. Ohio PUC

22. Parkview Seniors

23. Pilgrim Telephone, Inc.

24. Shell Oil

25. South Austin Community

26. Supra Telecomm.

27. Telecommunications Resellers Association

28. Texas PUC

**Reply Comments Filed by:** (9)

1.  Competition Policy Institute

2.  Competitive Telecommunications Association

3.  Consumer Federation of America, Consumers Union, and AARP

4.  CoreComm

5.  Consumer Coalition (Indiana Office of Utility Consumer Counselor,
    Missouri

Office of the Public Counsel, Ohio Consumers\' Counsel, Texas Office of

the Public Utility Counsel, and The Utility Reform Network)

6.  Level 3

7.  MCI WorldCom, Inc.

8.  Missouri PSC

9.  SBC Communications Inc. and Ameritech Corporation

The Commission received 51 comments on the proposed conditions, and 14
reply comments, filed by the parties listed below.

**Comments Filed by:** (51)

1.  AARP

2.  AT&T Corp.

3.  Alarm Industry Communications Committee

4.  Allegiance Telecom, Inc.

5.  American Public Power Association

6.  Arkansas Public Service Commission

7.  Association for Local Telecommunications Services (ALTS)

8.  BellSouth Corporation and BellSouth Telecommunications, Inc.

9.  CTC Communications Corp.

10. Cable & Wireless USA, Inc.

11. Campaign for Telecommunications Access and 51 Participating
    Commenters

12. Centennial Cellular Corp., CenturyTel Wireless, Inc., Thumb Cellular
    Limited Partnership and Trillium Cellular Corp. (\"Joint Cellular
    Carriers\")

13. Citizen Action of Illinois *et al.*

14. Communications Workers of America

15. Competitive Telecommunications Association (CompTel)

16. CoreComm Ltd.

17. Covad Communications Co.

18. Edgemont Neighborhood Coalition, Benton Foundation, Appalachian
    People's Action Coalition and Community Technology Institute (the
    Low Income Coalition)

19. Focal Communications Corp, Adelphia Business Solutions, and
    McLeodUSA Telecommunications Services, Inc.

20. GST Telecom Inc., KMC Telecom Inc., Logix Communications Corp. and
    RCN Telecom Services, Inc.

21. ICG Communications, Inc.

22. Indiana Utility Regulatory Commission (IURC)

23. Kansas Corporation Commission

24. Level 3 Communications, Inc.

25. MCI WorldCom, Inc.

26. Metromedia Fiber Network Services, Inc.

27. Mexican American Legal Defense and Educational Fund

28. National ALEC Association

29. National Council of La Raza

30. NEXTLINK Communications, Inc. and Advanced TelCom Group, Inc.

31. NorthPoint Communications, Inc.

32. Ntegrity Telecontent Services

33. Ohio Consumers' Counsel

34. Optel, Inc.

35. Paging Network, Inc.

36. Parkview Areawide Seniors, Inc.

37. Personal Communications Industry Association (PCIA)

38. Pilgrim Telephone, Inc.

39. Power-Finder West Communications, LLC

40. Public Utilities Commission of Ohio (PUCO)

41. Rhythms NetConnections Inc.

42. Sprint Communications Company L.P.

43. TDS Metrocom

44. Telecommunications Resellers Associations (TRA)

45. Texas Office of Public Utility Counsel

46. Texas Public Utility Commission

47. Texas Rural Municipal Electric Utilities

48. Time Warner Telecom

49. Williams Communications, Inc.

50. Winstar Communications, Inc. and Teligent, Inc.

51. Wisconsin Public Service Commission

**Reply Comments Filed by:** (14)

1.  Cablevision Lightpath, Inc.

2.  California Public Utilities Commission

3.  CTC Communications Corporation

4.  Excel Telecommunications, Inc.

5.  Focal Communications Corporation, Adelphia Business Solutions, &
    McLeod USA Telecommunications Services, Inc.

6.  GST Telecom Inc., KMC Telecom Inc., Logix Communications Corporation
    & RCN Telecom Services Inc.

7.  Level 3 Communications, Inc.

8.  MCI WorldCom, Inc.

9.  Michigan Public Service Commission (MPSC)

10. NEXTLINK Communications, Inc. and Advanced Telecom Group, Inc.

11. Rhythms Netconnections, Inc.

12. SBC Communications Inc. and Ameritech

13. Sprint Communications Company L.P.

14. Texas Rural Municipal Electric Utilities

## List of Participants in Public Forum on Merger Conditions

1.  George Herrera

U.S. Hispanic Chamber of Commerce

2.  Mark Rosenblum

AT&T

3.  Steve Augustino

Alarm Industry Communications Committee

4.  Leon M. Kestenbaum

Sprint

5.  Gerry Salemme

NextLink

6.  Jonathan Sallet

MCI

7.  David Newburger

Campaign for Telecommunications Access

8.  Max J. Starkloff

9.  Mark Buechele

Supra Telecom and Information Systems

10. H. Russell Frisby, Jr.

CompTel

11. Brian R. Moir

International Communications Association

12. Lynn Dangtu

Vietnamese-American Chamber of Commerce

of Southern California

13. Michael Metzler

Santa Ana Chamber of Commerce

14. Wendy Yoo

Korean American Federation of Orange County

15. Stan Oftelie

Orange County Business Council

16. Dolores Davis Penn

Missouri Center for Minority Health and Aging

17. Ralph Pugh

Hispanic Chamber of Commerce of Orange County, California

18. Bea Bacon

National Silver Haired Congress

19. Roy Neel

USTA

20. Mark Cooper

Consumer Federation of America

21. Judy McCollum

22. Ron Binz

Competition Policy Institute

23. Eric Branfman

CoreComm

24. Doug Lawrence

25. Robert McCauslan

Allegiance Telecom

26. Dahlia Hayles

Rainbow/PUSH Coalition

27. Jim Gray

Oklahoma Indian Times

28. Lee Ruck

NATOA

29. Barbara Easterling

Communications Workers of America

30. Angela Ledford

Keep America Connected

31. Jeff Smith

32. Patricia T. Heudel

National Assocation of Commissions for Women

33. Mike C. Turpen

34. Dennis Thomas

35. Neil F. Hartigan

36. David Kumar Singh

IWAYNet Communications

37. Dr. Robert G. Harris

38. Howard Bedlin

National Council on Aging

39. Tom Koutsky

Covad

40. Rev. Edward E. Fields

41. Robert Crandall

Bell Atlantic

APPENDIX B: Summary of Confidential Information and Conclusions

\[TEXT NOT AVAILABLE IN PUBLICLY RELEASED VERSION\]

593 This Appendix summarizes documents produced by the Applicants and
the conclusions we draw from those documents insofar as they relate to
each Applicant's plans to compete outside its home region, and in
particular within each other's region. We also discuss additional
information regarding the Applicants' showing of public interest
benefits.

## A. Each Applicant's Plans to Compete Outside Its Home Region {#a.-each-applicants-plans-to-compete-outside-its-home-region .unnumbered}

### Ameritech's Out-of-Region Plans

### SBC's Out-of-Region Plans

### Conclusion

## B. Additional Information Pertaining to the Analysis of Potential Public Benefits {#b.-additional-information-pertaining-to-the-analysis-of-potential-public-benefits .unnumbered}

APPENDIX C: Conditions

[^1]: 47 U.S.C. §§ 214(a), 310(d).

[^2]: *See* Merger of SBC Communications Inc. and Ameritech Corporation,
    Description of the Transaction, Public Interest Showing and Related
    Demonstrations (filed July 24, 1998) (SBC/Ameritech July 24
    Application).

[^3]: *See* 47 U.S.C. §§ 214(a), 310(d). *See also* *Application of
    WorldCom, Inc. and MCI Communications Corporation for Transfer of
    Control of MCI Communications Corporation to WorldCom, Inc.*, CC
    Docket No. 97-211, Memorandum Opinion and Order, 13 FCC Rcd 18025,
    18026-27, 18030-32 at paras. 1, 8-10 (1998) (*WorldCom/MCI Order*);
    *Applications of NYNEX Corporation Transferor, and Bell Atlantic
    Corporation Transferee, For Consent to Transfer Control of NYNEX
    Corporation and Its Subsidiaries*, File No. NSD-L-96-10, Memorandum
    Opinion and Order, 12 FCC Rcd 19985, 19987, 20000-04 at paras. 2,
    29-32 (1997) (*Bell Atlantic/NYNEX Order*).

[^4]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56,
    *codified at* 47 U.S.C. §§ 151 *et seq.* (1996 Act).

[^5]: This Commission, the states, and competing firms often compare the
    practices of one major incumbent local exchange carrier against the
    other incumbents to inform regulatory or competitive decisions.

[^6]: In this Order, we use the term "BOC" to refer to a Bell operating
    company as defined in the Communications Act, 47 U.S.C. § 153(4),
    and the term "RBOC" to refer to the original seven regional holding
    companies created by the breakup of AT&T. *See* *United States v.
    American Tel. & Tel. Co.*, 552 F. Supp. 131 (D.D.C. 1982).

[^7]: Ameritech's five local exchange operating companies are: Illinois
    Bell Telephone Company, Indiana Bell Telephone Company, Inc.,
    Michigan Bell Telephone Company, The Ohio Bell Telephone Company,
    and Wisconsin Bell, Inc. *See* SBC/Ameritech July 24 Application,
    Description of the Applicants and Their Existing Business, at 2.

[^8]: *See* Ameritech 1998 Annual Report (Selected Financial and
    Operating Data).

[^9]: SBC/Ameritech July 24 Application, Description of the Applicants
    and Their Existing Business, at 2.

[^10]: *Id*. at 3.

[^11]: *Id*.

[^12]: *Id*.

[^13]: *See* http://www.ameritech.com/products/americast/whoweare.html.

[^14]: SBC/Ameritech July 24 Application, Description of the Applicants
    and Their Existing Business, at 3.

[^15]: *Id.*, Table 15 "Selected International Investments" (listing
    select Ameritech international investments).

[^16]: *Id*., Categories of Ameritech's FCC Authorizations.

[^17]: *See* *id*., Application of Ameritech Corporation and SBC
    Communications Inc., for Authority, Pursuant to Section to Section
    214 of the Communications Act of 1934, as Amended, to Transfer
    Control of Ameritech Corporation, a Company Controlling
    International Section 214 Authorizations (filed July 24,
    1998)(SBC/Ameritech July 24 International Application).

[^18]: *See* *Applications of Pacific Telesis Group, Transferor, and SBC
    Communications, Inc., Transferee, For Consent to Transfer Control of
    Pacific Telesis Group and its Subsidiaries*, Report No. LB-96-32,
    Memorandum Opinion and Order, 12 FCC Rcd 2624 (1997) (*SBC/PacTel
    Order*).

[^19]: *See* *Applications for Consent to Transfer of Control of
    Licenses and Section 214 Authorizations from Southern New England
    Telecommunications Corporation, Transferor, to SBC Communications,
    Inc., Transferee*, CC Docket No. 98-25, Memorandum Opinion and
    Order, 13 FCC Rcd 21292, 21294 at para. 3 (1998) (*SBC/SNET Order*).

[^20]: SBC's principal wireline subsidiaries are: Southwestern Bell
    Telephone Company (SWBT), Pacific Bell (PacBell), Nevada Bell, and
    The Southern New England Telephone Company (SNETel). *See*
    Application, Description of the Applicants and Their Existing
    Business, at 1.

[^21]: SBC 1998 Annual Report at 6 (Management's Discussion and Analysis
    of Financial Condition and Results of Operations).

[^22]: SBC/Ameritech July 24 Application, Description of the Applicants
    and Their Existing Business, at 1.

[^23]: "SBC 2Q Earnings Per Share Increase 15.7 Percent: Company Sees
    Strong Growth in Wireless, Data Customers,"
    [www.sbc.com/News/Article.html?query_type=article&query=19990720-01](http://www.sbc.com/News/Article.html?query_type=article&query=19990720-01)
    (July 10, 1999). SBC's wireless operations added 305,000 net
    wireless subscribers during the second quarter of 1999, including
    167,000 PCS customers in California and Nevada. *Id.* SBC subsidiary
    Southwestern Bell Mobile Services (SBMS) operates cellular systems
    in the Chicago, Boston and Baltimore/Washington metropolitan areas,
    and in upstate New York. Southwestern Bell Wireless, Inc., a
    subsidiary of SBMS, operates cellular and PCS systems within Texas,
    Missouri, Oklahoma, Kansas and Arkansas. SBC subsidiary Pacific Bell
    Mobile Services operates PCS systems in California and Nevada. SBC
    subsidiary SNET Cellular, Inc. provides cellular service in Rhode
    Island and portions of Massachusetts, and Springwich Cellular
    Limited Partnership serves Connecticut and other parts of
    Massachusetts. *See* SBC/Ameritech July 24 Application, Description
    of the Applicants and Their Existing Business, at 1; Map 30
    "SBC/Ameritech Wireless Holdings." Earlier this year, SBC acquired
    Comcast Cellular Holdings, Co. (Comcast Cellular), which provides
    cellular and PCS services to more than 850,000 subscribers
    throughout Pennsylvania, New Jersey, Delaware, and Maryland. *See*
    *Applications of Comcast Cellular Holdings, Co., Transferor, and SBC
    Communications, Inc., Transferee, For Consent to Transfer of Control
    of Licenses and Authorizations*, File Nos. 8-EX-TC-1999, *et al.*,
    Memorandum Opinion and Order, DA 99-1318 (July 2, 1999). Comcast
    Cellular also holds cellular licenses in the Joliet and
    Aurora/Elgin, Illinois metropolitan areas. *Id*., at para. 9.

[^24]: *See* *SBC/SNET Order*, 13 FCC Rcd at 21294, para. 5.

[^25]: *See* *id.*, at para. 3.

[^26]: *See* SBC 1998 Annual Report at 3 (Letter from Edward E. Whitacre
    Jr., Chairman and CEO).

[^27]: SBC/Ameritech July 24 Application, Table 15 "Selected
    International Investments" (listing select SBC international
    investments).

[^28]: *See* *United States v. American Tel. & Tel. Co.*, 552 F. Supp.
    131 (D.D.C. 1982).

[^29]: 47 U.S.C. §251(c).

[^30]: SBC/Ameritech July 24 Application, Description of the Applicants
    and Their Existing Businesses at 1. Since filing its merger
    application, SBC has added 2.3 million access lines as a result of
    its merger with SNET. *SBC/SNET Order*, 13 FCC Rcd at 21294, para.
    3. In addition, access line growth in SBC's region has continued
    apace. SBC's wireline operations added 1.4 million access lines in
    the 12-month period ended March 31, 1999. "SBC First-Quarter
    Earnings Per Share Increase 14.3 Percent,"
    [www.sbc.com/News/Article.html?query_type=article&query=19990420-017](http://www.sbc.com/News/Article.html?query_type=article&query=19990420-017)
    (visited Aug. 19, 1999). Residential lines grew 3.9 percent and
    business voice grade equivalent lines -- which include both voice
    lines and data circuits -- grew 15.9 percent in the first quarter of
    this year. *Id.* SBC reported a total of 37.7 million access lines
    as of April 20, 1999. *Id.*

[^31]: SBC/Ameritech July 24 Application, Table 1 (Open Market Measures
    in SBC and Ameritech Regions).

[^32]: *Id.* at Table 3 (SBC Local Landline Competitors by State and
    Method of Entry).

[^33]: *Id.*, Description of the Transaction at 77 & Table 3.

[^34]: *Id.* at Table 3.

[^35]: *Id.* at Tables 1 & 3.

[^36]: *Id.* at Table 1.

[^37]: *Id.*, Description of the Transaction at 76-77 & Table 1.

[^38]: *Id.*, Description of the Transaction at 77 & Table 1.

[^39]: *Id.*, Description of the Transaction at 86-87.

[^40]: *Id.*, Description of the Transaction at 87.

[^41]: *Id.*, Description of the Applicants and Their Existing
    Businesses at 2.

[^42]: *Id.* at Tables 1 & 4 (Ameritech Local Landline Competitors by
    State and Method of Entry).

[^43]: *Id.*, Description of the Transaction at 77.

[^44]: *Id.* at Table 4.

[^45]: *Id.*

[^46]: *Id.* at Table 1.

[^47]: *Id.*, Description of the Transaction at 77 & Table 1.

[^48]: *Id.*, Description of the Transaction at 77.

[^49]: *Id.*

[^50]: *Id.*, Description of the Transaction at 87.

[^51]: The Indiana Utility Regulatory Commission (IURC) states that
    *"there is virtually no competition for local telephone service in
    the state of Indiana."* IURC June 16 Comments at 6 (emphasis in
    original). The IURC found it "\[p\]articularly disturbing" that, as
    of December 31, 1998, Ameritech Indiana had lost less than 500 voice
    grade access lines as UNEs in a service area that included 2.2
    million access lines. *Id.* at 3. Ameritech Indiana was providing
    460 UNE loops and 16,980 resold lines (approximately 0.7 percent of
    total voice grade access lines). *Id.* at 7. The IURC cited, as
    other indications that facilities-based competition is non-existent,
    the fact that competing carriers had collocation arrangements in
    only 19 of Ameritech Indiana's 160 switching centers at the end of
    1998, and that less than half (46 percent) of Ameritech Indiana's
    voice grade access lines were served by a switching center in which
    at least one competitor had a collocation arrangement. *Id.*

[^52]: *See* Consumer Coalition Comments, Affidavit of Susan M. Baldwin
    and Helen E. Golding (Baldwin & Golding Affidavit), at 9-10
    (comparing estimated facilities-based competitive LEC penetration of
    1.5 percent in PacTel region, which SBC acquired in April 1997, with
    estimated 0.6 percent facilities-based penetration in SWBT region).

[^53]: SBC/Ameritech July 24 Application, Table 4.

[^54]: Reducing these numbers to the level of an individual state, the
    Michigan PSC noted in its February 1998 Report on Local Telephone
    Interconnection that competitive LECs in Ameritech Michigan's
    service area operated 200,000 lines in Michigan: 20,000 with UNEs,
    and 180,000 through resale. *See* Report to the Michigan Governor
    and Legislature on Public Act of 1991 as amended section 353, Report
    on Local Telephone Interconnection (Feb. 1998),
    <http://ermisweb.cis.state.mi.us/mpsc/comm/localcon.htm> (visited
    Aug. 19, 1999). These 200,000 lines represented approximately 3.77
    percent of Ameritech's total 5.3 million lines in Michigan, and were
    mainly concentrated in the Grand Rapids, Flint and Detroit areas.
    *Id. See also* IURC June 16 Comments at 9 (estimating that, at the
    end of 1998, approximately 3 percent of total voice grade access
    lines in Ameritech's service areas in Illinois and Michigan were
    served by a competitive LEC, either through total service resale or
    UNEs).

[^55]: These numbers are in line with industry estimates concerning
    competitive entry into SBC's markets. *See, e.g.,* "Competitors have
    swiped only 2.2% of SBC's phone lines, compared with a 3.4% loss at
    Bell Atlantic." "The Last Monopolist," *Business Week, 76, 77* (Apr.
    12, 1999).

[^56]: Letter from Zeke Robertson, SBC, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-141, Att. 2 at 4 (filed Mar. 30,
    1999).

[^57]: SBC/Ameritech July 24 Application, Affidavit of Stephen M.
    Carter, Att. 1 at 3-5.

[^58]: Joint Reply of SBC Communications Inc. and Ameritech Corporation
    to Comments Regarding Merger Conditions, filed July 26, 1999
    (SBC/Ameritech July 26 Reply Comments).

[^59]: *Id.* at 12.

[^60]: *Id.* As of March 1999, SBC reported that it had provisioned more
    than 73,800 unbundled loops and more than 590,000 one- and two-way
    interconnection trunks to competitive LECs. Letter from Todd F.
    Silbergeld, SBC to Magalie Roman Salas, Secretary, FCC, CC Docket
    No. 97-121, Att. at 2-3 (filed Apr. 6, 1999). SBC estimated 830,000
    resold lines. *Id.* These updated figures represent a 23 percent
    increase in provision of unbundled loops and a 28 percent increase
    in resale since the merger application.

[^61]: SBC/Ameritech July 26 Reply Comments at 13.

[^62]: *Local Competition*, Federal Communications Commission, Common
    Carrier Bureau, Industry Analysis Div., at Table 2.1 (Aug. 1999)
    (*"Local Competition Report"*).

[^63]: *See id.* at 1, 12.

[^64]: *Id.* at 1. *See* AT&T Oct. 15 Petition at 11 (citing a recent
    study by the Consumer Federation of America, *Stonewalling Local
    Competition: The Baby Bell Strategy to Subvert the
    Telecommunications Act of 1996* (1998) at 20, for the proposition
    that local competition affects little more than one percent of the
    local market and an even lower percentage of residential service).
    *See also* Letter from Antoinette Cook Bush, Ameritech, to Magalie
    Roman Salas, Secretary, FCC, CC Docket No. 98-141, at 11 (July 9,
    1999) (stating that "there is a much higher level of competition in
    the business market than the residential market in Indiana" because
    Indiana has among the lowest retail residential local exchange rates
    in the country).

[^65]: *See Local Competition Report* at 2, 22-23. *See* Consumer
    Coalition Oct. 15 Comments at 6 (noting that even according to the
    applicants' own estimates in their application, less than one
    percent of access lines had been lost to competitors through
    unbundling); Telecommunications Resellers Association Oct. 15
    Comments at 11-12 (referring to SBC's and Ameritech's unbundled
    loops as a "small fraction of a single percent of the network access
    lines SBC and Ameritech currently have in service").

[^66]: *Id.* at 5-6; *see also Local Competition,* Federal
    Communications Commission, Common Carrier Bureau, Industry Analysis
    Div., at 2 (Dec. 1998) (noting that the Atlanta, Dallas, Los
    Angeles, and New York City LATAs each had more than 20 competitive
    LECs with the numbering resources necessary to provide mass market
    switched services over their own facilities, while 30 of the
    nation's more rural LATAs had no such competitive LECs). The IURC
    states that facilities-based competition is virtually non-existent
    in Indiana, and that competition has been much slower to develop in
    that state than in Ameritech states with larger MSAs such as
    Chicago, Detroit, Cleveland, and Milwaukee. IURC June 16 Comments at
    8, 11. Indiana's largest MSA, Indianapolis, is only the 28^th^
    largest in the nation, and its second largest, Fort Wayne, ranks
    81^st^, compared with Chicago (3^rd^), Detroit (8^th^), Cleveland
    (13^th^), and Milwaukee (26^th^). *Id.* at 11-12. Furthermore, five
    of the seven facilities-based competitors in Indiana have
    [all]{.underline} of their switches located in Indianapolis and its
    surrounding cities. Letter from Antoinette Cook Bush, Ameritech, to
    Magalie Roman Salas, Secretary, FCC, CC Docket No. 98-141, Att. at
    12 (July 9, 1999).

[^67]: The PacTel merger was announced April 1, 1996 and consummated
    April 1, 1997. *See* Joint Opposition of SBC and Ameritech, Martin
    Kaplan Reply Aff. at 2.

[^68]: *See* AT&T Oct. 15 Petition at 14, 18; Consumer Coalition Oct. 15
    Comments at 8; Consumer Coalition Oct. 15 Comments, Baldwin &
    Golding Affidavit, at 12-16, 18; Sprint Petition at 52-54;
    Telecommunications Resellers Association Oct. 15 Comments at 11;
    Time Warner Telecom Corp. Oct. 15 Petition at 3-5.

[^69]: *Application by SBC Communications, Inc., Pursuant to Section 271
    of the Communications Act,* 12 FCC Rcd 8685 (1997) (*Oklahoma
    Order*).

[^70]: *Id.* at para. 1. The Commission further concluded that SBC was
    foreclosed from obtaining interLATA authority under the alternative
    route, Track B (where no competing carrier has requested access and
    interconnection), because SBC had already received several requests
    for access and interconnection from competing carriers. *See id.*
    Although the *Oklahoma Order* did not further examine SBC's
    compliance with the requirements of section 271, the Commission did
    note that the record in that proceeding was "replete with
    allegations from competitors such as Brooks \[Fiber Properties,
    Inc.\] and Cox \[Communications, Inc.\] that their efforts to enter
    the local exchange market \[had\] been frustrated by the actions of
    SBC." *Id.* at para. 64.

[^71]: *See* Narrative Response of SBC Communications Inc. to the FCC's
    1/5/99 Request for Supplemental Information filed Feb. 2, 1999 (CC
    Docket No. 98-141), at 32.

[^72]: *See Application of Ameritech Michigan Pursuant to Section 271 of
    the Communications Act,* 12 FCC Rcd 20543 (1997), para. 5. The U.S.
    Department of Justice and the Michigan Public Service Commission had
    both recommended denial of the application for similar reasons.
    *Id.* at paras. 32-33, 41-42.

[^73]: Letter from Antoinette Cook Bush, Ameritech, to Magalie Roman
    Salas, Secretary, FCC, dated March 24, 1999. On November 2, 1998,
    Ameritech did file a comprehensive performance plan (including
    performance measurements, calculation methodologies, benchmarks and
    remedies for failure to perform as required) in a separate docket in
    Michigan. *Id.*

[^74]: *Id.*

[^75]: *See, e.g., AT&T Corp. v. Iowa Utils. Bd.,* 525 U.S. 366 (1999)
    (upholding Commission's rulemaking authority to carry out local
    competition provisions of the Telecommunications Act of 1996,
    upholding "pick and choose" rule, and remanding Commission's
    application of \"necessary and impair\" standard of the 1996 Act to
    network element unbundling rules).

[^76]: *See, e.g.,* IURC June 16 Comments at 10-11 & n.25 (reporting
    that the IURC established a permanent wholesale discount for
    Ameritech Indiana (21.46 percent) on February 25, 1999, and that
    final unbundled network element rates had not yet been established
    for Ameritech in Indiana or Ohio).

[^77]: The Merger Agreement specifies that Ameritech shareholders will
    receive newly-issued shares of SBC at a fixed exchange ratio of
    1.316 shares of SBC common stock for each share of Ameritech common
    stock. Application, Description of Transaction, at 1. *See also*
    SBC/Ameritech July 24 Application, Agreement and Plan of Merger.

[^78]: *See* SBC 1998 Annual Report at 3 (Letter from Edward E. Whitacre
    Jr., Chairman and CEO).

[^79]: *See* 15 U.S.C. § 18a. DOJ specifically noted that its approval
    is only one step in the overall merger review process for the
    proposed transaction. *See* United States Department of Justice,
    "Justice Department Requires SBC to Divest Cellular Properties in
    Deal with Ameritech and Comcast," Press Release (Mar. 23, 1999) (DOJ
    Mar. 23 Press Release). DOJ outlined its role in the merger review
    process as follows:

    "The Antitrust Division's suit was filed under Section 7 of the
    Clayton Act, which prohibits mergers that may substantially lessen
    competition, and reflects the Division's view about the antitrust
    issues raised by the proposed merger. Other government agencies,
    including the Federal Communications Commission and the public
    utility commissions of Illinois, Indiana, and Ohio, are also
    reviewing the SBC/Ameritech transaction under the laws which those
    agencies enforce."

    *Id.*

[^80]: *United States v. SBC Communications Inc. and Ameritech
    Corporation*, Case No. 99-0715, Stipulation and Final Judgment
    (D.D.C., filed Mar. 23, 1999) (Proposed Final Judgment).

[^81]: Proposed Final Judgment at 2.

[^82]: *Id*. In its Complaint, DOJ referenced a bundled product of
    local, long distance and cellular services that Ameritech had
    planned to provide to its residential cellular customers prior to
    the merger and indicated that "\[t\]here is no alternative source of
    such a bundled product in the St. Louis area at present." *United
    States v. SBC Communications Inc. and Ameritech Corporation*, Case
    No. 99-0715, Complaint, at para. 21 (D.D.C. filed Mar. 23, 1999)
    (DOJ Mar. 23 Complaint). Thus, DOJ acknowledged, "\[t\]he
    acquisition would prevent the realization of this new competition."
    *Id*.

[^83]: *See* "Ameritech Sells Cellular Properties to GTE and Georgetown
    Partners for \$3.27 Billion," Press Release (Apr. 5, 1999),
    [http://www.ameritech.com/media/release/view/0,1038,2556\|1_2,00.html](http://www.ameritech.com/media/release/view/0,1038,2556|1_2,00.html).
    *See* *In re Applications of Ameritech Corporation, Transferor, and
    GTE Consumer Services, Inc., Transferee, for Consent to Transfer of
    Control of Licenses and Authorizations*, Memorandum Opinion and
    Order, DA 99-1677, 1999 WL 635,724 (WTB 1999).

[^84]: In addition to the state proceedings outlined below, the Public
    Service Commission of Wisconsin examined the proposed merger for the
    purpose of filing comments with this Commission. *See* Comments of
    the Public Service Commission of Wisconsin, CC Docket No. 98-141
    (filed May 19, 1999). In Indiana, the IURC on its own motion, on
    September 2, 1998, initiated an investigation into the proposed
    merger to determine whether the IURC had authority to approve the
    merger. *See* *Investigation of the Commission's Own Motion into all
    Matters Relating to the Merger of Ameritech Corporation and SBC
    Communications Inc.*, Cause No. 41255, Order (IURC Sept. 2, 1998).
    The IURC ruled on May 5, 1999, that the proposed merger required its
    approval. *See* *Investigation of the Commission's Own Motion into
    all Matters Relating to the Merger of Ameritech Corporation and SBC
    Communications Inc.*, Cause No. 41255, Order (IURC May 5, 1999). The
    Applicants appealed this ruling, and the Indiana Supreme Court held
    that the IURC lacks jurisdiction under state law over a transaction
    by a public utility's holding company, such as SBC's acquisition of
    Ameritech. *See Indiana Bell Telephone Co., Inc. v. Indiana Utility
    Regulatory Comm'n*, 715 N.E.2d 351 (Ind. 1999).

[^85]: *See Joint Application of SBC Communications Inc., SBC Delaware
    Inc., Ameritech Corporation, and Ameritech Ohio for Consent and
    Approval of a Change of Control*, Public Utilities Comm'n of Ohio
    Case No. 98-1082-TP-AMT, Opinion and Order, at 18-19, 25-27, 30-31
    (Apr. 8, 1999) (*Ohio PUC Merger Order*). The Applicants agreed to
    enter the local exchange markets in the Cincinnati, Hudson,
    Delaware, and Lebanon areas.

[^86]: *Id*. at 28.

[^87]: *Id*. at 10, 15-16, 22.

[^88]: *See SBC Communications Inc., SBC Delaware Inc., Ameritech
    Corporation, Illinois Bell Telephone Company d/b/a Ameritech
    Illinois, and Ameritech Illinois Metro, Inc.*, Docket No. 98-0555,
    Order (ICC Sept. 23, 1999) (*ICC Merger Order*).

[^89]: *See* *Petition of the Regulatory Operations Staff for an Order
    to Show Cause Why SBC Communications Inc. Should Not be Ordered to
    File an Application for Merger Approval in Compliance with NRS
    704.329*, Docket No. 99-4031, Order (Nev. PUC rel. Aug. 2, 1999).

[^90]: *See Special Application of SBC Communications Inc. for
    Authorization to Acquire Ameritech Corporation Pursuant to an
    Agreement and Plan of Merger or a Finding that the Commission Lacks
    Jurisdiction over the Acquisition*, Docket No. 99-8010, Notice of
    Application and Prehearing Conference (Nev. PUC Aug. 10, 1999).

[^91]: *Special Application of SBC Communications Inc. for Authorization
    to Acquire Ameritech Corporation Pursuant to an Agreement and Plan
    of Merger or a Finding that the Commission Lacks Jurisdiction over
    the Acquisition*, Docket No. 99-8010, Order (Nev. PUC Sept. 1, 1999)
    (*Nevada PUC Merger Order*).

[^92]: *See* "European Regulators Signal Clear Path for SBC-Ameritech
    Merger," SBC and Ameritech News Release (July 23, 1998) (SBC/AIT
    July 23 Press Release).

[^93]: Application, Description of the Transaction, at 103-4. *See also*
    SBC/AIT July 23 Press Release (noting merger approval from the
    national regulatory authorities of Germany, Denmark and Belgium).

[^94]: *SBC Communications, Inc. and Ameritech Corporation Seek FCC
    Consent for a Proposed Transfer of Control and Commission Seeks
    Comment on Proposed Protective Order Filed by SBC and Ameritech*, CC
    Docket No. 98-141, Public Notice, DA 98-1492 (July 30, 1998).

[^95]: The parties that filed formal pleadings in this proceeding are
    listed in Appendix A. In addition to those formal pleadings, we
    received hundreds of informal comments through *ex parte*
    submissions.

[^96]: *See* "Commission to Hold En Bancs Regarding Telecom Mergers,"
    Public Notice, DA 98-2045 (Oct. 9, 1998); "Commission to Hold En
    Bancs Regarding Telecom Mergers," Public Notice, DA 98-2415 (Dec. 2,
    1998); "Chief Economist Names Participants on Economic Round Table
    Regarding Telecom Mergers," Public Notice, DA 99-119 (Jan. 25,
    1999).

[^97]: *Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Authorizations from Ameritech Corporation,
    Transferor, to SBC Communications Inc., Transferee*, CC Docket No.
    98-141, Order Adopting Protective Order, DA 98-1952 (Oct. 2, 1998).

[^98]: *See* Letter from Carol E. Mattey, Chief, Policy and Program
    Planning Division, Common Carrier Bureau, to Dale (Zeke) Robertson,
    Senior Vice President, SBC Telecommunications Inc. (Jan. 5, 1999)
    (CCB Jan. 5 SBC Letter); Letter from Carol E. Mattey, Chief, Policy
    and Program Planning Division, Common Carrier Bureau, to Lynn
    Shapiro Starr, Executive Director, Federal Relations, Ameritech
    Corp. (Jan. 7, 1999) (CCB Jan. 7 Ameritech Letter).

[^99]: *See* CCB Jan. 5 SBC Letter; CCB Jan. 7 Ameritech Letter. On May
    10, 1999, Sprint alleged that the Applicants had withheld from the
    Commission certain documentation relevant to the Commission's
    document request letters. *See* Letter from Philip L. Verveer,
    Counsel for Sprint Communications Company, Willkie Farr & Gallagher,
    to William E. Kennard, Chairman, FCC (filed May 10, 1999). In
    response, the Commission requested that the Applicants submit
    certain of the identified documents, which Ameritech subsequently
    submitted. *See* Letter from Carol E. Mattey, Chief, Policy and
    Program Planning Division, Common Carrier Bureau, to Lynn Shapiro
    Starr, Executive Director, Federal Relations, Ameritech Corp. (May
    19, 1999); Letter from Antoinette Cook Bush, Counsel to Ameritech
    Corporation, to Magalie Roman Salas, Secretary, FCC (filed May 20,
    1999).

[^100]: *See* Letter from William E. Kennard, Chairman, FCC, to Richard
    C. Notebaert, Chairman and Chief Executive Officer, Ameritech
    Corporation and Edward E. Whitacre, Jr., Chairman and Chief
    Executive Officer, SBC Communications Inc., CC Docket No. 98-141
    (Apr. 1, 1999). In that letter, the Chairman specified the following
    public interest concerns:

    How can the Commission be assured that the merger will not interfere
    with the companies' willingness and ability to fully open their
    local markets to competition in accordance with the Communications
    Act (Act)?

    How can the Commission be assured that the merger would promote the
    objective of the Telecommunications Act of 1996 to encourage
    competition in all telecommunications markets?

    How can the Commission be assured that the public will promptly
    receive the claimed benefits from the proposed "national/local
    strategy" in view of section 271 of the Act?

    How can the Commission be assured that the merger will not adversely
    affect the Commission's ability to fulfill its responsibilities
    under the Communications Act by reducing its ability to "benchmark"
    the performance and capabilities of telecommunications carriers?

    How can the Commission be assured that the proposed combination will
    serve the Communications Act's public interest mandate by improving
    overall consumer welfare?

    *Id.* at 2.

[^101]: *See also* Letter from U.S. Senators Mike DeWine (R-OH), Herb
    Kohl (D-WI), Strom Thurmond (R-SC) and Patrick Leahy (D-VT) to
    William Kennard, FCC Chairman, dated Sept. 16, 1998 (expressing
    concern by leading members of U.S. Senate Antitrust Subcommittee
    about telecommunications industry mergers, and urging the Commission
    to "search for creative, but non-intrusive ways to limit the
    anticompetitive effects of these deals while emphasizing the
    procompetitive aspects."). The Senators stated that if a merger is
    justified on the basis of the prospect of increased competition by
    the merged parties, then the Commission "should consider how to
    guarantee that the competitive promises of the merging parties are
    kept -- without unduly interfering in the legitimate business
    decisions of the respective companies." *Id*. at 1. The Senators
    suggested that in certain circumstances, this may be best
    accomplished "by clearly written, easily enforceable conditions for
    post-merger actions by the parties; in other cases, pre-merger
    conditions may provide more certainty." *Id*.

[^102]: *See* Letter from Edward E. Whitacre, Jr., SBC Communications
    Inc. and Richard C. Notebaert, Ameritech Corporation, to Honorable
    William E. Kennard, Chairman, FCC, CC Docket No. 98-141 (Apr. 7,
    1999). *See also* Statement of FCC Chairman William Kennard on
    Ameritech and SBC Response to the Chairman's Request for a Dialogue
    (rel. Apr. 7, 1999).

[^103]: *See, e.g.,* Letter from Todd F. Silbergeld, SBC
    Telecommunications, Inc., to Magalie Roman Salas, Secretary, FCC, CC
    Docket No. 98-141 (April 12, 1999) (indicating discussion of legal
    standard for merger review, pro-competitive aspects and certain
    concerns of proposed merger, and general purpose of any conditions);
    Letter from Todd F. Silbergeld, SBC Telecommunications, Inc., to
    Magalie Roman Salas, Secretary, FCC, CC Docket No. 98-141 (May 5,
    1999) (indicating discussion of potential conditions concerning
    opening local markets to competition and advanced services, as well
    as the duration of potential conditions); Letter from Paul K.
    Mancini, SBC, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-141 (June 17, 1999) (indicating discussion of potential
    conditions concerning OSS, collocation, and performance measures).

[^104]: *See, e.g.,* Letter from Karen J. Hardie, Ohio Consumers'
    Counsel, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-141 (Apr. 23, 1999) (indicating discussion of residential
    competition); Letter from Patrick J. Donovan, Swidler Berlin Shereff
    Friedman on behalf of CoreComm Limited, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-141 (Apr. 30, 1999) (indicating
    discussion of residential rates, burden of negotiating multiple
    interconnection agreements, collocation expense and delay, access to
    unbundled network elements, resale, OSS, and enforcement); Letter
    from A. Renee Callahan, Willkie Farr & Gallagher on behalf of Sprint
    Communications Company, to Magalie Roman Salas, Secretary, FCC, CC
    Docket No. 98-141 (Apr. 30, 1999) (indicating discussion of the need
    for specific incumbent LEC inputs to offer advanced services).

[^105]: *See, e.g.,* Commission Announces Public Forum on SBC
    Communications Inc. and Ameritech Corporation, Applications for
    Transfer of Control, CC Docket No. 98-141, Public Notice, DA 99-810
    (rel. Apr. 28, 1999); SBC-Ameritech Public Forum Extended for Second
    Day, CC Docket No. 98-141, Public Notice, DA 99-837 (rel. May 4,
    1999). *See also* Statement of FCC Chairman William E. Kennard on
    Conditions for SBC-Ameritech Merger (rel. May 6, 1999).

[^106]: *See* Letter of Richard Hetke, Senior Counsel, Ameritech
    Corporation, and Paul K. Mancini, General Attorney and Assistant
    General Counsel, SBC Communications Inc., to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-141 (filed July 1, 1999)
    (SBC/Ameritech July 1 *Ex Parte*). Specifically, in their reply
    comments in response to public comment on their proffered
    conditions, the Applicants state that they will comply with the
    commitments "to assuage concerns that the merger's benefits will not
    materialize and to address any remote, speculative possibility that
    competition in some markets may be threatened." SBC/Ameritech July
    26 Reply Comments at 19.

[^107]: *See Pleading Cycle Established for Comments on Conditions
    Proposed by SBC Communications Inc. and Ameritech Corporation for
    their Pending Application to Transfer Control*, CC Docket No.
    98-141, Public Notice (rel. July 1, 1999). The parties filing
    comments and reply comments are listed in Appendix A.

[^108]: *See* Letter from Richard Hetke, Ameritech Corp. and Paul K.
    Mancini, SBC Communications Inc., to Magalie Roman Salas, Secretary,
    FCC, CC Docket No. 98-141 (filed Aug. 27, 1999) (SBC/Ameritech Aug.
    27 *Ex Parte*); Letter from Richard Hetke, Ameritech Corp. and Paul
    K. Mancini, SBC Communications Inc., to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-141 (filed Sept. 7, 1999)
    (SBC/Ameritech Sept. 7 *Ex Parte*); Letter from Richard Hetke,
    Ameritech Corp. and Paul K. Mancini, SBC Communications Inc., to
    Magalie Roman Salas, Secretary, FCC, CC Docket No. 98-141 (filed
    Sept. 17, 1999) (SBC/Ameritech Sept. 17 *Ex Parte*).

[^109]: 47 U.S.C. §§ 214(a), 303(r), 310(d). *See WorldCom/MCI Order*,
    13 FCC Rcd at 18030, para. 8; *Bell Atlantic/NYNEX Order*, 12 FCC
    Rcd at 20000, para. 29.

[^110]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18031-32, para. 10.

[^111]: 47 U.S.C. § 214(a).

[^112]: 47 U.S.C. § 214(a). *See* *Implementation of Section
    402(b)(2)(A) of the Telecommunications Act of 1996; Petition for
    Forbearance of the Independent Telephone and Telecommunications
    Alliance*, CC Docket No. 97-11; AAD File No. 98-43, Report and Order
    in CC Docket No. 97-11 and Second Memorandum Opinion and Order in
    AAD File No. 98-43, FCC 99-104 (rel. June 30, 1999) (continuing to
    require Commission approval for transfers of control, even though
    blanket section 214 entry certification and streamlined section 214
    exit certification have been granted for domestic carriers). In
    their joint application to transfer control of the domestic section
    214 authority held by Ameritech Illinois Metro, Inc., the Applicants
    also "apply for any authorization the Commission may deem necessary
    under section 214 of the Communications Act for the transfer of
    control to SBC of domestic lines, now controlled by Ameritech and
    its subsidiaries, that are used for the provision of interstate
    services." Application, Part 63 Joint Application for Authority,
    Pursuant to section 214 of the Communications Act of 1934, as
    amended, to Transfer Control of Domestic Section 214 Authority, at 2
    n.2.

[^113]: 47 U.S.C. § 310(d).

[^114]: 47 U.S.C. § 310(d).

[^115]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20063, para. 157.

[^116]: *Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Authorizations from Tele-Communications, Inc.,
    Transferor, to AT&T Corp., Transferee*, CS Docket No. 98-178,
    Memorandum Opinion and Order, 14 FCC Rcd at 3160, 3169-70, para. 15
    (1999) (*AT&T/TCI Order*). *See also* *WorldCom/MCI Order*, 13 FCC
    Rcd at 18031, para. 10 n.33 (citing 47 U.S.C. § 309(e) (burdens of
    proceeding and proof rest with the applicant); *American Telephone
    and Telegraph Co. and MCI Communications Corporation Petitions for
    the Waiver of the International Settlements Policy*, File No.
    USP-89-(N)-086, Memorandum Opinion and Order, 5 FCC Rcd 4618, 4621,
    para. 19 (1990) (applicant seeking a waiver of an existing rate
    bears the burden of proof to establish that the public interest
    would be better served by the grant rather than the denial of the
    waiver request); *LeFlore Broadcasting Co., Inc.*, Docket No. 20026,
    Initial Decision, 66 FCC 2d 734, 736-37, paras. 2-3 (1975) (on the
    ultimate issue of whether the applicants have the requisite
    qualifications and whether a grant of the application would serve
    the public interest, as on all issues, the burden of proof is on the
    licensees).

[^117]: *See, e.g.*, *AT&T/TCI Order*,14 FCC Rcd at 3221-24, paras.
    130-136 (concluding that AT&T's acquisition of TCI, following its
    acquisition of Teleport, would not violate the buy-out restriction
    contained in section 652(a) of the Communications Act, which
    prohibits a local exchange carrier from acquiring more than a ten
    percent financial interest in an overlapping cable operator);
    *SBC/SNET Order*, 13 FCC Rcd 21292, 21309-10, para. 36 (stating that
    "in order to comply with section 271, SNET and its subsidiaries must
    cease originating long distance traffic in SBC's current seven-state
    region."). *See also infra* Section VIII.C. (Alarm Monitoring).

[^118]: *See, e.g.*, *AT&T/TCI Order*, 14 FCC Rcd at 3207-08, paras.
    98-99, n.287 (acknowledging that AT&T's acquisition of TCI would
    implicate the Commission's commercial mobile radio service (CMRS)
    spectrum cap, 47 C.F.R. § 20.6); 14 FCC Rcd at 3177-81, paras. 31-40
    (affirming that a merged AT&T-TCI would still be subject to the
    Commission's rules protecting competitive access to cable
    programming, 47 C.F.R. §§ 76.1000-76.1004). *See also infra*
    discussion concerning spectrum cap in Section VIII.A. (Wireless
    Services).

[^119]: *See, e.g.*, *AT&T/TCI Order*, 14 FCC Rcd at 3224-26, paras.
    137-39 (examining the merger's effect on the preservation and
    advancement of the Commission's universal service goals and
    concluding that AT&T's planned deployment of cable telephony
    furthers the goal of providing equal and expanded access to advanced
    telecommunications technologies); at 3211-13, paras. 108-12
    (imposing additional restrictions to ensure that AT&T-TCI not exert
    influence over the trustee of the Sprint PCS trading stock or
    receive economic benefit during the divestiture period to mitigate
    the possibility that AT&T would not compete fully with Sprint in
    CMRS markets during such period, and also to ensure that Sprint's
    ability to raise capital to build out its network in this new
    service would not be adversely affected); *WorldCom/MCI Order*, 13
    FCC Rcd at 18130-34, paras. 188-93 (addressing allegations that, as
    a direct result of the merger, the merged entity would cease
    providing long distance and local service to residential customers).

[^120]: *See, e.g.*, *AT&T/TCI Order*, 14 FCC Rcd at 3229-30, para. 147
    (finding consumer benefit through the company's intention and
    increased ability and incentive to provide facilities-based
    competition in local telecommunications markets); *Applications of
    Puerto Rico Telephone Authority, Transferor, and GTE Holdings
    (Puerto Rico) LLC, Transferee, For Consent to Transfer Control of
    Licenses and Authorizations Held by Puerto Rico Telephone Company
    and Celulares Telefónica, Inc.*, File Nos. 03373-03384-CL-TC-98,
    Memorandum Opinion and Order, 14 FCC Rcd 3122, 3149, at para. 58
    (1999) (concluding that consumers would benefit from private
    ownership of the island's principal local exchange service provider
    by a well-financed and experienced company, along with the buyer's
    commitment to substantial infrastructure investment).

[^121]: Although the Commission's analysis of competitive effects is
    informed by antitrust principles and judicial standards of evidence,
    it is not governed by them, which allows the Commission to arrive at
    a different assessment of likely competitive benefits or harms than
    antitrust agencies arrive at based on antitrust law. *See FCC v. RCA
    Communications*, 346 U.S. 86, 96-97 (1953) ("To restrict the
    Commission's action to cases in which tangible evidence appropriate
    for judicial determination is available would disregard a major
    reason for the creation of administrative agencies, better equipped
    as they are for weighing intangibles by specialization, by insight
    gained through experience, and by more flexible procedure."). *See
    also WorldCom/MCI Order*, 13 FCC Rcd at 18034, para. 13 (*citing RCA
    Communications*, 346 U.S. at 94; *United States v. FCC*, 652 F.2d
    72, 81-82 (D.C. Cir. 1980) (*en banc*) (The Commission\'s
    \"determination about the proper role of competitive forces in an
    industry must therefore be based, not exclusively on the letter of
    the antitrust laws, but also on the \'special considerations\' of
    the particular industry.\"); *Teleprompter-Group W*, 87 FCC 2d 531
    (1981), *aff\'d on recon*., 89 FCC 2d 417 (1982) (Commission
    independently reviewed the competitive effects of a proposed
    merger); *Equipment Distributors\' Coalition, Inc. v. FCC*, 824 F.2d
    1197, 1201 (D.C. Cir. 1987); *Northeast Utilities Service Co. v.
    FERC*, 993 F.2d 937, 947-48 (1st Cir. 1993) (public interest
    standard does not require agencies \"to analyze proposed mergers
    under the same standards that the Department of Justice . . . must
    apply.\")).

[^122]: 15 U.S.C. § 18.

[^123]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18032-33, para. 12;
    *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19987, para. 2.

[^124]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19987, para. 2.

[^125]: *AT&T/TCI Order*, 14 FCC Rcd at 3169, para. 14

[^126]: *See, e.g.*, *AT&T/TCI Order*, 14 FCC Rcd at 3168-69, para. 14;
    *WorldCom/MCI Order,* 13 FCC Rcd at 18030-31, para. 9.

[^127]: *See WorldCom/MCI* Order, 13 FCC Rcd at 18030-31, para. 9. See
    *also*, *e.g.*, 47 U.S.C. §§ 254, 259, 332(c)(7), 706; Preamble to
    Pub. L. No. 104-104, 110 Stat. 56 (1996).

[^128]: *See, e.g., WorldCom/MCI Order,* 13 FCC Rcd at 18030-31, para.
    9*; Applications of Teleport Communications Group Inc., Transferor,
    and AT&T Corp., Transferee, For Consent to Transfer Control of
    Corporations Holding Point-to-Point Microwave Licenses and
    Authorizations to Provide International Facilities-Based and Resold
    Communications Services*, CC Docket No. 98-24, Memorandum Opinion
    and Order, 13 FCC Rcd 15236, 15242-43, para. 11 (1998)
    (*AT&T/Teleport Order*); *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at
    20063, para. 158.

[^129]: *See, e.g., WorldCom/MCI Order*, 13 FCC Rcd at 18030-31, para.
    9; *Bell Atlantic/NYNEX Order,* 12 FCC Rcd at 20003, para. 32 ("the
    Commission examines whether a proposed license transfer is
    consistent with the policies of the Communications Act, including,
    among other things, the transfer's effect on Commission policies
    encouraging competition and the benefits that would flow from the
    transfer.").

[^130]: *See, e.g.*, *FCC v. RCA Communications, Inc*., 346 U.S. 86,
    96-97 (1953); *FCC v. WNCN Listeners Guild*, 450 U.S. 582, 594-95
    (1981); *Cellnet Communications, Inc. v. FCC*, No. 96-4022, 1998 WL
    372319, at \*\*10-12 (6^th^ Cir. July 7, 1998). *See also
    WorldCom/MCI Order*, 13 FCC Rcd at 18033-34, 18038, paras. 13, 21;
    *AT&T/Teleport Order*, 13 FCC Rcd at 15246, para. 19, n.65;
    *Application by SBC Communications Inc., Pursuant to Section 271 of
    the Communications Act of 1934, as amended, to Provide In-Region,
    InterLATA Services in Oklahoma*, CC Docket No. 97-121, Memorandum
    Opinion and Order, 12 FCC Rcd 8685, 8718-19, para. 57 (1997)
    (acknowledging that the Commission's use of its predictive judgment
    "is required by the terms of section 271 and consistent with the
    statutory scheme envisioned by Congress."), at 8719, para. 58 n.181
    (collecting cases and noting the Supreme Court's recognition in
    various contexts that the Commission necessarily must make difficult
    predictive judgments in order to implement certain provisions of the
    Communications Act).

[^131]: *See* 47 C.F.R. § 1.110. *See also WorldCom/MCI Order*, 13 FCC
    Rcd at 18031-32, para. 10; *Bell Atlantic/NYNEX Order*, 12 FCC Rcd
    at 20001-2, para. 30.

[^132]: 47 U.S.C. § 214(c). *See* *WorldCom/MCI Order*, 13 FCC Rcd at
    18032, para. 10 n.35 (*citing* *MCI Communications Corp*, File No.
    I-S-P-93-013, Declaratory Ruling and Order, 9 FCC Rcd 3960, 3968,
    para. 39 (1994); *Sprint Corp.*, File No. I-S-P-95-002, Declaratory
    Ruling and Order, 11 FCC Rcd 1850, 1867-72, paras. 100-33 (1996);
    *GTE Corp.*, File No. W-P-C-2486, Memorandum Opinion and Order, 72
    FCC 2d 111, 135, para. 76 (1979)); *Bell Atlantic/NYNEX Order*, 12
    FCC Rcd at 20002, para. 30 n.59 (*citing* *Atlantic Tele-Network,
    Inc. v. FCC*, 59 F.3d 1384, 1389-90 (D.C. Cir. 1995); *GTE Service
    Corp. v. FCC*, 782 F.2d 263, 268 (D.C. Cir. 1986); *Western Union
    Tel. Co. v. FCC*, 541 F.2d 346, 355 (3^rd^ Cir. 1976), *cert.
    denied*, 429 U.S. 1092 (1977)).

[^133]: 47 U.S.C. § 303(r). *See, e.g., WorldCom/MCI Order*, 13 FCC Rcd
    at 18032, para. 10 n.36 (*citing FCC v. Nat\'l Citizens Comm. for
    Broadcasting*, 436 U.S. 775 (1978) (*Nat\'l Citizens)*
    (broadcast-newspaper cross-ownership rules properly adopted pursuant
    to section 303(r))*; U.S. v. Southwestern Cable Co.*, 392 U.S. 157,
    178 (1968) (section 303(r) powers permit Commission to order cable
    company not to carry broadcast signal beyond station\'s primary
    market); *United Video, Inc. v. FCC*, 890 F.2d 1173, 1182-83 (D.C.
    Cir. 1989) (syndicated exclusivity rules adopted pursuant to section
    303(r) powers)).

[^134]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18034-35, para. 14.

[^135]: *See* 15 U.S.C. §§ 18, 21(a) (granting the Commission
    jurisdiction under sections 7 and 11 of the Clayton Act to
    disapprove acquisitions of \"common carriers engaged in wire or
    radio communications or radio transmissions of energy\" where "in
    any line of commerce . . . the effect of such acquisition may be
    substantially to lessen competition, or tend to create a
    monopoly."). Both SBC and Ameritech are common carriers.

[^136]: *See* *WorldCom/MCI Order*, 13 FCC Rcd at 18032, para. 12; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20005, para. 33. *See also
    United States v. FCC*, 652 F.2d 72, 88 (D.C. Cir. 1980) (en banc).

[^137]: *See AT&T/TCI Order*, 14 FCC Rcd at 3170, para. 16.

[^138]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18036-37, para. 18
    ("\[T\]he analytical framework set forth in the *Bell
    Atlantic/NYNEX* *Order* is a natural extension of the principles,
    contained in the merger guidelines and existing antitrust case law,
    to transitional markets.").

[^139]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18038, para. 20.

[^140]: *See id.* (*citing United States v. Marine Bancorporation*, 418
    U.S. 602 (1974); ABA Section of Antitrust Law, Antitrust Law
    Developments (4th ed. 1997) at 346-50 (Antitrust Law Developments)).

[^141]: ^?^ As we stated in the *AT&T/TCG Order,* when analyzing a
    merger in a market that is rapidly changing, the best way to assess
    the likely effect of the merger is to isolate the effect of the
    merger from all other factors affecting the development of the
    relevant market over time. This is achieved by framing the analysis
    in a way that holds constant the effects of all changes in the
    market conditions other than those directly caused by the merger. To
    do this, we also identify as market participants those firms that
    have been effectively precluded from the market \-- that is, those
    firms that are most likely to enter (or are just beginning to enter)
    the market but have until recently been prevented or deterred from
    participating in the market by the barriers that the 1996 Act seeks
    to eradicate. We then identify the most significant participants
    based on an assessment of capabilities and incentives to compete
    effectively in the relevant market. *AT&T/TCG Order*, 13 FCC Rcd at
    15245-46, para. 17.

[^142]: ^?^ Of course, a simple antitrust analysis of mergers could
    generally be characterized as attempting to identify the most
    significant participants in a market and to determine if the
    acquired firm is among them. The important distinction in
    transitional markets is that firms that have been precluded from
    entering the market may potentially be considered significant
    participants. Furthermore, based on an analysis of their abilities
    and incentives to expand out of region, firms may be included as
    significant competitors even though they may have yet to manifest a
    firm intention to enter or to invest substantially in preparation
    for entry. Of course, the case for including a firm as a significant
    potential competitor will generally be somewhat stronger to the
    extent that it can be established that the firm has made plans to
    enter or has already made investments in preparation for entry.

[^143]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18036-37, para. 18*;
    Bell Atlantic/NYNEX Order,* 12 FCC Rcd at 20008-10, paras. 37-38.

[^144]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20016, para. 53;
    *see also* *WorldCom/MCI Order*, 13 FCC Rcd at 18119, para. 164.

[^145]: In Sections VIII.A and VIII.B we address the proposed merger's
    impact on the wireless, international markets.

[^146]: *See generally* *WorldCom/MCI,* 13 FCC Rcd at 18119*,* para.
    164; *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20016*,* para. 53.
    As recognized in these merger orders, mass market customers have a
    different decision-making process than do larger business customers.
    For example, residential and small businesses are served primarily
    through mass marketing techniques including regional advertising and
    telemarketing, while larger businesses tend to be served under
    individual contracts and marketed through direct sales contacts.
    *See also* Application, Description of Transaction at 64.
    Applicants' product market description also agrees with our
    established analysis.

[^147]: *See WorldCom/MCI Order,* 13 FCC Rcd at 18119-20*,* para. 166;
    *See also* *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20017*,* para.
    54. The geographic market is more accurately defined as a series of
    point-to-point markets. We can consider, as a whole, groups of
    point-to-point markets where customers face the same competitive
    conditions. We therefore treat as a geographic market an area in
    which all customers in that area will likely face the same
    competitive alternatives for a product*. WorldCom/MCI Order*, 13 FCC
    Rcd at 18040, para. 25. As we noted in the *AT&T/TCG Order*,
    discrete local areas may constitute separate relevant markets, since
    customers may face different competitive alternatives in these
    markets. *See* *AT&T/TCG Order,* 13 FCC Rcd at 15248, para. 21.

[^148]: *See* SBC/Ameritech July 24 Application, Description of the
    Transaction at 64-65.

[^149]: *See* e.spire Oct. 15 Comments at 8; *See also* South Austin
    Community Coalition Council Oct. 15 Comments at 2.

[^150]: Texas Office of Public Utility Counsel Oct. 15 Comments at 6.

[^151]: *Id.* at 6-7. We note that market definition is based on
    economic principles, as embodied in the 1992 Horizontal Merger
    Guidelines, and not popular conceptions or marketing strategies.

[^152]: *See* *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20016-17,
    para. 54; *WorldCom/MCI Order,* 13 FCC Rcd at 18042, para. 30.

[^153]: *See Bell Atlantic/NYNEX* *Order,* 12 FCC Rcd at 20019, para.
    58. Actual participants are those firms currently offering the
    relevant products in the relevant geographic markets. Precluded
    competitors, as discussed above, are those firms most likely to have
    entered the market but for the barriers to entry the 1996 Act sought
    to lower. *Id.* at paras. 59-60. As the Commission recognized in the
    *Bell Atlantic/NYNEX Order*, in determining the most significant
    market participants from the universe of actual and precluded
    competitors, we identify the market participants that have, or are
    most likely to gain speedily, the greatest capabilities and
    incentives to compete most effectively and quickly in the relevant
    market. *Id.* at para. 62.

[^154]: *Id*. at paras. 58-64; *WorldCom/MCI Order,* 13 FCC Rcd at
    18047-48, 18051-56, 18122, paras*.* 36,

    42-51, 171.

[^155]: *See Bell Atlantic/NYNEX* *Order,* 12 FCC Rcd at 20020-21, para.
    62.

[^156]: *See* *WorldCom/MCI Order* 13 FCC Rcd at 18134-36, para. 194;
    *AT&T/TCI Order,* 14 FCC Rcd at 3228-29, para. 145. *See also
    AT&T/TCG Order*, 13 FCC Rcd at 15261, para. 47 n.148. In the
    *WorldCom/MCI Order*, Applicants argued that the merged company
    would be better able to provide bundled services and innovative
    product combinations to consumers, and would also be able to offer
    multi-location customers door-to-door or end-to-end connectivity
    over their own fiber transport and intelligent network facilities.
    Similarly, in the *AT&T/TCI Order,* Applicants contended that the
    merger would increase the availability to consumers of a wide array
    of packaged services including local, long distance, wireless and
    high-speed Internet services. *See also* SBC/Ameritech July 24
    Application, Description of Transaction, Kahan Aff. at 10,12.

[^157]: *See* *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20021-22, para.
    64. We also noted in *Bell Atlantic/NYNEX*, that if a firm's
    internal documents demonstrate serious consideration of entry, they
    may create an inference of a capability to effect the market without
    a detailed examination of the competitor's capabilities and
    incentives.

[^158]: Firms providing one service may choose to expand their offering
    to provide a whole range of products or expand to other geographic
    regions. For instance, as noted in Section V.B.2.c) (Market
    Participants), in a number of recent merger applications before the
    Commission, the merging parties have asserted that consumers are
    expressing demand for "one-stop shopping." *See* *WorldCom/MCI
    Order,* 13 FCC Rcd at 18037*,* para. 19; *Bell Atlantic/NYNEX
    Order,* 12 FCC Rcd at 20015, para. 52. According to the Applicants,
    this demand stimulated in part their merger plans. We also examine
    the activities of competitors providing similar services; if a
    competitor branches into new relevant markets, we may determine that
    a firm could or would respond to such a competitive challenge by
    serving these other relevant markets as well.

[^159]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^160]: *See* SBC/Ameritech July 24 Application, Description of the
    Transaction at 71-72.

[^161]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^162]: *See* *id.*

[^163]: *See* SBC/Ameritech July 24 Application, Description of the
    Transaction.

[^164]: Among other reasons for canceling Project Gateway, Ameritech
    argues that projections indicated financial losses due in part to
    the increased competition in the St. Louis market for mobile
    services. This justification nevertheless is tied to the merger, as
    Ameritech states that the significance of these financial losses was
    to diminish the attractiveness of its cellular assets in St. Louis
    to potential buyers of those assets given the "substantial
    probability" that the assets would need to be divested to satisfy
    antitrust and regulatory authorities. Ameritech also points to
    implementation problems (billing, pricing, and order processing) and
    notes that fixing them would have taken significant resources.
    Finally, Ameritech notes that, contrary to predictions, its new
    mobile competitors did not enter with a bundled service offering.
    Ameritech argues that this removed the need for a defensive offering
    such as Project Gateway. *See* Appendix B (Summary of Confidential
    Information and Conclusions), *See also* SBC/Ameritech July 24
    Application, Description of Transaction at 71-72.

[^165]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^166]: *See id.*

[^167]: *See* *id.*

[^168]: *See* *id.*

[^169]: *See* *id.* Ameritech documents indicate that it considered
    facilities-based entry for several out-of-region endeavors.

[^170]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^171]: *See* *id.* *See also* Sprint Oct. 15 Petition at 16-17.

[^172]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^173]: *See* *id.*

[^174]: *See* *id.* *See also* Sprint Oct. 15 Petition, Decl. of John B.
    Hayes at 28-31; Focal Oct. 15 Comments at 14; CPI Nov. 16 Reply
    Comment at 7; Consumer Federation of America/Consumers Union
    (CU/CFA) Nov. 16 Reply Comments at 3; Report of Gregory L. Rosston &
    Matthew G. Mercurio, An Economic Analysis of the SBC-Ameritech
    Merger at 15 (April 26, 1999), attach. to Attorneys General of
    Indiana, Michigan, Missouri, and Wisconsin *Ex Parte* (filed April
    27, 1999)(State Attorneys General Apr. 27 *Ex Parte,* Rosston &
    Mercurio Report)

[^175]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^176]: Baldwin and Golding argue SBC\'s Rochester experience (discussed
    in para. 78, *infra*) is not a good predictor of success in Chicago.
    The Consumer Coalition Oct 15 Comments, Aff. of Susan M. Baldwin and
    Helen E. Golding at 38. Chicago, unlike Rochester, has many
    corporate headquarters whose telecommunications managers are
    familiar with SBC. Rosston & Mercurio argue that SBC is a potential
    entrant into Chicago since it has unique expertise, experience,
    operating systems, unique value, adjacency, brand name and
    facilities. *See* State Attorneys General Apr. 27 *Ex Parte,*
    Rosston & Mercurio Report at 19-20. *See also* CU/CFA Nov 16 Reply
    Comments.

[^177]: Rebuttal Testimony of James S. Kahan (SBC), In the Matter of the
    Joint Application of Pacific Telesis Group and SBC Communications
    for SBC to Control Pacific Bell, Cal PUC Docket No. 96-05-038 (Cal.
    PUC Oct. 15

    1996).

[^178]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^179]: *See* Appendix B (Summary of Confidential Information and
    Conclusions) citing State Attorney's General Apr. 27 *Ex Parte,*
    Rosston & Mercurio Report at 19.

[^180]: *See* *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd 20020, 20040-41,
    paras. 62, 106-108; s*ee also* AT&T Oct. 15 Petition at 22; Focal
    Oct. 15 Comments at 15; Hyperion Oct. 15 Comments at 27; Level 3
    Oct. 15 Comments at 8-10; Sprint Oct. 15 Petition at 8; Telecom
    Resellers Assn. Oct. 15 Comments at 8; State Attorney's General Apr.
    27 *Ex Parte,* Rosston & Mercurio Report at 11-12; *see generally*
    CU/CFA Oct. 15 Comments at 3-7; Texas Public Utility Counsel Oct. 15
    Comment at 6, *citing* Shepard Aff. at 25-48.

[^181]: *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd 20040, para. 107; *see
    also* AT&T Oct. 15 Petition at 23; Sprint Oct. 15 Petition at 9; MCI
    WorldCom Oct. 15 Comments at 31.

[^182]: *See* AT&T Oct. 15 Petition at 23; Sprint Oct. 15 Petition at 9.
    In the *Bell Atlantic/NYNEX* *Order* we concluded that Bell Atlantic
    was a most significant market participant in the adjacent LATA 132.
    This conclusion was based on the record which demonstrated Bell
    Atlantic had plans to enter the mass market for local exchange and
    exchange access service in the New York metropolitan area and had
    the capabilities necessary to do so*. Bell Atlantic/NYNEX*
    *Order***,** 12 FCC Rcd at 20025**,** para. 73.

[^183]: As contiguous incumbent LECs, Ameritech and SBC also have the
    ability to use remote digital loop carriers to serve out-of-region
    end users. AT&T states such technology has a range of about 125
    miles, which would permit it to be used in conjunction with the
    contiguous provider's switch in its nearby in-region territory**.**
    *See* AT&T Oct. 15 Petition at 23; Sprint Oct. 15 Petition at 9.
    Ameritech argues elsewhere that this distance is actually much
    greater, noting that switch manufacturers have designed their
    equipment to serve large geographic areas; for instance, "Lucent's
    5ESS switch permits a CLEC to locate a remote switching module ...
    up to 600 miles away from the host switch, allowing CLECs 'to expand
    networks and service offerings cost-effectively.'" Ameritech notes
    that AT&T is actually using switches to serve customers at up to 217
    miles from the switch (a switch in Grand Rapids, MI is serving
    Perkins, MI). Ameritech Comments, *Implementation of the Local
    Competition Provisions of the Telecommunications Act of 1996,* CC
    Docket Nos. 96-98, 95-185 (filed May 26, 1999) at 78-80 (Ameritech
    May 26 Comments).

[^184]: *See* AT&T Oct. 15 Petition at 23-24; Focal Oct. 15 Comments at
    15; Hyperion Oct. 15 Comments at 27-28; Sprint Oct. 15 Petition at
    9; Telecom Resellers Assn. Oct. 15 Comments at 8.

[^185]:  *See* AT&T Oct 15 Petition at 24, *citing* Wall St. J., at B4
    (June 8, 1998) ("*Spirit of St. Louis Haunts SBC-Ameritech
    Merger*"). *See also* *infra* at para. 90.

[^186]: *See* SBC/Ameritech Nov. 16 Reply Comments at 45-52, 67-72; *See
    also* Citizens for a Sound Economy Oct 15 Comments at 6-7.

[^187]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^188]: *See* *id.*

[^189]: Besides Chicago, SBC has cellular properties in the following
    MSA's in Ameritech's region: Detroit-Ann Arbor (MI), Milwaukee (WI),
    Columbus (OH), Dayton (OH), Flint (MI), Madison (WI),
    Hamilton-Middletown (OH), Lima (OH), Racine (WI), and Springfield
    (OH), Decatur (IL), Sheboygan (WI), Kankakee (IL), Aurora-Elgin (IL)
    and Joliet (IL). *The Wireless Communications Industry*, 1998/1999
    Winter Edition at 154. SBC also has PCS properties in Cleveland (OH)
    and Indianapolis (IN). *Id.* at 156.

[^190]: *See* *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20029, para.
    82.

[^191]: In the AT&T/TCI merger proceeding, the Commission found that the
    merging parties provided evidence supporting their intention to
    combine TCI's cable assets with AT&T's experience and brand name to
    begin providing residential local exchange service. *See AT&T/TCI*
    *Order*, 14 FCC Rcd at 3230-31, para. 148. Similarly, MCI and
    WorldCom assured the Commission during the MCI WorldCom proceeding
    that they would "augment their efforts in the residential local
    market," notably with respect to providing service to residents of
    multiple dwelling units (MDUs). *See* *WorldCom/MCI* *Order*, 13 FCC
    Rcd at 18132-33, paras. 191-92. Finally, Sprint has represented in
    the instant merger proceeding its intention to begin serving local
    mass market customers in numerous local markets with its ION
    offering. Sprint Oct. 15 Petition, Brauer Decl. at 5.

[^192]: GTE, as an incumbent LEC, has similar capabilities for expansion
    as an RBOC. For example, GTE has adjacency to many large markets in
    RBOCs regions and cellular assets. However, GTE has expressed to the
    Commission difficulties in expanding out-of-region, even in adjacent
    territories or using its cellular bases. *See Application for
    Consent to transfer Control of Licenses and Section 214
    Authorizations from GTE to Bell Atlantic,* CC Docket No.98-184 at 7
    (filed Oct. 24, 1998). Because GTE's statements are the subject of
    an open proceeding before the Commission, we make no conclusion on
    the merits of GTE's argument at this time. We do note, however, that
    GTE's argument does not apply here because our analysis shows that
    SBC and Ameritech would not experience difficulty in expanding
    out-of-region into each other's territory.

[^193]: *See* *WorldCom/MCI Order,* 13 FCC Rcd at 18123, para. 172;
    *AT&T/TCG Order,* 13 FCC Rcd at 15250, para. 26.

[^194]: *WorldCom/MCI* *Order*, 13 FCC Rcd at 18123, para. 172.

[^195]: *See* Section VI (Analysis of Potential Public Interest
    Benefits).

[^196]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^197]: *See id.*

[^198]: This assertion seems to contradict Ameritech's own documents
    showing that Ameritech continued to market MLA and expend resources
    after the merger. *See* Appendix B (Summary of Confidential
    Information and Conclusions). We find it unnecessary here to reach a
    conclusion on the fate of the MLA program, as we do not base our
    conclusions on the success or failure of the MLA program alone.

[^199]: *See* Appendix B (Summary of Confidential Information and
    Conclusions); *See also* Competition Policy Institute Nov. 16
    Comments at 6; CFA Oct. 15 Comments at 20; MCI WorldCom Oct. 15
    Comments at 3; Sprint Oct. 15 Petition at 8-9, Decl. of Stanley M.
    Besen, Padmanabhan Srinagesh & John R. Woodbury at 49-51;
    Telecommunications Resellers Ass'n Oct. 15 Comments at 83.

[^200]: The list of market participants with the capabilities and
    incentives to provide local exchange services to larger business
    customers includes the largest interexchange carriers.

[^201]: *See* Section V.B.2.b) (Relevant Markets). *See also
    WorldCom/MCI Order*, 13 FCC Rcd 18119, para. 164; *AT&T/TCG Order*,
    13 FCC Rcd 15257, para. 38. AT&T/TCG, with its combination of AT&T's
    capital resources and existing base of business long distance
    customers along with TCG's local exchange facilities and existing
    base of business local exchange customers, is a significant
    competitor in the local market for larger business customers. In a
    similar vein, MCI/WorldCom, with its combination of MCI's business
    customer base and local facilities along with WorldCom's competitive
    LEC assets (including Brooks Fiber and MFS), is also a significant
    competitor in the larger business local exchange market. Sprint has
    expressed an intention to serve this market with its ION offering,
    building off its own base of larger business customers. Other firms
    that are, or could soon become, significant market participants
    include NEXTLINK, e.spire, and WinStar.

[^202]: *See* *AT&T/TCG Order*, 13 FCC Rcd at 15257, para. 39; *Bell
    Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20016, para. 53

[^203]: *See* SBC/Ameritech July 24 Application, Description of the
    Transaction at 66.

[^204]: *See* *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20024, para.
    70.

[^205]: *See* Appendix B (Summary of Confidential Information and
    Conclusions). The DOJ complaint states: "\[A\]meritech planned,
    prior to its announcement of its agreement to be acquired by SBC, to
    provide local exchange and long distance telephone services in SBC's
    local telephone service area, primarily by selling bundled packages
    of such services and its cellular mobile telephone service to
    existing Ameritech residential cellular customers. There is no
    alternative source of such a bundled product in the St. Louis area
    at present." DOJ Complaint at para. 21.

[^206]: As noted by DOJ: "The antitrust Division's suit was filed under
    Section 7 of the Clayton Act, which prohibits mergers that may
    substantially lessen competition, and reflects the Division's view
    about the antitrust issues raised by the proposed merger. Other
    governments agencies, including the Federal Communications
    Commission and the public utility commissions of Illinois, Indiana,
    and Ohio, are also reviewing the SBC/Ameritech transactions under
    the laws which those agencies enforce." DOJ March 23 Press Release
    at 2.

[^207]: *See* *In re Applications of Ameritech Corporation, Transferor,
    and GTE Consumer Services, Inc., Transferee, for Consent to Transfer
    of Control of Licenses and Authorizations*, Memorandum Opinion and
    Order, DA 99-1677, 1999 W.L. 635,724 (WTB 1999).

[^208]: *See* Proposed Final Judgment at 3.

[^209]: We note that GCSI has not stated it has any specific plans to
    enter the mass market for local services in St. Louis. In a Press
    Release announcing the proposed acquisition of Ameritech's wireless
    properties, GTE Chairman and CEO Charles R. Lee stated that the
    purchase would "facilitate expansion into the local phone markets in
    key Midwest cities such as Chicago and St. Louis," however he
    mentioned no immediate specific plans to do so. *See* GTE Press
    Release at 2. In GCSI's application to the Commission for transfer
    of control of Ameritech's cellular licenses, there is similarly no
    mention of plans to use these wireless assets as a launching pad for
    offering wireline services; rather, there is simply a mention that
    wireless and wireline services will be made available through
    one-stop shopping "where an overlap exists between GTE's local
    exchange offerings and the Ameritech cellular properties." There is
    no such overlap in St. Louis. *See* Application of GTE Corporation
    for Transfer of Control of Radio Station Authorizations held by
    Ameritech, filed May 3, 1999 at 8-9.

[^210]: *See* *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20020, para.
    60; *WorldCom/MCI* *Order*, 13 FCC Rcd at 18037-38, paras. 19-20.

[^211]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^212]: *See* *WorldCom/MCI* *Order*, 13 FCC Rcd at 18074, para. 86;
    *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20022, para. 65. We
    note, further, that this conclusion undermines the Applicants'
    argument that a potential public interest benefit would result
    post-merger from Applicants following their larger business
    customers out-of-region as a result of their National Local
    Strategy. A number of firms, including SBC and Ameritech, are
    already providing or could provide local exchange and exchange
    access services to these customers.

[^213]: *AT&T/TCI Order*, 14 FCC Rcd at 3169, para. 14.

[^214]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19994, para. 16;
    *SBC/SNET Order*, 13 FCC Rcd at 21292, para. 21 ("We remain
    concerned about the consolidation among large LECs as a general
    matter."). *See also SBC/PacTel Order*, 12 FCC Rcd at 2624, para.
    32.

[^215]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19994, para. 16. The
    Commission specifically found that \"\[m\]ergers between incumbent
    LECs will likely reduce experimentation and diversity of viewpoints
    in the process of opening markets to competition.\" *Id.* at 20060,
    para. 152.

[^216]: *Id.* at 20062-63, para. 156. The Commission stressed that
    further reductions in the number of RBOCs "become more and more
    problematic as the potential for coordinated behavior increases and
    the impact of individual company actions on our aggregate measures
    of the industry\'s performance grows." *Id.*

[^217]: *Id.* at 19994, 20061, paras. 16, 153.

[^218]: *Id.* at 19994, para. 16.

[^219]: *See, e.g., Implementation of the Local Competition Provisions
    in the Telecommunications Act of 1996*, CC Docket No. 96-98, First
    Report and Order, 11 FCC Rcd. 15499, 15606, at para. 205 (1996)
    (*Local Competition Order*) (requiring incumbent LECs to prove to
    the appropriate state commission that interconnection or access at a
    particular point is not technically feasible, given that
    "\[i\]ncumbent LECs possess the information necessary to assess
    technical feasibility of interconnecting to particular LEC
    facilities."). *See also* Sprint Oct. 15 Petition, Farrell and
    Mitchell Decl., Att. C at 2-3, 7 (observing that a firm will be
    better informed about its economic costs, its ability to improve
    service quality or reduce delivery intervals, and other "softer"
    qualitative indicators such as access to unbundled network elements,
    provisioning and ordering practices, quality characteristics and
    opportunities for innovation).

[^220]: *See* Sprint Oct. 15 Petition at 26-27 (discussing how
    innovative technologies, such as Sprint ION, may require access to
    new and additional capabilities in the local exchange network, which
    translates into a need for competitors to acquire incumbent LEC
    inputs in nontraditional forms or in new price configurations).

[^221]: *See Local Competition Order*, 11 FCC Rcd at 15510, para. 15
    (discussing Congress's recognition of the superior bargaining power
    of incumbent LECs in negotiations with new entrants).

[^222]: *See, e.g., Local Competition Order*, at 15508-09, paras. 10-11
    (recognizing that an incumbent LEC, with its economies of density,
    connectivity and scale, has "little economic incentive to assist new
    entrants in their efforts to secure a greater share of that
    market.").

[^223]: *See, e.g.*, *id*.; *Implementation of the Telecommunications
    Act of 1996: Accounting Safeguards Under the Telecommunications Act
    of 1996*, CC Docket No. 96-150, Report and Order, 11 FCC Rcd 17539,
    17542-43, 17546, paras. 3-4, 13-14 (1996) (*Accounting Safeguards
    Order*); *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, 21910, 21912-13, 21914,
    22002-04, paras. 6, 11-13, 16, 206-08 (1996) (*Non-Accounting
    Safeguards Order*) (discussing a BOC's incentive to degrade services
    and facilities furnished to rivals of its affiliates and seeking
    ways to ensure that a BOC cannot use its control over local exchange
    bottlenecks to undermine competition in new markets that it enters);
    *Deployment of Wireline Services Offering Advanced
    Telecommunications Capability, et al.*, CC Docket No. 98-147, *et
    al*., Memorandum Opinion and Order, and Notice of Proposed
    Rulemaking, 13 FCC Rcd 24012, 24023, 24035, paras. 21, 47-48 (1998)
    (*Advanced Services Order and NPRM*) (noting Congress's intent to
    open local markets to competition by reducing inherent economic and
    operational advantages possessed by incumbents, particularly with
    respect to interconnection, access to unbundled network elements and
    collocation).

[^224]: *See, e.g.*, *Non-Accounting Safeguards Order*, 11 FCC Rcd at
    22004, para. 211 (noting that a BOC's purposeful delay in
    implementing a competitor's request pertaining to an innovative new
    service would violate sections 201(a) and 272(c)(1) of the
    Communications Act). *See also* Section V.D.2.a) (Advanced Services)
    (discussing the Applicants' increased incentives and capabilities
    for blocking competition, particularly with respect to new
    services).

[^225]: Accordingly, we reject the Applicants' contention that
    benchmarking will cease to play a role during the post-1996 Act
    transition to full competition. *See* Letter from Todd F.
    Silbergeld, SBC Telecommunications, Inc., to Magalie Roman Salas,
    FCC, CC Docket No. 98-141 (filed March 26, 1999), Att. "Supplemental
    Memorandum Regarding Regulatory Benchmarking Issues," March 25, 1999
    (SBC/Ameritech Mar. 25 Supplemental Memo) at 19. *See Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 19994, para. 16 ("During the
    transition to competition it is critical that the Commission be able
    effectively to establish and enforce its pro-competitive rules and
    policies."). Even the Applicants seem to agree that benchmarking has
    been particularly useful in implementing section 251. *See*
    SBC/Ameritech Nov. 16 Reply Comments at 62 (commenting that "the
    vast majority of the benchmarks being developed under section 251
    are best practices or parity benchmarks, not industry averages.").

[^226]: SBC/Ameritech Mar. 25 Supplemental Memo at 20.

[^227]: Similarly, evaluating the practices of several firms may lead to
    the identification of a "worst practice" if one firm's practice
    stands in poor contrast to that of other firms.

[^228]: *See, e.g., Deployment of Wireline Services Offering Advanced
    Telecommunications Capability*, CC Docket No. 98-147, First Report
    and Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd
    4761, 4784-85, at para. 42, n.100, n. 102 (1999) (*Advanced Services
    Further Notice*) (noting U.S. WEST's provision of cageless
    collocation in contrast to the security concerns expressed by Bell
    Atlantic, SBC and GTE).

[^229]: *See* Peter Huber, *The Geodesic Network: 1987 Report on
    Competition in the Telephone Industry*, at 3.24, 3.54-3.55
    (\"Benchmarking one LEC\'s performance against another in the
    post-divestiture marketplace has proved an effective regulatory
    tool. Laggard or eccentric LEC performance stands out when eight
    large holding companies line up for periodic regulatory
    inspection.\").

[^230]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20060, para. 150
    (discussing the use of benchmarking in setting the X-factor, or the
    estimated annual rate of productivity gain used to adjust the price
    index of firms subject to price cap regulation).

[^231]: As Sprint points out, without benchmarking, the Commission would
    have to employ far more intrusive measures, including document and
    *in personae* subpoenas, more after-the-fact complaint adjudication,
    or on-the record hearings. Sprint Oct. 15 Petition at 39.

[^232]: *See id.* at 40.

[^233]: *See* State Attorneys General Apr. 27 *Ex Parte* at 20 ("A
    merger enables the surviving RBOC to reduce the possibility that the
    independent decisions of the other RBOCs would undercut the strategy
    it has adopted to respond to its market-opening obligations.").

[^234]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20060-62, paras.
    152-54.

[^235]: *See id.* at 20062-63, para. 156.

[^236]: *See e.g.*, Letter from Lisa R. Youngers, MCI WorldCom, to
    Robert Atkinson and Thomas Krattenmaker, FCC, May 13, 1999 (MCI
    WorldCom May 13 *Ex Parte*), at 3 (observing that, as part of the
    Bell Atlantic/NYNEX merger conditions, Bell Atlantic submitted
    optional payment plans for non-recurring charges in all of its
    states with a uniform assumed anticipated bad debt figure of 2
    percent, despite figures that MCI WorldCom calculated using ARMIS
    data and the Hatfield Model that ranged from .31 to .89 percent
    depending upon the individual operating company).

[^237]: *See* F. M. Scherer and D. Ross*, Industrial Market Structure
    and Economic Performance* 277-315 (3^rd^ Ed., 1990); A. Jacquemin
    and M. Slade, "Cartels, Collusion, and Horizontal Merger," published
    in R.Schmalensee and R.D. Willig, *Handbook of Industrial
    Organization*, Vol. 1 (1989).

[^238]: Applying these principles, the Commission has recognized that
    the markets for local exchange and exchange access services,
    traditional monopolies collectively dominated by major regional
    holding companies, are conducive to coordinated interaction. *See
    Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20047, para. 122
    (concluding "that the risk of coordinated interaction is
    particularly high in the markets in which Bell Atlantic and NYNEX
    compete.").

[^239]: This is implied by the fact that when a market's HHI is 1800,
    the guidelines consider the market to be highly concentrated and
    mergers between companies with more than 7% market share raise
    concerns of coordinated and unilateral anti-competitive effects.

[^240]: Because each successive reduction in the number of benchmarks
    will reduce the utility of comparative practices analyses, there
    will be some point at which further reduction in benchmark firms
    renders such comparisons ineffective. As noted above, in the
    *Horizontal Merger Guidelines*, DOJ set a threshold of market
    concentration according to an 1800 HHI, or the equivalent of six
    equally-sized firms. *See Horizontal Merger Guidelines*, at 16
    ("Where the post-merger HHI exceeds 1800, it will be presumed that
    mergers producing an increase in the HHI of more than 100 points are
    likely to create or enhance market power or facilitate its
    exercise."). In such a market, a merger that reduces the number of
    competing firms from six to five is therefore likely to be
    challenged as raising serious concern regarding unilateral and
    coordinated effects. Analogously, using a market which consists not
    of competing firms but of benchmark firms, reducing the number of
    benchmark firms from six to five is likely to raise concern with
    respect to coordinated efforts to defeat benchmarking, which, as
    noted above, are more likely to succeed here than in competitive
    markets where each firm faces potential gain from unilateral
    deviation.

[^241]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20058-58a, para. 148
    (*citing* *United States v. Western Elec. Co., Inc.*, 47 Fed. Reg.
    7170, 7174-75 (Feb. 17, 1982) (United States Department of Justice,
    Competitive Impact Statement); *United States v. Western Elec. Co.*,
    993 F.2d 1572, 1580 (D.C. Cir.), *cert. denied*, 510 U.S. 984
    (1993)).

[^242]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20058a, para. 149
    (*citing*, among other RBOC support, Ameritech Response to Comments
    on the Report and Recommendations of the United States Concerning
    the Line of Commerce Restriction, Civil Action No. 82-0192, at 23
    (D.D.C Apr. 24, 1987); Ameritech Comments on the Report and
    Recommendations of the United States Concerning the Line of Business
    Restrictions, Civil Action No. 82-0192, at 10 (D.D.C. Mar. 13,
    1987); SBC Comments on the Report and Recommendations of the United
    States Concerning the Line of Business Restriction, Civil Action No.
    82-0192, at i (D.D. C. Mar. 13, 1987)).

[^243]: *See United States v. Western Elec. Co.*, 673 F. Supp. 525,
    547-48 (D.D.C. 1987), *aff'd in part, rev'd in part* 900 F.2d 283,
    *cert. denied,* 498 U.S. 911 (1990), *modified on remand* 767
    F.Supp. 308 (D.D.C. 1991), *aff'd* 993 F.2d 1572, *cert. denied*,
    510 U.S. 984 (1993).

[^244]: Sprint Oct. 15 Petition, Farrell and Mitchell Decl., "The
    Benefits of Benchmarking as Recognized in MFJ Proceedings," at 8
    (*quoting United States v. Western Elec. Co*., Civil Action No.
    82-0192, Ameritech Comments on the Report and Recommendations of the
    United States Concerning the Line-of-Business Restrictions, at 10-11
    (filed Mar. 13, 1987)). Ameritech included with its March 13, 1987
    comments an attachment cataloguing "the widespread and effective use
    of benchmark comparisons since 1982" by the Commission, DOJ, the
    courts, and the private sector, which is attached as an Exhibit to
    the Farrell and Mitchell Declaration. In response to Ameritech's and
    SBC's prior support of benchmarking, SBC and Ameritech claim in
    their joint reply comments in this proceeding that they "advocated
    the use of benchmarks when it was economically rational to rely on
    such data." SBC/Ameritech Nov. 16 Reply Comments at 61 n.196.

[^245]: Sprint Oct. 15 Petition, Farrell and Mitchell Decl., "The
    Benefits of Benchmarking as Recognized in MFJ Proceedings," at 8-9
    (*quoting* *United States v. Western Elec. Co*., Civil Action No.
    82-0192, Ameritech's Response to Comments on the Report and
    Recommendations of the United States Concerning the Line-of-Business
    Restrictions, at 23 (filed April 24, 1987)). *See also United States
    v. Western Elec. Co*., Civil Action No. 82-0192, Ameritech Comments
    on the Report and Recommendations of the United States Concerning
    the Line-of-Business Restrictions, Att. A at 10-11 (filed Mar. 13,
    1987) (stating that the use of benchmark comparisons, on large items
    and small items, "has become a standard practice of the regional
    companies' customers and competitors, as well as the FCC and the
    Department of Justice.").

[^246]: Sprint Oct. 15 Petition, Farrell and Mitchell Decl., "The
    Benefits of Benchmarking as Recognized in MFJ Proceedings," at 9
    (*quoting United States v. Western Elec. Co*., Civil Action No.
    82-0192, Comments of Southwestern Bell Corporation on the Report and
    Recommendations of the United States Concerning the Line-of-Business
    Restrictions, at i, 9-10 (filed Mar. 13, 1987)).

[^247]: *Id.* (*quoting United States v. Western Elec. Co*., Civil
    Action No. 82-0192, Comments of Southwestern Bell Corporation on the
    Report and Recommendations of the United States Concerning the
    Line-of-Business Restrictions, at ii (filed Mar. 13, 1987). *See
    also Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20058a-59, para. 149
    (citing other RBOCs' support of the use of benchmarking by the
    Commission, DOJ and the courts).

[^248]: *United States v. Western Elec. Co.*, 993 F.2d 1572, 1580 (D.C.
    Cir.), *cert. denied*, 510 U.S. 984 (1993) (citation omitted).

[^249]: *United States v. AT&T*, 1982-2 Trade Cas. (CCH) ¶ 64,980, 1982
    WL 1893 at \*2 n.8 (D.D.C. Aug. 23, 1982).

[^250]: *United States v. Western Elec. Co.*, 583 F. Supp. 1257, 1258
    n.4, 1259 n.11 (D.D.C. 1984), *aff'd* 846 F.2d 1422, *cert. denied*,
    488 U.S. 924 (1988).

[^251]: *United States v. Western Elec. Co.*, 578 F. Supp. 680, 684 n.13
    (D.D.C. 1983). Specifically, the court queried that "\[i\]f Bell
    Atlantic had that right with respect to CPE, why would not every
    other Operating Company have that same right with respect to all the
    other assets (*e.g.*, switches, land, buildings, transmission
    facilities) that under the decree and the plan are to go to AT&T on
    January 1, 1984?" *Id*.

[^252]: 47 U.S.C. § 251(c)(2), (c)(3).

[^253]: *Local Competition Order*, 11 FCC Rcd. at 15606, para. 204. The
    Commission stated that the \"substantial similarity of networks\"
    may be evidenced by adherence to the same interface or protocol
    standards.

[^254]: *Id*.

[^255]: *Advanced Services Further Notice*, 14 FCC Rcd at 4786-87, para.
    45.

[^256]: *Id.* After noting that U S West already had provided cageless
    collocation to competitors, the Commission rejected the
    counter-arguments of Bell Atlantic, SBC and GTE regarding alleged
    risks to their equipment from such arrangements and required all
    incumbent LECs to provide a cageless collocation option for
    competitors. *Id.* at 4784-85, 4786-87, paras. 42, 45.

[^257]: *Id*. at 4786-87, para. 45.

[^258]: *Id.* at 4789-90, paras. 50-51. The Commission's adoption of
    Bell Atlantic's pro-rata approach for allocating space preparation
    costs is reminiscent of the Commission's adoption of Northwestern
    Bell's (NWB) pro-rata allocation plan in the *Default Traffic Plan*
    proceeding. *See* *Investigation of Access and Divestiture Related
    Tariffs*, CC Docket No. 83-1145, Memorandum Opinion and Order, 101
    FCC2d 911, 924 (1985), at para. 32 (*Default Traffic Plan Order*).
    In that proceeding, most of the RBOCs had adopted the plan approved
    by the MFJ Court for routing of all default inter-exchange traffic
    to AT&T. NWB's experience with its pro-rata allocation plan led the
    DOJ and the Commission to reverse their support of the original
    default plan. DOJ noted, *inter alia*, that "NWB's experience has
    proved that a viable and reasonable alternative to default exists."
    *Id.* at 914, para. 8. The Commission, which ultimately adopted a
    uniform pro-rata allocation plan modeled after NWB's approach,
    explained that "prior concerns that an allocation plan would cause
    undue customer burden and confusion have been dispelled by NWB's
    experience," and "\[t\]he implementation of the NWB Plan has
    provided sufficient evidence that a viable alternative to default
    exists." *Id.* at 918, 920-21, paras. 18, 23.

[^259]: *Policy and Rules Concerning Rates for Dominant Carriers*, CC
    Docket ­­No. 87-313, Second Report and Order, 5 FCC Rcd. 6786, 6828,
    para. 341, n.455 (1990) (*LEC Price Cap Order*).

[^260]: *See Service Quality Standards Order,* 12 FCC Rcd. at 8140,
    8141, paras. 59, 61. *See also* *Service Quality Modifications
    Order*, 8 FCC Rcd at 7475-76, at paras. 7-8 ("While we acknowledge
    that there are differences among the LECs, we also affirm that
    benchmarking is not only desirable but indispensable. . . . We
    believe that benchmarking will enable us to evaluate the impact of
    price cap regulation on the quality of service provided by the LECs
    and on the rate of development of technological improvements that
    are reflected in the LEC infrastructure reports.").

[^261]: *Service Quality Standards Order*, 12 FCC Rcd at 8139-40, para.
    57. As Sprint noted, SBC implicitly conceded the importance of this
    type of service quality monitoring when it submitted a document in
    this proceeding defending the post-merger performance of Pacific
    Bell by making comparisons with other incumbents. *See* Sprint Apr.
    2 *Ex Parte* Att., John B. Hayes et. al., "Empirical Analysis of the
    Footprint Effects of Mergers Between Large incumbent LECs," at 9
    (*citing Pacific Bell: Post-Merger Performance*, submitted as
    attachment to Letter from Zeke Robertson, SBC, to Magalie Roman
    Salas, FCC, CC Docket No. 98-141 (filed Feb. 23, 1999)).

[^262]: *In the Matter of Local Exchange Carriers\' Rates, Terms, and
    Conditions for Expanded Interconnection Through Physical Collocation
    for Special Access and Switched Transport,* CC Docket No. 93-162,
    Second Report and Order, 12 FCC Rcd. 18730, 18793-96 at paras.
    142-46 (1997).

[^263]: *See In the Matter of Access Charge Reform*, CC Docket No.
    96-262, First Report and Order, 12 FCC Rcd. 15982 (1997) (*Access
    Charge Reform Order*). When evaluating tariff filings of the price
    cap LECs implementing the Presubscribed Interexchange Carrier Charge
    (PICC) required by the Commission's 1997 *Access Reform Order*, the
    Commission set a benchmark by calculating the percentage of
    non-primary residential lines to total residential lines reported by
    price cap LECs and then comparing those percentages to data
    collected by the Bureau, independent studies, and price cap LECs\'
    public statements. *In the Matter of Tariffs Implementing Access
    Charge Reform*, CC Docket No. 97-251, Memorandum Opinion and Order,
    13 FCC Rcd 14683 (1998), at paras. 29-31 (*Access Charge Reform
    Tariffs Investigation Order*). Because SNET's penetration ratios
    were significantly lower than the benchmark, the Bureau ordered SNET
    to detail the procedures and data used to estimate non-primary
    residential lines and to present evidence to justify its low
    penetration ratio. *1998 Annual Access Tariff Filings, SNET
    Revisions to Tariff FCC No. 73I*, CC Docket No. 98-104, Memorandum
    Opinion and Order, Order Designating Issues for Investigation and
    Order on Reconsideration, 13 FCC Rcd. 13977, 13983-84 at paras.
    15-19 (1998). Thus, as with best-practices benchmarking, the use of
    average-practice benchmarking may be less intrusive than alternative
    measures to assess improper or discriminatory behavior, such as
    initially requiring full detail from every incumbent.

[^264]: In designating for investigation Bell Atlantic's imposition of a
    "transport component," the Commission noted that "no other carrier
    includes such a component or establishes different rates for Tandem
    and End Office queries." *See Number Portability Query Services*, CC
    Docket No. 98-14, Order Designating Issues for Investigation, 13 FCC
    Rcd 12063, 12068-69 at para. 9 (1998). The Commission also
    designated for investigation Pacific Bell's and Southwestern Bell's
    imposition of "non-recurring" charges that were nevertheless imposed
    on a monthly basis, noting "that no other carrier has proposed
    similar charges." *Id*. In that same paragraph, the Commission
    employed comparative practices analyses in noting "that charges for
    some query services vary widely among carriers. For example,
    Ameritech\'s proposed tandem query charge is 3.6 times that of
    Southwestern Bell." *Id.*

[^265]: *See* Comments of the Public Service Commission of Wisconsin, CC
    Docket No. 98-141 (filed July 15, 1999), at 7 ("Benchmarking can be
    used to evaluate a company's quality of service, cost
    characteristics, rate levels, innovation efforts, competitive
    efforts, and technical and economic feasibility issues.").

[^266]: *AT&T Communications of Illinois, Inc. Respondents: GTE North
    Inc; GTE South Inc,* Illinois Commerce Commission, Arbitration
    Decision, 96-AB-005 at 2, 4, 11, 17, 28, 30 (ICC Dec. 3, 1996).

[^267]: *Amendment of Chapter 4901:1-5 of the Ohio Administrative Code*,
    PUCO Case No. 96-1175-TP-ORD, Finding and Order at para. 16 (Ohio
    PUC Apr. 8, 1999), (directing Ameritech to bring itself into full
    compliance with Ohio PUC's selective toll blocking policy).

[^268]: *See* SBC/Ameritech Nov. 16 Reply Comments, Schmalansee and
    Taylor Reply Aff. at 28 (observing that "state regulators frequently
    compare local interconnection and retail service prices across
    states as a guide to the reasonableness of the prices proposed in
    their state.").

[^269]: *See* AT&T Apr. 7 *Ex Parte* at 14 n. 7 (*citing* Investigation
    into Forward Looking Cost Studies and Rates of Ameritech Illinois
    for Interconnection, Network Elements, Transport and Termination of
    Traffic, *et al.*, Illinois Commerce Commission, Docket Nos.
    96-0486/96-0569, Second Interim Order at 115 (ICC Feb. 17, 1998)).

[^270]: *See* AT&T Apr. 7 *Ex Parte* at 16 n.9 (*citing* Proceeding on
    Motion of the Commission to Examine Methods by Which Competitive
    Local Exchange Carriers Can Obtain and Combine Unbundled Network
    Elements, Docket No. 98-C-0690, Opinion No. 98-18, at 20-23 (N.Y.
    PSC Nov. 23, 1998)). Bell Atlantic ultimately offered a compromise
    form of cageless collocation.

[^271]: *Investigation and Generic Proceeding on Ameritech Indiana's
    Rates for Interconnection, Service, Unbundled Elements, and
    Transport and Termination Under the Telecommunications Act of 1996
    and Related Indiana Statutes*, Indiana Utility Regulatory
    Commission, Cause No. 40611 at 40 (Jun 30, 1998), (finding no basis
    to accept Ameritech's selection of the highest cost percentile in
    applying the Building Construction Cost Data Guide).

[^272]: *Petition of AT&T Communications of the Southwest, Inc. for
    Compulsory Arbitration to Establish an Interconnection Agreement
    Between AT&T and Southwestern Bell Telephone Company*, Docket No.
    16226, Arbitration Award at 43 (Tex PUC Nov. 7, 1996).

[^273]: *Id*. at 18.

[^274]: *See Ohio, Colorado, Michigan Adopt Local Competition Rules*,
    State Telephone Regulation Report, Vol. 14, No. 13 (June 27, 1996).

[^275]: As discussed below, SBC indicates that it intends to apply
    largely uniform policies for all its operating companies in dealings
    with competitive LECs following merger with Ameritech. *See infra*
    at Section V.C.4.b)(Loss of Independence of Operating Companies).

[^276]: *See Local Competition Order*, 11 FCC Rcd at 15611, para. 216.

[^277]: MCI WorldCom Oct. 15 Comments, Joint Decl. of Michael A. Beach
    and Therese K. Fauerbach, at para. 18-19. As discussed above,
    competitive LECs generally must study and compare the practices
    employed by various incumbents in order to offset the informational
    advantage held by the incumbents in interconnection negotiation and
    arbitration.

[^278]: MCI WorldCom May 13 *Ex Parte* at 2 (citing *Petition of New
    York Telephone Company for Approval of Its Statement of Generally
    Available Terms and Conditions Pursuant to Section 252 of The
    Telecommunications Act of 1996 and Draft Filing of Petition of
    InterLATA Entry Pursuant to Section 271 of the Telecommunications
    Act of 1996*, Case 97-C-0271, MCI WorldCom Affidavit at para. 59
    (filed Oct. 24, 1998))).

[^279]: MCI WorldCom May 13 *Ex Parte* at 4.

[^280]: Specifically, MCI WorldCom's expert testified in a Tennessee
    proceeding that BellSouth's proposal that competitive LECs use
    drywall enclosures with a security mesh above the 8'6" level
    appeared unnecessary, as Bell Atlantic and other incumbent LECs that
    did not have analogous requirements were operating without any
    apparent safety or transmission problems. MCI WorldCom May 13 *Ex
    Parte* at 3-4 (*citing Permanent Cost Proceeding for UNEs in
    Tennessee*, Tennessee Regulatory Authority, Docket No. 97-01262,
    Rebuttal Testimony of Gerald B. Crockett on Behalf of MCI
    Telecommunications Corp and AT&T Communications of the South Central
    States, Inc. at 6-8 (filed Oct. 17, 1997)).

[^281]: MCI WorldCom May 13 *Ex Parte* at 2 (*citing MCI
    Telecommunications Corp., et al. v. New England Telephone &
    Telegraph Co.*, Civil Action No. 98-CV-12375 (RCL), Opening Brief of
    MCI, at 17 (filed Apr. 30, 1999), (stating that Southwestern Bell
    uses copper feeder lengths for loops less than 12,000 feet, as do
    BellSouth and Ameritech for loops less than 9,000 feet)).

[^282]: *See* AT&T Apr. 7 *Ex Parte* at 17 (*citing* Petition of AT&T
    Communications of the Southwest, Inc. for Compulsory Arbitration to
    Establish an Interconnection Agreement Between AT&T and Southwestern
    Bell Telephone Company, Docket No. 16226, Arbitration Award at 5,
    Att. Stipulation at 1 (Tex. PUC Nov. 7, 1996)).

[^283]: *See* AT&T Apr. 7 *Ex Parte* at 15.

[^284]: *See* *id.* (*citing* Petition of AT&T Communications of the
    Southwest, Inc., for Compulsory Arbitration to Establish an
    Interconnection Agreement Between AT&T and Southwestern Bell
    Telephone Company, Docket No. 16226, Order at App. B, 10-11 (Tex.
    PUC Sept. 30, 1997); Order Approving implementation Schedule at Att.
    A, 13, 15 (Tex. PUC Mar, 17, 1998); AT&T Communications of the
    Southwest, Inc.'s Petition for Second Compulsory Arbitration
    Pursuant to section 252(b) of the Telecommunications Act of 1996 to
    Establish an Interconnection Agreement with Southwestern Bell
    Telephone Company, Case No. TO-98-115, Report and Order at 21-22
    (Mo. PSC Jan. 2, 1998)).

[^285]: *See* AT&T Apr. 7 *Ex Parte* at 16.

[^286]: *See* AT&T Apr. 7 *Ex Parte* at 16-17 (*citing* *Petition of
    AT&T Communications of the Southwest, Inc. for Compulsory
    Arbitration to Establish an Interconnection Agreement Between AT&T
    and Southwestern Bell Telephone Company*, Docket No. 16226,
    Arbitration Award (Tex. PUC Nov. 7, 1996), at para. 5; Att.
    Stipulation at 1).

[^287]: *See* AT&T Apr. 7 *Ex Parte* at 17-18 (*citing* Affidavit of
    Penn Pfautz on Behalf of AT&T Communications of Maryland, Inc*.*,
    Maryland 271 Investigation, Case No. 8751 (Maryland PSC, filed Apr.
    11, 1997)).

[^288]: *Petition of AT&T Communications of New York, Inc. for
    Arbitration of an Interconnection Agreement with New York Telephone
    Company*, Case Nos. 96-C-0723, 96-C-0724, Opinion and Order
    Resolving Arbitration Issues (Nov. 29, 1996), at 28 (granting AT&T
    the ability to interconnect with New York Telephone's AIN system
    subject to testing and certification).

[^289]: SBC Mar. 29, 1999, *Ex Parte* Meeting. Memo from To-Quyen
    Truong, Common Carrier Bureau, to File (filed Aug. 18, 1999) (Truong
    Memo).

[^290]: SBC/Ameritech July 24 Application, Rivers Aff. at 8-9, para. 21.
    Mr. Rivers describes himself as a "firm believer in the use of best
    practices analysis," who regularly measures and compares operating
    performance "both internally across operation centers and externally
    with other companies." *Id*. at 7, para. 18.

[^291]: *Id*., at 9, para. 21.

[^292]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20060-61, paras.
    152-53.

[^293]: *See also* State Attorneys General Apr. 27 *Ex Parte* at 20
    ("RBOC mergers tend to facilitate the presentation of a united RBOC
    front and coherent strategy to the CLECs and regulators that are
    trying to their markets open.").

[^294]: *See Implementation of the Telecommunications Act of 1996:
    Telecommunications Carriers' Use of Customer Proprietary Network
    Information and Other Customer Information*, CC Docket No. 96-115,
    Second Report and Order and Further Notice of Proposed Rulemaking,
    13 FCC Rcd 8061 (1998), at para. 28 n.105 ("We note that NYNEX and
    PacTel also deemed the three category approach acceptable in their
    initial pleadings in this docket. . . . Since their respective
    mergers, which occurred after their comments were received in this
    proceeding, however, Bell Atlantic/NYNEX and SBC/PacTel now support
    the 'single category approach.'").

[^295]: KMC Oct. 15 Comments at 18. *See also* Sprint Apr. 1 *Ex Parte*
    Att. 2 "Post-merger Examples of the Spread of Degraded Practices in
    the Acquired BOC's Territory and Worsening Conditions in the
    Acquiring BOC's Territory," at . According to KMC, SBC later told
    the carrier that it could not use Pacific Bell's tariffed billing
    and collection services to provide CPP. Sprint notes that the same
    cellular provider currently has billing and collection agreements
    with Ameritech that allow for the provision of CPP, which could be
    placed in jeopardy by SBC's acquisition of Ameritech.

[^296]: Sprint Apr. 1 *Ex Parte* Att. 2, at 2 (citing *Joint Application
    for Approval of the Reorganization of Illinois Bell Telephone Co.
    d/b/a Ameritech Illinois, and the Reorganization of Ameritech
    Illinois Metro, Inc.*, Dkt. 98-0555, Direct Test. Of Charlotte F.
    Terkeurst on behalf of the Government and Consumer Intervenors, GCI
    Ex. 2.0 at 50 (ICC Oct. 28, 1998)).

[^297]: Although DOJ and the Commission evaluate each BOC's section 271
    application for each state on an individual basis, reference to the
    best practices and average practices within the industry, and among
    BOCs in particular, sheds light on the evaluation of whether the BOC
    has complied with the 14-point competitive checklist in that state.
    For instance, the Applicants provide an example of DOJ's comparison
    of the performance of Ameritech in Michigan with BellSouth in
    Louisiana in terms of the number of unbundled loops that had been
    provisioned at the time the BOC filed its section 271 application.
    *See* SBC/Ameritech May 25 Supplemental Memo at 14, n.49. They also
    point out DOJ's consideration of the OSS testing methodology for
    Bell Atlantic in New York as superior to BellSouth's Louisiana
    consultant's methodology. *Id.* In addition to DOJ, this Commission
    has found comparisons among BOC practices, as reflected in their
    section 271 applications, to be useful in determining whether a BOC
    has met the section 271 statutory requirements. *See also
    Application of BellSouth Corporation, et al. Pursuant to Section 271
    of the Communications Act of 1934, as amended, To Provide In-Region,
    interLATA Services In South Carolina*, CC Docket No. 97-208,
    Memorandum Opinion and Order, FCC 97-418, 13 FCC Rcd 539, 599-600
    (1997), at para. 108 (stating, in contrast to BellSouth's failure to
    provide substantiation of its conclusion that the causes of high
    order errors in its South Carolina section 271 application were due
    to competing carriers' mistakes, that Ameritech did provide such
    information in its Michigan application); *id*., 13 FCC Rcd at 606,
    para. 121 (doubting that any technical obstacle would prevent
    BellSouth from providing electronic error notification and noting
    that "at least one other BOC, Ameritech, does provide electronic
    notification of error messages through an EDI interface.") (*citing*
    *Ameritech Michigan Order*, 12 FCC Rcd at 20642, para. 186)).

[^298]: *See* *Application of Ameritech Michigan Pursuant to Section 271
    of the Communications Act of 1934, as amended, To Provide In-Region,
    InterLATA Services in Michigan*, CC Docket No. 97-137, Memorandum
    Opinion and Order, 12 FCC Rcd 20543 (1997), at para. 2.

[^299]: *Compare* Deployment of Wireline Services Offering Advanced
    Telecommunications Capability, Comments of Ameritech (filed Sept.
    25, 1998), at 3 ("Ameritech agrees with the Commission's proposal as
    a component in a framework for interLATA relief."); Reply Comments
    of Ameritech (filed Oct. 16, 1998), at 1 ("The collaborative effort
    between Ameritech and Northpoint stands in sharp contrast to the
    usual adversarial posturing offered by most other commenters."); at
    6 ("Beyond some minor modifications . . . no further changes to the
    separation requirements are warranted.") *with* Comments of SBC
    Communications Inc. (filed Sept. 25, 1998), at 2 ("Unfortunately, as
    currently proposed, the '272-like' structure for an advanced
    services affiliate . . . would appear to have too many
    inefficiencies, restrictions, and unknowns to provide an expected
    return commensurate with the risks of deploying the significant
    investment associated with advanced services."). *See also* Comm.
    Daily, Vol. 18, Iss. 152, Aug. 7, 1998 (Following Commission's
    release of *Advanced Services Order and NPRM*, "SBC, U S West and
    other incumbent phone companies immediately issued statements
    decrying requirement that they form separate subsidiaries in order
    to get deregulation."); Communications Today, Dec. 8, 1998, 1998 WL
    23367826 (discussing petition by several incumbent LECs, including
    SBC, BellSouth, Bell Atlantic, GTE and U S WEST, for Commission to
    reduce requirements on incumbents' provision of DSL, and commenting
    that "\[n\]otable by its absence was Ameritech, which is the only
    Bell operating company (BOC) that thinks it will be possible to
    offer DSL service under the conditions currently under consideration
    by the FCC.").

[^300]: *See Telephone Number Portability*, CC Docket No. 95-116, First
    Memorandum Opinion and Order on Reconsideration, 12 FCC Rcd 7236
    (1997)(*Number Portability Order*).

[^301]: *Id*. at 7257-58, para. 38.

[^302]: SBC/Ameritech Nov. 16 Reply Comments at 56-57 (stating that
    "\[a\]fter the merger, each of the nine SBC and Ameritech operating
    companies will report all the same information to the same
    regulators as they do now.").

[^303]: For example, we alluded earlier to Ameritech's acceptance of a
    separate subsidiary proposal for advanced services, which conflicted
    with the position taken by SBC. *See* Section V.C.4.a) (Loss of
    Ameritech as Independent Holding Company).

[^304]: Remarks of Sandy Kinney, SBC President of Industry Markets, and
    John Starkey, SBC Vice-President of Sales, Truong Memo.

[^305]: *Id.* The SBC employees assigned to deal with the provision of
    wholesale services to competitive LECs and interexchange carriers
    are not assigned to state-specific operating companies, but rather
    to specific SBC regions or SBC headquarters.

[^306]: *Id.* SBC's representatives explained that, because the same
    parties generally are involved, there is a high level of
    cross-referencing between the various state proceedings that results
    in similar performance measures being adopted in different states
    within SBC\'s region, with some variation due to state public
    utility commissions\' preferences.

[^307]: *See* Section VI (Analysis of Potential Public Interest
    Benefits).

[^308]: *See supra* at Section V.C.2.c)(Effect at Industry Level)
    (contrasting a firm's unilateral incentive to cheat on a pricing
    agreement with less incentive for it to break an agreement to
    conceal information to impede regulators' and competitors'
    benchmarking efforts).

[^309]: *See* SBC/Ameritech Nov. 16 Reply Comments at 53-54, 60. *See
    also id*., Schmalansee and Taylor Reply Aff. at 27-29.

[^310]: *See* SBC/Ameritech Nov. 16 Reply Comments at 57, 62. *See also
    id*., Schmalansee and Taylor Reply Aff. at 31; SBC/Ameritech Mar. 25
    Supplemental Memo at 2.

[^311]: *See* SBC/Ameritech Nov. 16 Reply Comments at 62 (stating that
    "the vast majority of the benchmarks being developed under section
    251 are best practices or parity benchmarks, not industry
    averages.").

[^312]: *See* SBC/Ameritech Nov. 16 Reply Comments at 62; SBC/Ameritech
    Mar. 25 Supplemental Memo at 20.

[^313]: The Applicants repeatedly assert the notion that there is "a
    growing body of ILEC and CLEC market experience that will be
    available for FCC reference if necessary." SBC/Ameritech Mar. 25
    Supplemental Memo at 18. *See also* SBC/Ameritech Nov. 16 Reply
    Comments, Schmalansee and Taylor Aff. at 30. Specifically, the
    Applicants claim that adequate alternative benchmarks can be found
    in small incumbent LECs (such as Sprint's operating subsidiaries,
    ALLTEL, Frontier and Cincinnati Bell) and multi-state competitive
    LECs (such as Focal, Hyperion, ITC, MGC, and RCN). *See*
    SBC/Ameritech Nov. 16 Reply Comments at 58.

[^314]: We also are not prepared to take the novel step in this
    proceeding of treating foreign carriers as adequate benchmarks for
    the large incumbent LECs operating in the United States. To
    establish such a showing, we would have to find, at minimum, that a
    country's regulatory regime is comparable to our system, notably the
    1996 Act's unbundling requirements and pro-competitive framework,
    and that the regime, as well as the relevant LEC's practices and
    agreements, is sufficiently transparent to yield adequate
    benchmarking information for use by this Commission, state
    commissions and competitors in implementing the Communications Act.
    Any such showing would be undermined if the foreign LEC faced
    different operational demands and employed different network
    architectures from the RBOCs and GTE.

[^315]: *See supra* n. Error: Reference source not found.

[^316]: *See* 47 U.S.C. § 251(c) (requiring incumbent LECs to negotiate
    in good faith and provide, *e.g.*, interconnection, unbundled access
    to network elements, resale, and collocation).

[^317]: *See* 47 U.S.C. § 251(h).

[^318]: 47 U.S.C. § 251(b) (requiring all LECs to allow resale, number
    portability, dialing parity, access to rights of way, and reciprocal
    compensation).

[^319]: Under section 251(f), rural incumbent LECs are exempt from the
    requirements of section 251(c) until (i) it has received a "bona
    fide request for interconnection, services, or network elements,"
    and (ii) the state commission determines that "such request is not
    unduly economically burdensome, is technically feasible, and is
    consistent with section 254" universal service provisions. 47 U.S.C.
    § 251(f). *See* State Attorney Generals Apr. 27 *Ex Parte*, Rosston
    and Mercurio Rept. at 26.

[^320]: *SBC/SNET Order*, 13 FCC Rcd at 21302, para. 21 (*citing Policy
    and Rules Concerning Rates for Dominant Carriers*, CC Docket No.
    87-313, Second Report and Order, 5 FCC Rcd 6786, 6818-20 (1990);

    47 U.S.C. § 251(f)(2)).

[^321]: Not surprisingly, therefore, certain reporting requirements
    apply solely to the large incumbent LECs. *See* State Attorney
    Generals Apr. 27 *Ex Parte*, Rosston and Mercurio Rept. at 26
    (noting that ARMIS reporting requirements differentiate between Tier
    I and Tier II incumbent LECs, and that the X-factor is determined
    based on large incumbent LECs' data). The current difference in
    treatment between the large and the small incumbent LECs reflects a
    policy determination regarding the greater importance of the major
    incumbent LECs as benchmarks. We believe it inappropriate to impose
    additional reporting burdens on small incumbents in order to
    facilitate a large incumbent LEC's consolidation to even greater
    size.

[^322]: *See* SBC/Ameritech July 24 Application, Description of the
    Transaction, at 1-2, 4-8, 11-12, 38-46, 52-55; Section VI (Analysis
    of Potential Public Interest Benefits).

[^323]: *See* SBC/Ameritech Mar. 25 Supplemental Memo at 13.

[^324]: *See* SBC/Ameritech Nov. 16 Reply Comments, Schmalansee and
    Taylor Reply Aff. at 29 (observing that new entrants in local
    markets "are frequently very different from ILECs; they use
    different technologies and different back-office systems, provide
    different mixes of services, etc.").

[^325]: *See* SBC/Ameritech Nov. 16 Reply Comments at 60.

[^326]: SBC/Ameritech Nov. 16 Reply Comments at 54-55, 58-59. *See also
    id*., Schmalensee and Taylor Decl. at 30-32. The Applicants argue
    that section 252(h)'s requirement that interconnection agreements be
    signed by state regulators and made available for public inspection
    adds to the information available to competitive LECs and
    regulators, and that section 252(i)'s most-favored nation provision
    assures that competitive LECs can make use of their increased
    information by requiring incumbent LECs to make "available any
    interconnection service or network element supplied in any agreement
    approved under section 252 to any other telecommunications carrier
    under the same terms and conditions." *See* 47 U.S.C. § 252(h), (i).

[^327]: *See* SBC/Ameritech Nov. 16 Reply Comments at 54-55;
    SBC/Ameritech Mar. 25 Supplemental Memo at 13, 18-19.

[^328]: SBC/Ameritech Mar. 25 Supplemental Memo at 2, 13. *See also*
    SBC/Ameritech Nov. 16 Reply Comments at 57 (contending that in many
    instances "the only necessary benchmark is supplied by the incumbent
    LEC itself: the dispositive regulatory issue is whether an incumbent
    LEC is treating competitors differently from itself.").

[^329]: SBC/Ameritech Mar. 25 Supplemental Memo at 13.

[^330]: *See, e.g.*, *Local Competition Order*, 11 FCC Rcd at 15614,
    para. 224 (Section 251(c)(2)(C) requires an incumbent LEC to provide
    interconnection between its network and that of a requesting carrier
    at a level of quality that is at least indistinguishable from that
    which the incumbent provides itself or any other party). *See
    Performance Measurements and Reporting Requirements for Operations
    Support Systems, Interconnection, and Operator Services and
    Directory Assistance*, Notice of Proposed Rulemaking, 13 FCC Rcd.
    12817 (1998), at para. 14.

[^331]: Sprint Apr. 12 *Ex Parte*, Farrell and Mitchell, *Response to
    Some Criticisms of Benchmarking Analysis*, at 3.

[^332]: *Id.*

[^333]: *See* SBC/Ameritech Mar. 25 Supplemental Memo at 24 (finding no
    evidence "that preserving the current number of independently owned
    RBOCs is material to the regulatory process, particularly on issues
    raised by the transition to competition.").

[^334]: SBC/Ameritech Mar. 25 Supplemental Memo at 4.

[^335]: *Id.* at 9-12, App. 1.

[^336]: *See supra* at Section V.C.3.a)(Comparative Practices Analysis
    under the Modified Final Judgement). We note that in 1987, Ameritech
    submitted to the MFJ Court a compilation of benchmark comparisons
    containing twelve pages of examples of the "Use of Benchmark
    Comparisons by the Federal Communications Commission." *See United
    States v. Western Elec. Co*., Civil Action No. 82-0192, Ameritech
    Comments on the Report and Recommendations of the United States
    Concerning the Line-of-Business Restrictions, Att. A at 16-27 (filed
    Mar. 13, 1987). To take but one example, Ameritech states that the
    Commission in its *Third Computer Inquiry* proceeding considered
    Ameritech's proposal to introduce a new network architecture,
    Feature Node/Service Interface, "as an indication that an
    architecture with highly efficient interconnection can be designed."
    *Id*. (*citing Amendment of Section 64.702 of the Commission's Rules
    and Regulations*, 104 FCC 2d 958, 1063-64 (1986), at para. 212). It
    is not clear what action the Commission might have taken, such as
    requiring more detailed information from incumbents, or when it
    might have reached a similar conclusion, had it not examined
    Ameritech's proposal.

[^337]: *See* State Attorneys General Apr. 27 *Ex Parte* Rosston and
    Mercurio Rept. at 22.

[^338]: *See infra* at Section V.C.3.b) (The Commission's Use of
    Comparative Practices Analyses).

[^339]: SBC/Ameritech Mar. 25 Supplemental Memo at 4.

[^340]: For example, in choosing whether to require LRN or allow the
    interim use of QOR, the Commission estimated the speed at which
    numbers would be ported and the relative costs of rolling out the
    two different technologies, along with estimates of the benefit and
    technical shortcomings of each. *Number Portability Order*, 12 FCC
    Rcd at 7257-58, para. 38.

[^341]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20062-63, para. 156.

[^342]: *See infra* at n. Error: Reference source not found.

[^343]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20062-63, para. 156.

[^344]: For purposes of this order, we define the term \"advanced
    services\" as we did in the *Advanced Services Further Notice*, to
    mean "high speed, switched, broadband, wireline telecommunications
    capability that enables users to originate and receive high‑quality
    voice, data, graphics or video telecommunications using any
    technology." *Advanced Services Further Notice*, 14 FCC Rcd at 4762,
    n.2. The Commission there stated: "\[t\]he term 'broadband' is
    generally used to convey sufficient capacity \-- or 'bandwidth' \--
    to transport large amounts of information. As technology evolves,
    the concept of 'broadband' will evolve with it: we may consider
    today\'s 'broadband' services to be 'narrowband' services when
    tomorrow\'s technologies appear." *Id*. For a further description of
    xDSL technology, *see* *id*. at paras. 9-12.

[^345]: Throughout this section, "local exchange service," refers to
    circuit-switched local exchange service, otherwise known as Plain
    Old Telephone Service (POTS), rather than services, such as advanced
    services, based on digital subscriber line technology or
    packet-switched technology that may have a local component.

[^346]: A packet-switched network is one that transmits information by
    breaking it into small packets that are independently routed through
    the network from source to destination according to a destination
    address that is included in each packet. Packet switching differs
    from the circuit switching used in Plain Old Telephone Service
    (POTS): in a circuit-switched network, a dedicated circuit between
    the parties is established and reserved for the exclusive use of
    those parties. *See* Harry Newton, *Newton's Telecom Dictionary*
    (Flatiron Publishing, 14^th^ ed. 1998) at 527.

[^347]: Sprint touts ION as \"an innovative new service that promises to
    bring an integrated package of advanced telecommunications services
    to millions of subscribers.\" *See* Sprint Oct. 15 Petition, Katz
    and Salop Decl. at 12. Sprint plans to offer ION in metropolitan
    areas containing over 65 percent of the population of the United
    States. *See* Sprint Oct. 15 Petition, Brauer Aff. at 4. For a
    detailed description of rollout plans for Sprint ION, *see id.* at
    2-6. Sprint describes this service as a combined service that
    \"integrates traditional voice traffic, Internet traffic, frame
    relay traffic, and other data traffic on one customer access
    facility and carries the traffic in the Asynchronous Transfer Mode
    data format through the Sprint network.\" Sprint Oct. 15 Petition,
    Katz and Salop Decl. at 12.

[^348]: *See* Sprint Oct. 15 Petition, Besen, Srinagesh and Woodbury
    Decl. at 27-29 (asserting that an increase in incentive for the
    incumbent to forestall entry will retard innovation by the
    incumbent).

[^349]: *See* Pub.L. 104‑104, Title VII, § 706, Feb. 8, 1996, 110 Stat.
    153, reproduced in the notes under 47 U.S.C. § 157.

[^350]: *See* Sprint Oct. 15 Petition at 20-32, Katz and Salop Decl. at
    37-51; Letter from Michael Jones, Willkie Farr & Gallagher, Counsel
    for Sprint, to Magalie Roman Salas, Secretary, Federal
    Communications Commission, CC Docket No. 98-141 (filed Apr. 2, 1999)
    (Sprint Apr. 2 *Ex Parte*), Attach.*,* John B. Hayes, Jith
    Jayaratne, and Michael L. Katz, "An Empirical Analysis of the
    Footprint Effects of Mergers Between Large ILECs" (Hayes, Jayaratne,
    and Katz Report).

[^351]: A vertically integrated firm provides its own inputs to produce
    final products or services. For instance, an incumbent LEC controls
    the local loops and switching that it uses to provide retail local
    exchange services. *See* Jean Tirole, *The Theory of Industrial
    Organization* (MIT Press, 1988) at 15-16.

[^352]: Externalities, or spillovers, arise when an action by one party
    imposes costs or benefits on another party or parties. *See* Robert
    S. Pindyck & Daniel L. Rubinfeld, *Microeconomics* (Prentice Hall,
    4th ed. 1998) at 648. A classic example of a negative externality is
    air pollution.

[^353]: *See* Sprint Oct. 15 Petition at 22-23.

[^354]: We note that Sprint combines its concerns about advanced
    services and "combinations of services." *See id.* at 26-28.

[^355]: Broadband services based on digital subscriber line technology
    are commonly referred to as xDSL. *See supra* note Error: Reference
    source not found.

[^356]: Sprint Oct. 15 Petition at 26-28.

[^357]: *See,* *e.g*., MCI WorldCom Oct. 15 Comments at 42 (asserting
    that the "uncooperative and obstructionist attitude of \[incumbent
    LECs\] like SBC and Ameritech has made provision of access to
    central offices and remote terminals on reasonable and
    nondiscriminatory terms a \[ \] difficult problem."), 40-42
    (asserting that competitors have problems deploying xDSL services
    because neither SBC nor Ameritech has enabled competitors to obtain
    xDSL capable or otherwise conditioned loops on the same terms and
    conditions as the incumbent LEC or permitted competitors to place
    equipment in incumbent LEC offices on a nondiscriminatory basis or
    in remote terminals, which would allow them to provide service to
    customers served by Integrated Digital Loop Carrier systems (IDLC)).
    Remote concentration devices, such as digital loop carrier (DLC)
    systems, are an efficient means of aggregating subscriber traffic on
    to common transmission facilities, usually fiber, for transmission
    from a remote terminal to the central office, rather than dedicating
    a separate transmission facility (*e.g.*, a copper loop) for each
    subscriber\'s traffic all the way from the customer\'s premises to
    the central office. The use of DLCs varies by telephone company and
    typically ranges from almost zero to as much as 30 percent of the
    local loops within a given LEC\'s local network. IDLC is integrated
    with the switch and provides a direct, digital interface to a
    digital central office switch. With customers served by IDLC
    systems, it is difficult for competitors to unbundle the loop to
    enable them to provide DSL services. *See* *Advanced Services Order
    and NPRM*, 13 FCC Rcd at 24085, para. 165 and n.313.

[^358]: For example, in the *Advanced Services Further Notice*, the
    Commission: (1) strengthened our collocation rules to reduce the
    costs and delays faced by competitors that seek to collocate
    equipment in an incumbent LEC\'s central office; (2) adopted certain
    spectrum compatibility rules and adopted a further rulemaking to
    explore issues related to developing long-term standards and
    practice for spectrum compatibility and management; and (3) sought
    comment on whether we should require incumbent LECs to allow
    competitors to offer advanced services to end users over the same
    line on which the LEC is offering voice services. *See Advanced
    Services Further Notice*, 14 FCC Rcd at 4764, para. 6.

[^359]: Sprint Oct. 15 Petition, Katz and Salop Decl. at 12.

[^360]: Sprint Oct. 15 Petition, Brauer Aff. at 4. For a detailed
    description of rollout plans for Sprint ION, *see id.* at 2-6.

[^361]: Sprint Oct. 15 Petition, Katz and Salop Decl. at 12.

[^362]: Covad Press Release, \"Covad Communications Delivers First
    Nationwide DSL Network Via Backbone Agreements with AT&T and
    Qwest,\" (Mar. 29, 1999).

[^363]: *See* SBC/Ameritech Nov. 16 Reply Comments, Schmalensee and
    Taylor Reply Aff. at 24-25.

[^364]: *See* *Advanced Services Further Notice*, 14 FCC Rcd at 4762,
    para. 1 and n.2 (citing Joint Statement of Managers, S. Conf. Rep.
    No. 104-230, 104th Cong. 2d Sess. 1 (1996) (*Joint Explanatory
    Statement*)).

[^365]: *See Advanced Services Further Notice*, 14 FCC Rcd at 4762,
    para. 2.

[^366]: *See* *id.* at para. 53 (concluding that entry by many
    competitors is the best paradigm by which to bring broadband
    capabilities to all Americans).

[^367]: *See* *Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to All Americans in a Reasonable and
    Timely Fashion, and Possible Steps to Accelerate Such Deployment
    Pursuant to Section 706 of the Telecommunications Act of 1996,
    Report to Congress*, CC Docket No. 98-146, FCC 99-5 at para. 8 (rel.
    Feb. 2, 1999) (*Section 706 Report*). We also stated that, given the
    importance of advanced telecommunications capability, the Commission
    will continue to closely monitor the deployment of broadband
    capability to all Americans and to issue an annual report on this
    topic. *See* *id.* at para. 7.

[^368]: *See* Sprint Oct. 15 Petition, Brauer Aff. at 8.

[^369]: *See* Sprint Oct. 15 Petition at 26.

[^370]: *See* Sprint Oct. 15 Petition, Brauer Aff. at 7-8.

[^371]: *See* Sprint Oct. 15 Petition at 27.

[^372]: *See* Sprint Oct. 15 Petition, Katz and Salop Decl. at 20-22,
    Brauer Aff. at 4-5, 8-9.

[^373]: *See* Sprint Oct. 15 Petition, Brauer Aff. at 9.

[^374]: SBC/Ameritech Nov. 16 Reply Comments at 69.

[^375]: *See* SBC/Ameritech Nov. 16 Reply Comments at 69-70 and n.234
    (quoting Sprint Press Release, "Sprint Announces Network Agreements
    with Local Phone Companies for Initial Rollout of Revolutionary New
    Services," (June 17, 1998), available at
    \<http://www.sprint.com/Stemp/press/releases/9806/9806170591.html\>
    (Sprint June 17 Press Release)).

[^376]: The press release cited by Applicants announces the large
    business rollout of Sprint ION, beginning with Chicago, Atlanta,
    Dallas, Houston, and Kansas City; at that time, agreements in New
    York and Denver were being finalized. The press release argues that
    these cities have several key elements in place for the initial
    deployment of Sprint ION, including broadband metropolitan area
    networks (BMANs) and "a strong, established business customer base
    that can immediately benefit from Sprint ION." BMANs are
    high-bandwidth fiber optic rings encircling cities, that "already
    enable Sprint to provide a variety of advanced services and are now
    being enhanced to enable new Sprint ION services...." For smaller
    customers that may not have access to BMANs, "emerging broadband
    access services, such as Digital Subscriber Line (DSL)" are being
    supported by Sprint. *See id.*

[^377]: *See* Sprint Oct. 15 Petition, Katz and Salop Decl. at 13-16.
    Sprint notes that the conditioning of loops and placement of digital
    signals within a binder group of loops provide two mechanisms
    through which an incumbent LEC can degrade the quality of access
    services provided to competitors. *Id*. at 15-16.

[^378]: *See* Sprint Oct. 15 Petition at 26-27. We recognize that recent
    measures adopted by the Commission in the *Advanced Services First
    Report and Order and FNPRM* should lessen an incumbent's ability to
    discriminate against competitive providers of advanced services
    seeking to collocate equipment in an incumbent's central office.
    *See Advanced Services First Report and Order and FNPRM* at paras.
    6, 19-60. Our adoption of these measures, however, does not address
    our concerns about an incumbent LEC's ability to discriminate
    against such rivals by refusing to cooperate in other ways with
    competitors\' requests for new types of interconnection and access
    arrangements necessary to provide innovative new services.

[^379]: *See* SBC/Ameritech Nov. 16 Reply Comments at 70 and n.236;
    Schmalensee and Taylor Reply Aff. at 21.

[^380]: *See* SBC/Ameritech Nov. 16 Reply Comments, Schmalensee and
    Taylor Reply Aff. at 21 and n.40.

[^381]: *Id.* at 21.

[^382]: *Id.* at 22.

[^383]: *See* Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne, and Katz
    Report at 19.

[^384]: *Id.* at 11-13. *See supra* Section V.D.1 (Overview). According
    to Sprint, ION exhibits both direct and indirect network effects.
    *See* Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne, and Katz Report at
    12-13.

[^385]: Sprint Oct. 15 Petition at 27, Katz and Salop Decl. at 44-45.

[^386]: *See* Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne, and Katz
    Report at 12.

[^387]: For products that can use complementary third-party
    applications, there is a feedback relationship between the number of
    customers of the product and the availability of third-party
    applications; as more customers purchase the product, it is more
    profitable to provide complementary applications, and these
    additional applications make the product even more attractive to
    consumers. This feedback relationship holds true for many consumer
    electronics systems composed of hardware and software, such as
    compact disk players and compact disks, and personal computers and
    compatible software. For a theoretical description of this
    phenomenon, *see* Oz Shy, *Industrial Organization: Theory and
    Applications* (MIT Press, 1995) at 263-268.

[^388]: *See* Sprint Oct. 15 Petition at 28, Katz and Salop Decl. at 40.

[^389]: *See* Sprint Oct. 15 Petition, Katz and Salop Decl. at 40 and
    n.55 (asserting that, by controlling both ends of access, the
    integrated company may better be able to evade regulatory oversight
    of the quality of access it provides).

[^390]: *See* Sprint Oct. 15 Petition, Katz and Salop Decl. at 41. In
    addition, Sprint asserts that "to the extent that state proceedings
    do not take place simultaneously, SBC can gain a reputation among
    entrants as a firm that excludes rivals, and thereby may deter the
    entrants from attempting to enter to begin with, or it may slow down
    their entry plans." *See id.* at 41 n.56. As the Texas Office of
    Public Utility Counsel points out, "\[a\]ny joinder of firms holding
    full monopoly or dominance, including the ... SBC/Ameritech
    merger\[\], tends to strengthen the ability to deter or block entry
    ... \[and\] further shrinks the small group of possible significant
    entrants." *See* Texas Counsel Oct. 14 Petition, Shepherd Aff. at 6.

[^391]: Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne, and Katz Report at
    17.

[^392]: *United States v. American Tel. and Tel. Co.*, 552 F. Supp. at
    161

[^393]: *See id*. at 165.

[^394]: Of course, if it could identify the location of the originating
    customer, then discrimination at the terminating end would be more
    efficient as it could be targeted accordingly. The merger would
    still increase the incentive to engage in such termination, as more
    customers would originate and terminate calls in the combined
    region.

[^395]: *See* Sprint Oct. 15 Petition, Katz and Salop Decl. at 41-42. As
    an example of alleged discrimination by a non-BOC incumbent LEC
    currently providing in-region long distance services, we note that
    Pilgrim Telephone, Inc. (Pilgrim), an interstate interexchange
    carrier providing casual calling services has alleged discrimination
    in the context of the Bell Atlantic/GTE merger proceeding.
    Specifically, Pilgrim asserts that GTE, a major incumbent LEC that
    already is competing in in-region interexchange services, in July
    1998, ceased providing billing and collection services to Pilgrim,
    after repeated requests by Pilgrim not to do so. *See* Pilgrim
    Telephone Request for Conditions on Bell Atlantic/GTE Merger, CC
    Docket No. 98-184, filed Nov. 23, 1998 at 2 (Pilgrim Nov. 23
    Comments in Bell Atlantic/GTE Proceeding). Pilgrim asserts that, as
    a result, it: (1) no longer serves collect callers wanting to reach
    friends or family who obtain local telephone service from GTE; (2)
    no longer provides any communications services that would need to be
    billed to GTE's local phone customers through GTE, including any
    casual calling services, any calls billed to line-based calling
    cards, and any 1+ calls. *Id*.

[^396]: *See* Sprint Oct. 15 Petition, Katz and Salop Decl. at 41-42.

[^397]: *See,* *e.g*., Sprint Oct. 15 Petition at 24-26.

[^398]: We note that with respect to intraLATA toll competition, Sprint
    asserts that incumbents continue to seek to delay competitive entry
    into that market. *See* Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne,
    and Katz Report at 19-20.

[^399]: *See* Sprint Oct. 15 Petition at 24-25 (citing Aff. of Dale N.
    Hatfield, Exhibit H to Comments of MCI Telecommunications Corp.,
    filed in CC Docket No. 97-137, Application of Ameritech Michigan
    Pursuant to Section 271 of the Telecommunications Act of 1996 to
    Provide In-Region, InterLATA Services in Michigan (Hatfield Aff.)).

[^400]: Hatfield Aff. at 22.

[^401]: *Id*.

[^402]: These systems are referred to as "out of band" signaling
    networks, and they simultaneously carry signaling messages for
    multiple calls. In general, most LECs' signaling networks adhere to
    a Bellcore standard Signaling System 7 (SS7) protocol. SS7 networks
    use signaling links to transmit routing messages between switches,
    and between switches and call-related databases (such as the Line
    Information Database, Toll Free Calling Database, and Advanced
    Intelligent Network databases). These links enable a switch to send
    queries via the SS7 network to call-related databases, which return
    customer information or instructions for call routing to the switch.
    A typical SS7 network includes a signaling link that transmits
    signaling information in packets, from a local switch to a signaling
    transfer point (STP), which is a high-capacity packet switch. The
    STP switches packets onto other links according to the address
    information contained in the packet. These additional links extend
    to other switches, databases, and STPs in the incumbent LECs'
    networks. A switch routing a call to another switch will initiate a
    series of signaling messages via signaling links through a STP to
    establish a call path on the voice network between the switches.
    *See Local Competition First Report and Order*, 11 FCC Rcd at
    15738-41, paras 479-83.

[^403]: Hatfield Aff. at 14.

[^404]: *See* *id*. at 15. *See* *also* *id*. at 18-19 (stating the need
    for competitors to access AIN triggers, and, therefore, to access
    the local service provider's switch which is equipped with the
    appropriate trigger detection software).

[^405]: *See* *id*. at 19-21.

[^406]: *See* *id*. at 34.

[^407]: SBC/Ameritech Nov. 16 Reply Comments at 67, Deere Reply Aff. at
    3.

[^408]: *See* SBC/Ameritech Nov. 16 Reply Comments at 67, Deere Reply
    Aff. at 3-4.

[^409]: *See* SBC/Ameritech Nov. 16 Reply Comments at 67-68. In this
    regard, Applicants assert that the major interexchange carriers all
    have their own SS7, AIN and ATM capabilities, and that SBC and
    Ameritech offer these facilities or capabilities as part of their
    interconnection offerings. *See* *id.* at 68.

[^410]: SBC/Ameritech Nov. 16 Reply Comments, Schmalensee and Taylor
    Reply Aff. at 19.

[^411]: *See* SBC/Ameritech Nov. 16 Reply Comments, Deere Reply Aff. at
    4. Applicants note that the same switches, signal transfer points,
    signaling links, signaling protocols and routing tables that SBC
    uses for itself are used to provide signaling for competitive LECs.
    *Id*.

[^412]: *See* SBC/Ameritech Nov. 16 Reply Comments, Schmalensee and
    Taylor Reply Aff. at 20. *See* *also id*. at 23 (asserting that the
    only incumbents that would benefit from the spillover effects of
    selective degradation would be those [not]{.underline} reselling the
    competitor's service).

[^413]: *See* SBC/Ameritech Nov. 16 Reply Comments at 67-68, Deere Reply
    Aff. at 3-4.

[^414]: *See* SBC/Ameritech Nov. 16 Reply Comments, Schmalensee and
    Taylor Reply Aff. at 18. Applicants assert that the \"wide
    availability of competitive access alternatives . . . dooms any
    discriminatory scheme to certain failure.\" SBC/Ameritech Nov. 16
    Reply Comments at 66-67 (citing Schmalensee and Taylor Reply Aff. at
    18).

[^415]: For instance, not all cities are served by competitive LECs, and
    competitive LEC presence also is lacking in lesser-populated
    outskirts of other cities.

[^416]: SBC and Ameritech would have an incentive to discriminate
    against termination of interexchange calls originating in each
    other\'s regions today to the extent that each one provided
    out-of-region long distance services and could benefit from such
    discrimination by gaining new customers at the originating end in
    each other\'s present territories. However, as both firms are
    providing out-of-region long distance services to only \"a small
    degree\" at this time, the impact of the merger would be to increase
    the incentive to discriminate as described above. *See*
    SBC/Ameritech Application, Description of the Transaction at 61.

[^417]: *See* Sprint Oct. 15 Petition at 25-26.

[^418]: *See* SBC/Ameritech Nov. 16 Reply Comments, Schmalensee and
    Taylor Reply Aff. at 20.

[^419]: *See,* *e.g*., AT&T Oct. 15 Petition at 31-32; Competitive
    Telecommunications Association (CompTel) Nov. 16 Reply Comments at
    6-7; MCI WorldCom Oct. 15 Comments at 24-25. An incentive to
    discriminate on the originating end is not an issue in a merger
    proceeding because, regardless of the merger, there always will be
    an incentive for an incumbent offering interexchange services to
    discriminate against traffic originating in its region. *See supra*
    Section V.D.2.b)(1)(a) (Incentive and Ability to Discriminate).

[^420]: *See* Sprint Oct. 15 Petition at 25.

[^421]: *See* SBC/Ameritech Nov. 16 Reply Comments at 63-64, Schmalensee
    and Taylor Reply Aff. at 9-11.

[^422]: *See* SBC/Ameritech Nov. 16 Reply Comments at 64 (quoting
    *SBC/PacTel Order,* 12 FCC Rcd at 2647, para. 50), Schmalensee and
    Taylor Reply Aff. at 10-11.

[^423]: The result in the *SBC/PacTel Order* was correct, however,
    because in that merger, any resulting harm from that increase in
    percentage points would not, in and of itself, have been fatal to
    the merger. As explained below, the scale of the harm in that merger
    was much less than the harm presented here.

[^424]: In contrast, the anticompetitive harm in SBC/Pacific Telesis was
    much less profound. Substantially fewer customers were affected by
    the discrimination made possible in SBC/Pacific Telesis, given that
    the combined entity controlled a substantially smaller number of
    access lines than will be controlled by the merged SBC and Ameritech
    entity. As discussed below, we also note that the number of access
    lines at issue here is greater than the number of access lines at
    issue in the Bell Atlantic/NYNEX proceeding. *See* CompTel Nov. 16
    Reply Comments at 6-7; MCI WorldCom Oct. 15 Comments at 25.

[^425]: *See* MCI WorldCom Oct. 15 Comments at 25 (asserting that common
    ownership facilitates SBC's and Ameritech's ability to focus their
    non-price discrimination efforts across the two regions.)

[^426]: *See* *supra* Section D.(3) (Post-Merger Incentive and Ability
    to Discriminate).

[^427]: Section 272(c) of the Communications Act states that a BOC, in
    dealing with its long distance affiliate: (1) may not discriminate
    between that company or affiliate and any other entity in the
    provision or procurement of goods, services, facilities, and
    information, or in the establishment of standards; and (2) shall
    account for all transactions with an affiliate described in
    subsection (a) of this section in accordance with accounting
    principles designated or approved by the Commission. 47 U.S.C. §
    272(c). We have adopted a number of rules implementing these
    provisions and otherwise designed to prevent non-price
    discrimination. *See* 47 C.F.R. §§ 53.200, et seq. *See also
    Implementation of the Telecommunications Act of 1996: Accounting
    Safeguards Under the Telecommunications Act of 1996, Report and
    Order,* 11 FCC Rcd 17539 (1996) (*Accounting Safeguards Order*);
    *Implementation of the Non-Accounting Safeguards of Sections 271 and
    272 of the Communications Act of 1934, as amended, First Report and
    Order and Further Notice of Proposed Rulemaking*, 11 FCC Rcd 21905
    (1996) (*Non-Accounting Safeguards Order*); *Regulatory Treatment of
    LEC Provision of Interexchange Services Originating in the LEC's
    Local Exchange Area and Policy and Rules Concerning the Interstate,
    Interexchange Marketplace, Second Report and Order in CC Docket No.
    96-149 and Third Report and Order in CC Docket No. 96-61*, 12 FCC
    Rcd 15756 (1997) (*LEC In-Region, Interexchange Order*).

[^428]: *See* SBC/Ameritech Nov. 16 Reply Comments at 66, citing 47
    U.S.C. § 272(c), (e). Section 272(e) states that a BOC: (1) shall
    fulfill any requests from an unaffiliated entity for telephone
    exchange service and exchange access within a period no longer than
    the period in which it provides such telephone exchange service and
    exchange access to itself or to its affiliates; (2) shall not
    provide any facilities, services, or information concerning its
    provision of exchange access to the affiliate described in
    subsection (a) of this section unless such facilities, services, or
    information are made available to other providers of interLATA
    services in that market on the same terms and conditions; (3) shall
    charge the affiliate described in subsection (a) of this section, or
    impute to itself (if using the access for its provision of its own
    services), an amount for access to its telephone exchange service
    and exchange access that is no less than the amount charged to any
    unaffiliated interexchange carriers for such service; and (4) may
    provide any interLATA or intraLATA facilities or services to its
    interLATA affiliate if such services or facilities are made
    available to all carriers at the same rates and on the same terms
    and conditions, and so long as the costs are appropriately
    allocated. 47 U.S.C. § 272(e).

[^429]: *See* AT&T Oct. 15 Petition at 31-32; CompTel Nov. 16 Reply
    Comments at 6-7; MCI WorldCom Oct. 15 Comments at 24-25, Baseman and
    Kelly Decl. at 23-27. *See* *also* Sprint Oct. 15 Petition, Katz and
    Salop Decl. at 19-20. A price squeeze, as opponents use the term,
    refers to a particular, well-defined strategy of predation that
    would involve the combined entity setting high prices for access
    services while charging relatively low prices for retail services.
    It is this relationship between the input prices and the
    affiliate\'s prices, and not the absolute levels of those prices,
    that defines a price squeeze. *See* *Bell Atlantic/NYNEX Order,* 12
    FCC Rcd at 20044, para. 116.

[^430]: We note that access charges already are above cost. Therefore,
    in order to implement a price squeeze, an incumbent need only offer
    low prices for its long distance services.

[^431]: *Id*. at 20045, para. 117.

[^432]: *See* SBC/Ameritech Nov. 16 Reply Comments at 64-65.

[^433]: *Access Charge Reform Order,* 12 FCC Rcd at 16100-04, paras.
    275-282. For example, the Commission noted that the prohibition on
    joint ownership of switching and transmission facilities reduces the
    risk of improper allocations of the costs of common facilities
    between the incumbent and its interexchange affiliate, and helps
    deter any discrimination in access to the incumbent\'s transmission
    and switching facilities by requiring the affiliates to follow the
    same procedures as competing carriers to obtain access to those
    facilities. *See id.* at 16102, para. 279 (citing *Non-Accounting
    Safeguards Order*, 11 FCC Rcd at 21982-84, paras. 159-162). The
    Commission also noted that the requirement that an incumbent LEC
    offer services at tariffed rates, or on the same basis as requesting
    carriers that have negotiated interconnection agreements pursuant to
    section 251, reduces the risk of a price squeeze to the extent that
    an affiliate\'s long distance prices would have to exceed its costs
    for tariffed services. *See Access Charge Reform Order*, 12 FCC Rcd
    at 16102, para. 279.

[^434]: *Id.* at 15993-94, para. 26 (stating that \"price caps act as a
    transitional regulatory scheme until the advent of actual
    competition makes price cap regulation unnecessary.\") Price caps
    fundamentally alter the process by which incumbent LECs determine
    the revenues they are permitted to obtain from interstate access
    charges for access services.

[^435]: *See Price Cap Performance Review for Local Exchange Carriers,
    Access Charge Reform, Fourth Report and Order in CC Docket No. 94-1
    and Second Report and Order in CC Docket No. 96-262*, 12 FCC Rcd
    16642 (1997) (*Price Cap 4th Report and Order*), *aff'd in part,
    rev'd in part, USTA v FCC,* No. 97-1469, 1999 WL 317035 (D.C. Cir.
    May 21, 1999).

[^436]: *See* SBC/Ameritech Nov. 16 Reply Comments at 64 (citing
    *SBC/PacTel Order*, 12 FCC Rcd at 2648-49, para. 53).

[^437]: *See* *AT&T/TCI Order*, 14 FCC Rcd at 3215-16, para. 118.

[^438]: *Access Charge Reform Order*, 12 FCC Rcd at 16103-04, para. 282.
    The Commission, in the *AT&T/TCI Order* noted that, in addition to
    federal antitrust laws prohibiting predatory conduct, numerous
    states have enacted parallel statutes to prohibit predatory pricing.
    *See* *AT&T/TCI Order*, 14 FCC Rcd at 3215-16, para. 118 and n.328.

[^439]: *See* Sprint Oct. 15 Petition at 21-24.

[^440]: *See* *infra* Section VI.A.1. (Benefits are not
    Merger-Specific).

[^441]: *See* e.spire Oct. 15 Comments at 1.

[^442]: *See id.* at 13-14.

[^443]: *See id.* at 14-16. e.spire lists conduct that it alleged SBC
    engaged in as part of a Texas Public Utility Commission proceeding
    established to investigate whether SBC's Texas operating subsidiary,
    Southwestern Bell Telephone Company (SWBT) should be certified for
    entry into the interLATA telecommunications market. *See id.* at 14.
    e.spire also asserts that, when it sought to adopt another carrier's
    existing agreement with Ameritech in its entirety under section
    252(i), Ameritech notified e.spire that adoption would be possible
    only if e.spire agreed either to accept Ameritech's position on
    reciprocal compensation for ISP traffic or agreed to place all
    amounts in escrow. *See id.* at 15.

[^444]: *See* Sprint Oct. 15 Petition at 21.

[^445]: *See, e.g., id.*

[^446]: *See id.*

[^447]: *See id.* at 20-21.

[^448]: *See* Sprint Oct. 15 Petition, Brauer Aff. at 15-17 (giving
    examples of not making space available, refusing to accommodate
    equipment, insisting on overly stringent certification requirements,
    imposing excessive charges for collocation, and engaging in delivery
    delays).

[^449]: *See* *id*. at 1-2.

[^450]: *See id*. at 11-14.

[^451]: *See* e.spire Oct. 15 Comments at 14-16.

[^452]: *See* 47 U.S.C. § 252(i).

[^453]: We note that our concerns about discrimination against
    competitive providers of interexchange services, including
    interexchange advanced services, arise only once the combined entity
    has received section 271 authority. It is at the point of receiving
    section 271 authority that the combined entity's incentive to
    discriminate begins, because it is at that point that the combined
    entity becomes a competitor in the provision of retail interexchange
    services.

[^454]: *See* *ILEC Merger En Banc Hearing*, Transcript, Dec. 14, 1998
    at 91-92. *See* *also*, *Round Table on the Economics of Mergers
    Between Large ILECs Held on February 5, 1999*, Live Videotape
    Providing to Heritage Reporting Corporation on February 8, 1999 at
    131 (Dennis Carlton asserting that because the National-Local Plan
    requires SBC to provide in-region long distance service, "it means
    it will have to satisfy the 271 checklist.")

[^455]: *See* Letter from Wayne Watts, General Attorney and Assistant
    General Counsel, SBC Communications, to Magalie Roman Salas,
    Secretary, Federal Communications Commission, CC Docket No. 98-141,
    at 2 (filed Oct. 15, 1998) (SBC/Ameritech Oct. 15 *Ex Parte*),
    Attach. B at 8.

[^456]: *See* Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne, and Katz
    Report at 8.

[^457]: *See* Sprint Oct. 15 Petition at 23.

[^458]: *See* Sprint Oct. 15 Petition at 22-24 and n.36 (agreeing with
    Applicants that scale entry is important for viable entry), Katz and
    Salop Decl. at 42-45.

[^459]: *See generally* Sprint Oct. 15 Petition at 22-28, Katz and Salop
    Decl. at 37-51.

[^460]: *See* SBC/Ameritech Nov. 16 Reply Comments at 68 and n.227
    (asserting that Focal was quoted after the merger announcement as
    saying it refuses to compete in SBC's territory, while it does in
    Ameritech's region, and noting that, in actuality, Focal recently
    began offering switched local service in San Francisco, where SBC is
    the incumbent LEC); *See also* SBC/Ameritech Nov. 16 Reply Comments,
    Schmalensee and Taylor Reply Aff. at 22-25.

[^461]: SBC/Ameritech Nov. 16 Reply Comments, Schmalensee and Taylor
    Reply Aff. at 23.

[^462]: *Id.* Applicants explain that "\[i\]ndividual \[competitive
    LECs\] do not serve every major market in the U.S., and they
    certainly do not enter all of the cities they intend to serve
    simultaneously. If all else is equal and the cost of entry in St.
    Louis were higher than that in an otherwise identical Chicago, it is
    certainly plausible that a substitution effect would raise the
    probability of entry into Chicago by more than the overall income
    effect would reduce the probability of entry everywhere." *Id*.

[^463]: Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne, and Katz Report at
    11-13.

[^464]: *See* Hatfield Aff. at n.16 (asserting that the same techniques
    that can be used to discriminate against rival interexchange
    carriers can also be used against competing local exchange
    carriers).

[^465]: *See* CompTel Nov. 16 Reply Comments at 7; MCI WorldCom Oct. 15
    Comments at 35-48.

[^466]: MCI WorldCom Oct. 15 Comments at 35-36.

[^467]: *See* MCI WorldCom Oct. 15 Comments at vii and 46-47; MCI
    WorldCom Nov. 16 Reply Comments at 13.

[^468]: Applicants note that, as of November 1998, there were over 5,000
    ISPs nationwide. *See* SBC/Ameritech Nov. 16 Reply Comments at 81.

[^469]: *See* MCI WorldCom Oct. 15 Comments at 42-44.

[^470]: SBC/Ameritech Nov. 16 Reply Comments, Gilbert and Harris Reply
    Aff. at 37-38.

[^471]: *See* MCI WorldCom Oct. 15 Comments at 46-47.

[^472]: Letter from Paul K. Mancini, General Attorney and Assistant
    General Counsel, SBC Communications, to Magalie Roman Salas,
    Secretary, Federal Communications Commission, CC Docket No. 98-141
    (filed Apr. 13, 1999) (SBC/Ameritech Apr. 13 *Ex Parte*), Attach.
    1*,* Dennis Carlton and Hal Sider, "Report to the FCC on
    Supplemental Analysis of the Katz/Salop Hypothesis" (Carlton and
    Sider Report). Dr. Carlton is Professor of Business Economics at the
    Graduate School of Business at the University of Chicago and
    President of Lexecon Inc. Dr. Sider is a Vice-President of Lexecon
    Inc.

[^473]: *Id.* at 18.

[^474]: *Id.* at 13 n.13 (citing *Local Competition Report* at 41).

[^475]: *See* Carlton and Sider Report at 19.

[^476]: *Id.* at 6. ("... it is important not to ignore that the 1996
    Act incorporates very strong incentives for \[incumbent LECs\] not
    to discriminate against \[competitive LECs\] through the promise of
    entry into long distance.")

[^477]: *See* Sprint Apr. 2 *Ex Parte,* Hayes, Jayaratne, and Katz
    Report at 23. Dr. Hayes is Senior Economist at the Tilden Group. Dr.
    Katz is a cofounder of the Tilden Group, and Professor of Business
    Administration and Economics, and Director of the Center for
    Telecommunications and Digital Convergence, at the Univeristy of
    California at Berkeley.

[^478]: *Id*.

[^479]: *AT&T/TCI Order,* 14 FCC Rcd at 3168, para 13; *MCI/WorldCom
    Order,* 13 FCC Rcd at 18134-35,

    para. 194.

[^480]: *1992 Horizontal Merger Guidelines* at 30*.*

[^481]: *See* Section VII.B.3. (Fostering Out-of-Territory Competition).

[^482]: *Bell Atlantic/NYNEX Order,* 12 FCC Rcd at 20063, para. 157.

[^483]: SBC/Ameritech July 24 Application at 92-102.

[^484]: We discuss and evaluate here the proposal set forth in the
    Applicants' initial application. The Applicants have incorporated
    the National-Local Strategy, modified from the initial application,
    as a proposed condition to our approval of the merger. *See* Section
    VII.B.3. (Fostering Out-of-Territory Competition).

[^485]: SBC/Ameritech July 24 Application at 5.

[^486]: Narrative Response of SBC Communications Inc. to the FCC's Jan.
    5, 1999 Request for Supplemental Information, Feb. 2, 1999 at 12-13.
    (SBC Feb. 2 Narrative Response) These markets include (ranked by
    size): New York, Philadelphia, Boston, Washington, Miami-Ft.
    Lauderdale, Atlanta, Minneapolis-St. Paul, Phoenix, Baltimore,
    Seattle-Everett, Denver - Boulder, Pittsburgh, Tampa - St.
    Petersburg, Portland, Cincinnati, Salt Lake City - Ogden, Orlando,
    Buffalo, New Orleans, Nashville - Davidson, Memphis, Las Vegas,
    Norfolk - Virginia Beach, Rochester, Greensboro - Winston-Salem,
    Louisville, Birmingham, Honolulu, Providence-Warwick,
    Albany-Schenectady-Troy. SBC/Ameritech July 24 Application at 12,
    Kahan Aff. at para. 34, and Attach. A, *New Markets for the New
    SBC.* Domestically, the Applicants initially plan to roll out voice
    and data services to large and medium-sized businesses in three
    markets, Boston, Miami and Seattle, in the second quarter of the
    year 2000. The Applicants then plan to enter 12 more markets in
    early 2001, within 18 months following the consummation of the
    merger, and the remaining 15 markets before the end of the third
    year following consummation of the merger. SBC Feb. 2 Narrative
    Response at 13-14. The Applicants also commit that, within 24 months
    of entering each new market, they will begin offering
    facilities-based services to all residential and business customers.
    SBC/Ameritech July 24 Application, Kahan Aff. at para. 63. On April
    16, 1999, SBC filed applications with the utility commissions of
    Florida, Massachusetts and Washington and said it plans to be a
    facilities-based provider in each market, and plans to begin
    offering service in each of these markets within 12 months after the
    merger closes. *See* SBC Press Release, *SBC Files to Provide Local
    Exchange Services in Florida, Massachusetts and Washington* (April
    16, 1999). On May 13, 1999, SBC added three new cities - New York,
    Washington DC, and Phoenix -- to the list of initial markets the
    company will enter following the completion of the merger. *See* SBC
    Press Release, *SBC Adds New York, Washington, Phoenix to List of
    First New Markets Following Merger* (May 13, 1999).

[^487]: SBC/Ameritech July 24 Application at 17, Kahan Aff. at para. 67.

[^488]: SBC/Ameritech July 24 Application at 15, Kahan Aff. at para. 39.

[^489]: SBC/Ameritech July 24 Application at 15, Kahan Aff. at para. 37.

[^490]: SBC/Ameritech July 24 Application at 5, Kahan Aff. at para. 38.
    This amounts to 2,900 fiber miles overall.

[^491]: SBC/Ameritech July 24 Application, Kahan Aff. at para. 39.

[^492]: *Id*. at para. 55.

[^493]: *Id.* at para. 67. The actual foreign cities appear to be in
    question. The Applicants do say that their plans include "European
    markets such as Berlin, Hamburg, Frankfurt, and London; South
    American markets such as Rio de Janeiro and Sao Paulo; and Asian
    markets including Tokyo, Hong Kong and Singapore."

[^494]: *Id*. at para. 67. The National Local Strategy is based on a
    10-year plan, from 1999 to 2008.

[^495]: *Id.*

[^496]: SBC/Ameritech July 24 Application at 5.

[^497]: The Applicants are currently unable to provide this complete
    range of services to customers in-region.

[^498]: SBC/Ameritech July 24 Application at 5.

[^499]: SBC/Ameritech July 24 Application, Kahan Aff. at paras. 83-85.

[^500]: SBC/Ameritech Nov. 16 Reply Comments at 20.

[^501]: *Id.*; SBC/Ameritech July 24 Application, Kahan Aff. at para.
    83.

[^502]: SBC/Ameritech July 24 Application at 51. In this regard, the
    Applicants stress the speed with which such a strategy must be
    undertaken in today's increasingly competitive market. Applicants
    also emphasize the requirement in the multilocation business
    customer market of providing "near national" coverage (equating to
    70-80% of customers' telecom needs). SBC/Ameritech Nov. 16 Reply
    Comments at 21.

[^503]: SBC/Ameritech July 24 Application at 51.

[^504]: SBC/Ameritech July 24 Application, Kahan Aff. at paras. 86-89.

[^505]: SBC/Ameritech July 24 Application at 21.

[^506]: *Id.* at 22.

[^507]: *Id.* at 7-8.

[^508]: *Id.* at 26-27.

[^509]: *Id.* at 85.

[^510]: SBC/Ameritech July 24 Application at 27; SBC/Ameritech Nov. 16
    Reply Comments at 13.

[^511]: SBC/Ameritech Nov. 16 Reply Comments, Carlton Aff. at paras. 24,
    26.

[^512]: The Applicants state that the alternative, attempting to go
    national on a more incremental basis, entering fewer markets more
    slowly, would not permit them to respond promptly to requests for
    proposals from multi-location customers. The Applicants therefore
    claim that any alternative strategy would at best delay or even
    preclude the onset of significant new competition by the Applicants
    for business and residential customers in major and second tier
    markets. *See* SBC/Ameritech July 24 Application at 51-52, Kahan
    Aff. at para. 51, Carlton Aff. at

    paras. 43-44.

[^513]: *See* Section V.B. (Analysis of Competitive Effects). By
    contrast, we concluded that in the larger business market for local
    exchange and exchange access services, SBC and Ameritech are only
    two of a larger number of actual and potential competitors in each
    other's regions. The merger would thus be less likely to have
    competitive effects leading to public interest harms.

[^514]: NEXTLINK Communications, Inc., May 5, 1999 Prospectus Offering
    of Class A Common Stock 24 (1999).

[^515]: Allegiance Telecom, Inc., April 14, 1999 Prospectus Offering of
    Common Stock 1, 42 (1999).

[^516]: *See* SBC Feb. 2 Narrative Response, Exhibit 7 at 1-3.

[^517]: *See* SBC Feb. 2 Narrative Response, Exhibit 8 at 1.

[^518]: *See* SBC Feb.2 Narrative Response, Exhibit 10 at 2.

[^519]: *See* SBC/Ameritech Nov. 16 Reply Comments at 5, Grubman Aff. at
    para. 3.

[^520]: *See* SBC Feb. 2 Narrative Response, Exhibit 10 at 1; Harry E
    Blount and Timothy Horan, *WinStar Communications, Inc.,* CIBC
    Oppenheimer, April 14, 1999, at 1, 4-5. The market capitalization is
    based on a closing stock price of \$52.125 as of April 13, 1999.

[^521]: *See* Appendix B (Summary of Confidential Information and
    Conclusions).

[^522]: New Paradigm Resources Group, Inc., 1999 CLEC Report, Chapter 8,
    pages 28-120 (1999) (New Paradigm 1999 CLEC Report).

[^523]: SBC will not be the first new entrant in the 30 out-of-region
    markets it plans to target with the National-Local Strategy, and in
    many markets, it will not even be in the top ten entrants. According
    to the New Paradigm Resources Group, Inc. 1999 CLEC Report, there
    were between 3 and 30 facilities-based competitive LECs already
    operating in these 30 cities as of end 1998.

[^524]: SBC/Ameritech Nov. 16 Reply Comments, Carlton Aff. at para. 23

[^525]: *See* *supra* Section V.B.2. (Local Exchange and Exchange Access
    Services).

[^526]: *See e.g.* Letter from John J. Heitman, e.spire Communications,
    to Magalie Roman Salas, Secretary, FCC (filed Jan. 11, 1999)
    (e.spire Jan. 11 *Ex Parte*); Letter from Richard J. Metzger, Focal
    Communications, to Magalie Roman Salas, Secretary, FCC (filed Jan.
    13, 1999) (Focal Jan. 13 *Ex Parte*); Letter from Joseph M. Sandri,
    Jr, WinStar Communications, Inc., to Magalie Roman Salas, Secretary,
    FCC (filed March 4, 1999) (Winstar Mar. 4 *Ex Parte*); Letter from
    Gunnar D. Halley, Teligent, to Magalie Roman Salas, to Magalie Roman
    Salas, Secretary, FCC, (filed March 5, 1999) (Teligent Mar. 5 *Ex
    Parte*); Letter from Daniel Gonzalez, NEXTLINK, to Magalie Roman
    Salas, Secretary, FCC (filed March 9, 1999) (NEXTLINK Mar. 9 *Ex
    Parte*); Letter from William L. Fishman, RCN Telecom Services, to
    Magalie Roman Salas, Secretary, FCC (filed March 17, 1999) (RCN Mar.
    17 *Ex Parte*); Letter from Ross A. Buntrock, Intermedia, to Magalie
    Roman Salas, Secretary, FCC (filed March 24, 1999) (Intermedia Mar.
    24 *Ex Parte*), Letter from Anna Maria Kovacs, Janney Montgomery
    Scott), to Magalie Roman Salas, Secretary, FCC (filed Dec. 14, 1999)
    (Janney Montgomery Scott Dec. 14 *Ex Parte*).

[^527]: *See* SBC/Ameritech July 24 Application at 34; SBC Oct. 15 *Ex
    Parte*, at 2, 13-16.

[^528]: Ameritech's 1998 ARMIS 43-02 USOA Report, Table 1-1, Row 830.
    SBC will pick up an additional 40,912 employees from the Ameritech
    operating companies, but holding company employees are excluded from
    this number.

[^529]: SBC/Ameritech Nov. 16 Reply Comments at 25, Carlton Aff. at para
    42. *See also* SBC/Ameritech July 24 Application, Kahan Aff. at
    paras. 40-41.

[^530]: Letter from Todd F. Silbergeld, SBC Communications, to Magalie
    Roman Salas, Secretary, FCC, Attach. D at 3 (filed Feb. 19, 1999)
    (SBC Feb. 19 *Ex Parte*). *See also* Letter from Wayne Watts, SBC,
    to Magalie Roman Salas, Secretary, FCC, at 3 (filed Oct. 5, 1998)
    (SBC Oct. 5 *Ex Parte*). Two hundred twenty-four (224) of the
    Fortune 500 companies (45%) would be headquartered in the combined
    companies' regions.

[^531]: *See* SBC/Ameritech Nov. 16 Reply Comments at 24. *See also*
    SBC/Ameritech July 24 Application, Kahan Aff. at paras. 5, 14.

[^532]: SBC/Ameritech July 24 Application at 7 ("Neither company,
    standing alone, has the breadth of experienced management and
    skilled technical personnel that such an undertaking requires, and
    it is simply not possible or feasible for either company alone to
    rapidly secure such personnel."). The Applicants state that
    Ameritech on its own has 91 Fortune 500 firms headquartered in its
    region, while SBC has 129 such firms headquartered in its region.
    The merged entity would have 220 Fortune 500 firms headquartered in
    its region.

[^533]: SBC Feb. 2 Narrative Response at 7-8.

[^534]: SBC/Ameritech July 24 Application at 23-24.

[^535]: SBC/Ameritech July 24 Application, Kahan Aff. at para. 50.

[^536]: *Id.* at 52-53.

[^537]: *Id.*

[^538]: New Paradigm 1999 CLEC Report at 30. These include small
    competitors, such as GST, ICG and WinStar, as well as large ones,
    such as AT&T and MCI WorldCom.

[^539]: Earnings dilution is a financial concept describing a condition
    in which a diminution occurs in the proportion of income to which
    each share is entitled. *See* Brealey and Myers, *Principles of
    Corporate Finance*, 4^th^ Edition at G3. Earnings dilution typically
    occurs when income falls relative to projected performance due to
    higher-than-expected costs or lower-than-expected revenues from a
    project, or when more shares are issued as in a stock offering or
    stock-for-stock merger. The higher the earnings dilution, the more
    costly for the company and its shareholders alike to bear.

[^540]: SBC/Ameritech July 24 Application at 51.

[^541]: *Id*.

[^542]: SBC Feb. 2 Narrative Response at 16.

[^543]: *See* SBC/Ameritech July 24 Application at 5, Kahan Aff. at
    paras. 37-39. We note that the Applicants claim that the Strategy
    contemplates constructing more than 2,900 fiber miles, or between 75
    and 125 miles in each of the 30 out-of-region markets (though the
    Applicants contradict themselves in the SBC/Ameritech July 24
    Application at 15 by once referring to route miles). Although new
    intra-city fiber would be a welcome contribution to the competitive
    environment in these markets, we must point out the difference
    between fiber miles and *route* miles. Fiber miles are the number of
    miles of fiber strand used in all routes including both lit and
    unlit fiber. Route miles are the total number of miles of fiber
    routes. *See* FCC Fiber Deployment Report for 1997 at 46. In
    general, multiple fiber strands are placed in a cable, so fiber
    miles typically exceed route miles of cable laid. Typical
    competitive LEC intra-city fiber configurations involve cables
    containing 20 to 200 fiber strands. For year end 1997, reporting
    competitive LECs on average had deployed 69 fiber strands per route
    mile of cable. *See* FCC Fiber Deployment Report for 1997 at 41.
    Using this conversion ratio as a proxy, we calculate that of the
    2,900 fiber miles which the Applicants are contemplating deploying
    out-of-region, these equate to approximately 42 *route* miles over
    30 markets, or an average of 1.5 miles per market. Compare this
    deployment to the average competitive LEC deployment of 721 route
    miles of fiber in the first quarter of 1999 alone. *See* David W.
    Barden, *Competitive Telecom Services Review*, JP Morgan Equity
    Research, June 2, 1999, at 10. On a per market basis, this recent
    fiber deployment far exceeds that proposed by the Applicants. We
    find that the Applicants' competitive LEC plans, relative to the
    plans of other competitive LECs, are very conservative in terms of
    fiber deployment. Therefore, the Applicants' market entry costs with
    regards to fiber should similarly be low, which further supports our
    finding that the Applicants' out-of-region plans are not excessively
    dilutive.

[^544]: David W. Barden, *Competitive Telecom Services Review*, JP
    Morgan Equity Research (June 2, 1999) at 10.

[^545]: Examples include: Allegiance Telecom, ALLTEL's competitive LEC
    business, Commonwealth Telephone Enterprises' competitive LEC
    business, Hyperion Telecommunications, MGC Communications and US
    LEC.

[^546]: *See* Appendix B; SBC/Ameritech July 24 Application, Kahan Aff.
    at para. 39.

[^547]: SBC/Ameritech July 24 Application, Kahan Aff. at para. 42

[^548]: Frank Governali and Kathryn Littlefield, *SBC Communications*,
    Credit Suisse First Boston Equity Research, May 14, 1998, at 7
    (Credit Suisse First Boston Equity May 14 Report).

[^549]: Daniel Reingold, *Merrill Lynch Global Securities Research*,
    ALLTEL CORP., May 19, 1999, at 3. For example, ALLTEL "is targeting
    a 2-3 year EBITDA breakeven goal for its competitive LEC markets, in
    line with our expectations for other 'smart build' competitive
    LECs."

[^550]: Credit Suisse First Boston May 14 Report at 7.

[^551]: SBC/Ameritech Nov. 16 Reply Comments, Grubman Aff. at para. 8.
    We note that the Applicants refused to submit for the public record
    any documentation supporting Grubman's computation of the
    National-Local Strategy's dilutive impact absent the merger.

[^552]: SBC/Ameritech Nov. 16 Reply Comments, Grubman Aff. at para. 8.
    The 27% premium to Ameritech's closing price of \$43.875 was as of
    May 8, 1998. *See* SBC Investor Briefing No. 200, *SBC
    Communications and* *Ameritech to Merge*, May 11, 1998 at 8.

[^553]: SBC Feb. 19 *Ex Parte*, Attach. A at 13, Attach. F at 7.

[^554]: EBITDA is Earnings Before Interest Taxes Depreciation and
    Amortization. EBITDA is an income statement calculation that serves
    as a proxy for operating cash flow.

[^555]: Stephanie Comfort and Stephen Flynn, *The Financial Models*,
    Morgan Stanley Dean Witter, Oct. 9, 1998 at 22-23.

[^556]: Anna-Maria Kovacs, *Progress Report on Ameritech*, Janney
    Montgomery Scott, April 14, 1998, at 4.

[^557]: Stephanie Comfort and Stephen Flynn, *The Financial Models*,
    Morgan Stanley Dean Witter, Jan. 21, 1999 at 6-8. Ameritech's cable
    capital expenditures translate into approximately \$450 per home
    passed.

[^558]: *See* SBC/Ameritech July 24 Application, Kahan Aff. at paras.
    57-58; SBC/Ameritech Nov. 16 Reply Comments, Grubman Aff. at para.
    8. The Applicants in fact intend to front-load the brunt of their
    capital spending related to the National-Local Strategy over the
    first seven years of the 10-year plan.

[^559]: SBC/Ameritech July 24 Application, Kahan Aff. at para. 13.

[^560]: *Id.*

[^561]: *Id.* Though Kahan was not explicit, it is our assumption, based
    on the SBC/Ameritech's Application filing date of July 24, 1998,
    that the figures represent 1997 results.

[^562]: SBC/Ameritech July 24 Application, Weller Aff. at para. 21.
    Results are for 1997.

[^563]: SBC Feb. 2 Narrative Response at 7.

[^564]: Response of Ameritech Corporation to the FCC's Jan. 5, 1999
    Request for Documentary Material, February 2, 1999, at 4 (Ameritech
    Feb. 2 Response).

[^565]: *See* SBC/Ameritech July 24 Application at Tables 1-10.

[^566]: The Applicants provide some data related to line additions but
    only at an aggregate level for *all* Regional Bell Operating
    Companies and for the universe of public competitive LECs. *See*
    SBC/Ameritech July 24 Application, Carlton Aff. at 9.

[^567]: SBC Feb. 2 Narrative Response at 7.

[^568]: Ameritech Feb. 2 Response at 48.

[^569]: SBC/Ameritech July 24 Application at 42.

[^570]: *See* SBC Feb. 2 Narrative Response at 11; SBC/Ameritech Nov. 16
    Reply Comments, Kahan Aff. at para. 16; SBC/Ameritech July 24
    Application, Kahan Aff. at para. 48, Carlton Aff. at para. 16.

[^571]: Jack B. Grubman and Christine Gochuico, *Review of Our Position
    on RBOCs*, Salomon Smith Barney Equity Research, March 11, 1999 at
    4-5 (Salomon Smith Barney March 11 Report).

[^572]: Salomon Smith Barney March 11 Report at 4-5.

[^573]: SBC Oct. 15 *Ex Parte* at 2, Attach. B at 7.

[^574]: According to the SBC/Ameritech July 24 Application, Kahan Aff.
    at para. 69, Applicants admit that they have significant experience
    in competing out-of-region. SBC submits that it has been an
    effective competitor out-of-region in the wireless market since
    1987. Ameritech, too, has competed out-of-region with its nationwide
    alarm monitoring business.

[^575]: *See* Section V.B.2.c)(1) (Mass Market).

[^576]: Frank Governali, *SBC Communications*, Credit Suisse First
    Boston Equity Research,

    Jan. 7, 1998 at 2 (Credit Suisse First Boston Equity Jan. 7 Report).
    Mr. Governali also postulated that with SNET vulnerable to
    competitive entry by neighboring Bell Atlantic, that "the best
    defense is an effective offense" and that he expected SBC "to launch
    in the New York and Boston markets soon after the SBC/SNET merger
    closing."

[^577]: SBC Feb. 2 Narrative Response at 16.

[^578]: Section 271 says "neither a Bell operating company, nor any
    affiliate of a Bell operating company, may provide interLATA
    services except as provided by this section." A BOC may provide
    interLATA service only once it has met the requirements outlined in
    section 271, including complying with the competitive checklist. 47
    U.S.C. § 271.

[^579]: SBC Oct. 15 *Ex Parte* at 10.

[^580]: SBC/Ameritech Nov. 16 Reply Comments, Carlton Aff. at para. 80.

[^581]: *See* Letter from Marian Dyer to Magalie Roman Salas, March 4,
    1999 at 4, Letter from Antoinette Cook Bush to Magalie Roman Salas,
    Feb. 1, 1999 at 5.

[^582]: SBC Feb. 2 Narrative Response at 34.

[^583]: *Id.*

[^584]: *Id.*

[^585]: *Id.* at 35.

[^586]: Carlton Oct. 15, 1999 Aff. at 2.

[^587]: Salomon Smith Barney Equity Mar. 11 Report at 5

[^588]: *Id.* at 4.

[^589]: *Id.* at 6.

[^590]: SBC/Ameritech Nov. 16 Reply Comments at 8.

[^591]: SBC Oct. 15 *Ex Parte* at 15.

[^592]: SBC/Ameritech July 24 Application, Schmalensee and Taylor Aff.
    at para. 16.

[^593]: SBC/Ameritech July 24 Application at 61.

[^594]: *Id.*

[^595]: SBC/Ameritech July 24 Application, Carlton Aff. at para. 36.

[^596]: *Id.*

[^597]: Because the out-of-region entry is not merger-specific, this
    modest benefit overstates the merger's value.

[^598]: SBC/Ameritech July 24 Application, Schmalensee and Taylor Aff.
    at para. 6.

[^599]: SBC/Ameritech Nov. 16 Reply Comments, Carlton Aff. at para. 84.

[^600]: SBC/Ameritech Nov. 16 Reply Comments, Kahan Aff. at para. 29.
    The Applicants provide data suggesting that high users "are equally
    distributed across all income levels." *See* Letter from Wayne
    Watts, to Magalie Roman Salas, Secretary, FCC at 1 (filed Oct. 6,
    1998) (SBC Oct. 6 *Ex Parte*.); SBC/Ameritech Nov. 16 Reply
    Comments, Kahan Aff. at paras. 29-30.

[^601]: SBC Feb. 2 Narrative Response at 26.

[^602]: SBC/Ameritech Nov. 16 Reply Comments at 9.

[^603]: SBC/Ameritech Nov. 16 Reply Comments, Carlton Aff. at para. 84.

[^604]: Rather, this Strategy represents to a great degree the
    strategies pursued by other competitive LECs targeting small and
    medium business customers that can and do sign up residential
    customers that are proximate to the competitive LEC's facilities.
    Examples of such carriers include: Cox Communications, McLeodUSA,
    Teligent and WinStar*. See* SBC/Ameritech Nov. 16 Reply Comments,
    Carlton Aff. at para. 36.

[^605]: SBC/Ameritech July 24 Application at 24-25.

[^606]: *See* SBC/Ameritech July 24 Application at 34; SBC Oct. 15 *Ex
    Parte* at 2, 13-16.

[^607]: SBC/Ameritech July 24 Application, Kahan Aff. at para. 88.

[^608]: SBC Oct. 15 *Ex Parte* at 2.

[^609]: SBC/Ameritech July 24 Application, Schmalensee and Taylor Aff.
    at para. 16.

[^610]: SBC/Ameritech July 24 Application, Kahan Aff. at para. 88.

[^611]: *See* Appendix B (Summary of Confidential Information and
    Conclusions)

[^612]: *Bell Atlantic/NYNEX Order,* 12 FCC Rcd at 20063-64, para. 158.

[^613]: *Id.* at 20066-67, para. 169; *1997 Horizontal Merger Guidelines
    Revisions*.

[^614]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20066-67, paras.
    169-170. The Commission found that procurement savings reduce the
    cost of incremental inputs, thereby reducing marginal cost. Savings
    in the cost of providing long distance services, to the extent that
    they represent real productive efficiencies, also represent a
    reduction in marginal cost.

[^615]: *Id*.

[^616]: *Id.*

[^617]: *Id*.

[^618]: SBC/Ameritech July 24 Application at 37.

[^619]: SBC/Ameritech July 24 Application at 38, Kaplan Aff. at para.
    32.

[^620]: SBC/Ameritech July 24 Application at 38, Schmalensee and Taylor
    Aff. at para. 12, Kaplan Aff. at paras. 7, 17.

[^621]: SBC/Ameritech July 24 Application, Kaplan Aff. at para. 17.

[^622]: SBC/Ameritech July 24 Application, Schmalensee and Taylor Aff.
    at para. 11, Kaplan Aff. at para. 17.

[^623]: SBC/Ameritech July 24 Application, Kaplan Aff. para. 20.

[^624]: *Id.* at paras. 21, 23.

[^625]: *Id.* at para. 24.

[^626]: *Id.* at para. 25.

[^627]: An example of this is the claim by the Applicants that this
    merger would enable them to consolidate two different methods of
    acquiring and maintaining switches into one. Since Ameritech
    outsources its switch engineering functions while SBC performs these
    functions in-house, the merger would enable the combined company to
    take advantage of scale economies in performing these functions.
    *See* SBC/Ameritech July 24 Application, Gilbert and Harris Aff. at
    para. 43.

[^628]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20067, para. 171.

[^629]: In fact, the Applicants even admit that "\[o\]f the merger cost
    savings, some will go to stockholders." *See* SBC/Ameritech July 24
    Application, Schmalensee and Taylor Aff. at para. 17.

[^630]: SBC/Ameritech July 24 Application at 40, Gilbert and Harris Aff.
    at paras. 54-59.

[^631]: SBC/Ameritech July 24 Application, Kaplan Aff. at para. 17.

[^632]: *Id.* Kaplan states that "\[n\]et savings, i.e. savings after
    investment, begin the second year after closing." He also maintains
    that these investments must be made before the full savings can be
    realized. It is unclear, therefore, when these investments must be
    completed to achieve "full" savings on schedule.

[^633]: SBC/Ameritech July 24 Application at 38, Kaplan Aff. at para.
    32.

[^634]: SBC/Ameritech July 24 Application, Kaplan Aff. at para. 7,
    Schmalensee and Taylor Aff. at para. 12.

[^635]: SBC/Ameritech July 24 Application, Kaplan Aff. at para. 8.

[^636]: *Id.* at para. 14.

[^637]: SBC/Ameritech July 24 Application at 38, Schmalensee and Taylor
    Aff. at para. 12, Kaplan Aff. at

    para. 7.

[^638]: SBC/Ameritech July 24 Application, Kaplan Aff. at paras. 7-9.

[^639]: It should also be noted that while SBC may enjoy higher
    penetration levels of vertical services than Ameritech, that
    Ameritech's percentage growth in vertical services penetration and
    revenue has outpaced SBC's growth on average over the past five
    quarters. Average growth in vertical service for Ameritech over 5
    quarters is 20.0% vs. 18.4% for SBC. *See* Daniel Reingold and Ehud
    Gelblum, *Telecom Services -- Local*, Merrill Lynch, (Apr. 16,
    1999), at 3.

[^640]: *1992 Horizontal Merger Guidelines* at 30.

[^641]: SBC/Ameritech July 24 Application, Kaplan Aff. at para. 15,
    Gilbert and Harris Aff. at para. 56.

[^642]: SBC/Ameritech July 24 Application, Kaplan Aff. at 15.

[^643]: SBC/Ameritech July 24 Application at 38, Kaplan Aff. at para.
    26.

[^644]: SBC/Ameritech July 24 Application, Kaplan Aff. at para. 26.

[^645]: *Bell Atlantic/Nynex Order,* 12 FCC Rcd at 20067, para. 170.

[^646]: SBC/Ameritech July 24 Application at 21.

[^647]: *Id.* at 92-102.

[^648]: *Id.* at 94.

[^649]: *Id.*

[^650]: *Id.* at 96.

[^651]: *Id.*

[^652]: *Id.* at 97.

[^653]: *Id.* at 96-97.

[^654]: *Id.* at 98.

[^655]: SBC/Ameritech July 24 Application, Kahan Aff. at para. 67

[^656]: *Id.* at para. 90

[^657]: *Id.*

[^658]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20067-68, para. 172.

[^659]: SBC/Ameritech July 24 Application at 98-100.

[^660]: Letter from Paul K. Mancini, SBC Communications Inc., and
    Richard Hetke, Ameritech Corporation, to Magalie Roman Salas, FCC
    Secretary, CC Docket No. 98-141 (filed July 1, 1999) (SBC/Ameritech
    July 1 *Ex Parte*). *See also* "Pleading Cycle Established for
    Comments on Conditions Proposed by SBC Communications Inc. and
    Ameritech Corporation for their Pending Application to Transfer
    Control," CC Docket No. 98-141, Public Notice, DA 99-1305 (rel. July
    1, 1999).

[^661]: Letter from Richard Hetke, Ameritech Corporation and Paul K.
    Mancini, SBC Communications Inc., to Magalie Roman Salas, Secretary,
    FCC, CC Docket No. 98-141 (filed Aug. 27, 1999) (SBC/Ameritech
    August 27 *Ex Parte*); Letter from Richard Hetke, Ameritech
    Corporation and Paul K. Mancini, SBC Communications Inc., to Magalie
    Roman Salas, Secretary, FCC, CC Docket No. 98-141 (filed Sept. 7,
    1999) (SBC/Ameritech Sept. 7 *Ex Parte*); Letter from Richard Hetke,
    Ameritech Corporation and Paul K. Mancini, SBC Communications Inc.,
    to Magalie Roman Salas, Secretary, FCC, CC Docket No. 98-141 (filed
    Sept. 17, 1999) (SBC/Ameritech Sept. 17 *Ex Parte*); Letter from
    Marian Dyer, SBC Telecommunications, Inc., to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-141 (filed Sept. 29,
    1999)(SBC/Ameritech Sept. 29 *Ex Parte*).

[^662]: We note that in addition to this forum on conditions, the
    Commission held three earlier public forums addressing more generic
    policy matters associated with mergers. *See supra* at Section
    III.B.3 (Commission Review).

[^663]: The specific conditions that we adopt in this merger proceeding
    are set forth in Appendix C to this Order. In order to provide
    guidance to the industry on particular interpretive issues, as well
    as to facilitate implementation and enforcement of the conditions,
    in some instances we have annotated SBC/Ameritech's proffered
    conditions with explanatory footnotes that further reflect and
    clarify the intent of the particular condition.

[^664]: If SBC/Ameritech is unable to comply simultaneously with both
    the requirements of any condition and the requirements of any
    Commission rule or order, it must so inform the Commission and seek
    guidance as to how it should proceed.

[^665]: SBC/Ameritech must comply fully with all section 272
    requirements to provide in-region, interLATA services following
    section 271 authorization.

[^666]: *See* Michigan PSC July 26 Reply Comments at 2 (seeking
    clarification regarding state authority over matters discussed in
    the conditions).

[^667]: *See* *CCN, Inc., et al.*, CC Docket No. 97-144, Order, 13 FCC
    Rcd 13599 (1998) (revoking the Fletcher Companies' section 214
    operating authority for slamming and other violations of the
    Communications Act and Commission rules).

[^668]: *Cf. Application of General Telephone and Electronics
    Corporation to Acquire Control of Telenet Corporation and its
    Wholly-Owned Subsidiary Telenet Communications Corporation*, File
    Nos. W-P-C-2486, *et al.*, Memorandum Opinion and Order, 72 FCC 2d
    111, 169, para. 170 (1979) (granting section 214 application of GTE
    to acquire Telenet subject to conditions that included structural
    separation but stating that the Commission would "take any necessary
    steps including divestiture" should GTE violate the order's
    requirements).

[^669]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19993, para. 15.

[^670]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19994, para. 16.

[^671]: For purposes of these conditions, the term "advanced services"
    means any interstate or intrastate wireline telecommunications
    services (such as ADSL, IDSL, xDSL, frame relay, and cell relay)
    that rely on packetized technology and have the capability of
    supporting transmission speeds of at least 56 kilobits per second
    (kbps) in both directions. Ordinary dial-up Internet access service,
    which is not packetized and does not consist of speeds exceeding 56
    kbps in both directions, is not included within this definition.
    *See* SBC/Ameritech July 26 Reply Comments at 75-76 (responding to
    AT&T's claim that the definition could include ordinary dial-up
    Internet access).

[^672]: We use the term "SBC/Ameritech" to represent the entity that
    will result from the merger, consisting of today's SBC
    Communications Inc., Ameritech Corporation, and each company's
    incumbent LEC telephone subsidiaries.

[^673]: SBC/Ameritech must receive authorization under section 271 to
    provide in-region, interLATA services. At that time, SBC/Ameritech
    must provide in-region, interLATA advanced services through a
    separate affiliate that complies fully with the requirements of
    section 272.

[^674]: Agreeing that this condition will promote competition in the
    advanced services market, NorthPoint, a facilities-based data
    competitor, observes that, by requiring the SBC/Ameritech incumbent
    LECs to provide nondiscriminatory treatment to all
    telecommunications carriers, the separate advanced services
    affiliates will "wait in line for collocation, petition to open
    'closed' offices, and otherwise deal with the same collocation and
    \[OSS\] implementation problems experienced by competitive LECs."
    NorthPoint July 19 Comments at 4-5. NorthPoint also notes that the
    condition's "simple but critical rule that the incumbent LEC's
    advanced services subsidiary deal at arm's length with the incumbent
    for the purchase of collocation and loops," would require, for the
    first time, that an affiliate of the incumbent LEC "pay the same
    prices as competitive LECs for loops and collocation, eliminating
    the DSL price squeeze." *Id.* at 4-5. *See also* MCI WorldCom July
    19 Comments at 40 (supporting separate advanced services affiliate
    condition because "separation can help enforcement of the
    unbundling, resale, and nondiscrimination requirements of section
    251(c)."); Texas PUC Aug. 5 Comments at 5 (supporting separate
    advanced services affiliate).

[^675]: *See* SBC/Ameritech July 26 Reply Comments at 74.

[^676]: 47 U.S.C. § 272(b), (c), (e), and (g). After the Applicants'
    July filing, several parties sought clarification as to the services
    that the separate advanced services affiliate or SBC/Ameritech's
    incumbent LEC could provide the other, as well as the methods used
    to provide them and the personnel and equipment that an
    SBC/Ameritech incumbent LEC can transfer to the separate affiliate.
    *See, e.g.*, Cable & Wireless July 19 Comments at 8. The Applicants'
    subsequent filings provided this detail. *See* SBC/Ameritech Aug. 27
    *Ex Parte* at 4, Att. 1 at 2-12; SBC/Ameritech Sept. 7 *Ex Parte* at
    1, Att. 1 at 2-12, Att. 2 at 1-20; SBC/Ameritech Sept. 17 *Ex Parte*
    at 1-4.

[^677]: The customer care services permitted under the condition on an
    exclusive basis are: (1) ongoing customer notification of service
    order progress; (2) response to a customer's inquiry regarding the
    status of an order; (3) changes to customer account information; and
    (4) receipt of customer complaints (other than receipt and isolation
    of trouble reports).

[^678]: The OI&M functions subject to these conditions encompass the
    deployment and operation of a facilities-based telecommunications
    network. Many competitive carriers contract with third parties for
    some or all of these functions, and the conditions permit the
    SBC/Ameritech separate affiliate to contract with the SBC/Ameritech
    incumbent LEC for such functions, provided that the incumbent acts
    in a nondiscriminatory fashion. The OI&M activities performed by an
    incumbent LEC in the normal course of providing unbundled elements,
    services or interconnection are not subject to these conditions.
    Such normal OI&M activities will not be affected by the conditions
    and will be provided and priced in accordance with forward-looking
    rules applicable to the underlying service, unbundled element or
    interconnection.

[^679]: We note that, in accordance with the Commission's accounting
    safeguards, any transactions or shared services performed pursuant
    to this written affiliate agreement must be valued in accordance
    with the affiliate transactions rules, reduced to writing and posted
    on the Internet, and made available to competitors on the same
    rates, terms and conditions. *See* *Non-Accounting Safeguards
    Order*, 11 FCC Rcd at 21992, para. 181.

[^680]: The billing and collection services that the incumbent is
    permitted to provide on a nondiscriminatory basis include payment
    arrangements, account adjustment, responding to account balance
    inquiries, account closure, responses to legal action affecting or
    involving the customer, and receipt and resolution of customer
    billing and collection complaints. SBC/Ameritech may, for example,
    include the affiliate's and other carriers' bills on a separate page
    in the same envelope with its bill, or it may choose to place the
    affiliate's and other carriers' bills in a separate envelope. Either
    way, SBC/Ameritech must offer the same services that it provides to
    its affiliate to unaffiliated carriers at the same rates, terms and
    conditions, and on a disaggregated basis that permits the
    unaffiliated providers to select the particular services that they
    desire from the incumbent.

[^681]: "Line sharing" allows two different service providers to offer
    services over the same line, with each provider utilizing different
    frequencies to transport voice or data over that line. *See Advanced
    Services Further Notice*, 14 FCC Rcd at 4805-06, para. 92.

[^682]: For purposes of this condition, the equipment that may be
    transferred consists of: (1) DSLAMs or functionally equivalent
    equipment, (2) spectrum splitters that are solely used in the
    provision of advanced services, (3) packet switches and multiplexers
    such as ATMs and frame relay engines used to provide advanced
    services, (4) modems used in the provision of packetized data, and
    (5) DACS frames used only in the provision of advanced services.
    Spectrum splitters used to separate the voice-grade channel from the
    advanced services channel are not permitted to be transferred. Such
    asset transfers must take place in accordance with the Commission's
    accounting safeguards. Consistent with the Commission's rules, if
    SBC/Ameritech transfers to its separate advanced services affiliate
    a facility that is deemed to be an unbundled network element under
    47 U.S.C. § 251(c)(3), the Commission's unbundling requirements will
    attach with respect to that element. *See* 47 C.F.R. § 53.207.

[^683]: *See Accounting Safeguards Order*, 11 FCC Rcd at 17588-618,
    17652-55, paras. 111-70, 251-58.

[^684]: *See* ALTS July 19 Comments at 19-20 (suggesting audit of all
    sub-parent transactions and relationship).

[^685]: Examples of such a material change would be if the Commission
    prohibits an incumbent LEC from providing joint marketing or
    operation, installation and maintenance services to an advanced
    services affiliate. *See* MCI WorldCom July 19 Comments at 46;
    Sprint July 19 Comments at 30 (requesting clarification as to the
    type of modifications that would produce a material change).

[^686]: *Advanced Services Further Notice*, 14 FCC Rcd at 4806, para.
    93.

[^687]: The Applicants' July filing contained a proposed condition
    requiring SBC/Ameritech to implement line sharing on a permanent
    basis, subject to a 12-month implementation schedule, when it was
    technically and commercially feasible to do so according to industry
    standards. *See* SBC/Ameritech July 1 *Ex Parte*, Att. A at para.
    33. Several commenters protested that the restrictions on when this
    obligation would take effect eviscerated any potential benefit from
    the condition. *See* CompTel July 19 Comments at 30-32; Level 3 July
    19 Comments at 12, NorthPoint July 19 Comments at 14-16; Rhythms
    July 19 Comments at 10-11. The Applicants subsequently removed the
    proposed condition in their August filing. *See* ALTS July 19
    Comments at 22 (observing that, until line sharing is ordered
    ubiquitously, the surrogate charge appears to be an adequate
    substitute). *See also Advanced Services Further Notice*, 14 FCC Rcd
    at 4805-12, paras. 92-107 (seeking further comment on operational,
    pricing and other practical issues associated with line sharing).

[^688]: The Applicants' July filing was criticized for referencing a
    spectral mask contained in an SBC technical publication (*i.e.*, SBC
    TP 76730). *See, e.g.,* MCI WorldCom July 19 Comments at 37-38;
    Sprint July 19 Comments at 28. We believe that the Applicants' later
    use of an industry standard, which may evolve as technologies
    change, is a better way of delineating the scope of services that
    carriers receiving the surrogate line-sharing charges may provide
    over an additional loop.

[^689]: Pursuant to NorthPoint's suggestion, the Applicants defined the
    term "voice grade service" in their August filing. *See* NorthPoint
    July 19 Comments at 18; SBC/Ameritech Aug. 27 *Ex Parte* at 4.

[^690]: We are not troubled that the discount applies only to loops that
    are used solely for providing advanced services. *See* Level 3 July
    19 Comments at 12; Sprint July 19 Comments at 26-27 (objecting to
    advanced services-only restriction). This condition is designed to
    promote rapid deployment of advanced services by removing any cost
    advantages that the separate advanced services affiliate, which
    receives interim line-sharing capability from an SBC/Ameritech
    incumbent LEC, would have over other advanced services providers
    that, because line sharing is not available to them in SBC/Ameritech
    territories, would have to provide such services over a stand-alone
    line. As ALTS points out, line sharing "makes the most sense . . .
    when the CLEC wants to provide high-speed data services but is not
    in the business of providing POTS." ALTS July 19 Comments at 21-22.
    We also note that the Applicants' proposed mechanisms to enforce
    this restriction, which include a carrier certification process that
    SBC/Ameritech may audit, were altered in the August filing in
    response to concern from commenters. *See* MCI WorldCom July 19
    Comments at 38; Sprint July 19 Comments at 28-29. Under the
    conditions we adopt today, the appropriate state commission has
    discretion to deny a carrier the surrogate line-sharing charges on
    any loop for which it found the use restriction or audit provision
    violated, and to remove a carrier's entitlement to any future
    surrogate line-sharing charges only upon a finding of an intentional
    and repeated violation. This altered approach provides state
    commissions with more flexibility and results in a less extreme
    penalty for a carrier's unintentional violation than the automatic
    disqualification from future discounts called for under the
    Applicants' July filing.

[^691]: *See* SBC/Ameritech Aug. 27 *Ex Parte* at 5.

[^692]: After commenters sought clarification of the term "substantial
    majority," the Applicants defined it as at least 75 percent of
    pre-order inquiries and 75 percent of orders. *See* Covad July 22
    Comments at 57.

[^693]: *See, e.g.*, Covad July 22 Comments at 53; Focal/Adelphia/McLeod
    July 19 Comments at 8-13; Level 3 July 19 Comments at 8-10; MCI
    WorldCom July 19 Comments at 37-38; NorthPoint July 19 Comments at
    23; Rhythms Net July 19 Comments at 22-25.

[^694]: We note that, in response to concern that the nondiscriminatory
    obligation to provide loop information was ambiguous in the
    Applicants' July proposal, the Applicants subsequently revised their
    commitment to make the nondiscrimination requirement explicit and to
    clarify distinct ways in which competing carriers can obtain, on a
    timely basis, information relevant for assessing the feasibility of
    providing advanced services at a given location. *See* ALTS July 19
    Comments at 15-16. *See also* SBC/Ameritech Aug. 27 *Ex Parte* at 3,
    4.

[^695]: This difference in timing is because SBC already has the
    necessary information in electronic form, while Ameritech does not.
    In light of SBC/Ameritech's incentive to speed electronic access to
    its separate advanced services affiliate, we decline to require in
    this proceeding that Ameritech provide electronic access to the
    theoretical loop length by the merger closing date. *See* CoreComm
    July 22 Comments at 12.

[^696]: *See* Letter from Joan Marsh, AT&T, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-141, at 17 (filed Aug. 9, 1999)
    (AT&T Aug. 9 *Ex Parte*) (proposing categories of loop makeup
    information); SBC/Ameritech Aug. 27 *Ex Parte* at 4.

[^697]: *See* Texas PUC Aug. 5 Comments at 3 (commenting that the "Texas
    PUC and other states may wish to more strongly encourage SWBT or
    Ameritech to provide loop make-up data via electronic means.").

[^698]: *See, e.g.*, NorthPoint Comments at 4-5; Rhythms Net July 19
    Comments at 7-9.

[^699]: *See* 47 C.F.R. § 51.501 *et seq.* (requiring the total element
    long-run incremental cost standard for the pricing of network
    elements).

[^700]: Several commenters objected to the set of uniform interim rates
    set forth in the Applicants' July proposal that would have applied
    in each SBC/Ameritech state pending the establishment of
    state-specific rates for loop conditioning. *See, e.g.*, ALTS July
    19 Comments at 14-15 (claiming proposed rates were significantly
    higher than those currently offered in some SBC states); AT&T July
    19 Comments, App. A at 53; Covad July 22 Comments at 45-51 (claiming
    the Applicants' proposed charges were discriminatory, not
    cost-based, and higher than the current charges in several SBC and
    Ameritech states); GST/KMC/LOGIX/RCN July 19 Comments at 6-7; MCI
    WorldCom July 19 Comments at 38-40; Sprint July 19 Comments at 12-14
    (proposing alternate conditioning rates); Texas PUC Aug. 5 Comments
    at 3 (indicating that the proposed rates "represent a significant
    departure from the approach taken by the Texas PUC in interim
    agreements."). The Applicants subsequently dropped these rates from
    the proposed conditions package, and agreed to allow carriers to
    elect, on an interim basis and subject to true-up, conditioning
    rates contained in any interconnection agreement in any
    SBC/Ameritech state. *See* SBC/Ameritech August 27 *Ex Parte* at
    Att. 1 at 27.

[^701]: *See* Campaign for Telecommunications Access July 19 Comments at
    15 (predicting that this condition would advance the roll out of
    xDSL and other advanced services to rural and inner city areas).

[^702]: *See* Edgemont July 19 Comments at 12 (criticizing that the
    Applicants had "sole control" over classifying wire centers in the
    initial July proposal).

[^703]: *See* SBC/Ameritech Sept. 29 *Ex Parte* at 1.

[^704]: Following the Texas PUC's observation that certain statistical
    calculations in the July Proposal differed from the Texas plan, the
    Applicants altered the statistical methodology to correspond more
    closely with the Texas plan. *See* Texas PUC Aug. 5 Comments at 4-5.

[^705]: Other elements of the plan are also subject to periodic review
    and modification by the Chief of the Common Carrier Bureau,
    including certain aspects of the payment calculation mechanism.

[^706]: In addition to criticizing the complexity of the voluntary
    payment structure set forth in the Applicants' July proposal,
    several commenters objected that the payment caps were inadequate to
    discourage the merged firm from providing substandard service to
    competitors. *See, e.g.,* AT&T July 19 Comments, App. A at 41; ALTS
    July 19 Comments at 4; MCI WorldCom July 19 Comments at 20-24, 32;
    Sprint July 19 Comments at 59-60. Since their initial proposal, the
    Applicants increased the merged firm's total payment exposure to
    \$1.125 billion from the initially-proposed level of \$1 billion. In
    addition, the Applicants substantially simplified the voluntary
    payment structure by eliminating two of the three "tiers" of
    payments, and multiplying the per-occurrence or per-measure
    voluntary payment figure for the remaining tier by a factor of
    three. Finally, the Applicants provided that they will increase the
    payments for performance measurements where observations are
    particularly low, as well as for specific sub-measurements
    representing low-volume, nascent services. For these measurements
    and sub-measurements, the per-occurrence and per-measurement
    payments will again be tripled. *See* SBC/Ameritech Aug. 27 *Ex
    Parte* at 5-6. We find that this "low-volume" multiplier will help
    to ensure that the Applicants' proposed incentive mechanism will
    offer meaningful protections where service volumes are low.
    Particularly in light of these modifications, we find that the
    voluntary payment structure and cap are sufficient to address the
    limited purposes of the Carrier-to-Carrier Performance Plan -- to
    neutralize the merged firm's increased incentive and ability to
    discriminate and to remedy other merger-specific potential harms
    such as the loss of a major incumbent LEC benchmark. *See infra*,
    Section V (Analysis of Potential Public Interest Harms).

[^707]: SBC/Ameritech July 26 Reply Comments at 40.

[^708]: In response to comments regarding the need to define the term
    "uniform interfaces," the Applicants incorporated a definition that
    encompasses suggestions by commenters. *See*, *e.g.*, MCI WorldCom
    July 19 Comments at 31.

[^709]: *See* Covad July 22 Comments at 31 (noting that, under the
    Applicants' July proposal, SBC/Ameritech could spend two years
    designing an interface and then stop providing it one year later).
    *See also* SBC/Ameritech Aug. 27 *Ex Parte* at 6.

[^710]: Despite the benefits competing carriers derive from a uniform
    system of change management, the condition permits a state, if it so
    desires, to establish its own change management plan. *See*
    California PUC July 28 Reply Comments at 6-7. *See also*
    SBC/Ameritech Aug. 27 *Ex Parte* at 6.

[^711]: Several competitive carriers objected to the arbitration
    procedures set forth in the Applicants' initial proposal. *See* ALTS
    July 19 Comments at 14; AT&T July 19 Comments, App. A at 39-41; MCI
    WorldCom July 19 Comments at 34-35; Sprint July 19 Comments at 43,
    50-52. Most of these concerns were addressed in the Applicants'
    August filing. *See* SBC/Ameritech Aug. 27 *Ex Parte* at 6. Several
    carriers, for example, are concerned that the arbitration process in
    OSS implementation phases II (collaborative) and III (deployment)
    could delay SBC/Ameritech's enhanced OSS deployment. *See, e.g.*,
    Allegiance July 19 Comments at 7 (fearing SBC/Ameritech delay
    throughout arbitrations). The Applicants subsequently clarified that
    the arbitration should last no longer than two months, unless the
    Chief of the Common Carrier Bureau extends that deadline. Other
    parties criticized that competitive LECs involved in OSS disputes
    "would be required to pay for 50 percent of the arbitration costs
    when they would have absolutely no say in the arbitrator or the
    procedures to be used." ALTS July 19 Comments at 14. The Applicants
    subsequently clarified that all parties to the dispute, including
    competitors, may present disputed issues to the Chief of the Common
    Carrier Bureau, and the Bureau Chief will approve the arbitrator. In
    addition, the Applicants clarified that each party will pay its own
    costs for the arbitration, and the costs of the arbitrator and
    experts will be borne half by SBC/Ameritech and half by
    participating competitive LECs. This arbitration process is designed
    to accommodate the need for rapid resolution in a neutral forum of
    disputes stemming from SBC/Ameritech's compliance with the
    conditions relating to OSS enhancements.

[^712]: *See* Texas PUC Aug. 5 Comments at 4 (supporting the waiver of
    charges for electronic access to specified OSS functions during the
    three-year period).

[^713]: This commitment in the Applicants' July filing referred to a
    "waiver" of OSS charges, which several commenters understood to mean
    that costs for developing and providing OSS should not be
    recoverable through any means. *See, e.g.,* ALTS July 19 Comments at
    14; AT&T July 19 Comments, App. A at 45-49; Covad July 22 Comments
    at 35; Telecomm. Resellers Assoc. July 19 Comments at 34-35. The
    Applicants subsequently clarified that their original intent was to
    "restructure," rather than "waive," OSS charges. *See* SBC/Ameritech
    Aug. 27 *Ex Parte* at 6. Because this condition is designed to
    assist smaller competitors and new entrants by requiring the merged
    firm to recover electronic OSS costs on a strict usage basis rather
    than through the flat monthly fee that SBC currently charges, we
    find that the Applicants' clarification does not substantively alter
    their initial commitment.

[^714]: *See* Comptel July 19 Comments at 34; Covad July 22 Comments at
    35-36; NorthPoint July 19 Comments at 20-22 (suggesting modification
    to eliminate manual charges where no electronic access is
    available). *See also* Kansas Commission July 19 Comments at 3
    (noting that the need for manual access generally results from
    SWBT's OSS and not because a carrier prefers manual ordering). As
    reflected in SBC/Ameritech's reply comments, this OSS restructuring
    commitment "creat\[es\] an additional incentive for CLECs to use
    electronic interfaces that will, in the long term, both ease and
    expedite their local entry and reduce industry costs." SBC/Ameritech
    July 26 Reply Comments at 55. If we were to require the merged firm
    to eliminate all processing charges for manual orders, as some
    commenters request, this would remove the extra incentive for
    carriers to use electronic OSS access where available. *See* NALA
    July 19 Comments at 3-4; Level 3 July 19 Comments at 7; TRA July 19
    Comments at 34. We decline to impose a requirement that would have
    such an effect.

[^715]: The revenue restriction includes revenue from any affiliates,
    parents, subsidiaries and telecommunications joint ventures of the
    competitive LEC.

[^716]: After commenters expressed concern that the free OSS training
    described in the Applicants' July filing lasted only one year, the
    Applicants extended their commitment to the full 36-month period.
    *See* CoreComm July 22 Comments at 11. *See also* SBC/Ameritech Aug.
    27 *Ex Parte* at 6.

[^717]: *See, e.g.,* ALTS July 19 Comments at 10; Covad July 22 Comments
    at 14, 19-30 (criticizing Ameritech's collocation practices);
    Focal/Adelphia/McLeod July 19 Comments at 16-18 (requesting specific
    performance intervals, remedies and deadlines for collocation);
    GST/KMC/Logix/RCN July 19 Comments at 2-4 (noting that, due to
    incumbents' delays, collocation provisioning has become a critical
    issue).

[^718]: Although several commenters characterize the Applicants'
    commitment as promising merely to fulfill a pre-existing duty, we
    note that, since their July filing, the Applicants proposed an
    additional obligation, waiver of nonrecurring collocation charges,
    if the merged firm is late in meeting a collocation due date. *See,
    e.g.*, AT&T July 19 Comments, App. A at 27; CoreComm July 19
    Comments at 2-3; Focal July 19 Comments at 16-18; MCI WorldCom July
    19 Comments at 8. In addition, by having an independent auditor
    verify the existence of standard collocation terms and conditions,
    as well as related methods and procedures, at each company prior to
    the merger, and then conduct a thorough review of the implementation
    of the collocation rules after sufficient time has passed for the
    merged firm to have generated useful data, we also find that this
    condition will make it easier for the Commission and others to
    detect non-compliance following the merger.

[^719]: *See* *Advanced Services Further Notice*, 14 FCC Rcd at 4771-94,
    paras. 19-60.

[^720]: *See* CoreComm July 22 Comments at 5 (noting that new entrants
    rely on the collocation provisioning intervals of the incumbent to
    execute their business plans).

[^721]: *See* SBC/Ameritech Aug. 27 *Ex Parte* at 7.

[^722]: To assist competitive LECs in exercising their options, all
    relevant interconnection agreements will be posted on the Internet
    by SBC/Ameritech or its out-of-territory affiliate.

[^723]: Several commenters opposed a restriction in the Applicants' July
    filing that limited out-of-territory arrangements only to agreements
    obtained through arbitration initiated by SBC/Ameritech. *See,
    e.g.*, Allegiance July 19 Comments at 8; AT&T July 19 Comments, App.
    A at 93; CoreComm July 19 Comments at 21-23; Sprint July 19 Comments
    at 37-43. SBC/Ameritech has since removed the arbitration
    restriction. *See* SBC/Ameritech Aug. 27 *Ex Parte* at 7.

[^724]: Provisions of interconnection agreements determined by
    arbitration by state commissions pursuant to section 252 are
    therefore not eligible for "most-favored nation" treatment. Where
    parties to the state arbitration proceeding stipulate that certain
    arrangements have been agreed to by negotiation, however, such
    arrangements would be eligible for "most-favored nation" treatment.

[^725]: After parties such as the Texas PUC questioned whether this
    condition would extend to the Proposed Interconnection Agreement
    (PIA) that was developed in SBC's Texas section 271 proceeding, the
    Applicants clarified that it would not apply to the PIA, apparently
    because SBC does not consider the PIA to be an entirely "voluntary"
    arrangement on SBC's part. *See* Texas PUC Aug. 5 Comments at 2.
    *See also* SBC/Ameritech Aug. 27 *Ex Parte* Att. 1 at 42.

[^726]: *See* Texas PUC Aug. 5 Comments at 3 (suggesting pricing
    portability pending rate development in the host state).

[^727]: *See* MCI WorldCom July 19 Comments at 55 (strongly supporting
    the principle of a regional interconnection agreement).

[^728]: Responding to commenters, the Applicants amended their
    commitment in August to make explicit that a multi-state agreement
    under this condition could extend to any in-region SBC/Ameritech
    state. *See* ALTS July 19 Comments at 26 (questioning whether a
    regional agreement would cover the whole region); Cablevision
    Lightpath July 26 Reply Comments at 4; CompTel July 19 Comments at
    36-38.

[^729]: Even though SBC/Ameritech will offer to negotiate a multi-state
    interconnection agreement, the affected SBC/Ameritech incumbent LECs
    may separately sign the agreement, which shall constitute a separate
    contract for section 252 purposes.

[^730]: In order to provide competitive LECs with advance planning
    information, the conditions require SBC/Ameritech to provide written
    or Internet notice to competitive LECs when the promotions (*i.e.*,
    the promotional loop discount or, taken together, the resale and
    platform promotions) reach 50 percent and 80 percent of a state's
    maximum lines.

[^731]: In response to the July filing, commenters expressed concern
    that the 25-percent discount would be averaged across all states.
    *See* California PUC July 28 Reply Comments at 4 (recommending that
    25-percent discount be averaged on a state-wide, rather than
    company-wide basis, and be subject to review by the appropriate
    state commission). *See also* CoreComm July 22 Comments at 18-20
    (suggesting that the Applicants submit the proposed promotional loop
    rates for every geographic area within their regions). In their
    August filing, the Applicants provided the exact loop discounts,
    averaged on a state basis. *See* SBC/Ameritech Aug. 27 *Ex Parte* at
    7.

[^732]: Initially, the Applicants' July proposal provided that the
    discount would be taken off the monthly recurring rate set by the
    relevant state commission as of July 1, 1999. The Applicants
    extended this cutoff date in later filings to account for subsequent
    state commission action. *See* California PUC July 28 Reply Comments
    at 3-4 (requesting an extension in order for SBC/Ameritech's loop
    discounts to account for the California PUC's final rates for
    unbundled loops). *See also* SBC/Ameritech Aug. 27 *Ex Parte*, Att.
    C; SBC/Ameritech Sept. 7 *Ex Parte* at 3.

[^733]: In response to AT&T's suggestion, the Applicants clarified that
    the promotional UNE platform may be used to provide exchange access
    services in combination with residential POTS service and Basic Rate
    Interface ISDN service. *See* SBC/Ameritech Aug. 27 *Ex Parte* at 8.

[^734]: *See* 47 U.S.C. § 252(d)(1).

[^735]: Unbundled network elements made available pursuant to other
    means (*e.g.*, through state or federal regulation) will not be
    counted against the line limitation.

[^736]: After receiving public comment on the proposed conditions, the
    Applicants removed a condition that had been included in their July
    filing related to ensuring compliance with Commission pricing rules
    for unbundled network elements. *See, e.g.,* MCI WorldCom July 19
    Comments at 49-51.

[^737]: *In Matter of Implementation of the Local Competition Provisions
    in the Telecommunications Act of 1996*, Second Further Notice of
    Proposed Rulemaking, CC Docket No. 96-98 (1999).

[^738]: We disagree with commenters that claim that this condition
    offers no real benefit because the Applicants made similar promises
    in prior letters to the Chief of the Common Carrier Bureau. *See*
    AT&T July 19 Comments at 8-9; MCI WorldCom July 19 Comments at 48;
    Sprint July 19 Comments at 32. By making this obligation a condition
    to our merger approval, the Applicants become subject to the
    Commission's full enforcement authority. Moreover, the condition
    obligates the Applicants to make the network elements available even
    after the expiration of an interconnection agreement.

[^739]: Through the voluntary participation of state commission staff,
    we anticipate that this condition will help resolve some disputes
    quickly without the need for prolonged arbitrations or litigations.
    *See* Telecommunications Resellers Assoc. July 19 Comments at 36
    (predicting that the mediation process would cut the costs and time
    associated with resolving disputes through arbitration or
    litigation). We therefore reject AT&T's and MCI WorldCom's claims
    that the condition as proposed will prove ineffectual. *See* AT&T
    July 19 Comments, App. A at 92; MCI WorldCom July 19 Comments at 54.

[^740]: *See* SBC/Ameritech Aug. 27 *Ex Parte* at 8.

[^741]: Shared transport means transmission facilities shared by more
    than one carrier, including the incumbent LEC, between end office
    switches, between end office switches and tandem switches and
    between tandem switches in the incumbent LEC's network. *See*
    *Implementation of the Local Competition Provisions in the
    Telecommunications Act of 1996*, CC Docket No. 96-98, Third Order on
    Reconsideration and Further Notice of Proposed Rulemaking, 12 FCC
    Rcd 12460, 12453, para. 27 (1997), *aff'd, Southwestern Bell
    Telephone Co. v. FCC*, 153 F.3d 597 (8th Cir. 1998), *vacated,
    Ameritech Corp. v. FCC*, 119 S.Ct. 2016 (Jun. 1, 1999); *In the
    Matter, on the Commission's Own Motion, to Consider the Total
    Service Long Run Incremental Costs and To Determine the Prices of
    Unbundled Network Elements, Interconnection Services, Resold
    Services, and Basic Local Exchange Services for Ameritech Michigan*,
    Case No. U-11280, 1998 Mich. PSC LEXIS 46, 183 P.U.R.4th 1 (Mich.
    Pub. Serv. Comm'n Jan. 28, 1998).

[^742]: Our adoption of this condition in the instant merger proceeding
    should not be construed as Commission approval of the lawfulness of
    Ameritech's current shared transport policy.

[^743]: After several commenters questioned whether the trial was likely
    to have any meaningful effect on competitive options for consumers
    in multiple dwelling units within the SBC/Ameritech region, the
    Applicants amended their commitments. *See, e.g.*, ALTS July 19
    Comments at 26-28. The Chief of the Common Carrier Bureau will now
    resolve any disputes that may arise regarding the trial, such as
    disputes over the cities selected for the trial. For new
    installations, the Applicants also agreed to provide a single point
    of interconnection at the minimum point of entry, and to extend
    their commitment to include new cables installed or controlled by
    SBC/Ameritech in a campus of garden apartment dwelling units. *See*
    GST/KMC/Logix/RCN July 26 Reply Comments at 3-4; NextLink/ATG July
    19 Comments at 35-36; Winstar July 19 Comments at 17 (urging minimum
    point of entry); Optel July 19 Comments at 7 (requesting inclusion
    of "campus style" properties). *See also* SBC/Ameritech Aug. 27 *Ex
    Parte* at 8.

[^744]: There may be multiple points of entry where a property owner
    requests diversity.

[^745]: The list contains two markets -- Cincinnati and Las Vegas --
    that are located within SBC's or Ameritech's in-region states but
    outside either company's traditional service area. *See* Consumer
    Coalition July 19 Comments at 3, Aff. at 26-27 (suggesting that
    SBC/Ameritech be required to enter in-region markets controlled by
    others).

[^746]: For enforcement purposes, the conditions break down this
    obligation into, for both business and residential customers, six
    entry requirements which each represent service to a sixth of the
    remaining wire centers required to be served.

[^747]: This requirement does not prohibit the merged firm from offering
    its customers an optional, voluntary pricing plan that may include a
    minimum monthly charge, minimum flat rate charge, or a prepaid
    calling card.

[^748]: *See* OWL July 19 Comments at 1 (lauding condition as one that
    will protect consumers and ensure "telecommunication services to all
    segments of our society at competitive prices.").

[^749]: State commissions are free to accept or reject the plan outlined
    in these conditions. *See* Kansas Commission July 19 Comments at 4
    (observing that a program similar to Ohio's Lifeline USA plan would
    reduce lifeline benefits to Kansas customers).

[^750]: *See, e.g.*, Low Income Coalition July 19 Comments at 4-5
    (requesting expansion of the condition to cover all the requirements
    of the Ohio USA Lifeline plan); Edgemont July 19 Comments at 8
    (noting that Ohio's successful USA plan is far more than the
    eligibility, discounts and eligible services negotiated in 1994).
    *See also* Consumer Coalition July 19 Comments at 4, Aff. at 28-30
    (expressing confusion over what parts of the evolving Ohio plan were
    included within the Applicants' proposal).

[^751]: We note that SBC/Ameritech will provide these forms in English
    and such other languages as are prevalent in the applicable service
    area.

[^752]: *See* Edgemont July 19 Comments at 6-8 (requesting specific
    promotional requirements).

[^753]: In the Preamble to the Service Quality White Paper, NARUC states
    that a service quality reporting program will "allow interested
    parties to assess current service quality levels among the states,
    and identify increasing or decreasing trends over time." National
    Association of Regulatory Utility Commissioners, [Service Quality
    White Paper]{.smallcaps} (Nov. 1998); *see also* National Regulatory
    Research Institute, [Telecommunications Service Quality]{.smallcaps}
    127-60 (1996) (noting that information facilitates competition on
    quality).

[^754]: *See* SBC/Ameritech July 26 Reply Comments at 46-47. *See also*
    CWA July 19 Comments at 2-3 (noting that the additional reporting
    will assist regulators and consumer groups in ensuring that the
    merged firm abides by its commitments to continue to invest in a
    high-quality network serving all market segments).

[^755]: *See, e.g.,* American Association of Retired Persons[, Promises
    and Realities]{.smallcaps} 46-49 (1999) (analyzing service quality
    performance of Pacific Bell after the merger with SBC).

[^756]: *See* ARMIS 43-05 Service Quality Report, Table 1. In the ARMIS
    43-05 Service Quality Report, price cap incumbent LECs report the
    installation and maintenance of switched access, high speed special
    access, and special access services provided to interexchange
    carriers. *See* MCI WorldCom July 19 Comments at 24 (requesting that
    SBC and Ameritech provide reporting on special access and switched
    access service quality).

[^757]: Network Reliability and Interoperability Council, Revised
    Charter for the Network Reliability and Interoperability Council
    (visited July 25, 1999). *See* Network Reliability and
    Interoperability Council, Charter (1998). The NRIC is the successor
    organization to the Network Reliability Council, a federal advisory
    committee chartered to study the reliability of the public
    telecommunications network. *See* Network Reliability &
    Interoperability Council, [Network Interoperability: The Key to
    Competition]{.smallcaps} (1997); Network Reliability Council,
    [Network Reliability: The Path Forward]{.smallcaps} (1996); Network
    Reliability Council, [A Report to the Nation]{.smallcaps} (1994);
    *see also* 47 C.F.R. § 63.100 (establishing network outage reporting
    requirements).

[^758]: A corporate compliance program is a well-established technique
    for ensuring that an organization takes active steps to comply with
    legal and regulatory requirements. The Commission has used
    compliance programs as a tool for addressing potential problem
    areas. *See* SBC Communications, *Order*, FCC 99-153 (rel. June 28,
    1999); Notice of Apparent Liability for Forfeiture of US West
    Communications, Inc., *Order*, FCC 99-90, Attachment A (rel. May 7,
    1999); Long Distance Direct, Inc., Notice of Apparent Liability for
    Forfeiture, 14 FCC Rcd 314 (1998); *see also* Liability of KCIT
    Acquisition Company, *Memorandum Opinion and Order*, DA 99-1545
    (Mass Med. Bur. 1999). In addition, compliance programs are
    routinely used to ensure compliance with antitrust laws*. See U.S.
    v. 21^st^ Century Bidding Corp.*, No. 98-2752, 1999 WL 135165
    (D.D.C. Feb. 25, 1999); *United States v. Seminole Fertilizer
    Corp.*, No. 97-1507-Civ-T-17E, 1997 WL 692953 (M.D.Fla. Sep. 19,
    1997); *United States v. Universal Shipper's Ass'n*, Civil Action
    No. 96-1154-A, 1996 WL 760279 (E.D.Va. Nov. 6, 1996).

[^759]: Corporate compliance programs should both deter potential
    misconduct within the corporation, and provide a method for internal
    policing. Components of a corporate compliance program include, for
    example, corporate conduct codes, employee training, record-keeping,
    standard operating procedures followed by employees, individual work
    assignments, monitoring programs, and internal compliance audits.
    *See* Richard S. Gruner, *Designing Compliance Programs*, Practicing
    Law Institute: Corporate Law and Practice Course Handbook Series,
    1100 PLI/Corp 151 (1999); Don Zarin*, Doing Business Under the
    Foreign Corrupt Practices Act: Compliance Programs*, Practicing Law
    Institute: Corporate Law and Practice Course Handbook Series, 943
    PLI/Corp 525 (1996). *See also* Sprint July 19 Comments at 63-65
    (recommending the appointment of a senior individual as a compliance
    officer).

[^760]: On July 13, 1999, SBC/Ameritech appointed a high-ranking
    corporate officer, Mr. Charles Foster, Group President-SBC
    Communications, as the officer responsible for overseeing
    implementation of and compliance with the proposed conditions. *See*
    Letter from Charles E. Foster, Group President, SBC Communications
    Inc., to Magalie Roman Salas, Secretary, FCC (July 29, 1999). We
    note that, as an additional safeguard, the Board of Directors of
    SBC/Ameritech will oversee the activities of the Compliance Officer.
    *See* *In re Caremark Internat'l Inc. Derivative Litigation*, 698
    A.2d 959, 967-70 (Del. Ch. 1996) (establishing a duty for corporate
    directors to implement an effective compliance program); *see also*
    Blue Ribbon Committee on Improving the Effectiveness of Corporate
    Audit Committees, [Report and Recommendations]{.smallcaps} (1999)
    (recommending actions by corporate boards to improve oversight and
    monitoring of corporate compliance).

[^761]: The Compliance Report also will include a statement of the
    cost-savings achieved during the course of the calendar year in
    order to assist the Commission and the public in assessing any
    efficiencies arising out of this merger. This report will
    constitute, as required by industry standards, SBC/Ameritech's
    written assertion regarding its compliance with the conditions
    contained herein and the effectiveness of SBC/Ameritech's internal
    control structure over compliance. *See* American Inst. of Certified
    Pub. Accountants, [Compliance Attestation]{.smallcaps}, AT § 500.01.

[^762]: *See e.g.,* Focal *et al.* July 26 Reply Comments at 6
    (recommending that the Commission strengthen the proposed compliance
    and enforcement plan).

[^763]: *See* Letter from Charles E. Foster, Group President, SBC
    Communications Inc. to Mr. Robert C. Atkinson, Deputy Chief, Common
    Carrier Bureau, FCC (Aug. 10, 1999); Letter from Charles E. Foster,
    Group President, SBC Communications Inc. to Mr. Robert C. Atkinson,
    Deputy Chief, Common Carrier Bureau, FCC (Aug. 18, 1999) (proposing
    independent auditor); Letter from Robert C. Atkinson, Deputy Chief,
    Common Carrier Bureau, FCC, to Charles E. Foster, Group President,
    SBC Communications Inc. (Aug. 24, 1999) (approving proposed choice
    of independent auditor).

[^764]: By "internal control," we mean the process implemented by a
    company's board of directors, management, and other personnel
    designed to provide reasonable assurance regarding, in this
    instance, the company's compliance with the requirements established
    in this Order and all applicable laws and regulations. *See*
    American Inst. of Certified Pub. Accountants, [Consideration of
    Internal Control in a Financial Statement]{.smallcaps}, AU § 319.06
    (1998); [Compliance Attestation]{.smallcaps}, AT § 500.01, n.1
    (1999). The independent auditor will examine, for example,
    SBC/Ameritech's compliance with, as well as its ability to
    administer, the requirements of the Carrier-to-Carrier Performance
    Plan to report accurate and relevant performance data. *See, e.g.,*
    U.S. GAO, [Assessing the Reliability of Computer-Processed
    Data]{.smallcaps}, GAO/OP-8.1.3 (Apr. 1991) (providing guidance for
    auditing computer-processed data). Strong internal controls are
    necessary both to ensure that SBC/Ameritech takes affirmative steps
    to comply with the conditions and to counteract its incentive to
    delay local competition in its region. Managerial philosophy,
    commitment to employee competence, ethical values, oversight by the
    board of directors, assignment of authority, and human resources
    practices work together to provide the discipline and structure
    necessary for ensuring compliance with the conditions. *See*
    American Inst. of Certified Pub. Accountants, [Attestation
    Engagements]{.smallcaps}, AT § 100.11-.12, .33-40; [Consideration of
    Internal Control in a Financial Statement]{.smallcaps}, AU § 319.

[^765]: *See* 47 C.F.R. § 0.91; *Amendment of Parts 0, 1 and 64 of the
    Commission's Rules with Respect to Delegation of Authority to the
    Chief, Common Carrier Bureau, and Technical Corrections and
    Deletions*, Report and Order, 5 FCC Rcd 4601 (1990). *See also*
    Letter from Robert C. Atkinson, Deputy Chief, Common Carrier Bureau,
    FCC, to Charles E. Foster, Group President, SBC Communications Inc.
    (Aug. 24, 1999).

[^766]: *See* Contel Telephone Operating Companies, *Notice of Apparent
    Liability for Forfeiture*, 6 FCC Rcd 1880 (1991) (initiating an
    enforcement action based on the review of an independent auditor's
    working papers).

[^767]: *See* AT&T July 19 Comments at 14 ; GST/KMC/Logix/RCN July 19
    Comments at 4.

[^768]: The Commission's rules already require independent auditors to
    use generally accepted auditing standards ("GAAS") for conducting
    audits of an incumbent LEC's compliance with our accounting
    safeguards. 47 C.F.R. § 64.904(a); *see* Computer III Remand
    Proceedings: Bell Operating Company Safeguards and Tier 1 Local
    Exchange Company Safeguards, *Report and Order*, 6 FCC Rcd 7571,
    para. 24 (1991) ("*Computer III Remand Order*").

[^769]: American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.

[^770]: American Inst. of Certified Pub. Accountants, [Attestation
    Standards,]{.smallcaps} AT § 100.01. For the purposes of these
    conditions, we consider SBC/Ameritech's annual Compliance Report to
    be its written assertion. Consistent with AICPA standards, the
    independent auditor's report "does not provide a legal determination
    of \[SBC/Ameritech's\] compliance" with the specified requirements;
    however, the auditor's findings may aid the Commission in making
    such a determination. American Inst. of Certified Pub. Accountants,
    [Compliance Attestation]{.smallcaps}, AT § 500.03; *see also*
    American Inst. of Certified Pub. Accountants, [Illegal Acts by
    Clients]{.smallcaps}, AU § 317.03 ("Whether an act is, in fact,
    illegal is a determination that is normally beyond the auditor's
    competence."). *See also* Sprint July 19 Comments at 62 (citing
    *Joint Cost Order* at para. 253); AT&T July 19 Comments at 14.

[^771]: *See* American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.27; [Attestation
    Engagements]{.smallcaps}, AT § 100.53 (noting that an examination
    engagement is used to reduce the attestation risk to a low level).

[^772]: *See* American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.15-20; [Agreed-Upon Procedures
    Engagements]{.smallcaps}, AT § 600. An agreed-upon procedures
    engagement is more thorough than an examination engagement because
    the concept of materiality does not apply to any reported findings.
    *See* American Inst. of Certified Pub. Accountants, [Agreed-Upon
    Procedures Engagements]{.smallcaps}, AT § 600.27.

[^773]: *See* 47 U.S.C. § 272(d); *see also* 47 C.F.R. §§ 53.209-213;
    *Accounting Safeguards Order* at paras. 197-205.

[^774]: ALTS July 19 Comments at 10.

[^775]: AICPA standards recognize occasions in which an independent
    auditor has a duty to notify others, including regulatory agencies,
    of problems uncovered during an audit. *See* American Inst. of
    Certified Pub. Accountants, [Illegal Acts by Clients]{.smallcaps},
    AU § 317.23-.24.

[^776]: 47 C.F.R § 1.1105.

[^777]: *See* Allegiance July 19 Comments at 11-12 (recommending the
    calculation of payment obligations on a per-day basis).

[^778]: The Commission may, however, grant a waiver of SBC/Ameritech's
    voluntary payment obligation if SBC/Ameritech can demonstrate that
    the failure was due to an Act of God.

[^779]: *See* MCI WorldCom July 19 Comments at 61, 63.

[^780]: 47 U.S.C. § 503.

[^781]: 47 U.S.C. §§ 316, 416(b).

[^782]: 47 U.S.C. § 209.

[^783]: *See* MCI WorldCom July 19 Comments at 61-63.

[^784]: *See Ohio PUC Merger Order*; *ICC Merger Order*; *Nevada PUC
    Merger Order* (establishing conditions for state approval of SBC's
    acquisition of Ameritech).

[^785]: *See* APSC July 19 Comments at 1-3 (questioning whether
    Arkansas's Telecommunications Regulatory Reform Act limited the
    Arkansas Public Service Commission's ability to take certain
    measures to enforce these conditions).

[^786]: *See* SBC/Ameritech July 24 Application, Description of the
    Transaction, at 24-25 (suggesting that implementation of the
    National-Local Strategy will stimulate competitive responses by
    other carriers, including other incumbent LECs); SBC/Ameritech Nov.
    16 Reply Comments at 14 (predicting that SBC/Ameritech's
    out-of-region expansion would result in retaliation by the affected
    incumbents).

[^787]: SBC/Ameritech July 26 Reply Comments at 48.

[^788]: *See supra* n. Error: Reference source not found. *See also*
    Ameritech May 26 Comments, CC Docket Nos. 96-98, 95-185.

[^789]: *See supra* at Section V.C.4.a) (Loss of Ameritech as
    Independent Holding Company).

[^790]: CoreComm Comments at 17.

[^791]: *See supra* at Section V.D.2.a) (Advanced Services).

[^792]: *See* *supra* at Section V.D.2.a) (Circuit-Switched Local
    Exchange Services).

[^793]: NorthPoint July 19 Comments at 5.

[^794]: *See* Consumer Coalition July 19 Comments, Affidavit of Mark N.
    Cooper, at 14.

[^795]: *See, e.g.*, CompTel July 19 Comments at 4; CoreComm July 22
    Comments at 15-16; MCI WorldCom July 19 Comments at 42-46
    (suggesting, *inter alia*, that the Applicants provide advanced
    services through affiliates that meet all section 272 separation
    requirements before merger consummation, and that they specify the
    charges for services, elements and features that the affiliate can
    purchase from the incumbent).

[^796]: *See* 47 U.S.C. § 251(h)(1); 47 U.S.C. § 153(4)(B).

[^797]: We do not address in this proceeding the potential obligations
    or requirements with respect to third parties that may be imposed on
    SBC/Ameritech in the event that its advanced services affiliate is
    found to be a successor or assign.

[^798]: We note that, after that time, if SBC/Ameritech decides to no
    longer provide advanced services through a separate affiliate in a
    particular state, it will provide them through a separate division
    that will comply with certain obligations until 48 months after the
    merger closing date.

[^799]: *Advanced Services Order and NPRM*, 13 FCC Rcd at 24052, para.
    89. *See also* Comments Requested in Connection with Court Remand of
    August 1998 Advanced Services Order, CC Docket Nos. 98-11 *et al.*,
    *Public Notice*, DA 99-1853 (rel. Sept. 9, 1999).

[^800]: Section 3(26) of the Act defines a local exchange carrier as
    \"\[a\]ny person that is engaged in the provision of telephone
    exchange service or exchange access . . . .\" 47 U.S.C. § 153(26).

[^801]: Specifically, the Act refers to a LEC that was deemed to be a
    member of the exchange carrier association pursuant to section
    69.601(b) of the Commission\'s regulations. *See* 47 U.S.C.
    §251(h)(1)(B)(i). The referenced association is the National
    Exchange Carrier Association (NECA), which prepares and files access
    charge tariffs on behalf of all telephone companies that do not file
    separate tariffs or concur in a joint access tariff of another
    telephone company for all access elements. *See* 47 C.F.R. § 69.601.
    Under the Commission\'s rules, NECA also is responsible for the
    collection and distribution of access charge revenues. *See* 47
    C.F.R. § 69.603.

[^802]: 47 U.S.C. § 251(h)(1).

[^803]: 47 U.S.C. § 251(h)(2).

[^804]: 47 U.S.C. § 153(4)(B).

[^805]: 47 U.S.C. § 251(h)(1)(A).

[^806]: 47 U.S.C. § 251(h)(1)(B)(i).

[^807]: 47 U.S.C. § 251(h)(1)(B)(ii).

[^808]: *See MCI Telecommunications Corp. v. The Southern New England
    Telephone Co.*, 27 F.Supp.2d 326, 336-37 (D.Conn. 1998) (*MCI
    Telecomm. Corp.*) (concluding that, even if a carrier is a successor
    or assign of an incumbent under section 251(h)(1)(B)(ii), the
    carrier cannot be deemed an incumbent because it did not provide
    service in the area on February 8, 1996, and therefore fails to
    satisfy section 251(h)(1)(A)).

[^809]: This interpretation also implies that an entity that purchases
    an incumbent LEC would be deemed an incumbent only if that entity
    had also been providing local exchange service in the incumbent's
    area as of the date of enactment -- a situation that we believe
    would rarely be met because local exchange service in most areas was
    provided solely by the incumbent as of that date.

[^810]: *See MCI Telecomm. Corp.*, 27 F.Supp.2d at 337 (recognizing that
    the literal interpretation of section 251(h)(1) "appears to be an
    unusual formulation for a statutory provision purporting to address
    successors or assigns," and "gives the appearance of allowing for a
    large loophole").

[^811]: 47 U.S.C. § 251(h)(1)(B)(ii).

[^812]: 47 U.S.C. § 251(h)(1)(A).

[^813]: 47 U.S.C. § 251(h)(1)(B)(i).

[^814]: We also believe that this approach is consistent with section
    251(h)(2).

[^815]: We note that the Applicants have presumed this interpretation of
    section 251(h)(1) in the instant proceeding. *See* Letter from
    Michael K. Kellogg, Counsel for SBC, Kellogg, Huber, Hansen, Todd &
    Evans, to Christopher J. Wright, General Counsel, FCC, CC Docket No.
    98-141, at 2 (filed June 25, 1999) (SBC June 25 *Ex Parte*) (stating
    that section 251(h) defines an incumbent LEC "as a carrier that 'on
    February 8, 1996, provided telephone exchange service' and refers to
    'successor\[s\]' and 'assign\[s\]' of such a carrier.") (emphasis
    omitted)); Letter from Michael K. Kellogg, Counsel for SBC, Kellogg,
    Huber, Hansen, Todd & Evans, to Christopher J. Wright, General
    Counsel, FCC, CC Docket No. 98-141, at 5 (filed Sept. 9, 1999) (SBC
    June 25 *Ex Parte*) (same).

[^816]: *See* *supra* n. Error: Reference source not found.

[^817]: *See, e.g., United States v. American Trucking Assocs.*, 310
    U.S. 534, 543 (1967); *Public Citizen v. United States Dept. of
    Justice*, 491 U.S. 440, 454-455 (1989) ("Where the literal reading
    of a statutory term would compel an odd result, we must search for
    other evidence of congressional intent to lend the term its proper
    scope," including the circumstances of the enactment of a particular
    legislation); *United States v. Ron Pair Enterprises, Inc.*, 498
    U.S. 235, 242 (1989) (where "the literal application of a statute
    will produce a result demonstrably at odds with the intention of its
    drafters . . . the intention of the drafters, rather than the strict
    language, controls."); *Environmental Defense Fund v. Environmental
    Protection Agency*, 82 F.3d 451, 468-69 (D.C. Cir.), *amended on
    other grounds*, 92 F.3d 1209 (D.C. Cir. 1996) ("Because this literal
    reading of the statute would actually frustrate the congressional
    intent supporting it, we look to the EPA for an interpretation of
    the statute more true to Congress's purpose"). *See also* *Guam
    Public Utilities Commission*, CCB Pol. 96-18, CC Docket No. 97-134,
    Declaratory Ruling and Notice of Proposed Rulemaking, 12 FCC Rcd
    6925, 6942-43, at para. 29-30 (1997); *Treatment of the Guam
    Telephone Authority and Similarly Situated Carriers as Incumbent
    Local Exchange Carriers Under Section 251(h)(2) of the
    Communications Act*, CC Docket No. 97-134, Report and Order, FCC
    98-163, 1998 WL 400007 (rel. Jul. 20, 1998).

[^818]: *See Chevron U.S.A., Inc. v. Natural Resources Defense Council*,
    467 U.S. 837, 843 n.9 (1984); *Bell Atlantic Telephone Companies v.
    FCC*, 131 F.3d 1044, 1047 (D.C. Cir. 1997).

[^819]: *See* Telecommunications Act of 1996, Pub.L. No. 104-104,
    Purpose Statement, 110 Stat. 56, 56 (1996) (stating that the broad
    purpose of the 1996 Act is "to promote competition and reduce
    regulation in order to secure lower prices and higher quality
    services for American telecommunications consumers and encourage the
    rapid deployment of new telecommunications technologies."). Section
    706(a) of the 1996 Act directs the Commission to "encourage the
    deployment on a reasonable and timely basis of advanced
    telecommunications capability to all Americans." Pub.L. 104-104,
    Title VII, § 706, Feb. 8, 1996, 110 Stat. 153, reproduced in the
    notes under 47 U.S.C. § 157.

[^820]: *See Local Competition Order*, 11 FCC Rcd at 15506, para. 4.

[^821]: *See also* Section 706(a) of the 1996 Act, codified at 47 U.S.C.
    § 157 note.

[^822]: *See, e.g.*, *Fall River Dyeing & Finishing Corp. v. NLRB*, 482
    U.S. 27 (1987) (*Fall River Dyeing*).

[^823]: *Howard Johnson Co. v. Detroit Local Joint Executive Bd.*, 417
    U.S. 249, 264 n.9 (1974) (stating that determinations about
    successorship must be based on "the facts of each case and the
    particular legal obligation which is at issue" and that "there is
    and can be no single definition of 'successor' which is applicable
    in every legal context."). *See also* SBC June 25 *Ex Parte* at 3;
    SBC Sept. 9 *Ex Parte* at 6 (stating that determinations about
    successorship are fact-based).

[^824]: *See, e.g.*, *John Wiley & Sons, Inc. v. Livingston*, 376 U.S.
    543, 551 (1964) (concluding that a successor corporation could be
    compelled to arbitrate under a collective-bargaining agreement if
    there was "substantial continuity of identity in the business
    enterprise"); *Golden State Bottling Co., Inc. v. NLRB*, 414 U.S.
    168, 182 n.5 (1973) (referring to the general rule of corporate
    liability under which a successor corporation could be liable for
    the debts or liabilities of its predecessor if, among other tests,
    the successor corporation is "merely a continuation of the selling
    corporation"). *See also* *Atchison Casting Corp. v. Dofasco Inc.*,
    889 F. Supp. 1445, 1448-49 (D. Kan. 1995) (*quoting Blacks Law
    Dictionary* 1431 (6th ed. 1990)) (addressing allegations of breach
    of contract and fraud for a contract that bound "successors or
    assigns" of the predecessor corporation, and stating that "the term
    \[successor\] ordinarily means 'another corporation which through
    amalgamation, consolidation, or other legal succession, becomes
    invested with rights and assumes burdens of the first
    corporation.'").

[^825]: *Fall River Dyeing*, 482 U.S. at 43 (citation omitted). We also
    note that, in an analogous context involving regulated industries,
    courts have looked to whether the statutory purpose could be easily
    frustrated through the use of separate corporate entities to
    determine whether it is appropriate to "pierce the corporate veil."
    *See, e.g., General Telephone Co. of the Southwest v. U.S*., 449
    F.2d 846, 855 (5th Cir. 1971) (stating that "where the statutory
    purpose could \[\] be easily frustrated through the use of separate
    corporate entities, the Commission is entitled to look through the
    corporate form and treat the separate affiliate as one and the same
    for purposes of regulation"); *Transcontinental Gas Pipe Line Corp.
    v. FERC*, 998 F.2d 1313, 1320 (5th Cir. 1993) (*Transcontinental
    Gas*) (same); *MCI Telecommunications Corp. v. O\'Brien Marketing,
    Inc.*, 913 F. Supp. 1536, 1541 (S.D. Fla. 1995) (stating that courts
    will look closely at the purpose of the federal statute involved in
    applying the federal rule that a corporate entity may be disregarded
    in the interests of public convenience, fairness, and equity).

[^826]: *See* 47 U.S.C. § 272(a).

[^827]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21910,
    para. 6.

[^828]: *See* 47 U.S.C. § 272(b).

[^829]: For example, one purpose of section 272's structural and
    nondiscrimination safeguards is to ensure that competitors of the
    BOC's section 272 affiliate have access to essential inputs for the
    provision of local services on terms at least as favorable as those
    provided by the BOC to its affiliate. *See Non-Accounting Safeguards
    Order*, 11 FCC Rcd at 21913, para. 13. A similar rationale applies
    here with respect to access to those inputs by competitors of
    SBC/Ameritech's advanced services affiliate.

[^830]: Using section 272 safeguards as guidance in this case may result
    in efficiencies for SBC/Ameritech. For example, SBC/Ameritech may,
    if it chooses, provide all advanced services through an already
    existing section 272 affiliate, or, in contemplation of receiving
    authority to provide in-region, interLATA services in a particular
    state, transition an advanced services affiliate created under these
    conditions into a section 272 affiliate so that, upon such approval,
    it can provide both intraLATA and interLATA advanced services
    through that affiliate.

[^831]: *See* Pub.L. 104-104, Title VII, § 706(a), Feb. 8, 1996, 110
    Stat. 153, reproduced in the notes under 47 U.S.C. § 157.

[^832]: *See Fall River Dyeing*, 482 U.S. at 43 (*quoting Golden State
    Bottling Co.*, 414 U.S. at 184) (finding that a determination as to
    whether a new company is the successor of the old requires an
    examination of whether the new company has \"acquired substantial
    assets of its predecessor and continued without interruption or
    substantial change, the predecessor\'s business operations\").

[^833]: *See generally, Transcontinental Gas*, 998 F.2d at 1320 (finding
    that, because a regulated entity was using its subsidiary to engage
    in \"undue\" discrimination, thereby frustrating the statutory
    purpose, FERC correctly looked behind the corporate form and treated
    the subsidiary and the regulated entity as one and the same for
    purposes of regulation).

[^834]: *See* 47 U.S.C. § 251(h)(1)(B)(ii) (successor or assign of
    incumbent LEC). *See also* 47 U.S.C. § 251(h)(2) (treating
    comparable carriers as incumbents). We note that because we presume
    that the SBC/Ameritech advanced services affiliate is not a
    successor or assign, it can also benefit from a presumption of
    nondominance, which provides the affiliate more flexibility to price
    its services in a competitive manner. The separation requirements
    and safeguards that prevent the advanced services affiliate from
    being a successor or assign of an incumbent also are likely to
    prevent an incumbent from leveraging its market power in the local
    market through an affiliate to gain market power in the advanced
    services market. The affiliate, therefore, can provide advanced
    services as a nondominant carrier, while the nascent market for
    advanced services can continue to grow in a competitive fashion,
    protected from anticompetitive behavior.

[^835]: *See* 47 U.S.C. § 153(4)(B) (successor or assign of a BOC).

[^836]: We disagree with those commenters that claim that, simply
    through the creation of the advanced services affiliate, SBC and
    Ameritech will evade section 251 obligations, namely the obligation
    of an incumbent LEC to open and unbundle its network. *See* AT&T
    July 19 Comments, App. A at 56; MCI WorldCom July 19 Comments at 41;
    Sprint July 19 Comments at 21. The condition does not alter the
    obligations of an SBC/Ameritech incumbent LEC under section 251 and
    Commission rules. Assuming that the separate advanced services
    affiliate adheres to the conditions and does not act in such a way
    as to be deemed a successor or assign of an incumbent LEC, it will
    not be subject to section 251(c) requirements. For this reason, we
    decline to require the separate advanced services affiliate to make
    its services available for resale under 47 U.S.C. § 251(c)(4). *See*
    CoreComm July 22 Comments at 13.

[^837]: *See* SBC June 25 *Ex Parte* at 3; SBC Sept. 9 *Ex Parte* at 6
    (stating that determinations about successorship are fact-based).

[^838]: To the extent that SBC/Ameritech chooses to adhere more closely
    to section 272, which contains Congress' vision of a structurally
    separate BOC affiliate for the provision of certain specified
    services, SBC/Ameritech is assured more certainty that its affiliate
    would not be deemed to be a successor or assign.

[^839]: *See, e.g.*, ALTS July 19 Comments at 18-20; AT&T July 19
    Comments, App. A at 57-58, 61; ALTS July 19 Comments at 19; CompTel
    July 19 Comments at 22; MCI WorldCom July 19 Comments at 42; Sprint
    July 19 Comments at 24-25.

[^840]: *See* 47 U.S.C. § 272(a)(2) (including information services
    other than electronic publishing and alarm monitoring services).

[^841]: We note, however, that once SBC/Ameritech receives authority to
    provide in-region, interLATA service in a particular state, it must
    provide all interLATA advanced services in that state through a
    section 272 affiliate. *See* 47 U.S.C. § 272(a).

[^842]: We note that the affiliate would remain subject to the general
    duties of telecommunications carriers in section 251(a) and the
    obligations of all local exchange carriers in section 251(b).

[^843]: We recognize that SBC/Ameritech is permitted to deviate from
    these requirements, and our implementing rules, with respect to
    certain operations, installation and maintenance functions. We
    discuss the permitted deviation under the unfair advantage prong
    below.

[^844]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21982-84,
    para. 158-62 (discussing joint ownership of transmission and
    switching facilities, buildings and land). We note that, consistent
    with section 272(b)(5), a lease of office space between an incumbent
    and its advanced services affiliate must be valued in accordance
    with the Commission's affiliate transactions rules, reduced to
    writing and posted on the Internet, and made available to
    competitors on the same rates, terms and conditions. *See
    Non-Accounting Safeguards Order*, 11 FCC Rcd at 21992, para. 181.

[^845]: *See* 47 U.S. C. § 272(b)(4). Consistent with the
    *Non-Accounting Safeguards Order*, the SBC/Ameritech incumbent, its
    parent, or any affiliate may not co-sign a contract or any other
    instrument with the advanced services affiliate that would allow the
    affiliate to obtain credit in a manner that grants the creditor
    recourse to the incumbent\'s assets in the event of a default by the
    advanced services affiliate. *See Non-Accounting Safeguards Order*,
    11 FCC Rcd at 21995, para. 189.

[^846]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21990-91,
    para. 178. We note that the conditions permit SBC/Ameritech to
    transfer employees as part of the creation of the advanced services
    affiliate.

[^847]: Although this conclusion implies that the advanced services
    affiliate is not a successor or assign of the incumbent, our
    analysis has no effect on the application of other legal
    requirements that may apply to such transfers.

[^848]: *See* 47 C.F.R. § 32.27(b). *See also Accounting Safeguards
    Order*, 11 FCC Rcd at 17605-07, 17609-10, paras. 144-48, 153-54.

[^849]: The Commission reserves the right to examine, on a case-by-case
    basis, the transfer of any additional assets necessary for the
    creation or functioning of the SBC/Ameritech separate advanced
    services affiliate.

[^850]: We expect that the assets that SBC/Ameritech would transfer to
    the advanced services affiliate, including a reasonable amount of
    capital necessary to create the advanced services affiliate, would
    only comprise a small fraction of the incumbent\'s total assets. We
    note, however, that where the capital transferred from the incumbent
    LEC to the advanced services affiliate exceeds reasonable
    expectations, we would no longer consider such capital to be
    start-up capital and we would find such transfer to comprise a
    substantial portion of the incumbent\'s total assets.

[^851]: As discussed above, the transfer of such assets must occur at
    the higher of net book cost or estimated fair market value. In
    addition, the affiliate must provide a detailed written description
    of the asset or service transferred and the terms and conditions of
    the transaction on the Internet within 10 days of the transaction.
    *See Accounting Safeguards Order*, 11 FCC Rcd at 17593, para. 122.

[^852]: *See* 47 C.F.R. § 53.207 (stating that if a BOC transfers
    network elements to an affiliate, such entity will be deemed to be
    an assign of the BOC under section 3(4) with respect to the
    transferred element).

[^853]: The conditions permit an SBC/Ameritech incumbent LEC to transfer
    advanced services equipment, including supporting facilities and
    personnel, to an advanced services affiliate only until 180 days
    after the Commission issues a final order, excluding any judicial
    appeals, in its UNE Remand proceeding, CC Docket No. 96-98.

[^854]: Structural separation, when properly implemented, ensures that
    an affiliate's costs are separated from an incumbent, and therefore
    aids in the prevention and detection of cost misallocation. *See
    Non-Accounting Safeguards Order*, 11 FCC Rcd at 21914, para. 15.

[^855]: *See Accounting Safeguards Order*, 11 FCC Rcd at 17586-87,
    paras. 107-09; 47 C.F.R § 32.27. In particular, the affiliate
    transactions rules discourage cross-subsidization by requiring
    carriers, in recording asset transfers and services provided between
    regulated and nonregulated affiliates, to record the costs of such
    transactions according to certain valuation methodologies. Depending
    on the circumstances of the transaction, the rules may require an
    incumbent LEC to reflect the tariffed rate, the rate of
    publicly‑filed agreements, the prevailing price, the net book cost,
    the fully distributed cost, or the estimated fair market value
    applicable to individual assets or services. *See* 47 C.F.R. §
    32.27(b), (c).

[^856]: In the *Accounting Safeguards Order*, the Commission concluded
    that the affiliate transactions rules, with certain modifications to
    the valuation methodologies, would satisfy the \"arm\'s length\"
    requirement of section 272(b)(5). *See Accounting Safeguards Order*,
    11 FCC Rcd at 17588-616, 17652-55, paras. 111-66, 251-58. In the
    *Joint Cost* proceeding, the Commission adopted the affiliate
    transactions rules codified in Part 32 as part of a comprehensive
    effort to improve the safeguards against cross-subsidization. *See
    generally Separation of Costs of Regulated Telephone Service from
    Costs of Nonregulated Activities*, CC Docket No. 86-111, Report and
    Order, 2 FCC Rcd 1298 (1987) (*Joint Cost Order*), *Order on
    Reconsideration*, 2 FCC Rcd 6283 (1987) (*Joint Cost Reconsideration
    Order*), *Order on Further Reconsideration*, 3 FCC Rcd 6701 (1988)
    (*Joint Cost Further Reconsideration Order*), *aff\'d sub nom.
    Southwestern Bell Corp. v. FCC*, 896 F.2d 1378 (D.C. Cir. 1990). In
    addition, the Commission relied on the affiliate transactions rules
    to protect ratepayers from bearing the costs of cross-subsidization
    in the *Computer III* proceeding. *See BOC Safeguards Order*, 6 FCC
    Rcd at 7592, para. 48.

[^857]: *See Accounting Safeguards Order*, 11 FCC Rcd at 17594, para.
    123. We note that the Commission's rules require incumbent LECs,
    including SBC and Ameritech, to disclose on a regular basis
    financial and accounting information needed to assess the allocation
    of costs. *See* 47 C.F.R. §§ 43.21 (requiring disclosure of
    financial and accounting data), 64.903 (requiring submission of
    regular cost allocation manuals). *See also* Automated Reporting
    Management Information System, FCC Report 43-02 (USOA Report) and
    FCC Report 43-03 (Joint Cost Report).

[^858]: We also note that this Commission and state commissions will
    have access to the independent auditor's working papers, which
    provides an additional safeguard. *See* SBC/Ameritech Aug. 27 *Ex
    Parte* at 7.

[^859]: *See* 47 U.S.C. § 272(c)(1).

[^860]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 22048,
    paras. 296.

[^861]: *See Id.* at 21991, para. 179 (concluding the same regarding the
    sharing of joint marketing services between a BOC and its section
    272 affiliate).

[^862]: In this way, the incumbent LEC's ratepayers will not bear the
    costs associated with the marketing activities related to advanced
    services. *See* 47 C.F.R. § 64.901-904. *See also Accounting
    Safeguards Order*, 11 FCC Rcd at 17561, para. 50.

[^863]: *See* CompTel July 19 Comments at 2-4.

[^864]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 22055-56,
    paras. 312-13 (stating that a section 272 affiliate cannot be
    precluded under section 251 from qualifying as a requesting carrier
    that is entitled to purchase unbundled elements or retail services
    at wholesale rates from the BOC and declining to distinguish between
    a section 272 affiliate\'s ability to provide local service by
    reselling BOC local exchange service and its ability to offer such
    service by purchasing unbundled elements from the BOC). We also note
    that the rules promulgated in the *Non-Accounting Safeguards Order*
    include a statement that: "\[a\] BOC affiliate shall not be deemed a
    \'successor or assign\' of a BOC solely because it obtains network
    elements from the BOC pursuant to section 251(c)(3) of the Act." 47
    C.F.R. § 53.205.

[^865]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 22057-58,
    para. 315 (addressing a section 272 affiliate\'s ability to provide
    local and long distance services).

[^866]: For example, SBC/Ameritech and the affiliate may not jointly own
    switching and transmission facilities and must comply with our
    accounting safeguards rules.

[^867]: *See, e.g.*, Covad July 22 Comments at 41-43.

[^868]: *See Advanced Services Further Notice*, 14 FCC Rcd at 4805-12,
    paras. 92-107.

[^869]: *See* CompTel July 19 Comments at 4; CoreComm July 22 Comments
    at 16.

[^870]: *See* CoreComm July 22 Comments at 12.

[^871]: *See, e.g.,* APPA July 19 Comments at 5.

[^872]: AARP and the Consumer Coalition, for example, link the
    nondiscriminatory deployment of xDSL services to the requirements of
    the National-Local Strategy, and suggest that at least one
    low-income rural and one low-income urban wire center should be
    included in the initial ten wire centers. *See* AARP July 19
    Comments at 5; Consumer Coalition July 19 Comments at 4, Aff. at 30.
    The xDSL service rollout commitment, however, applies only to
    SBC/Ameritech in-region states. Because the National-Local Strategy
    is aimed at fostering competition in both POTS and advanced
    services, we decline to expand the nondiscriminatory xDSL rollout
    obligation to out-of-region markets.

[^873]: *See, e.g.,* ALTS July 19 Comments at 8-10; CoreComm July 22
    Comments at 8; Covad July 22 Comments at 12-14;
    Focal/Adelphia/McLeod July 19 Comments at 22-23; GST/KMC/Logix/RCN
    July 19 Comments at 2; ICG July 20 Comments at 7-10; Level 3 July 19
    Comments at 6-7; Sprint July 19 Comments at 56-58; Time Warner
    Telecom July 19 Comments at 3-4. *See also* California PUC July 28
    Reply Comments at 5-6 (questioning whether this condition will
    derail or delay state efforts to establish performance measures).

[^874]: *See, e.g.,* MCI WorldCom July 19 Comments at Att. 1 (containing
    an alternate performance measurement plan).

[^875]: *See, e.g.,* MCI WorldCom July 19 Comments at 17-19.

[^876]: *See* IURC July 19 Comments at 5 (claiming the Applicants'
    initial proposal was problematic because it was not designed to
    achieve performance parity between different states).

[^877]: *See* Covad July 22 Comments at 12-13; CTC July 19 Comments at
    7-8.

[^878]: *See* ALTS July 19 Comments at 12-13 (suggesting 3-4 month
    deadline for Phase II, 9-12 month deadline for Phase III); AT&T July
    19 Comments, App. A at 35, 39; CoreComm July 19 Comments at 5-7;
    GST/KMC/Logix/RCN July 19 Comments at 4; ICG July 20 Comments at 5;
    MCI WorldCom July 19 Comments at 28-29; Northpoint July 19 Comments
    at 24-25; Sprint July 19 Comments at 43-45. Allegiance asserts that
    the OSS timelines are selective and should be more comprehensive.
    *See* Allegiance July 19 Comments at 3.

[^879]: SBC/Ameritech July 26 Reply Comments at 50.

[^880]: *See id.* at 83.

[^881]: *See, e.g.,* ALTS July 19 Comments at 13-14; AT&T July 19
    Comments at 41; MCI WorldCom July 19 Comments at 32-33; NextLink/ATG
    July 19 Comments at 26. The Consumer Coalition also suggests that,
    as part of the merger conditions, we require SBC and Ameritech to
    conduct an independent, commercial scale test of OSS prior to
    section 271 authorization. Consumer Coalition July 19 Comments at 2,
    Aff at 16. While we encourage the use of independent third-party
    testing as a means of ascertaining whether a BOC is meeting section
    271's requirements, we decline to require such testing as part of
    this merger proceeding.

[^882]: We note that the Illinois Commerce Commission's merger
    conditions require the combined firm to pay for an independent
    third-party to provide technical assistance to the ICC and to
    conduct a test of the merged firm's OSS enhancements. *See ICC
    Merger Order*, at 199.

[^883]: *See, e.g.,* CompTel July 19 Comments at 33-34; CoreComm July 19
    Comments at 6-7; Level 3 July 19 Comments at 6-7; MCI WorldCom July
    19 Comments at 33-34 (specifying minimum requirements for change
    management process); Sprint July 19 Comments at 43; Time Warner July
    19 Comments at 6.

[^884]: The conditions we adopt today set the standard for the
    Applicants' obligations under the condition. Although the details of
    implementation may be worked out in a collaborative session, or
    under the auspices of an independent arbitrator, the Commission at
    all times maintains final enforcement authority over SBC/Ameritech's
    implementation of the OSS enhancements, interfaces and business
    requirements. *See* Sprint July 19 Comments at 52-54.

[^885]: CompTel July 19 Comments at 34.

[^886]: NorthPoint July 19 Comments at 21; Covad July 22 Comments at 36.

[^887]: *See* SBC/Ameritech July 26 Reply Comments at 56 (intending OSS
    assistance "to help those CLECs that genuinely need it.").

[^888]: *See, e.g.,* Allegiance July 19 Comments at 3-4; ALTS July 19
    Comments at 11.

[^889]: *See* ALTS July 19 Comments at 11 (suggesting an 18-month audit
    period).

[^890]: *See, e.g.,* Allegiance July 19 Comments at 8; ALTS July 19
    Comments at 24; CompTel July 19 Comments at 36-38; Consumer
    Coalition July 19 Comments at 2, Aff. at 13; Sprint July 19 Comments
    at 38-39.

[^891]: *See, e.g.,* Allegiance July 19 Comments at 8; ALTS July 19
    Comments at 25; Cablevision Lightpath July 26 Reply Comments at 5;
    Consumer Coalition July 19 Comments at 2, Aff. at 14-15; CoreComm
    July 22 Comments at 22; Covad July 22 Comments at 64; Metromedia
    Fiber July 19 Comments at 7-9; Sprint July 19 Comments at 39-40;
    Time Warner July 19 Comments at 16.

[^892]: *See* SBC/Ameritech July 26 Reply Comments at 65.

[^893]: *See* Texas PUC Aug. 5 Comments at 2-3 (suggesting that "the MFN
    provisions should extend to language that has been approved as part
    of state regulatory decisions concerning RBOC entry into long
    distance services under 47 U.S.C. § 271, since the RBOC would be
    voluntarily agreeing to such language as a condition of § 271
    approval.").

[^894]: *See* CoreComm July 22 Comments at 22; ICG July 20 Comments at
    5.

[^895]: *See, e.g.,* MCI WorldCom July 19 Comments at 55.

[^896]: *See* ALTS July 19 Comments at 23-24; Cable & Wireless July 19
    Comments at 6-7; CompTel July 19 Comments at 4; MCI WorldCom July 19
    Comments at 51-54.

[^897]: *See* S. Conf. Rep. No. 104-230, at 148 (contemplating that 1996
    Act would promote facilities-based, "local residential
    competition").

[^898]: We decline to increase the resale discount. *See*, *e.g.* MCI
    WorldCom July 19 Comments at 53-54. We find that the thirty-two
    percent discount, which we note is seven percent higher than the
    maximum default wholesale discount rate the Commission adopted in
    the *Local Competition Order*, should facilitate competitive entry
    in the residential market. *See* *Local Competition Order*, 11 FCC
    Rcd at 15955-56, 15963-64, paras. 910, 932-33.

[^899]: The conditions already establish a discount of over 50 percent
    for loops used to provide advanced services. *See* Appendix C at
    Section II (surrogate line sharing discount); Section III (advanced
    services OSS discount).

[^900]: *See, e.g.,* AT&T July 19 Comments at 16, App. A at 83-87;
    CompTel July 19 Comments at 14-18; Focal/Adelphia/McLeod July 26
    Reply Comments at 9.

[^901]: *See* 47 U.S.C. § 251(c)(3), (4)(b) (nondiscrimination
    requirements); 47 C.F.R. § 51.313(a) (requiring nondiscriminatory
    access to network elements); 47 C.F.R. § 51.603(a) (requiring
    nondiscriminatory resale); 47 C.F.R. § 51.503(c) (providing that an
    incumbent's rates shall not vary on the "basis of the class of
    customers served by the requesting carrier, or the type of services
    that the requesting carrier purchasing such elements uses them to
    provide.").

[^902]: *See* 47 U.S.C. § 252(a)(1). With SBC/Ameritech voluntarily
    offering to amend interconnection agreements, states will not be in
    the position of putting the discount into arbitrated agreements.
    *See* California PUC July 28 Reply Comments at 3-5 (questioning
    whether the CPUC can put the discount into an interconnection
    agreement and remain legally consistent with section 252(d)(3) of
    the Communications Act). Of course, the amended agreements will
    still be subject to state commission approval of voluntarily
    negotiated agreements pursuant to 47 U.S.C. § 252(e).

[^903]: 47 U.S.C. § 252(a)(1). *See Local Competition Order*, 11 FCC Rcd
    at 15528, paras. 54, 58 (stating that "parties that voluntarily
    negotiate agreements need not comply with the requirements we
    establish under sections 251(b) and (c), including any pricing rules
    we adopt.").

[^904]: 47 U.S.C. § 252(e)(2). The Supreme Court recognized this
    distinction in *AT&T Corp. v. Iowa Utilities Board*, stating: "When
    an entrant seeks access through \[resale, leasing of unbundled
    network elements, or interconnection\], the incumbent can negotiate
    an agreement without regard to the duties it would otherwise have
    under §251(b) or (c). But if private negotiation fails, either party
    can petition the state commission that regulates local phone service
    to arbitrate open issues, which arbitration is subject to §251 and
    the FCC regulations promulgated thereunder." *AT&T Corp. v. Iowa
    Utilities Bd.*, 119 S.Ct. at 727 (footnote and citation omitted).

[^905]: *See, e.g.,* AT&T July 19 Comments at 15, App. A at 83-87;
    CompTel July 19 Comments at 14-18; Focal/Adelphia/McLeod July 26
    Reply Comments at 9.

[^906]: *See* 47 C.F.R. § 51.809(a) (implementing pick and choose rule
    of section 252(i). *See also* 47 C.F.R. § 51.313(a) (requiring
    nondiscriminatory access to network elements); 47 C.F.R. § 51.603(a)
    (requiring nondiscriminatory resale). As explained above, the
    nondiscrimination requirements of section 251(c) and corresponding
    Commission rules do not apply to voluntarily negotiated agreements.

[^907]: *See, e.g.,* AT&T July 19 Comments, App. A at 75-78; CoreComm
    July 22 Comments at 17. GST/KMC/Logix/RCN July 19 Comments at 9-10;
    Level 3 July 19 Comments at 14; MCI WorldCom July 19 Comments at
    48-49; Sprint July 19 Comments at 31-33.

[^908]: *See* Joint Cellular Carriers July 19 Comments at 2 (requesting
    that condition apply to extended local calling area arrangements
    currently provided by Ameritech in Michigan).

[^909]: *See* Covad July 22 Comments at 61-63.

[^910]: ALTS July 19 Comments at 26-28.

[^911]: *See* Consumer Coalition July 19 Comments at 3, Aff. at 20-28
    (advocating that SBC/Ameritech be required to achieve a certain
    level of residential penetration or demonstrate a good faith effort
    to attract residential customers); Time Warner July 19 Comments at
    17-19.

[^912]: Consumer Coalition July 19 Comments at 3, Aff. at 24-25.

[^913]: *See, e.g.*, AARP July 19 Comments at 4-5; Edgemont July 19
    Comments at 6-8; ParkView Areawide Seniors July 19 Comments at 7-10.

[^914]: *See* Low Income Coalition July 19 Comments at 9-14; Edgemont
    July 19 Comments at 9-11, 13.

[^915]: *See* SBC/Ameritech July 26 Reply Comments at 91 (explaining
    that SBC and Ameritech have worked with state officials and
    community groups in Ohio and California to establish and ensure
    ongoing support for community technology centers). *See also ICC
    Merger Order*, at 232-36 (adopting SBC/Ameritech's commitment to
    establish a community technology fund in Illinois).

[^916]: *See* Sprint July 19 Comments at 61; Level 3 July 19 Comments at
    4-6; GST/KMC/Logix/RCN July 19 Comments at 4; MCI WorldCom July 19
    Comments at 59-60.

[^917]: *See* Sprint July 19 Comments at 61-62.

[^918]: *See* 47 U.S.C. § 220(c) (providing that the "Commission may
    obtain the services of any person licensed to provide public
    accounting services under the law of any State to assist with, or
    conduct, audits").

[^919]: *See* *Separation of Costs of Regulated Telephone Services from
    Costs of Nonregulated Activities*, CC Docket No. 86-111, *Report and
    Order*, 2 FCC Rcd 1298, paras. 243-73 (1987) ("*Joint Cost Order*"),
    *modified on recon.*, 2 FCC Rcd 6283 (1987) ("*Joint Cost
    Reconsideration Order*"), *further recon*., 3 FCC Rcd 6701 (1988*),
    aff'd sub nom.*, *Southwestern Bell Corp. v. FCC*, 896 F.2d 1378
    (D.C. Cir. 1990). *See also* 47 U.S.C. § 220(c) (providing that the
    "Commission may obtain the services of any person licensed to
    provide public accounting services under the law of any State to
    assist with, or conduct, audits); *see also* 47 C.F.R. §§ 64.904
    (requiring independent audits of cost allocation procedures), 69.621
    (establishing an independent audit requirement regarding certain
    universal service rules). Besides the audits noted above, the
    Commission has additional experience with independent evaluations of
    structural, transactional, and nondiscrimination requirements
    pursuant to the provisions of section 274. *See* 47 U.S.C. §
    274(b)(8); *Accounting Safeguards Order*, 11 FCC Rcd at 17640-43,
    paras. 220-26.

[^920]: *See Computer III Remand Order* at para. 52; *see also* Pacific
    Bell, *Order to Show Cause*, 10 FCC Rcd 5503 (1995), *Consent Decree
    Order*, 11 FCC Rcd 14813 (1996); US West Communications, Inc., Order
    to Show Cause, 10 FCC Rcd 5523 (1995), *Consent Decree Order*, 11
    FCC Rcd 14822 (1996); The Bell Atlantic Telephone Operating
    Companies, *Order to Show Cause*, 10 FCC Rcd 5099 (1995), *Consent
    Decree Order*, 11 FCC Rcd 14839 (1996).

[^921]: 47 U.S.C. § 272(d). *See also* *Accounting Safeguards Order*, 11
    FCC Rcd at 17623-32, paras. 184-205; 47 C.F.R. § 53.209.

[^922]: *See* 7 C.F.R. § 210.22 (requiring independent audits for
    participants in National School Lunch Program); 7 C.F.R. § 1209.39
    (requiring independent audits of the Mushroom Promotion, Research,
    and Consumer Information Council); 7 C.F.R. § 1773.1 (requiring
    independent audits of electric and telephone borrowers from the
    Rural Utilities Service); 10 C.F.R. § 600.26 (requiring independent
    audits for Department of Energy grantees); 12 C.F.R. § 363.3
    (requiring independent audits of the banking industry); 15 C.F.R. §
    280.215 (requiring independent audits for accreditation of
    laboratories by National Institute of Standards and Technology); 24
    C.F.R. § 85.26 (requiring independent audits of Housing and Urban
    Development grantees).

[^923]: AICPA standards provide that independent auditors "should not
    only be independent in fact, but also should avoid situations that
    may impair the *appearance* of independence." American Inst. of
    Certified Pub. Accountants, [Attestation Standards]{.smallcaps}, AT
    § 100.26 (emphasis added); *see* American Inst. of Certified Pub.
    Accountants, [Independence]{.smallcaps}, AU § 220 ("Public
    confidence would be impaired by evidence that independence was
    actually lacking, and it might also be impaired by the existence of
    circumstances which reasonable people might believe likely to
    influence independence."); *see also* Alvin A. Arens and James K.
    Loebbeck, [Auditing: An Integrated Approach]{.smallcaps} 82 (5^th^
    ed. 1991) ("If auditors are independent in fact, but users believe
    them to be advocates for the client, most of the value of the audit
    function will be lost.").

[^924]: *See* Allegiance July 19 Comments at 3-4 (advocating Commission
    oversight).

[^925]: Level 3 July 19 Comments at 4-6 (supporting public disclosure of
    the audit report).

[^926]: AT&T July 19 Comments at 14; Sprint July 19 Comments at 61-62;
    Level 3 July 19 Comments at 4-6; Time Warner July 19 Comments at
    4-5; GST/KMC/Logix/RCN July 19 Comments at 4-5; MCI WorldCom July 19
    Comments at 60.

[^927]: *See* American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.28; *see also* U.S. GAO,
    [Government Accounting Standards]{.smallcaps} § 4.17 (1999) ("The
    Yellow Book").

[^928]: In light of these limitations, the Commission may, in its
    discretion, conduct targeted field audits of certain aspects of the
    conditions. *See* MCI WorldCom July 19 Comments at 60 (recommending
    that the Commission establish a procedure for resolving issues when
    a party disputes the independent auditor's findings).

[^929]: TX Office of Public Utility Counsel Aug. 5 Comments at 11-12;
    Wisconsin PSC July 19 Comments at 5-6; IURC July 16 Comments at 6;
    Kansas Corp. Comm'n July 19 Comments at 1-2; Mich. PSC July 26 Reply
    Comments at 2. *See also* Time Warner July 19 Comments at 4-5; Covad
    July 26 Reply Comments at 27-30.

[^930]: *See* 47 U.S.C. § 410(b) (authorizing the Commission to confer
    with state commission regarding telecommunications policy matters
    and "to avail itself of such cooperation, services, records, and
    facilities as may be afforded by any State commission").

[^931]: *See* 47 C.F.R. § 0.291(b). To improve operating and
    administrative efficiency, the Commission delegated authority to the
    Common Carrier Bureau to coordinate compliance and enforcement
    activities with state commissions when: (i) there is a shared policy
    interest, and (ii) the states have processes for protecting
    confidential information. Amendment of Parts 0, 1, and 64 of the
    Commission's Rules with Respect to Delegation of Authority to the
    Chief, Common Carrier Bureau, Report and Order, 5 FCC Rcd 4601
    (1990); Delegation of Authority to the Chief, Common Carrier Bureau,
    *Memorandum Opinion and Order*, 50 Fed. Reg. 18487-03 (1985), on
    reconsideration, 104 FCC2d. 733 (1986).

[^932]: *See* MCI WorldCom July 19 Comments at 59-63. The conditions
    require the independent auditor to conduct its examination for each
    calendar year during which the conditions remain in effect.

[^933]: American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.49, 500.50, 500.51; *see also*
    American Inst. of Certified Pub. Accountants, [Subsequent
    Events]{.smallcaps}, AU § 560.

[^934]: *See* Northpoint Aug. 19 *Ex Parte* at 2-3.

[^935]: By speeding up the implementation of the agreed-upon procedures
    audit, the conditions ensure that the Commission, state commissions,
    and the public will receive timely feedback concerning
    SBC/Ameritech\'s compliance with the advanced services affiliate
    provisions. Specifically, in the event that the merger closing date
    occurs after November 1, 1999, the independent auditor will conduct
    an agreed-upon procedures audit for the first six months after the
    merger closing date, and will submit a report no later than
    September 1, 2000.

[^936]: *See, e.g.,* Sprint July 19 Comments at 62, 67.

[^937]: *See* *Thomas Jefferson Univ. v. Shalala*, 512 U.S. 504 (1994);
    *Udall v. Tallman*, 380 U.S. 1 (1965*); Bowles v. Seminole Rock &
    Sand Co.*, 325 U.S. 410 (1945).

[^938]: *See, e.g.*, ALTS July 19 Comments at 3; Cable & Wireless July
    19 Comments at 3-4; MCI WorldCom July 19 Comments at 3-7; Sprint
    July 19 Comments at 2; Time Warner Telecom July 19 Comments at 8.

[^939]: *See* SBC/Ameritech July 26 Reply Comments at 22-24.

[^940]: *See* Covad July 22 Comments at 67-68 (seeking to have the
    Applicants post a \$1 billion bond to ensure compliance); MCI
    WorldCom July 19 Comments at 32 (suggesting posting of \$500 million
    bond for potential voluntary payments associated with OSS
    enhancements).

[^941]: *See, e.g.,* Texas PUC Aug. 5 Comments at 2 (suggesting that
    "the three-year expiration of these conditions may not be sufficient
    time to ameliorate the market concentration concerns," but that, for
    other conditions, the interval "may give the incumbent carrier too
    much protection."); CoreComm July 22 Comments at 24-25 (suggesting
    five years are needed to cancel out the anticompetitive effects of
    the merger); Level 3 July 26 Reply Comments at 4-5 (suggesting a
    minimum 10-year period).

[^942]: *See* Consumer Coalition July 19 Comments, Aff. at 12;
    Focal/Adelphia/McLeod July 19 Comments at 24-25 (suggesting biennial
    review of continuing need for conditions after five years); MCI
    WorldCom July 19 Comments at 9-10, 63-64 (suggesting periodic review
    of continuing need for conditions).

[^943]: Like the Bell Atlantic/NYNEX proceeding, we also adopt a sunset
    provision in this matter. Here, most of SBC/Ameritech's obligations
    sunset after 36 months of benefit. Moreover, the conditions can be
    extended for any period in which SBC/Ameritech fails to comply with
    its obligations.

[^944]: *See, e.g.*, BellSouth July 19 Comments at 1-4; AT&T July 19
    Comments at 18 (predicting that Commission adoption of the submitted
    proposal would undermine ongoing efforts to implement and enforce
    existing state and federal rules); *id*. at 18, n.17 (stating that
    the ability of state regulators to obtain pro-competitive
    requirements "would be jeopardized by any indication that this
    Commission believes that requiring less of incumbent LECs is
    appropriate or desirable -- which, rightly or wrongly, is the
    implication that would be drawn from approval of these
    conditions."); Texas PUC Aug. 5 Comments at 2 (expressing concern
    "that the Applicants' Proposed Conditions may be interpreted to
    supplant, rather than enhance, terms and conditions that have been
    previously adopted in Texas or in other states in which SBC and
    Ameritech operate.").

[^945]: *See* AT&T July 19 Comments at 19 (fearing treatment of the
    conditions as if they reflected the Commission's view of the optimal
    set of requirements and enforcement measures to obtain compliance
    with the Act).

[^946]: *See, e.g.*, SBC/Ameritech July 1 *Ex Parte* at 1-2;
    SBC/Ameritech July 26 Reply Comments at 95 ("The proposed Conditions
    were crafted to deal expressly with concerns raised about the
    merger; they were not proposed to address, expand, or supplement
    section 271 issues or concerns.").

[^947]: *See, e.g.*, CoreComm July 22 Comments at 26; Level 3 July 19
    Comments at 18.

[^948]: *See* CoreComm July 22 Comments at 17-18; MCI WorldCom July 19
    Comments at 7; NextLink/ATG July 19 Comments at 9; State Attorneys
    General Apr. 27 *Ex Parte* at 2, 32-33 (requesting section 271
    approval in a majority of SBC and Ameritech states as a merger
    pre-condition). *See also* Consumer Coalition July 19 Comments at 2,
    Aff. at 11 (seeking a condition preventing SBC/Ameritech from
    applying for section 271 approval until the merger performance
    measurement plan becomes operational).

[^949]: *See* State Attorneys General Apr. 27 *Ex Parte* at 32-33.

[^950]: *See* State Attorneys General Apr. 27 *Ex Parte* at 32-33.

[^951]: Focal Oct. 15 Comments at 17; Hyperion Oct. 15 Comments at 36;
    KMC Oct. 15 Comments at 23; Level 3 Oct. 15 Comments at 38.

[^952]: Level 3 Comments at 36-37 (citing Petition of LCI Telecom Corp.
    for Declaratory Rulings, CC Docket No. 98-5 (filed Mar. 23, 1998)
    (proposing solutions involving divestiture of local loops to an
    independent company, or, in the alternative, operation of the loops
    by an independent company)). *See also* Level 3 July 19 Comments at
    18-19 (similar).

[^953]: *See* AICC July 19 Comments at 2-6.

[^954]: *See, e.g.*, ALTS July 19 Comments at 22-23; Level3 July 19
    Comments at 14; Consumer Coalition July 19 Comments at 2, Aff. at
    19; CoreComm July 22 Comments at 20.

[^955]: *See* "FCC Promotes Local Telecommunications Competition," CC
    Docket No. 96-98, Report No. CC 99-41, Press Release (rel. Sept. 15,
    1999).

[^956]: *See* Ntegrity July 19 Comments at 15; Nat'l ALEC Assoc.
    Comments at 5-6 (suggesting that that the Commission require the
    Applicants to resell voice mail services).

[^957]: *See* APPA July 19 Comments at 6-7; TX Rural Municipal Utilities
    July 19 Comments at 14 (suggesting that we require SBC to lobby in
    writing and testimony before Congress and the Texas Legislature to
    remove the prohibition against municipal electric utilities from
    providing telecommunications services in Texas).

[^958]: *See* ALTS July 19 Comments at 28-29 (suggesting that the
    Commission prohibit SBC and Ameritech from trying to win customers
    back, or prevent them from changing carriers, using information that
    a competitive carrier has requested that customer's service
    records); *id*. at 29 (seeking SBC's and Ameritech's compliance with
    outstanding state orders to pay competitive LECs any reciprocal
    compensation due); Nat'l ALEC Assoc. July 19 Comments at 6-7;
    Ntegrity July 19 Comments at 10 (suggesting reforms of the
    Applicants' billing practices); Focal/Adelphia/McLeod July 19
    Comments at 19 (requesting that SBC and Ameritech provide directory
    listing at cost-based prices and submit disputes to arbitration);
    PageNet July 19 Comments at 5-8; PCIA July 19 Comments at 2-5
    (asking that the Commission require SBC to cease billing, and refund
    money to, messaging carriers for facilities it uses to deliver
    SBC-originated local calling traffic and to honor its
    interconnection obligations to messaging carriers); Power-Finder
    West July 19 Comments at 1 (requesting that the Commission require
    Ameritech to revise tariffs to eliminate 500 NXX code end-office
    activation charges); Ntegrity July 19 Comments at 13 (requesting
    that record order change be made uniform and lowered); Pilgrim July
    19 Comments at 3 (asking the Commission to eliminate any SBC or
    Ameritech policy that restricts lawful content provided by a
    customer of a casual calling company and to require
    nondiscriminatory provision of billing and collection services,
    especially casual calling services); Hyperion July 19 Comments at 37
    (requesting that SBC/Ameritech conduct remote call forwarding
    cut-overs at specific scheduled times, including after business
    hours, to avoid customer disruption); Nat'l ALEC Assoc. Comments at
    4-5 (requesting that the Applicants be required to resell directory
    assistance blocking and directory assistance call completion
    blocking services throughout their regions).

[^959]: SBC/Ameritech July 24 Application, Description of Applicants and
    Their Existing Business, at 1.

[^960]: *See infra* Section III.A. (The Applicants).

[^961]: *See* In re Applications of Comcast Cellular Holdings, Co. and
    SBC Communications, Inc., *Memorandum Opinion and Order*, DA
    99-1318, 1999 WL 446,562 (WTB 1999).

[^962]: SBC/Ameritech July 24 Application, Description of Applicants and
    Their Existing Business, at 3; Cleveland launch news release:
    \<<http://www.ameritech.com/products/wireless/clearpath/mediakit/accpp010.htm>\>;
    Indianapolis launch news release:
    \<<http://www.ameritech.com/products/wireless/clearpath/mediakit/accpp032.htm>\>.

[^963]: SBC/Ameritech July 24 Application, Description of Applicants and
    Their Existing Business, at 3.

[^964]: SBC offers CDPD only in Connecticut and Rhode Island through
    SNET Cellular.

[^965]: AT&T Oct. 15 Petition at 25.

[^966]: *See* In re Applications of Vanguard Cellular Systems Inc. and
    Winston, Inc., *Memorandum Opinion and Order,* DA 99-481, 1999 WL
    129,480 (WTB 1999); In re Applications of 360° Communications
    Company and ALLTEL Corporation, *Memorandum Opinion and Order*, 1998
    WL 906,754 (WTB 1998); In re Applications of Pittencrieff
    Communications, Inc. and Nextel Communications, Inc., *Memorandum
    Opinion and Orde*r, 13 FCC Rcd 8935, 8940, para. 10 (1997); In re
    Application of Motorola, Inc. and American Mobile Satellite
    Corporation for Consent to Transfer of Control of Ardis Company,
    *Memorandum Opinion and Order*, 13 FCC Rcd 5182, 5187, para. 7 (WTB
    1997).

[^967]: Metropolitan Statistical Areas served by both SBC and Ameritech
    include: Chicago, IL, St. Louis, MO-IL, Gary-Hammond-East Chicago,
    IN, Springfield, IL, Champaign-Urbana-Rantoul, IL,
    Bloomington-Normal, IL, Decatur, IL. Rural Service Areas are:
    Illinois 2--Bureau, 3--Mason, 6--Montgomery; Missouri 8--Callaway,
    12--Maries, 18--Perry, 19--Stoddard.

[^968]: 47 C.F.R. § 22.942. *See also* 47 C.F.R. § 20.6 (CMRS spectrum
    aggregation limit).

[^969]: 47 C.F.R. § 20.6.

[^970]: SBC/Ameritech July 24 Application, Description of the
    Transaction at 58. Ameritech has been SBC's most formidable cellular
    competitor in St. Louis, with over 250,000 wireless subscribers, or
    about 10 percent of the total potential market of 2.5 million
    residents.

[^971]: *See Public Notice*, Ameritech and GTE Seek FCC Consent to
    Transfer Control of Licenses from Ameritech to GTE, DA 99-920 (WTB
    May 14, 1999). We also note that Ameritech will be transferring
    control to GCSI of cellular properties that overlap with cellular
    properties that SBC recently acquired from Comcast. *See* In re
    Applications of Comcast Cellular Holdings, Co. and SBC
    Communications Inc., *Memorandum Opinion and Order*, DA 99-1318,
    1999 WL 446,562 (WTB 1999).

[^972]: *See* *In re Applications of Ameritech Corporation, Transferor,
    and GTE Consumer Services, Inc., Transferee, for Consent to Transfer
    of Control of Licenses and Authorizations*, Memorandum Opinion and
    Order, DA 99-1677, 1999 WL 635,724 (WTB 1999).

[^973]: DOJ Final Judgment at 8.

[^974]: *See e.g.,* AT&T Oct. 15 Petition at 25; CFA Nov. 16 Reply
    Comments at 3; Hyperion Oct. 15 Comments at 28.

[^975]: In Section V.B.2.d)(1) (Competitive Effects on Mass Market Local
    Services) *supra,* we discuss the effects of these transactions in
    the broader market for telecommunications services generally in St.
    Louis.

[^976]: *See e.g.*, JSM Tele-Page Oct. 15 Petition at 1-2, Paging and
    Messaging Alliance of the Personal Communications Industry
    Association (PMA) Oct. 15 Petition at 4-11.

[^977]: *Id.* at 4-9.

[^978]: *Id.* at 10-11.

[^979]: SBC Nov. 16 Reply Comments, App. B at 2.

[^980]: *Id.* at 14-15.

[^981]: *See* In the Matter of Implementation of the Local Competition
    Provisions in the Telecommunications Act of 1996, CC Docket No.
    96-98, *Declaratory Ruling*; Inter-Carrier Compensation for
    ISP-Bound Traffic, CC Docket No. 99-68, *Notice of Proposed
    Rulemaking*, 14 FCC Rcd. 3689 (1999).

[^982]: CoreComm Oct. 15 Comments at 7-9; Hyperion Oct. 15 Comments at
    22-24; KMC Oct. 15 Comments at 18-20.

[^983]: *AirTouch Cellular v. Pacific Bell*, Decision 98-12-086, Case
    97-12-044, Cal. Pub. Util. Comm'n (Dec. 17, 1998).

[^984]: *Id.* at 2.

[^985]: *SBC/SNET Order,* 13 FCC Rcd at 21306, paras. 28-29.

[^986]: Upon consummation of the proposed merger, section 271 of the Act
    will prohibit any of SBC\'s or Ameritech\'s international
    carrier-subsidiaries from providing international services
    originating in any of their combined \"in-region States,\" as that
    term is defined in section 271(i) of the Act, 47 U.S.C. § 271(i).

[^987]: Section 63.09(e) provides, in relevant part, that: \"Two
    entities are *affiliated* with each other if one of them, or an
    entity that controls one of them, directly or indirectly owns more
    than 25 percent of the capital stock of, or controls, the other
    one.\" 47 C.F.R. § 63.09(e).

[^988]: *See* SBC/Ameritech July 24 International Application, at 9;
    Letter from Todd F. Silbergeld, Director, Federal Regulatory, SBC
    Communications Inc., to Magalie Roman Salas, Secretary, FCC (filed
    February 1, 1999) ( SBC Feb. 1 *Ex Parte)*. *See also* Letter from
    Philip W. Horton, Arnold & Porter, counsel to SBC, to Magalie Roman
    Salas, Secretary, FCC (filed July 2, 1999) (SBC/Ameritech July 2 *Ex
    Parte)* (amending SBC/Ameritech July 24 International Application,
    to delete VTR Inversiones as an affiliated carrier in Chile); Letter
    from Philip Horton, Arnold & Porter, counsel to SBC, to Susan
    O'Connell, International Bureau, FCC, (filed July 21, 1999) (SBC
    July 21 *Ex Parte*) (updating information relating to DiAx).

[^989]: *See* SBC/Ameritech July 24 International Application at 6-9
    (listing the international section 214 authorizations held by
    Ameritech and SBC), 10-11.

[^990]: *Rules and Policies on Foreign Participation in the U.S.
    Telecommunications Market,* IB Docket Nos. 97-142 and 95-22, Report
    and Order and Order on Reconsideration, 12 FCC Rcd 23891 (1997),
    *recon. pending* (*Foreign Participation Order*).

[^991]: The \"effective competitive opportunities (ECO)\" analysis was
    developed and discussed in the *Foreign Carrier Entry Order*. *See
    Market Entry and Regulation of Foreign-Affiliated Entities*, IB
    Docket No. 95-22, Report and Order, 11 FCC Rcd 3873 (1995).

[^992]: *Foreign Participation Order,* 12 FCC Rcd at 23906-10, paras.
    33-43; *see also id*. at 23913-17, paras. 50-58. The Commission
    addressed in the *Foreign Participation Order* a specific
    competition concern: that a foreign carrier with market power in an
    input market on the foreign end of a U.S. international route has
    the ability to exercise, or leverage, that market power into the
    U.S. market to the detriment of competition and consumers. The
    Commission found that, because of the implementation of the WTO
    agreement on basic telecommunications services, foreign carriers in
    WTO member countries would rarely be able to harm competition in the
    U.S. market by acting anticompetitively. The Commission further
    noted its ability to impose specific conditions on a grant of
    authority. *Id*. at 23913-14, para. 51.

[^993]: *Id*. at 23944-46, paras. 124-129; *see also id*. at 23949-50,
    paras. 139-142. Section 63.18(j)-(k) of the rules applies the ECO
    test where the applicant is a foreign carrier in the non-WTO
    country; or controls a foreign carrier in that country; or where any
    entity that owns more than 25 percent of the applicant, or controls
    the applicant, controls a foreign carrier in that country; or, in
    specified circumstances, where two or more foreign carriers own, in
    the aggregate, more than 25 percent of the applicant. 47 C.F.R. §
    63.18(j)-(k).

[^994]: *See Foreign Participation Order,* 12 FCC Rcd at 23919-21,
    paras. 61-66.

[^995]: Our international dominant carrier safeguards are set forth in
    section 63.10(c) of the rules (*as amended in* *International
    Settlement Rates*, IB Docket No. 96-261, Report and Order on
    Reconsideration and Order Lifting Stay, FCC 99-124 (rel. June 11,
    1999)).

[^996]: *Foreign Participation Order,* 12 FCC Rcd at 23951-52, para.
    144; 47 C.F.R. § 63.10(a)(3).

[^997]: *See* 47 C.F.R § 63.10(a)(3).

[^998]: The authorization granted in File No. 96-441 permits ACI to
    resell interconnected and non-interconnected international private
    lines on all U.S. international routes, except to Hungary, subject
    to limitations generally applied to U.S. international resale
    carriers. *See* 47 C.F.R. § 63.23. The authorization granted in File
    No. 97-289 permits ACI to provide international facilities-based
    services on all U.S. international routes, except Hungary, subject
    to limitations generally applied to U.S. international
    facilities-based carriers. *See* 47 C.F.R. § 63.22.

[^999]: Section 63.10(a)(4) of the rules, 47 C.F.R. § 63.10(a)(4),
    establishes a presumption of non-dominance for carriers that provide
    switched services on affiliated routes solely through the resale of
    an unaffiliated U.S. facilities-based carrier\'s international
    switched services.

[^1000]: *See* 47 C.F.R. § 43.61(c) (requiring carriers engaged in the
    resale of international switched services on routes where a
    foreign-carrier affiliate has market power and collects settlement
    payments from U.S. carriers to file quarterly reports of their
    switched resale traffic and revenues on the affiliated route).

[^1001]: *See* SBC/Ameritech July 24 International Application, at 12;
    SBC July 21 *Ex Parte*.

[^1002]: *See* 47 C.F.R. § 63.09.

[^1003]: *See* Ameritech Notification of Foreign Affiliation Pursuant to
    section 63.11 of the Commission\'s Rules (dated Feb. 26, 1999);
    Letter from Christopher M. Heimann, Director of Legal Affairs,
    Ameritech, to Magalie Roman Salas, Secretary, FCC (filed July 15,
    1999) (Ameritech July 15 *Ex Parte*).

[^1004]: Ameritech July 15 *Ex Parte*.

[^1005]: 47 C.F.R. § 63.11(a).

[^1006]: The Commission stated that \"\[t\]he notifications will give us
    the opportunity to impose any conditions that we might deem
    necessary in a particular case. We might, for example, find in a
    particular case that an affiliation raises anticompetitive concerns
    that must be addressed by imposing our benchmarks condition or the
    dominant safeguards we adopt here.\" *Foreign Participation Order*,
    12 FCC Rcd at 24036, para. 333. Section 63.11(b) of the rules
    requires, in relevant part, that authorized carriers which acquire a
    non-controlling interest in a foreign carrier that otherwise meets
    the definition of an affiliation notify the Commission *within 30
    days* of the investment. *See* 47 C.F.R. § 63.11(b). Thus, after the
    merger, SBC will be required to notify us of its acquisition of a
    non-controlling affiliation with MATAV and BEN Netherland. The
    Commission or the International Bureau, on delegated authority, will
    at that time consider further whether any change in regulatory
    status is warranted for SBC subsidiaries in their provision of
    service to Hungary or the Netherlands.

[^1007]: As we also find below, Talkline does not in any event have
    sufficient market power in Germany or the Netherlands to affect
    competition adversely in the United States.

[^1008]: The authorizations that would be amended are as follows:
    Pacific Bell Communications, File No. ITC-96-689; SBC Global
    Communications, Inc., File Nos. ITC-96-692 & ITC-98-423-T/C;
    Southwestern Bell Communications Services, Inc., File No. ITC-97-770
    (renumbered ITC-214-19971108-00689); SNET America, Inc., File No.
    96-172; and SNET Diversified Group, Inc., File No. 96-538. After the
    merger, each of these SBC subsidiaries would warrant continued
    regulation as non-dominant providers of switched services to Denmark
    for so long as each provides such services only through the resale
    of unaffiliated U.S.-authorized carriers\' switched services. *See*
    47 C.F.R. § 63.10(a)(4). *See also* 47 C.F.R. § 43.61(c).

[^1009]: *See* Ameritech July 15 *Ex Parte*.

[^1010]: *See* *1998 Biennial Regulatory Review \-- Review of
    International Common Carrier Regulations,* IB Docket No. 98-118,
    Report and Order, 14 FCC Rcd 4909 (1999), *recon. pending*; *id*. at
    4922, para. 29.

[^1011]: *See* Ameritech July 15 *Ex Parte*; Letter from Christopher M.
    Heimann, Director of Legal Affairs, Ameritech, to Magalie Roman
    Salas, Secretary, FCC (filed Sept. 21, 1999).

[^1012]: *See supra* n.Error: Reference source not found and
    accompanying text.

[^1013]: *See Foreign Participation Order* at 12 FCC Rcd at 23949, para.
    139 (applying the ECO test only to certain applicants that seek to
    serve non-WTO countries in which the applicant\'s affiliated foreign
    carrier *possesses market power*).

[^1014]: *See* AICC Oct. 15 Comments at 2-4, citing 47 U.S.C. §
    275(a)(1).

[^1015]: 47 U.S.C. § 275(a)(1).

[^1016]: 47 U.S.C. § 275(a)(2).

[^1017]: *Id*.

[^1018]: Section 153(4) defines a "Bell operating company": "The term
    'Bell operating company' --

    \(A\) means any of the following companies: Bell Telephone Company
    of Nevada, Illinois Bell Telephone Company, Indiana Bell Telephone
    Company, Incorporated, Michigan Bell Telephone Company, New England
    Telephone and Telegraph Company, New Jersey Bell Telephone Company,
    New York Telephone Company, U S WEST Communications Company, South
    Central Bell Telephone Company, Southern Bell Telephone and
    Telegraph Company, Southwestern Bell Telephone Company, The Bell
    Telephone Company of Pennsylvania, The Chesapeake and Potomac
    Telephone Company, The Chesapeake and Potomac Telephone Company of
    Maryland, The Chesapeake and Potomac Telephone Company of Virginia,
    The Chesapeake and Potomac Telephone Company of West Virginia, the
    Diamond State Telephone Company, the Ohio Bell Telephone Company,
    the Pacific Telephone and Telegraph Company, or Wisconsin Telephone
    Company; and

    \(B\) includes any successor or assign of any such company that
    provides wireline telephone exchange service; but

    \(C\) does not include an affiliate of any such company, other than
    an affiliate described in subparagraph (A) or (B)." 47 U.S.C. §
    153(4)(A),(B)(C). Section 153(1) defines an "affiliate": "The term
    'affiliate' means a person that (directly or indirectly) owns or
    controls, is owned or controlled by, or is under common ownership or
    control with, another person. For purposes of this paragraph, the
    term 'own' means to own an equity interest (or the equivalent
    thereof) of more than 10 percent. 47 U.S.C. § 153(1).

[^1019]: *See* *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, 3844, para. 44 (1997), *recons. pending* (*Alarm Monitoring
    Order*).

[^1020]: *See* *Alarm Monitoring Order*, 12 FCC Rcd at 3839, para. 33.

[^1021]: *See* *Bell Operating Companies Joint Petition for Waiver of
    Computer II Rules*, 10 FCC Rcd 13758, 13770 (Com. Car. Bur. 1995)
    (*CEI Plan Order*) (approving Ameritech's CEI plan for
    "SecurityLink" service).

[^1022]: *See United States v. Western Electric Co*., 46 F.3d 1198
    (D.D.C. 1995).

[^1023]: *See* *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 Cause and
    to Cease and Desist*, CCBPol 96-17, Memorandum Opinion and Order on
    Remand and Order to Show Cause, 13 FCC Rcd 19046, para. 1
    (*Enforcement of Section 275(a)(2) Order on Remand)* and
    *Enforcement of Section 275(a)(2) of the Communications Act of 1934,
    as amended by the Telecommunications Act of 1996, Against Ameritech
    Corporation, Memorandum Opinion and Order to Show Cause*, FCC 98-148
    (rel. July 8, 1998), para. 1 (*Ameritech First Show Cause Order*).

[^1024]: *See Petition of Ameritech Corporation for Forbearance from
    Enforcement of Section 275(a) of the Communications Act of 1934, as
    Amended*, Order, CC Docket No. 98-65 (rel. Aug. 31, 1999).

[^1025]: *See* SBC/Ameritech July 24 Application, Description of the
    Transaction at 1.

[^1026]: *See* *Alarm Monitoring Order*, 12 FCC Rcd at 3839, para. 33.

[^1027]: *See* 47 U.S.C. § 153(1).

[^1028]: *See* Letter from Steven A. Augustino, Counsel to the AICC, to
    Thomas Krattenmaker and Robert Atkinson, FCC, at 3, (April 13, 1999
    *Ex Parte*).

[^1029]: *See* AICC Oct. 15 Comments at 5. We note that the Michigan
    Consumer Federation argues that, in addition to being contrary to
    the intent of section 275, reading section 275(a)(2) to allow a
    transfer of grandfathering rights would "turn . . . on its head . .
    . the tradition of statutory 'grandfathering.'" Michigan Consumer
    Federation Oct. 15 Comments at 10.

[^1030]: *See* SBC/Ameritech Nov. 16 Reply Comments at 89-90; *see also*
    Letter from Antoinette Cook Bush, Counsel for Ameritech, to Magalie
    Roman Salas, Secretary, Federal Communications Commission, CC Docket
    No. 98-41, at 5 (filed April 28) (Ameritech April 28, 1999 *Ex
    Parte*).

[^1031]: *See* Ameritech April 28, *Ex Parte* at 2-3.

[^1032]: *See* SBC/Ameritech Nov. 16 Reply Comments at 90; Ameritech
    April 28, 1999 Ex Parte at 3-4.

[^1033]: *See* *AT&T Corp., et al. v. Ameritech Corp.,* File Nos.
    E-98-41, E-98-42,E-98-43, Memorandum Opinion and Order, 13 FCC Rcd
    21438, para. 35 (1998) (stating same in interpreting the meaning of
    the term "provide" in section 271(a)), *aff'd sub nom. US WEST
    Communications, Inc. v. FCC,* 177 F.3d 1057 (D.C. Cir. 1999).

[^1034]: *Chevron U.S.A., Inc. v. Natural Resources Defense Council*,
    467 U.S. 837, 843 n.9 (1984); *Bell Atlantic Telephone Companies v.
    FCC*, 131 F.3d 1044, 1047 (D.C. Cir. 1997).

[^1035]: *Enforcement of Section 275(a)(2) Order on Remand*, 13 FCC Rcd
    19046, para. 14 and n. 54, *citing* H.R. Rep. No. 104-204, 104^th^
    Cong., 1^st^ Sess., 87 (1995) ("\[t\]he state-of-art services
    provided by the alarm and telemessaging industries are dependent on
    the local telephone wires . . . \[t\]hese 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.") An earlier Senate report expresses similar concerns:

    > \[t\]he services provided by the alarm industry are dependent upon
    > the local telephone exchange monopoly. There is no practical
    > reliable alternative. Given this fact and because this thriving
    > small business industry would be highly susceptible to
    > anticompetitive activities, the Committee believes that alarm
    > companies would be placed in great jeopardy if the Bell Operating
    > Companies were permitted to provide alarm monitoring services
    > today.

    *See* S. Rep. No. 103-367, 103^rd^ Cong., 2nd Sess. at para. 7
    (1994).

[^1036]: *See* H.R. Rep. No. 104-203, 104^th^ Cong., 1^st^ Sess., 28
    (1995).

[^1037]: *See* H.R. Rep. No. 104-203 at 28.

[^1038]: *See* Ameritech April 28 *Ex Parte* at 2-3.

[^1039]: *See id.* at 2.

[^1040]: *See* Michigan Consumer Federation Oct. 15 Comments at 10.

[^1041]: *Cf. Bell Atlantic Telephone Companies,* 131 F.3d at 1045
    (noting "potentially contradictory" provisions of section 272 of the
    1996 Act and affirming the FCC's interpretation of section 272).

[^1042]: *See Morales v. Trans World Airlines, Inc*., 504 U.S. 374, 384
    (1992); *Busic v. United States*, 446 U.S. 398, 406 (1980).

[^1043]: *Varity Corp. v. Charles Howe*, 516 U.S. 489, 511 (1996).

[^1044]: *See* Ameritech April 28, 1999 *Ex Parte* at 3.

[^1045]: *See Security Pac. Nat'l Bank v. Resolution Trust Corp*., 63
    F.3d 900, 904 (9^th^ Cir.), *cert. denied*, 517 US 1103 (1995)
    ("Generally a more specific provision of an enactment prevails, in
    the sense of making an exception to, a more general provision),
    *citing* 2A Norman J. Singer, Sutherland Statutory Construction §
    47.17 (5^th^ ed. 1992) ("If the general words are given their full
    and natural meaning, they would include objects designated by the
    specific words, making the latter superfluous.").

[^1046]: 47 U.S.C. § 275(a)(2).

[^1047]: *See HCSC-Laundry v. United States*, 450 U.S. 1, 6 (1981)
    ("\[I\]t is a basic principle of statutory construction that a
    specific statute . . . controls over a general provision . . .
    particularly when the two are interrelated and closely positioned .
    . . ").

[^1048]: *See* AICC April 13 *Ex Parte* at 3*.*

[^1049]: *See* Ameritech *April 28 Ex* *Parte* at 5.

[^1050]: *Enforcement of Section 275(a)(2) Order on Remand*, 13 FCC Rcd
    19046, para. 14 and n. 54.

[^1051]: *See* AICC April 13 *Ex Parte* at 3-4.

[^1052]: *See id*.

[^1053]: *See id.*; Ameritech April 28 *Ex Parte* at 5-6.

[^1054]: *See* AICC April 13 *Ex Parte* at 3-4.

[^1055]: *See* AICC Oct. 15 Comments at 4-5, citing *Implementation of
    the Telecommunications Act of 1996: Telemessaging, Electronic
    Publishing, and Alarm Monitoring Services,* Second Report and Order,
    12 FCC Rcd 3824, 3843 at para. 33 (1997).

[^1056]: *See* *Order Adopting Protective Order*, DA 98-1952.

[^1057]: *See* AICC Motion to Require Full Disclosure of Relationship
    with Smith Alarm, (filed Dec. 3, 1998) (AICC Dec. 3 Motion) at 1, 4.

[^1058]: AICC Dec. 3 Motion at 3-4, Exh. A, Oloroso, "Rivals Sound
    Ameritech Alarm: A Ploy to Get Around a Ban on Security Firm
    Deals?," Crains Chicago Business, November 23, 1998, at 1.

[^1059]: AICC Dec. 3 Motion at 5.

[^1060]: *Id.* at 5-6.

[^1061]: *Id.* at 6-8.

[^1062]: *See* SBC/Ameritech Opposition to Motion to Require Full
    Disclosure of Relationship with Smith Alarm (filed Dec. 16, 1998)
    (SBC/Ameritech Dec. 16 Opposition to Motion) at 1-3.

[^1063]: *See* SBC/Ameritech Dec. 16 Opposition to Motion at 2-3.

[^1064]: *See id.* at 3.

[^1065]: *See id.* at 3-4.

[^1066]: *See* *MCI/WorldCom Order*, 13 FCC Rcd at 18117-118, para. 161.

[^1067]: SBC/Ameritech Dec. 16 Opposition to Motion at 3, quoting
    *WorldCom/MCI Order*, 13 FCC Rcd at 18117-118, para. 161.

[^1068]: *See* Consumer Coalition Oct. 15 Comments at 16; NATOA Oct. 15
    Comments at 1-2; Sprint Oct. 15 Petition at 42, 44.

[^1069]: Section 652 prohibits local exchange carriers from acquiring
    more than a 10% financial interest in cable operators that provide
    cable service within the LEC's telephone service area. 47 U.S.C. §
    572.

[^1070]: An "overbuild" occurs when two or more wireline cable
    television systems directly compete for subscribers in a local video
    programming delivery market. *See* *In the Matter of Annual
    Assessment of the Status of Competition in Markets for the Delivery
    of Video Programming*, CS Docket 98-102, 13 FCC Rcd 24284, 24293 at
    para.14, n11, FCC 98-335, released Dec. 23, 1998 *(5^th^ Annual
    Competition Report)*. Ameritech describes itself as the largest
    cable overbuilder in the country. Ameritech has acquired 87 cable
    franchises within its service regions in Illinois, Michigan, Ohio,
    and Wisconsin, with 72 of these cable franchises operational as of
    December 1, 1998. Ameritech serves 200,000 subscribers through these
    systems, and has the potential to pass more than 1.5 million homes
    through its 87 cable franchises. Ameritech was recently ranked
    35^th^ among the top 50 Multiple System Operators (MSO) in the
    country. *See* 5^th^ Annual Competition Report at paras. 110, 111,
    113; *see also* NCTA*, Top 50 MSOs,* Cable Television Developments,
    Summer 1999.

[^1071]: SBC sold PacTel's competitive video distribution service after
    the SBC/PacTel merger despite pre-merger assurances that it would
    not do so. *See* Sprint Oct. 15 Petition at 42, n62. Commenters also
    refer to SBC's discontinuance of its cable operations in the
    Washington D.C. area and in Richardson, Texas. *See* Consumer
    Coalition Oct. 15 Comments at 16; NATOA Oct. 15 Comments at 2;
    Sprint Oct. 15 Petition at 42, 44.

[^1072]: *See* SBC/Ameritech Nov. 16 Reply Comments at 87.

[^1073]: 47 U.S.C. §§ 214(a), 310(d).

[^1074]: *See* Sprint Oct. 15 Petition at 44-46.

[^1075]: 47 U.S.C. § 572.

[^1076]: At the same time, the 1996 Act repealed former section 613(b)
    which had prohibited a common carrier from providing video
    programming directly to subscribers in its telephone service area.
    1996 Act, § 302(b)(1).

[^1077]: 47 U.S.C. § 572(a). The definition of \"affiliate\" for the
    purposes of this section was considered in *Implementation of Cable
    Act Reform Provisions of the Telecommunications Act of 1996*, 14 FCC
    Rcd 5296, 5335-36, at para. 91, FCC 99-57, released March 29, 1999
    (*Cable Reform Order*). In the *Cable Reform Order*, the Commission
    decided to refer the consideration of the definition of
    \"affiliate\" to the pending proceeding in CS Docket 98-82. *See*
    *Implementation of the Cable Television Consumer Protection and
    Competition Act of 1992: Review of the Commission\'s Cable
    Attribution Rules,* Notice of Proposed Rulemaking, 13 FCC Rcd 12990
    (1998).

[^1078]: Section 652(b) states that \"\[n\]o cable operator or affiliate
    that is owned by, operated by, controlled by, or under common
    ownership with such cable operator may purchase or otherwise
    acquire, directly or indirectly, more than a 10 percent financial
    interest, or any management interest, in any local exchange carrier
    providing telephone exchange service within such cable operator\'s
    franchise area.\" 47 U.S.C. § 572(b). The legislative history of
    section 652 indicates that Congress was concerned with \"limiting
    acquisitions and prohibiting joint ventures between local exchange
    companies and cable operators that operate in the same market to
    provide video programming to subscribers or to provide
    telecommunications services in such market.\" S. Rep. No. 104-230,
    at 379 (1996).

[^1079]: Further, forced divestiture would not be in the public interest
    because cable overbuilds help to promote video competition.

[^1080]: *See* SBC/Ameritech Nov. 16 Reply Comments at 85-87.

[^1081]: Congress\' main concern in enacting section 652, as indicated
    by the legislative history, was to avoid having a LEC purchase a
    local cable operator and thus control both wires to consumers. S.
    Rep. No. 104-230, at 379 (1996).

[^1082]: In enacting section 652, Congress repealed its prior
    prohibition against the provision of video programming by a common
    carrier and it chose not to prohibit LECs from building facilities
    to provide video programming even as joint ventures with local cable
    companies. S. Rep. No. 104-230, at 379 (1996).

[^1083]: *See* CoreComm Oct. 15 Comments at 9-10; Consumer Coalition
    Oct. 15 Comments at 20-21; Focal Oct. 15 Comments at 6-8; Hyperion
    Oct. 15 Comments at 24-25; KMC Oct. 15 Comments at 20-21; Level 3
    Oct. 15 Comments at 22-23. *See also* The California Office of
    Ratepayer Advocates, Public Utilities Commission (ORA) December 16
    *Ex Parte* at 2; Applications for Consent to the Transfer of Control
    of Licenses and Section 214 Authorizations from Ameritech
    Corporation, Transferor, to SBC Communications. Inc. Transferee, CC
    Docket No. 98-141, En Banc Hearing, Prepared Statement of Regina
    Costa on Behalf of The Utility Reform Newtork (TURN) (December 14,
    1998), ("*Costa Prepared Statement"*) at 2.

[^1084]: *See* SBC/Ameritech July 24 Application, Kahan Aff. at paras.
    96-98 & Attach.'s D,E, & F; SBC/Ameritech Reply Comments, App. B at
    26*;* SBC Feb. 23 *Ex Parte;* SBC April 14 *Ex Parte*; SBC May 3 *Ex
    Parte.*

[^1085]: *See e.g.* Bellcore, SR-2275, Notes on the Networks §§ 5.4,
    7.11, 8.1-8.11, 10.1-10.2 (1997); *see also* R.F. Rey (Tech Ed.),
    Engineering and Operations in the Bell System 571-602, 663-84 (2nd
    ed. 1984).

[^1086]: *See LEC Price Cap Order* at paras. 332-364.

[^1087]: *See* Policy and Rules Concerning Rates for Dominant Carriers,
    *Memorandum Opinion and Order*, 6 FCC Rcd 2974 (Com. Car. Bur. 1991)
    (\"*Service Quality Order*\"), *recon.*, 6 FCC Rcd 7482 (Com. Car.
    Bur. 1991).

[^1088]: *See* Amendment of Part 63 of the Commission\'s Rules to
    Provide for Notification by Common Carriers of Service Disruptions,
    *Report and Order*, 7 FCC Rcd 2010 (1992) (\"*Network Outage
    Order*\"), *Second Report and Order*, 9 FCC Rcd 3911 (1994)
    (\"*Network Outage Second Report and Order*\"), *modified on
    recon.*, *Order on Reconsideration*, 10 FCC Rcd 11764 (1995)
    (\"*Network Outage Report Recon*\"). All communications common
    carriers are required to report network outages affecting 30,000
    customers for 30 minutes or longer. *See* 47 C.F.R. § 63.100.

[^1089]: Several commenters maintain that the level of service quality
    deteriorated following the SBC/PacTel merger and that customer
    complaints related to service quality substantially increased. The
    most serious problems reported involved delays in service
    installations and missed appointments. *See* Costa Prepared
    Statement at 2; Consumer Coalition Oct. 15 Comments at 20-21;
    CoreComm Newco Oct. 15 Comments at 9-10; Focal Oct. 15 Comments at
    6-8; Hyperion Oct. 15 Comments at 24-25; KMC Oct. 15 Comments at
    20-21; Level 3 Oct. 15 Comments at 22-23.

[^1090]: *See* ARMIS 43-05 Service Quality Report, Table II, Row 0145.
    PacTel's 1998 reported repair times stood at 34.7 hours. Applicants
    state that PacBell recognizes that the informal complaint rate has
    increased since 1996, and is making efforts to reduce the number of
    complaints. Applicants further note that variations in complaint
    rates are due in large part to variables outside of PacBell's
    control, such as slamming by third parties and weather conditions.
    *See* SBC/Ameritech Nov. 16 Reply Comments, App. B at 26.

[^1091]: *See* SBC Feb. 23 *Ex Parte* at 2. SBC's revised data showed
    increased repair time averages: (1) its 1997 performance showed a
    40.7 hour average repair time in California, and (2) its 1998
    performance showed a 43.6 hour repair time, almost double the RBOC
    average repair time of 22.8 hours for 1997.

[^1092]: SBC's 1998 pre-filing data showed some improvement in
    installation times in 1998 over its 1997 performance. SBC's
    additional information also indicated that its switch performance
    improved after the merger. In 1996 and 1997, Pacific reported that
    134 and 138 switches experienced outages respectively. In its
    pre-filing ARMIS data, Pacific indicates that only 106 switches
    experienced downtime during 1998. *See* SBC Feb. 23 *Ex Parte* at 3.

[^1093]: *See* SBC Feb. 23 *Ex Parte.*

[^1094]: In March 1998, the National Association of Regulatory and
    Utility Commissioners (\"NARUC\") recommended that the Commission
    work closely with the states to promote high quality service. To do
    this, NARUC recommended implementing a service quality monitoring
    program. Specifically, NARUC recommended that we update our service
    quality monitoring program to account for technological and
    regulatory developments in the telecommunications industry, to
    collect service quality information on a more frequent basis than
    the current annual requirement, and to make service quality
    information easily accessible on the Internet. *See* NARUC
    Resolution No. 2, Resolution Regarding a Federal Service Quality
    Reporting Program, Winter Meeting, March 1998.

[^1095]: 47 U.S.C. § 310(d).

[^1096]: *See SBC/SNET Order* 13 FCC Rcd 21305, at para *26.*

[^1097]: *See Bell Atlantic/NYNEX Order* 12 FCC Rcd 20092-93, at para.
    236.

[^1098]: *Policy Regarding Character Qualifications in Broadcast
    Licensing,* 102 FCC 2d 1179, 1209-10 at para. 57 (1986) ("*Character
    Qualifications*"), modified, 5 FCC Rcd. 3252 (1990) ("*Character
    Qualifications Modification*"), *recon. granted in part*, 6 FCC Rcd
    3448 (1991), *modified in part*, 7 FCC Rcd 6564, (1992) ("*Further
    Character Qualification Modification*"); *MCI Telecommunications
    Corp*., 3 FCC Rcd 509 (1998) (stating that character qualifications
    standards adopted in the broadcast context can provide guidance in
    the common carrier context). The Commission has also determined that
    allegations that an applicant has engaged in unreasonable or
    anticompetitive conduct is relevant to the Commission public
    interest analysis *SBC/SNET Order* 13 FCC Rcd 21306-07, at paras.
    28-30.

[^1099]: *See SBC/SNET Order* 13 FCC Rcd 21305 at para. 26; *Bell
    Atlantic/NYNEX Order* 12 FCC Rcd 20092-93, at para 236.

[^1100]: *See* CFA/CU Oct. 15 Comments at 10; CoreComm Oct. 15 Comments
    at 11; Hyperion Oct. 15 Comments at 11; KMC Oct. 15 Comments at 4,
    11; McLeodUSA Oct. 15 Comments at 9. Several commenters cite
    findings by the California and Texas Commissions concerning Pacific
    Bell\'s and SWBT\'s compliance with section 271 as evidence of
    SBC\'s lack of progress in opening its local markets to competition.
    *See* AT&T Oct. 15 Petition at 21; Focal Oct. 15 Comments at 4-6;
    Hyperion Oct. 15 Comments at 19-21; KMC Telecom Oct. 15 Comments at
    15-16; MCI WorldCom Oct. 15 Comments at 7-8.

[^1101]: Commenters generally cite SBC\'s numerous appeals of the Texas
    Commission Arbitration Award requiring SBC to tariff the rates for
    collocation and its lawsuit challenging the constitutionality of
    section 271. *See* AT&T Oct. 15 Petition at 14; *see also* CFA/CU
    Oct. 15 Comments at 14-15; Hyperion at 17; KMC Telecom Oct. 15
    Comments at 12; Texas Public Utility Counsel Oct. 15 Comments at 4.
    Some commenters maintain that SBC\'s acquisition of PacTel has had a
    negative impact on competition and consumer service in California.
    *See* AT&T Oct. 15 Petition at 21, Blitch Aff. paras. 20-22; CFA/CU
    Oct. 15 Comments at 18; CoreComm Oct. 15 Comments at 7-9; Focal Oct.
    15 Comments at 4; Hyperion Oct. 15 Comments at 22-24; MCI WorldCom
    Oct. 15 Comments at 23, Beach/Fauerbach Decl. at para. 20; KMC Oct.
    15 Comments at 18-20. AT&T states, for example, that SBC backtracked
    from agreements between Pacific Bell and AT&T after the merger with
    SBC. AT&T Oct. 15 Petition at 20-21, Blitch Aff. at paras. 18-20.
    Other commenters state that, after the merger, Pacific Bell adopted
    SBC\'s policy of refusing to provide the billing and collection
    services necessary to implement a Calling Party Pays (CPP) program.

[^1102]: *See* AT&T Oct. 15 Petition at 15,16, 21, MCI WorldCom Oct. 15
    Comments, Beach/Fauerbach Aff. at 16. S*ee also* CFA/CU Oct. 15
    Comments at 11,12,15-17; CoreComm Oct. 15 Comments at 7-9; e.spire
    Oct. 15 Comments, Kallenbach Aff. at 7-9,13,16,18; Focal Oct. 15
    Comments at 4-5,5-6; Level 3 Oct. 15 Comments at 22; Hyperion Oct.
    15 Comments at 21-22; KMC Oct. 15 Comments at 17; McLeodUSA Oct. 15
    Comments at 10.

[^1103]: *See* 800 Resale Carriers Oct. 15 Petition at 6.

[^1104]: 800 Resale Carriers Oct. 15 Petition at 6.

[^1105]: PMA Oct. 15 Petition at 4-9. Several commenters also maintain
    that Ameritech has engaged in anticompetitive practices to forestall
    local competition in its region. *See* CoreComm Oct. 15 Comments at
    4-5; MCI WorldCom Oct. 15 Comments at 4. AT&T submits that, when
    Ameritech is confronted with a binding and effective regulation or
    court decision that it strongly dislikes, \"it simply defies the
    law,\" thereby forcing further litigation of the issue. Commenters
    cite Ameritech\'s conduct including shared transport, intraLATA toll
    dialing parity, reciprocal compensation, and combinations of
    unbundled network elements as evidence of Ameritech\'s recalcitrance
    in opening its local markets to competition. *See* AT&T Oct 15
    Petition at 18; MCI WorldCom Oct. 15 Comments at 4-5,
    Beach/Fauerbach Decl. at paras. 9-10; Time Warner Oct. 15 Comments
    at 7.

[^1106]: SBC/Ameritech Nov. 16 Reply Comments, App. B at 1 (noting that
    the claims relating to interconnection for paging companies,
    performance measures, reciprocal compensation, and unbundled network
    elements are currently being addressed by this Commission, state
    public utility commissions, and/or federal courts).

[^1107]: *See, e.g., In re Requests for Clarification of the
    Commission\'s Rules Regarding Interconnection Between LECs and
    Paging Carriers*, CCB/CPD 97-24 (filed Apr. 25, 1997).

[^1108]: *See* App. B at 14 (noting that reciprocal compensation is
    being considered in CC Docket Nos. 96-98, 95-185).

[^1109]: *In re Performance Measurements and Reporting Requirements for
    Operations Support Systems, Interconnection, and Operator Services
    and Directory Assistance*, Notice of Proposed Rulemaking, 13 FCC
    Rcd. 12817 (1998).

[^1110]: *AirTouch Cellular v. Pacific Bell*, No. C.97-12-044 (Cal. PUC
    filed Dec. 23, 1997).

[^1111]: *See, e.g., In re Implementation of Infrastructure Sharing
    Provisions in the Telecommunications Act of 1996*, Report and Order,
    12 FCC Rcd. 5470 (1997); *In re Petition of MCI for Declaratory
    Ruling That New Entrants Need Not Obtain Separate Licenses or
    Right-to-Use Agreements Before Purchasing Unbundled Network
    Elements*, CC Docket No. 96-98, CCBPol Docket No. 97-4 (filed Mar.
    11, 1997).

[^1112]: *SBC/SNET Order*, 13 FCC Rcd at 21306, at para. 29.

[^1113]: *See* SBC/Ameritech July 1 *Ex Parte*, App. A at 2, 4, 22, and
    23.

[^1114]: SBC/Ameritech Nov. 16 Reply Comments, App. B at 21 (citing
    *Southwestern Bell Telephone Co. v. AT&T Communications of the
    Southwest, Inc.*, No. 98-CA-4627 (W.D. Tex. Nov. 11, 1998).

[^1115]: *See* CoreComm Oct. 15 Comments at iv, 22; Focal Oct. 15
    Comments at ii, 16; Hyperion Oct. 15 Comments at 4, 30, 33, 40;
    McLeodUSA Oct. Comments at iii, 8,17. Certain commenters, however,
    do not specifically request an evidentiary hearing, but rather,
    public hearings where they can present testimony to the Commission.
    *See* Michigan Consumer Federation Oct. 15 Comments at 3; Parkview
    Areawide Seniors Oct. 15 Comments, Recommendations for Action at 2;
    South Austin Oct. 15 Comments, Recommendations for Action at 18.
    *See also* Letter of John C. Gamboa, Executive Director, The
    Greenlining Institute, to William Kennard, Chairman, FCC, CC Docket
    No. 98-141 (dated Oct. 27, 1998) (requesting regional public
    hearings). As indicated above, the Commission did hold a series of
    public forums at which representatives from these commenting parties
    could present their views on the proposed merger. *See supra*
    Section III.B.3 (Commission Review). Although Parkview Areawide
    Seniors specifically requests that the Commission review the
    merger's impact on universal service, Lifeline support and tariff
    offerings targeted towards low income families and senior citizens,
    Parkview does not assert particular facts that would warrant an
    evidentiary hearing, and the issues upon which Parkview expresses
    general concern are encompassed within our public interest
    determination.

[^1116]: *See* 47 U.S.C. § 309.

[^1117]: 47 U.S.C. § 309(d).

[^1118]: 47 U.S.C. § 309(d)(1); *Gencom Inc. v. FCC*, 832 F.2d 171, 181
    (D.C. Cir. 1987); *see Astroline Communications Co. v. FCC*, 857
    F.2d 1556, 1562 (D.C. Cir. 1988).

[^1119]: 47 U.S.C. § 309(d)(2); *Gencom*, 832 F.2d at 181; *see
    Astroline*, 857 F.2d at 1562.

[^1120]: 47 U.S.C. § 309(e). *See also WorldCom/MCI Order*, 13 FCC Rcd
    at 18139-40, para. 202.

[^1121]: *United States v. FCC,* 652 F.2d 72, 89 (D.C. Cir.1980) (en
    banc) (*quoting Columbus Broadcasting Coalition v. FCC,* 505 F.2d
    320, 323-24 (D.C. Circuit 1974)).

[^1122]: *Gencom,* 832 F.2d at 181.

[^1123]: 47 U.S.C. § 309(d)(2). *See also Gencom,* 832 F.2d at 181.

[^1124]: *Serafyn v. FCC,* No. 95-1385, 149 F.3d 1213, 1216 (D.C. Cir.
    1998) (quoting *Citizens for Jazz on WRVR Inc. v. FCC,* 775 F.2d
    392, 395 (D.C. Cir. 1985)). A court may disturb the Commission's
    decision to deny an evidentiary hearing only if, upon examination of
    the Commission's statement of reasons for denial, the court
    determines the Commission's decision to be arbitrary and capricious.
    *Astroline,* 857 F.2d at 1562.

[^1125]: 47 U.S.C. § 309(d).

[^1126]: *SBC Communications, Inc. v. FCC*, 56 F.3d at 1496-97 (D.C.
    Cir. 1995)(quoting *United States v. FCC,* 652 F.2d at 89-90)
    (affirming the Commission's decision in the *AT&T/McCaw Order* not
    to hold a full evidentiary hearing before approving the merger).
    *See AT&T/McCaw Order*, 9 FCC Rcd 5836 at 5927-28, paras. 172-174.

[^1127]: *United States v. FCC,* 652 F.2d at 88-99.

[^1128]: The court deferred to the Commission's judgment not to hold a
    hearing when the Commission had "on two different occasions, invited
    interested parties to submit whatever written material they wanted
    the Commission to consider, and on one occasion heard oral argument
    en banc on the antitrust issues of the SBS venture." The court
    further noted that, "all of the business parties to this case, and
    others, participated in the argument, and submitted materials were
    voluminous." *Id.* 652 F.2d at 92. Similarly, in this proceeding we
    note the voluminous record before us, including the numerous
    comments and ex parte filings we have received and the public forums
    we have conducted.

[^1129]: *See* 47 U.S.C. § 309(d)(1).

[^1130]: *See* 47 U.S.C. § 309(d)(1).

[^1131]: *See SBC Communications,* 56 F.3d at 1496-97.

[^1132]: *See* 47 U.S.C.§ 309(d).

[^1133]: *See SBC Communications,* 56 F.3d at 1496.

[^1134]: *See* CoreComm Oct. 15 Comments at iv; Focal Oct. 15 Comments
    at 15, 16; Hyperion Oct. 15 Comments at ii, 4, 33-34.

[^1135]: CoreComm Oct. 15 Comments at iv.

[^1136]: Hyperion Oct. 15 Comments at 33.

[^1137]: *See supra* Section V.B.2C)(1) (Mass Market). *See also*
    Appendix B (Summary of Confidential Information and Conclusions).

[^1138]: 47 U.S.C. § 309(d).

[^1139]: *WorldCom/MCI Order,* 13 FCC Rcd at 18141, para. 205.

[^1140]: *See AT&T/McCaw Order*, 9 FCC Rcd at 5909 n.300; *WorldCom/MCI
    Order*, 13 FCC Rcd at 18153.