**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+---+---------------------------------+
| In the Matters of                | * | > WC Docket No. 03-228          |
|                                  | * | >                               |
| Section 272(b)(1)'s "Operate     | ) | > CC Docket Nos. 96-149, 98-141 |
| Independently" Requirement for   | ) | >                               |
| Section 272 Affiliates           | ) | > CC Docket No. 96-149          |
|                                  | ) | >                               |
| Petition of SBC for Forbearance  | ) | > CC Docket No. 01-337          |
| from the Prohibition of Sharing  | ) |                                 |
| Operating, Installation, and     | ) |                                 |
| Maintenance Functions under      | ) |                                 |
| Sections 53.203(a)(2) and        | ) |                                 |
| 53.203(a)(3) of the Commission's | ) |                                 |
| Rules and Modification of        | ) |                                 |
| Operating, Installation, and     | ) |                                 |
| Maintenance Conditions Contained | ) |                                 |
| in the SBC/Ameritech Merger      | ) |                                 |
| Order                            | ) |                                 |
|                                  | ) |                                 |
| Petition of BellSouth            | ) |                                 |
| Corporation for Forbearance from | ) |                                 |
| the Prohibition of Sharing       | ) |                                 |
| Operating, Installation, and     | * |                                 |
| Maintenance Functions Under      | * |                                 |
| Section 53.203(a)(2)-(3) of the  |   |                                 |
| Commission's Rules               | * |                                 |
|                                  | * |                                 |
| Review of Regulatory             | ) |                                 |
| Requirements                     | ) |                                 |
|                                  | ) |                                 |
| for Incumbent LEC Broadband      | ) |                                 |
| Telecommunications Services      | * |                                 |
|                                  | * |                                 |
+----------------------------------+---+---------------------------------+

**REPORT AND ORDER IN WC DOCKET NO. 03-228**

**MEMORANDUM OPINION AND ORDER IN CC DOCKET NOS. 96-149, 98-141,
01-337**

**Adopted: March 11, 2004 Released: March 17, 2004**

By the Commission: Chairman Powell, and Commissioner Abernathy issuing
separate statements; Commissioners Copps and Adelstein concurring and
issuing separate statements.

**I. INTRODUCTION**

1.  On November 4, 2003, we released a Notice of Proposed Rulemaking[^1]
    to re-examine our rules implementing the "operate independently"
    requirement of section 272(b)(1) of the Communications Act of 1934,
    as amended (the Act).[^2] In this Order, we conclude, based on the
    reexamination of our rules, that the prohibition against sharing by
    BOCs and their section 272 affiliates of operating, installation,
    and maintenance (OI&M) functions is not a necessary component of the
    statutory requirement to "operate independently" and is an overbroad
    means of preventing cost misallocation or discrimination by Bell
    operating companies (BOCs) against unaffiliated rivals.[^3] We
    further conclude that we should retain the prohibition against joint
    ownership by BOCs and their section 272 affiliates of switching and
    transmission facilities, or the land and buildings on which such
    facilities are located.[^4] In addition, because of our actions in
    this Order, we dismiss as moot petitions filed by SBC and BellSouth,
    pursuant to section 10 of the Act, seeking forbearance from the OI&M
    sharing prohibition. Finally, we grant SBC's request for
    modification of the *SBC/Ameritech Merger Order*[^5] conditions
    related to OI&M services to the extent that these merger conditions
    are incorporated into the conditions of the *SBC Advanced Services
    Forbearance Order*.[^6]

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II. **BACKGROUND**

### A. Sections 271 and 272

2.  Sections 271 and 272 of the Act, which were added by the
    Telecommunications Act of 1996 (1996 Act), establish a comprehensive
    framework governing BOC provision of "interLATA service."[^7]
    Pursuant to section 271, neither a BOC nor a BOC affiliate may
    provide in-region, interLATA service prior to receiving section
    271(d) authorization from the Commission.[^8] Section 272 requires
    BOCs, once authorized to provide in-region, interLATA services in a
    state under section 271, to provide those services through a
    separate affiliate until the section 272 separate affiliate
    requirement sunsets for that particular state.[^9] In addition,
    section 272 imposes structural and transactional requirements on
    section 272 separate affiliates, including the requirement to
    "operate independently" from the BOC.[^10]

> **B. The Non-Accounting Safeguards Orders**

3.  Section 272(b)(1) directs that the separate affiliate required
    pursuant to section 272(a) "shall operate independently from the
    \[BOC\]."[^11] The Commission adopted rules to implement the
    "operate independently" requirement that prohibit a BOC and its
    section 272 affiliate from (1) jointly owning switching and
    transmission facilities or the land and buildings on which such
    facilities are located;[^12] and (2) providing OI&M services
    associated with each other's facilities.[^13] OI&M functions
    generally include all activity related to installing, operating, and
    maintaining (*e.g.*, making repairs to) switching and transmission
    facilities.[^14] Specifically with regard to these functions, the
    Commission's rules prohibit a section 272 affiliate from performing
    OI&M functions associated with the BOC\'s facilities. Likewise, they
    bar a BOC or any BOC affiliate, other than the section 272 affiliate
    itself, from performing OI&M functions associated with the
    facilities that its section 272 affiliate owns or leases from a
    provider other than the BOC with which it is affiliated.[^15]

4.  On reconsideration, the Commission affirmed its interpretation of
    section 272(b)(1)'s "operate independently" requirement but also
    confirmed that it viewed adoption of the particular rules as a
    permissible interpretation of section 272 rather than a mandate of
    the provision itself.[^16] Specifically, rejecting "plain language"
    statutory construction arguments, the Commission affirmed that
    "there is no plain or ordinary meaning of \["operate
    independently"\], as used in section 272(b)(1), that compels us to
    adopt a particular set of restrictions."[^17] Because the term is
    ambiguous, the Commission concluded that it had discretion to
    interpret the term in a manner consistent with Congressional
    intent.[^18] Finally, the Commission reiterated that, in adopting
    rules to implement section 272(b)(1)'s "operate independently"
    requirement, it was choosing, as Congress intended, a balance
    between efficiencies in BOC operations and protections against
    anticompetitive behavior.[^19]

> **C. The OI&M Forbearance Petitions**

5.  Verizon, SBC, and BellSouth each filed petitions for forbearance
    seeking relief from the OI&M sharing prohibition.[^20] On November
    3, 2003, we denied the Verizon Petition, concluding that we may not
    forbear from applying requirements of section 272 that are
    incorporated by reference into section 271 until section 272 is
    "fully implemented."[^21] At the same time, the Commission adopted
    the *Notice* in this proceeding to seek comment on whether it
    should, through a rulemaking, modify or eliminate the rules adopted
    to implement section 272(b)(1)'s "operate independently"
    requirement, including the OI&M sharing prohibition.

6.  Along with its forbearance petition, SBC requested a modification of
    the *SBC/Ameritech Merger Order* condition that limited OI&M sharing
    between the advanced services affiliate and the BOC or other
    affiliates.[^22] As part of that request, SBC also asked that the
    Commission clarify that "elimination of the OI&M restrictions would
    not affect the relief from tariffing" granted in the *SBC Advanced
    Services Forbearance Order*.[^23] Although the advanced services
    separate affiliate condition of the merger order itself has
    technically sunset,[^24] SBC continues to comply, through its
    affiliate Advanced Solutions, Inc. (ASI), with the merger condition
    as a condition of the forbearance order.[^25] In support of its
    requests, SBC generally argued that eliminating these OI&M
    conditions would be in the public interest for the same reasons that
    eliminating the OI&M sharing prohibition under section 272(b)(1)
    would be.[^26]

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III. **DISCUSSION**

**A. "Operate Independently"**

> **1. Overview**

7.  In this Order, we evaluate whether to modify or eliminate the
    current requirements under section 272(b)(1) that prohibit OI&M
    sharing and bar the joint ownership of certain facilities.[^27] As
    an initial matter, we must evaluate whether we have the discretion
    to modify the requirements we have promulgated to give meaning to
    the term "operate independently" under subsection (b)(1). We
    determine at the outset that we have such discretion. In reaching
    this conclusion, we reject commenters' arguments that we *must*
    retain both requirements in order to give meaning to section
    272(b)(1)'s "operate independently" language.[^28] We also reject
    AT&T's suggestion that "operate independently" has a plain meaning,
    or at least that it must mean that the section 272 affiliate and the
    BOC must operate as fully independent interests.[^29] We reaffirm
    instead the conclusion of the previous Commission that section
    272(b)(1) is ambiguous.[^30] Significantly, while the Commission
    concluded in the *Non-Accounting Safeguards Order* that specific
    structural safeguards merited adoption because their benefits
    appeared to outweigh their anticipated costs,[^31] this result was
    not compelled by the statutory language itself.[^32] In fact, to the
    extent that AT&T argues that the section 272 affiliate and the BOC
    must operate as fully independent interests, its position is
    undermined by the section 272 statutory scheme, which expressly
    envisions the sharing of some functions.[^33] This contemplated
    sharing strongly suggests that Congress never envisioned that the
    section 272 affiliate would operate as an entity that was entirely
    walled off from the BOC. In sum, we reject AT&T's analysis as being
    too rigid, failing to recognize that the ambiguous phrase "operate
    independently" is subject to a range of possible meanings, and that
    the Commission's application of this term may change over time as
    circumstances evolve.

8.  We conclude below that we should eliminate the OI&M sharing
    prohibition but retain the joint facilities ownership restriction
    under section 272(b)(1), consistent with our obligation to implement
    the statutory directive that the section 272 affiliate and the BOC
    "operate independently." An agency is free to modify its
    interpretation of an ambiguous statutory provision when other
    reasonable interpretations may exist, provided that it acknowledges
    its change of course and provides a rational basis for its shift in
    policy.[^34] In fact, a reexamination of rules is particularly
    appropriate where, as here, we have gained more experience over time
    and new ways of achieving regulatory goals have developed. In the
    instant situation, we have chosen to reexamine the rules adopted to
    implement section 272(b)(1) in light of our eight years of
    experience in implementing the 1996 Act (including applicable cost
    allocation and nondiscrimination rules), our additional experience
    with monitoring section 272 affiliates, and, more generally, the
    growth of competition in all telecommunications markets.[^35]

9.  The evaluation we undertake in this Order employs the methodology
    used by the previous Commission in implementing section 272(b)(1),
    where we balance the costs of a given restriction against its
    benefits. Like the previous Commission, we weigh the costs of
    structural separation, including inefficiencies within BOC
    operations, against the benefits of protecting consumers from the
    risks of cost misallocation and discrimination. However, on the
    record before us in this proceeding, we conclude that the benefits
    of the OI&M sharing prohibition no longer outweigh the costs. In
    contrast, we find that the joint facilities ownership restriction
    continues to have benefits that exceed its costs. We also conclude
    that retaining only one of the two existing restrictions initially
    promulgated under section 272(b)(1) continues to give reasonable
    meaning to the requirement that the section 272 affiliate "operate
    independently" from the BOC.

10. In that regard, we expressly reject AT&T's contention that without
    the OI&M sharing prohibition, the services of the affiliate and BOC
    would be so integrated as to preclude independent operation within
    the meaning of subsection (b)(1). In the *Non-Accounting Safeguards
    Order*, the Commission "recognize\[d\] the inherent tension between
    the 'operate independently' requirement and allowing the integration
    of services."[^36] In large measure on the basis of our cost-benefit
    analysis, we modify the restrictions implementing subsection (b)(1),
    making them somewhat different from those of seven years ago. But
    that does not mean that the section 272 affiliate and the BOC are
    now allowed to become one and the same entities. To the contrary, we
    continue to give vitality to the phrase "operate independently" by
    ensuring that the entities retain separate ownership of facilities
    and fully comply with the other requirements of section 272(b),
    including separate governance and arm's length dealings.

11. In reaching this conclusion, we reject AT&T's argument that a
    section 272 affiliate whose OI&M is obtained under an arm's length
    contract with the BOC is so "dependent" on the BOC as to violate the
    "operate independently" requirement that Congress has required.[^37]
    That argument fails to recognize the inherent ambiguity of the
    phrase we must construe. We note that the dictionary offers a range
    of definitions of "independent," some implying a narrower scope,
    such as "self-governing,"[^38] whereas others suggest a broader
    meaning, such as "not affiliated with a larger controlling
    unit."[^39] Importantly, however, the dictionary offers no precise
    meaning of the term as AT&T suggests. Rather, we believe that the
    Commission's interpretation of the term "operate independently"
    should fit within the plausible meanings suggested by these multiple
    definitions. At a minimum, then, we must ensure that the section 272
    affiliate will remain self-governing (as required by section
    272(b)(3)).[^40] The approach we adopt here satisfies that
    threshold. Indeed, other provisions of the Act strongly suggest that
    an OI&M sharing prohibition is not inherent in the term "operate
    independently." Section 274(b) requires the BOC and its electronic
    publishing affiliate to be "operated independently," and goes on to
    specifically prohibit the BOC from "perform\[ing\] . . .
    installation, or maintenance of equipment on behalf of \[the
    affiliate.\]"[^41] That additional language would be unnecessary if
    the term "operate independently" necessarily foreclosed OI&M
    sharing, as AT&T urges.

12. For these reasons, we conclude that the separate facilities
    ownership requirement under section 272(b)(1), in combination with
    the remaining requirements of section 272(b), reasonably ensures
    that the section 272 affiliate will continue to "operate
    independently" from the BOC. Although we retain the discretion to
    impose additional requirements under subsection (b)(1) should we
    find they are needed, we do not believe that this provision
    *compels* us to prohibit OI&M sharing on the record now before us.
    We reiterate, as did the prior Commission, that there is a range of
    options available to the Commission in implementing this ambiguous
    provision, and here we have chosen an interpretation that fulfills
    the statutory directive. Consistent with our previous methodology,
    we have reasonably chosen to eliminate restrictions (on OI&M
    sharing) after finding that their anticipated costs exceed their
    benefits.

    **2. *ASCENT v. FCC***

13. Further, we reject AT&T's argument that our action to eliminate the
    OI&M sharing prohibition is foreclosed by the D.C. Circuit's
    decision in *ASCENT v. FCC*.[^42] As AT&T states, we recently held
    that section 10(d) prohibits us from forbearing from the
    requirements of section 272 until they are fully implemented.[^43]
    According to AT&T, the D.C. Circuit held in *ASCENT v. FCC* that
    "even if the Commission does 'not explicitly invoke\[\] forbearance
    authority,' the Commission acts unlawfully where it unreasonably
    interprets the Act's provisions in order to reach 'the very result
    it had previously rejected.'"[^44] AT&T appears to contend that,
    once the Commission determines that the requirements of a statutory
    provision fall within the section 10(d) limitation on forbearance,
    the Commission's rulemaking authority to interpret ambiguous terms
    within that provision also is restricted.

14. The *ASCENT v. FCC* decision does not support AT&T's proposition. In
    *ASCENT v. FCC*, the appellant argued that the separate affiliate
    condition of the *SBC/Ameritech Merger Order* was "simply a device
    to accomplish indirectly what the statute clearly forbids,"
    specifically, the exercise of forbearance that was prohibited by
    section 10(d).[^45] In the *SBC/Ameritech Merger Order*, the
    Commission did not expressly exercise forbearance under section 10
    but instead reinterpreted the meaning of the term "successor or
    assign" in such a way to relieve the advanced services separate
    affiliate created under the merger order from obligations under
    section 251(c).[^46] The D.C. Circuit expressly held that "\[t\]he
    Commission's interpretation of the Act's structure is
    unreasonable."[^47] Thus, the court did not dispute the Commission's
    authority to interpret ambiguous statutory provisions.[^48] Instead,
    it ruled on the merits of the Commission's interpretation, relying
    on the well-established principle that agency interpretations must
    be reasonable.[^49] Indeed, AT&T's characterization of the holding
    concedes that this course of action would be unlawful only if the
    Commission "*unreasonably* interprets the Act's provisions."[^50]

15. In this Order, we do not exercise forbearance under section 10.[^51]
    Instead, we exercise our rulemaking authority to adopt, modify, or
    eliminate rules of general applicability. In this instance, we are
    reexamining our interpretation of section 272(b)(1). Our elimination
    here of the OI&M sharing prohibition is a reasonable interpretation
    of section 272(b)(1) under our rulemaking authority, and thus
    section 10(d) of the Act is not implicated, and the *ASCENT v. FCC*
    decision is distinguished from our actions today.

**B. Operating, Installation, and Maintenance Services**

16. As discussed below, on the record now before us, we find that the
    OI&M sharing prohibition is an overbroad means of preventing
    anti-competitive conduct and poses significant costs that outweigh
    potential benefits, especially given that our non-structural
    safeguards should effectively prevent cost misallocation and
    discrimination. Because this prohibition on OI&M sharing is not
    directly compelled by section 272(b)(1), we eliminate sections
    53.203(a)(2)-(3) of the Commission's rules.[^52]

17. ***Benefits of Non-structural Safeguards.*** The OI&M sharing
    prohibition requires the BOCs' provision of OI&M functions
    associated with exchange access services, such as switched access
    and special access, to be structurally separate from the section 272
    affiliates' provision of OI&M functions associated with interLATA
    services.[^53] This separation was intended to provide the
    Commission with the ability to better monitor the performance of
    OI&M functions associated with exchange access services and enforce
    the BOCs' obligations under the Act not to cost misallocate or
    discriminate against unaffiliated rivals in the provision of
    interLATA services.[^54] Those opposed to eliminating the OI&M
    sharing prohibition -- Americatel, AT&T, MCI, and Sprint --
    generally assert that structural regulation, such as the current
    OI&M restriction, is more effective than a non-structural approach
    and that allowing for shared provision of OI&M functions will
    provide more opportunity for BOCs to engage undetected in cost
    misallocation, price discrimination (*e.g.*, price squeeze), and
    performance discrimination.[^55]

18. While structural safeguards may be helpful in monitoring such
    behavior, they can be a costly and burdensome way to do so,
    particularly if non-structural safeguards can afford a similar level
    of transparency and protect against discrimination.[^56] In the
    context of OI&M functions, we conclude that the existing
    non-structural safeguards are well-tailored and sufficient to
    provide effective and efficient protections against cost
    misallocation and discrimination by BOCs.[^57] Based on the record
    in this proceeding, we do not expect that eliminating the OI&M
    sharing prohibition will materially increase BOCs' abilities or
    incentives to misallocate costs or discriminate against unaffiliated
    rivals in price or performance. Nor will eliminating the prohibition
    diminish the ability of the Commission to monitor and enforce
    compliance with the Act in light of non-structural safeguards.
    Following elimination of the OI&M sharing prohibition, the
    Commission will be able to effectively monitor the performance of
    BOC provision of OI&M functions through application of (1) the other
    section 272 requirements and (2) the Commission's affiliate
    transactions and cost allocation rules.

19. We conclude that the remaining section 272 requirements, together
    with our other non-structural safeguards, will continue to serve as
    important and effective protections against anticompetitive conduct
    by BOCs following elimination of the OI&M sharing prohibition.[^58]
    Because the requirements of section 272(b)(5)[^59] continue to
    apply, the requirement to conduct all transactions at arm's length
    and disclose the details of such transactions on the Internet will
    apply to OI&M services.[^60] Thus, elimination of the OI&M sharing
    prohibition would allow the section 272 affiliate to purchase OI&M
    services from the BOC, but the affiliate would purchase those
    services through a contract negotiated through arm's length dealing,
    and that contract would have to be reduced to writing and made
    publicly available. In addition, the BOC would have an obligation
    under section 272(c)(1) to make those OI&M services, including both
    systems and personnel, available to unaffiliated rivals on a
    nondiscriminatory basis.[^61] Accordingly, any sharing of OI&M
    services between the BOC and the affiliate must be done in such a
    way that the provider stands ready to provide service to other
    entities. Moreover, a BOC's provision of exchange access services to
    its section 272 affiliate would continue to be subject to the
    nondiscrimination requirements of section 272(e).[^62]

20. Further, after the OI&M sharing prohibition is eliminated, BOCs will
    continue to be obligated to maintain accounting procedures that
    protect against cross-subsidization of the section 272 affiliates by
    the BOCs' local customers.[^63] We do not agree with opponents'
    assertions that the Commission's affiliate transaction and cost
    allocation rules are generally inadequate to prevent
    cross-subsidization.[^64] Those rules require, among other things,
    that the BOCs maintain cost allocation manuals (CAMs) that describe
    the nature, terms, and frequency of their affiliate transactions,
    describe their time reporting procedures, and set forth how they
    will allocate costs between their regulated and nonregulated
    activities.[^65] Before being permitted to share OI&M services with
    their section 272 affiliates, we require BOCs to modify those
    manuals to address specifically any OI&M services that they share
    with their section 272 affiliates and to submit the amendments for
    Commission review. Interested parties will have an opportunity to
    comment on those modifications according to our established
    procedures for CAM modifications.[^66] The BOCs' internal processes
    for implementing their cost allocation manuals will be subject to
    the Commission's audit processes.

21. The provision of OI&M services will also be reviewed in the biennial
    audit required under section 272(d), and to the extent that an audit
    reveals problems, such as failure to comply with the affiliate
    transactions rules, the Commission could pursue appropriate
    enforcement action.[^67] Section 272 audits are performed by
    independent auditors who review the BOCs' records, conduct
    interviews, and prepare audit reports. The Commission staff then
    reviews the audit reports to determine compliance with both the
    structural and non-structural requirements of section 272. To date,
    the independent auditors have completed and provided to Commission
    staff five audit reports, two concerning Verizon, two concerning
    SBC, and one concerning BellSouth. The section 272 audit reports
    that have been concluded to date have identified certain compliance
    issues but generally have not disclosed systemic or significant
    issues warranting enforcement action.[^68]

22. With regard to cost allocation, BOCs assert that they have no
    incentive to misallocate costs under the current price cap regime in
    which sharing has been eliminated and the *CALLS* structure has been
    implemented.[^69] They argue that the Commission, through these
    reforms, has severed all links between prices and costs, and,
    therefore, BOCs would gain no benefit from misallocating costs since
    this would not increase their prices or revenues.[^70] On the other
    hand, opponents argue that, even under the current price cap system,
    the incentive remains for BOCs to subsidize their entry into the
    interLATA market.[^71] We have already held that our price cap rules
    reduce incentives to cross-subsidize because prices are not directly
    based on accounting costs.[^72] No party has submitted persuasive
    evidence that invalidates this conclusion. Because the price cap
    regime reduces incentives to misallocate costs, we conclude that the
    price cap rules together with the other non-structural safeguards
    discussed above, effectively limit BOCs' incentives and abilities to
    misallocate costs.

23. Further, we reject AT&T's argument that the Commission's existing
    cost allocation rules would allow BOCs to misallocate costs between
    regulated and non-regulated activities.[^73] Specifically, AT&T
    contends that BOCs would exploit the "prevailing price" cost
    allocation rule "to afford the affiliate all of the benefits of
    joint activities while bearing little or none of the resulting joint
    costs."[^74] As AT&T notes, the Commission's rationale for allowing
    a prevailing price allocation for transactions with a section 272
    affiliate was that these transactions must be made available on a
    non-discriminatory basis to non-affiliated parties pursuant to
    sections 272(c)(1) and 272(e).[^75] AT&T argues that the general
    availability of these services under section 272(c)(1) and 272(e) is
    no protection against cost misallocation in this situation because
    competitors are not likely to purchase OI&M services from a
    BOC.[^76] We continue to believe that the availability of services
    on a non-discriminatory basis prevents BOCs from abusing the
    prevailing price rule. We cannot conclude on the basis of the record
    that all competitors would decline to contract with a BOC for OI&M
    services, particularly if a BOC were to attempt to engage in below
    cost pricing to its affiliate. We also note that, beyond the
    accounting rules, the Act and the Commission's rules bar
    cross-subsidies between competitive and non-competitive
    services.[^77] Therefore, we find that the OI&M sharing prohibition
    is not necessary to protect consumers and competitors from harms
    associated with misallocation of costs.[^78] For all these reasons,
    we no longer conclude, as we did previously, that the sharing of
    personnel for OI&M would heighten the risk of improper cost
    allocation or preclude independent operation.

24. Finally, those opposed to eliminating the OI&M sharing prohibition
    allege that, if a BOC is allowed to share OI&M functions with its
    section 272 affiliate, it will increase the opportunities for
    performance discrimination and decrease the Commission's ability to
    monitor the BOC's performance in providing OI&M functions to itself
    and others.[^79] We conclude, however, on the basis of the record,
    that the OI&M sharing prohibition is not a necessary tool for
    detecting discrimination, and that non-structural alternatives are
    effective and efficient in detecting and deterring performance
    discrimination. Sections 272(c)(1) and 272(e) will continue to
    prohibit discrimination against unaffiliated rivals.[^80] In
    addition, because we acknowledge a relationship between our decision
    here and our outstanding Notice of Proposed Rulemaking on special
    access performance metrics, we commit to addressing special access
    performance metrics in that proceeding expeditiously.[^81] Finally,
    section 272(d) audits, including the performance data reported as
    part of the audits, provide an effective mechanism for the
    Commission to detect, deter, and punish performance
    discrimination.[^82] The Commission has enforcement authority to
    address allegations or complaints involving section 272
    violations.[^83] As discussed below, any additional benefit from the
    OI&M structural safeguards is outweighed by their significant costs,
    both operational costs, which are more readily quantifiable, and
    opportunity costs, which are more difficult to quantify. Moreover,
    we find that the record does not reflect that eliminating the OI&M
    sharing prohibition will increase BOCs' abilities or incentives to
    discriminate in the provisioning of access.

25. ***Costs of the OI&M Sharing Prohibition.*** We find that there is
    sufficient evidence in the record to show that the OI&M sharing
    prohibition has increased the section 272 affiliates' operating
    costs, and that the elimination of the OI&M sharing prohibition will
    likely result in substantial cost savings to the affiliates and
    enable the affiliates to compete more effectively in the
    interexchange market.[^84] We recognize that, at the time the OI&M
    sharing prohibition was adopted, the Commission acknowledged that
    structural separation may sacrifice economies of scale and
    scope.[^85] The Commission, nonetheless, concluded that the benefits
    of the OI&M sharing prohibition outweighed these costs. We now find,
    however, that, when we consider the historical and projected costs
    of the OI&M sharing prohibition against protections afforded by our
    structural and non-structural safeguards, the costs of the rule
    exceed the likely benefits of maintaining the rule. Moreover, we
    find that the likely savings to the section 272 affiliates by
    elimination of the rule, in conjunction with the BOCs' adherence to
    our structural and non-structural rules, including the cost
    allocation rules, supports a finding for the elimination of the OI&M
    sharing prohibition at this time.

26. The estimates of the projected savings from relief of the OI&M
    sharing prohibition vary across the BOCs. The BOCs' estimates of
    their individual annual savings from the elimination of the OI&M
    sharing prohibition range from \$2 million to \$46 million.[^86] The
    estimated savings from the elimination of the OI&M sharing
    prohibition may vary according to the BOC's particular business
    decision as to how to structure its section 272 affiliate and how
    OI&M is provisioned by the affiliate.[^87] In addition, there are
    numerous factors that could affect the estimates of cost savings
    reaped by elimination of the OI&M sharing prohibition, including but
    not limited to the length of time to the sunset of the last separate
    affiliate,[^88] the number of customers and the volume of traffic
    served by the section 272 affiliate,[^89] and the time horizon and
    method in which the affiliate's OI&M functions are integrated into
    the BOC.[^90] Commenters make three primary criticisms of the cost
    estimates of the OI&M sharing prohibition: (1) there is insufficient
    evidence to substantiate the cost savings estimates;[^91] (2) the
    Commission should consider whether cost savings could be achieved by
    the BOCs' restructuring of their affiliate structures or by
    contracting with other service providers;[^92] and (3) there is no
    guarantee any savings will be passed on to consumers.[^93] We
    discuss these criticisms in turn.

27. The Commission has previously found that structural separation may
    sacrifice economies of scale and scope.[^94] We find that sufficient
    evidence is in this record to support the contention that the OI&M
    sharing prohibition significantly increases the BOCs' respective
    section 272 affiliate's costs and that substantial savings could be
    reaped by the BOCs if the OI&M sharing prohibition is lifted.[^95]
    The record evidence submitted by the BOCs provides a reasonable
    basis for the Commission to assess the existence and likely
    magnitude of future cost savings. In addition, AT&T argues that,
    because each BOC has chosen a different affiliate structure, any
    costs above the lowest BOC estimate of costs for maintaining
    structurally separate OI&M services should be summarily discounted.
    AT&T contends that we should not weigh costs that BOCs incur as a
    result of their own choices to adopt more costly affiliate
    structures. We reject AT&T's assertion that the Commission consider
    the potential savings the BOC affiliates could reap by altering
    their affiliate structure or by contracting with other service
    providers rather than the BOC for OI&M services. We believe that
    this would amount to second-guessing by the Commission of a normal
    business decision. BOCs may have legitimate business reasons for
    adopting a particular structure or choosing to outsource. AT&T would
    have us focus on whether any number of hypothetical alternatives
    could be used rather than on the costs and benefits of the rule at
    issue and we do not believe such a focus is appropriate.

28. Finally, we disagree that savings reaped by the section 272
    affiliates are unlikely to be passed on to consumers in the long
    distance market.[^96] The Commission has found, and AT&T has
    acknowledged that the long distance market is substantially
    competitive.[^97] In a competitive market, it is likely that the
    savings in additional costs will be passed on to their long distance
    consumers.[^98] We note that if a BOC failed to pass along savings,
    it would be less competitive in the long distance market vis-à-vis
    other providers of stand-alone long distance services.

29. We further find that the evidence supports BOCs' claims that the
    OI&M sharing prohibition imposes inefficiencies that prevent BOCs
    from competing more effectively in the interexchange market.[^99]
    BOCs argue that the OI&M sharing prohibition creates an unnecessary
    regulatory barrier and imposes unnecessary opportunity costs by
    preventing them from providing end-to-end services, especially for
    large business customers, at the same quality as their interLATA
    competitors.[^100] For example, Verizon claims that the OI&M sharing
    prohibition requires "handoffs of customer requests for service and
    repair that add cost and difficulty in meeting customer
    expectations."[^101] If the OI&M sharing prohibition were
    eliminated, BOCs state, they would gain greater flexibility to
    provide integrated service offerings that cut across traditional
    interLATA and intraLATA boundaries, including broadband and advanced
    services.[^102] Further, the BOCs argue that, because there is no
    legal prohibition against competitors providing end-to-end services
    on an integrated basis, the OI&M sharing prohibition puts BOCs at a
    competitive disadvantage.[^103] In response, BOC competitors argue
    that this is exactly the type of coordination that they must perform
    for their customers given that they rely heavily on BOC last-mile
    facilities. As a result, they contend that the OI&M sharing
    prohibition merely "levels the playing field" and that eliminating
    the rules would put competitors at an unfair competitive
    disadvantage.[^104]

30. As discussed above, to the extent that the section 272 affiliate
    contracts with the BOC for OI&M services, these services must be
    provided to unaffiliated carriers on a nondiscriminatory basis
    pursuant to sections 272(c)(1) and 272(e). Therefore, we conclude
    that the Act and our rules will prevent BOCs from gaining any undue
    advantage. Further, we are persuaded that consumers will likely
    benefit from increased competition based on quality of service. We
    also agree with BOCs that cost savings should allow them to compete
    more effectively with their rivals in the interLATA market,
    particularly for customers desiring highly-customized service
    bundles such as large enterprise customers, because they will have
    increased opportunities to obtain convenient, competitively priced
    interLATA services. As we explained above, the elimination of the
    OI&M sharing prohibition does not remove all protections against
    discrimination.

31. On the basis of these findings, we conclude that the OI&M sharing
    prohibition poses significant adverse consequences -- in terms of
    costs and competition in interLATA services market -- that outweigh
    any potential benefits of enforcing structural separation of OI&M
    services, given the protections afforded to consumers and
    competitors by our non-structural safeguards. We find that the OI&M
    sharing prohibition is an overbroad means of eliminating the risk of
    cost misallocation and discrimination in today's market. For these
    reasons, we eliminate the OI&M sharing prohibition.[^105] As noted
    above, we require BOCs to modify their CAMs to address specifically
    any OI&M services that they intend to provide their section 272
    affiliates and to submit the amendments for Commission review.

**C. Joint Facilities Ownership**

32. The joint facilities ownership restriction was adopted concurrently
    with the OI&M sharing prohibition to implement the "operate
    independently" requirement of section 272(b)(1).[^106] The joint
    facilities ownership restriction, codified in section 53.203(a)(1)
    of the Commission's rules, provides that "\[a\] section 272
    affiliate and the BOC of which it is an affiliate shall not jointly
    own transmission and switching facilities or the land and buildings
    where those facilities are located."[^107] In adopting this
    restriction, the Commission believed that joint ownership of
    facilities could facilitate cost misallocation and discrimination.
    Based on the record presented in this proceeding, we continue to
    believe that, unlike the OI&M sharing prohibition, the costs of
    maintaining separate ownership of facilities do not outweigh the
    benefits the rule provides against cost misallocation and
    discrimination.[^108] For example, based on the record, we are
    persuaded that shared facilities would likely create significant
    joint and common costs that would be inherently difficult to
    allocate properly.[^109] In making this determination, we are
    mindful that the record support for eliminating the joint facilities
    ownership restriction is much more limited and inconclusive than the
    record that has been presented on the OI&M sharing
    prohibition.[^110] Therefore, we retain the joint facilities
    ownership restriction to ensure that BOCs and their affiliates
    continue to "operate independently."

> **D. Other Issues**

33. ***The SBC/Ameritech Merger Order and the SBC Advanced Services
    Forbearance Order.*** In the SBC Petition, SBC requested that the
    Commission (1) modify Condition I of the *SBC/Ameritech Merger
    Order* to eliminate the OI&M sharing restriction; and (2) clarify
    that the modification of the condition would not affect the relief
    granted in the *SBC Advanced Services Forbearance Order*.[^111] In
    the *SBC Advanced Services Forbearance Order*, the Commission
    conditioned its finding that SBC satisfied the statutory criteria
    for forbearance upon, among others, the condition that "SBC operates
    in accordance with the separate affiliate structure established" in
    the *SBC/Ameritech Merger Order*. In turn, the *SBC/Ameritech Merger
    Order* Condition I imposed restrictions on the sharing of OI&M
    services between the advanced services affiliate and the BOC or
    other affiliates. Under the merger condition, SBC was required to
    operate its advanced services affiliate in accordance with
    requirements governing interexchange affiliates under section 272,
    including section 272(b), with certain exceptions, as interpreted by
    the Commission as of August 27, 1999.[^112] Therefore, SBC seeks
    modification of the merger condition and clarification of the
    forbearance order because elimination of the OI&M sharing
    prohibition in the Commission's rules would not automatically
    eliminate the OI&M restrictions in the conditions of these orders.
    SBC argues that, for the same reasons that the OI&M sharing
    prohibition should be eliminated under section 272(b)(1), the
    Commission should eliminate the OI&M restriction in these
    conditions.

34. In this Order, we grant SBC's request that we modify the
    *SBC/Ameritech Merger Order* condition regarding OI&M sharing
    between the advanced services affiliate and the BOC or other
    affiliates as it has been incorporated through the *SBC Advanced
    Services Forbearance Order*. Specifically, we modify the *SBC
    Advanced Services Forbearance Order* to the extent that the separate
    affiliate condition of the forbearance granted in that Order
    included the OI&M restriction contained in the *SBC/Ameritech Merger
    Order*.[^113] AT&T and Sprint oppose the relief from these
    conditions sought by SBC.[^114] For example, with regard to the *SBC
    Advanced Services Forbearance Order*, AT&T argues that, "if the
    Commission were to waive any aspect of the advanced services
    separate affiliate requirement imposed in the *SBC/Ameritech Merger
    Order*, SBC would no longer" be complying with the separate
    affiliate condition of forbearance.[^115] Further, AT&T argues that
    the Commission expressly rejected SBC's arguments in favor of lesser
    safeguards as a forbearance condition.[^116]

35. For reasons consistent with those discussed above with regard to
    section 272(b)(1)'s OI&M sharing prohibition and the reasons
    discussed in the *SBC Advanced Services Forbearance Order*, we are
    persuaded that we should also eliminate the OI&M restriction to the
    extent that it is a condition of forbearance granted in the *SBC
    Advanced Services Forbearance Order.* The OI&M restriction adopted
    in the *SBC/Ameritech Merger Order* was implemented to guard against
    the same potential anticompetitive conduct by the merged entity that
    the OI&M sharing prohibition under our rules was designed to prevent
    in the context of section 272 affiliates. Indeed, the OI&M
    restriction for the advanced services affiliate under the merger
    order was less restrictive than the OI&M sharing prohibition for
    section 272 affiliates. Specifically, the merger condition expressly
    allowed the BOC to provide OI&M services to the advanced services
    affiliate, which was prohibited under the rules for section 272
    affiliates.[^117] In this Order, we eliminate the more onerous rules
    for section 272 affiliates. We conclude that it would be
    inconsistent to eliminate the OI&M sharing prohibition in our rules
    but maintain the lesser OI&M restriction as a condition of
    forbearance when the condition rested on parallel analysis of the
    risks of anticompetitive conduct. Because we conclude that the costs
    outweigh the benefits of the OI&M sharing prohibition, the costs of
    the OI&M forbearance condition must logically outweigh its
    benefits.[^118]

36. We further conclude that eliminating the OI&M restriction from the
    separate affiliate forbearance condition does not alter the outcome
    of our forbearance analysis. First, we find that, even without the
    OI&M restriction, the application of tariff regulation to SBC's
    advanced services operations is not necessary to ensure that
    "charges, practices, classifications, or regulations ... are just
    and reasonable and are not unjustly or unreasonably
    discriminatory."[^119] Because SBC and ASI will be required to
    comply with all other conditions, including the affiliate
    transactions rules and nondiscrimination requirements, we conclude
    that the separate affiliate structure without the OI&M restriction
    will serve the purposes the Commission envisaged in the *SBC
    Advanced Services Forbearance Order*, and therefore, tariff
    regulation is not necessary within the meaning of the first
    forbearance criterion. Second, we find that application of tariff
    regulation to SBC's advanced services operations is not necessary to
    ensure the protection of consumers,[^120] to the extent that SBC
    complies with all conditions outlined in the *SBC Advanced Services
    Forbearance Order* other than the OI&M restriction. We continue to
    believe that the separate affiliate structure will safeguard
    consumers' interests within the meaning of the second forbearance
    criterion, and indeed, we expect consumers to benefit from increased
    competition based on quality of service and resulting from
    efficiency gains in SBC's operations. Third, we find that, without
    the OI&M restriction, forbearance from applying the tariff
    requirements to SBC's advanced services operations will continue to
    be consistent with the public interest to the extent that SBC
    complies with all other conditions.[^121] Specifically, we conclude
    that, by allowing ASI to compete more effectively based on quality
    of service and improved efficiency, forbearance "will promote
    competitive market conditions," including "enhance\[d\] competition
    among providers of telecommunications services."[^122]

37. We recognize, as AT&T notes, that the Commission rejected SBC's
    arguments that "lesser safeguards would suffice in the event it were
    to change its affiliate structure and ways of dealing with its
    advanced services customers."[^123] The Commission, however,
    rejected SBC's argument in the context of a unilateral change to the
    affiliate structure made by SBC. By contrast, here, we, not SBC, are
    adopting a change to the conditions after full notice, comment, and
    consideration of the underlying issues. Moreover, the Commission
    expressly stated that it was considering only SBC's affiliate
    structure as it existed at that time and would not consider various
    hypothetical structures.[^124] The Commission did not conduct a
    forbearance analysis with regard to the separate affiliate structure
    under consideration here, specifically a structure that continues to
    comply with all other conditions of forbearance with the sole
    exception of the OI&M restriction. Here, we have applied the
    forbearance criteria to the structure presented in the SBC Petition,
    and we find that SBC continues to satisfy the statutory criteria for
    forbearance from the tariff requirement to the extent that it
    complies with all remaining conditions of the *SBC Advanced Services
    Forbearance Order.* We emphasize that this modification does not
    affect in any way other conditions in the *SBC Advanced Services
    Forbearance Order* and SBC must continue to comply fully with those
    conditions in order to continue to enjoy the relief granted in that
    order.

38. ***SBC and BellSouth Forbearance Petitions.*** Finally, we dismiss
    the forbearance petitions filed by SBC and BellSouth seeking
    forbearance from the OI&M sharing prohibition because the petitions
    are moot in light of the action we take in this Order.[^125]
    Specifically, SBC and BellSouth sought forbearance from the
    application of the OI&M sharing prohibition, sections
    53.203(a)(2)-(3) of the Commission's rules. In this Order, we
    eliminate those rules. Because SBC's and BellSouth's petitions seek
    forbearance from rules that will no longer exist, their petitions
    are moot.

# IV. CONCLUSION

39. For the reasons discussed above, we conclude that the OI&M sharing
    prohibition is not a necessary component of the statutory
    requirement to "operate independently" and is an overbroad means of
    preventing cost misallocation or discrimination by BOCs against
    unaffiliated rivals. Therefore, we hereby eliminate sections
    53.203(a)(2)-(3) of the Commission's rules. We further conclude that
    we should retain the prohibition against joint ownership by BOCs and
    their section 272 affiliates of switching and transmission
    facilities, or the land and buildings on which such facilities are
    located. In addition, we dismiss petitions filed by SBC and
    BellSouth seeking forbearance from the OI&M sharing prohibition.
    Finally, we grant SBC's request for modification of the
    *SBC/Ameritech Merger Order* conditions related to OI&M services to
    the extent that these merger conditions are incorporated into the
    conditions of the *SBC Advanced Services Forbearance Order*.[^126]

# V. PROCEDURAL MATTERS

> **A. Final Regulatory Flexibility Certification**

40. The Regulatory Flexibility Act of 1980, as amended (RFA),[^127]
    requires that a regulatory flexibility analysis be prepared for
    notice-and-comment rulemaking proceedings, unless the agency
    certifies that "the rule will not, if promulgated, have a
    significant economic impact on a substantial number of small
    entities."[^128] The RFA generally defines the term "small entity"
    as having the same meaning as the terms "small business," "small
    organization," and "small governmental jurisdiction."[^129] In
    addition, the term "small business" has the same meaning as the term
    "small business concern" under the Small Business Act.[^130] A
    "small business concern" is one which: (1) is independently owned
    and operated; (2) is not dominant in its field of operation; and (3)
    satisfies any additional criteria established by the Small Business
    Administration (SBA).[^131]

41. In the *Notice*, we sought comment generally on whether we should
    modify or eliminate the rules adopted to implement the "operate
    independently" requirement of section 272(b)(1) of the Act.[^132]
    Specifically, we sought comment on whether the OI&M sharing
    prohibition is an overbroad means of preventing cost misallocation
    or discrimination by BOCs against unaffiliated rivals.[^133] We also
    sought comment on whether the prohibition against joint ownership by
    BOCs and their section 272 affiliates of switching and transmission
    facilities, or the land and buildings on which such facilities are
    located, should be modified or eliminated.[^134]

42. The Order eliminates the OI&M sharing prohibition, under sections
    53.203(a)(2)-(3) of the Commission's rules, because the Commission
    finds that it is an overbroad means of preventing cost misallocation
    or discrimination by BOCs against unaffiliated rivals.[^135]
    Further, the Order retains the prohibition against joint ownership
    by BOCs and their section 272 affiliates of switching and
    transmission facilities, or the land and buildings on which such
    facilities are located, under sections 53.203(a)(1) of the
    Commission's rules.[^136]

43. The rules adopted in this Order apply only to BOCs and their section
    272 affiliates. Neither the Commission nor the SBA has developed a
    small business size standard specifically applicable to providers of
    incumbent local exchange service and interexchange services. The
    closest applicable size standard under the SBA rules is for Wired
    Telecommunications Carriers.[^137] This provides that such a carrier
    is small entity if it employs no more than 1,500 employees.[^138]
    None of the four BOCs that would be affected by amendment of these
    rules meets this standard. We next turn to whether any of the
    section 272 affiliates may be deemed a small entity. Under SBA
    regulation 121.103(a)(4), "SBA counts the ... employees of the
    concern whose size is at issue and those of all its domestic and
    foreign affiliates ... in determining the concern's size."[^139] In
    that regard, we note that, although section 272 affiliates operate
    independently from their affiliated BOCs, many are 50 percent or
    more owned by their respective BOCs, and thus would not qualify as
    small entities under the applicable SBA regulation.[^140] Moreover,
    even if the section 272 affiliates were not "affiliates" of BOCs, as
    defined by SBA, as many are, the Commission estimates that fewer
    than fifteen section 272 affiliates would fall below the size
    threshold of 1,500 employees**.** Particularly in light of the fact
    that Commission data indicate that a total of 261 companies have
    reported that their primary telecommunications service activity is
    the provision of interexchange services,[^141] the fifteen section
    272 affiliates that may be small entities do not constitute a
    "substantial number." Because the rule amendments directly affect
    only BOCs and section 272 affiliates, based on the foregoing, we
    conclude that a substantial number of small entities will not be
    affected by the rules.

44. Therefore, we certify that the requirements of the Order will not
    have a significant economic impact on a substantial number of small
    entities.

45. The Commission will send a copy of the Order, including a copy of
    this Final Regulatory Flexibility Certification, in a report to
    Congress pursuant to the Congressional Review Act.[^142] In
    addition, the Order and this final certification will be sent to the
    Chief Counsel for Advocacy of the SBA, and will be published in the
    Federal Register.[^143]

## **B. Final Paperwork Reduction Act Analysis**

46. This Report and Order does not contain information collection(s)
    subject to the Paperwork Reduction Act of 1995 (PRA), Public Law
    104-13.

**VI. ORDERING CLAUSES**

47. IT IS ORDERED that, pursuant to sections 2, 4(i)-(j), 272, and
    303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§
    152, 154(i)-(j), 272, 303(r), the Report and Order IS ADOPTED.

48. IT IS FURTHER ORDERED, pursuant to sections 4(i), 10, 272, and
    303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i), 160, 272, 303(r), that the petitions for forbearance filed
    by BellSouth and SBC with respect to their operating, installation,
    and maintenance functions ARE DISMISSED as moot.

49. IT IS FURTHER ORDERED, pursuant to sections 4(i), 4(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 petition for modification of the *SBC/Ameritech Merger
    Order* filed by SBC IS GRANTED to the extent stated herein.

50. IT IS FURTHER ORDERED, pursuant to sections 1.103(a) and 1.427(b) of
    the Commission's rules, 47 C.F.R. §§ 1.103(a), 1.427(b), that this
    Report and Order and Memorandum Opinion and Order SHALL BE EFFECTIVE
    upon publication of the Report and Order in the FEDERAL REGISTER.

51. IT IS FURTHER ORDERED that the Commission's Consumer and
    Governmental Affairs Bureau, Reference Information Center, SHALL
    SEND a copy of this Order, including the Final Regulatory
    Flexibility Certification, to the Chief Counsel for Advocacy of the
    Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

> Marlene H. Dortch
>
> Secretary

**APPENDIX -- FINAL RULES**

PART 53 of Title 47 of the Code of Federal Regulations is amended as
follows:

**PART 53 -- SPECIAL PROVISIONS CONCERNING BELL OPERATING COMPANIES**

1\. Section 53.203 is amended by removing paragraphs (a)(2) and (a)(3),
and redesignating paragraph (a)(1) as paragraph (a) as follows:

[**§ 53**.**203 Structural and transactional
requirements**]{.underline}.

\(a\) *Operational independence*. A section 272 affiliate and the BOC of
which it is an affiliate shall not jointly own transmission and
switching facilities or the land and buildings where those facilities
are located.

\*\*\*\*\*

**SEPARATE STATEMENT OF**

**CHAIRMAN MICHAEL K. POWELL**

*Re: Section 272(b)(1)'s "Operate Independently" Requirement for Section
272 Affiliates; Petition of SBC for Forbearance from the Prohibition of
Sharing Operating, Installation, and Maintenance Functions under
Sections 53.203(a)(2) and 53.203(a)(3) of the Commission's Rules and
Modification of Operating, Installation, and Maintenance Conditions
Contained in the SBC/Ameritech Merger Order; Petition of BellSouth
Corporation for Forbearance from the Prohibition of Sharing Operating,
Installation, and Maintenance Functions Under Section 53.203(a)(2)-(3)
of the Commission's Rules; Review of Regulatory Requirements for
Incumbent LEC Broadband Telecommunications Services, Report and Order in
WC Docket No. 03-228; Memorandum Opinion and Order in CC Docket Nos.
96-149, 98-141, 01-337*

Regulators bear an important obligation to retire rules that no longer
serve their intended purpose. Today's Order is faithful to that charge.
This item eliminates the unnecessary and costly prohibition on certain
types of sharing between Bell operating companies (BOCs) and their
separate affiliates.[^144] In this instance, the items find the costs of
prohibiting BOCs from sharing operations, installation and maintenance
(OI&M) now outweigh the purported benefits. Moreover, other, less
intrusive rules already minimize the risk of discrimination and cost
misallocation by the BOCs. As a result, the time for requiring the
prohibition on OI&M sharing has passed.

Significantly, today's order does not represent an exercise of our
forbearance authority. Instead, the Commission has fulfilled its
obligation to reexamine the Communications Act in light of our
experience and marketplace changes. While I am pleased that the
Commission has acted, I also believe that this Commission could have
achieved this pro-competitive result through the use of our forbearance
authority. Indeed, as Commissioner Abernathy rightly points out, a
forbearance approach would have avoided any tension between today's
action and past Commission Orders on this subject. Nonetheless, I am
pleased that the Commission has moved to update our rules and appreciate
the support of my colleagues in this proceeding. Consumers benefit when
providers can direct resources away from complying with unnecessary
regulations and toward competing in the marketplace.

SEPARATE STATEMENT OF

COMMISSIONER KATHLEEN Q. ABERNATHY

> *Re: Section 272(b)(1)'s "Operate Independently" Requirement for
> Section 272 Affiliates; Petition of SBC for Forbearance from the
> Prohibition of Sharing Operating, Installation, and Maintenance
> Functions Under Sections 53.203(a)(2) and 53.203(a)(3) of the
> Commission's Rules and Modification of Operating, Installation, and
> Maintenance Conditions Contained in the SBC/Ameritech Merger Order;
> Petition of BellSouth Corp. for Forbearance from the Prohibition of
> Sharing Operating, Installation, and Maintenance Functions Under
> Section 53.203(a)(2)-(3) of the Commission's Rules; Review of
> Regulatory Requirements for Incumbent LEC Broadband Telecommunications
> Services, Report and Order and Memorandum Opinion and Order (adopted
> Mar. 11, 2004).*

I support the Commission's decision to eliminate the prohibition on the
sharing of operating, installation, and maintenance functions by Bell
operating companies and their affiliates (the "OI&M rule"). I believe
the costs of the OI&M rule clearly outweigh its benefits. If the Bell
companies are going compete effectively in the market for long-distance
services, including enterprise broadband services, they cannot be
required to duplicate functions unnecessarily. The OI&M rule is not
necessary to prevent anticompetitive conduct because we have preserved
the prohibition on joint ownership of transmission and switching
facilities and also maintained various non-structural safeguards. These
safeguards include the requirements to conduct all transactions at arm's
length and to disclose the details of such transactions on the Internet,
as well as obligation to make OI&M services available to unaffiliated
rivals on a nondiscriminatory basis. These measures are sufficient to
ensure that the BOCs "operate independently" from their long-distance
affiliates, as the statute requires (until this requirement sunsets
pursuant to section 272(f)).

My only concern is the tension between this Order and the Commission's
recent decision rejecting a request for forbearance from the OI&M
rule.[^145] Today, the Commission correctly concludes that the OI&M rule
is not compelled by the language of section 272(b)(1); we are free to
abandon it since other safeguards are sufficient to ensure that a BOC
and its long-distance affiliate "operate independently." *See* Report
and Order, ¶ 7. Four months ago, however, the Commission reached the
opposite conclusion. The Commission held that section 10(d) precluded us
from forbearing from the OI&M rule, on the theory that the rule was a
"requirement" of section 271 and that section, in the Commission's view,
has not yet been "fully implemented" (despite the fact that Verizon had
already been granted section 271 authority in each of its states).[^146]
As my dissent pointed out, since the OI&M rule is not in fact a
"requirement" of section 271, section 10(d) posed no bar to forbearance.
While I am pleased that the Commission has now come around to recognize
that the OI&M rule was but one choice among a range of permissible
safeguards, I believe we should expressly overrule the earlier
interpretation. The damage has been effectively undone in this context
(since the rule change obviates the need for forbearance), but the
Commission's erroneous conclusion that it cannot forbear from *any* rule
adopted pursuant to section 271 or 251(c) prior to "full implementation"
of those sections ― even where the rule is not compelled by the
statutory text ― could prevent us from taking appropriate deregulatory
action in future proceedings.

**STATEMENT OF\
COMMISSIONER MICHAEL J. COPPS,**

**CONCURRING**

Re: *Section 272(b)(1)'s "Operate Independently Requirement for Section
272*

*Affiliates (WC Docket No. 03-228, CC Docket Nos. 96-149, 98-141,
01-337)*

In Section 272, Congress required Bell companies to provide long
distance services though a separate affiliate. Under the statute, the
affiliate must maintain separate books, records and accounts; have
separate officers, directors and employees; and must conduct all
business with its parent on an arm's length basis, with transactions
reduced to writing and available for public inspection. A separate
affiliate may not obtain credit under conditions that permit creditors
to have recourse to its parent. Bell companies are prohibited from
discriminating between their own affiliate and other entities in the
provision of services. This is a strikingly detailed list of
obligations. Congress required every one of them in the Communications
Act. None are negotiable. All must be vigorously enforced.

Congress also required that the separate affiliate "operate
independently" from its Bell company parent. As the Commission suggested
as far back as 1996, this phrase is more ambiguous than its counterpart
requirements in Section 272. As a result, the Commission came up with
two rules to implement its meaning. The Commission eliminates one of
these rules today---the requirement that affiliates provide separate
operation, installation and maintenance functions. I support today's
action because I do not believe that the statute compels this particular
OI&M requirement.

I limit my support to concurring because I believe that with the removal
of this kind of structural safeguard, it is the right time to consider a
non-structural safeguard, namely, special access performance metrics. It
was more than two years ago that the Commission introduced this idea
with unanimous support. Special access services are critical to the
business telecommunications economy. This proposal could be a tool to
ensure quality and nondiscriminatory service. Instead it is gathering
dust on the regulatory shelf. I hope the Commission will undertake a
re-examination of its special access policy as the logical complement to
the step we take here.

**STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN,**

**CONCURRING**

> *Re: Section 272(b)(1)'s "Operate Independently" Requirement for
> Section 272 Affiliates, et al.; Report and Order in WC Docket No.
> 03-228, Memorandum Opinion and Order in CC Docket Nos. 96-149, 98-141,
> 01-337*

I concur in this Order on the belief that the complete prohibition
against sharing of operating, installation, and maintenance (OI&M)
services is not necessary based on this record, while retention of the
joint ownership prohibition is.

Through section 272, Congress required a separate affiliate and imposed
structural and transactional requirements between a Bell operating
company (BOC) and its long distance affiliate, requiring such separation
for a minimum of three years. Congress did not, however, explicitly
specify how the affiliate was to "operate independently" from the BOC.
The Commission adopted the particular rules at issue here to give
meaning to the "operate independently" statutory directive.

The lifting of structural protections is not a trivial matter. In this
case, nevertheless, I am persuaded by this record that the complete
prohibition on sharing of OI&M services is no longer necessary. A
complete ban on such sharing is not statutorily mandated, and the record
suggests that concerns against cost misallocation and discrimination in
both price and performance can be addressed effectively in other ways.

Without question, the sharing of OI&M services between a BOC and its
section 272 affiliate will result in measurable efficiencies. A complete
OI&M restriction imposes costs and denies the economies of scale and
scope inherent in the integration of some services. Allowing OI&M
sharing will enable the BOCs to make better use of their dedicated and
experienced workforces. On an integrated basis, the BOC local exchange
companies' many office and field technicians could perform the same work
more efficiently.

It is critical, however, that revising our rules to permit OI&M sharing
not sacrifice the important goals of preventing improper cost allocation
and discrimination, both in price and performance, by a BOC and its
section 272 affiliate. I place heavy reliance on the BOCs' full
compliance with the other statutory and regulatory safeguards, including
the nondiscrimination provisions, the biennial audit and other public
disclosure requirements, separate governance and arm's length dealings,
and accounting protections. Full compliance with these other safeguards
will go a long way toward protecting competitors and the public.

I would have liked to have seen more analytical depth to this item,
however. For example, we could have examined more specifically the
services at issue to understand their operational impact or whether to
draw any distinction between back office personnel and systems, as the
sharing of systems may cause greater concern. We also have more direct
experience with the section 272(d) audits and underlying performance
data than what is reflected in the item. I would have liked for that
audit experience to have shed further light on the sufficiency of the
other protections. In addition, I would have examined the relationship
between special access performance measures and the issues implicated in
this item. The Commission opened a proceeding on special access
performance measurements more than two years ago, and I would have
considered that in tandem with today's action.

These concerns, however, do not lead me to disagree with the sharing of
OI&M services and the benefit of better workforce utilization. Rather, I
concur insofar as I would have examined in greater depth the services at
issue and assured that any potential gaps in safeguards were fully
addressed through protections such as special access performance
measurements.

[^1]: *See* *Section 272(b)(1)'s "Operate Independently" Requirement for
    Section 272 Affiliates*, WC Docket No. 03-228, Notice of Proposed
    Rulemaking, 18 FCC Rcd 23538 (2003) (*Notice*). Comments were filed
    on December 10, 2003 by Americatel Corporation (Americatel), AT&T
    Corp. (AT&T), BellSouth Corporation (BellSouth), Qwest Services
    Corp. (Qwest), SBC Communications Inc. (SBC), Sprint Corporation
    (Sprint), United States Telecom Association (USTA), Verizon
    Telephone and Long Distance Companies (Verizon), and WorldCom, Inc.
    d/b/a MCI (MCI). Reply comments were filed on December 22, 2003 by
    AT&T, BellSouth, MCI, Qwest, SBC, Sprint, and Verizon. *See Pleading
    Cycle Established for Comments on Section 272(b)(1)'s "Operate
    Independently" Requirement for Section 272 Affiliates*, WC Docket
    No. 03-228, Public Notice, 18 FCC Rcd 24373 (2003).

[^2]: 47 U.S.C. § 272(b)(1).

[^3]: Sections 53.203(a)(2)-(3) of the Commission's rules prohibit a
    BOC's section 272 affiliate from sharing OI&M functions with the BOC
    or another BOC affiliate. 47 C.F.R. § 53.203(a)(2)-(3).

[^4]: 47 C.F.R. § 53.203(a)(1).

[^5]: *Applications of Ameritech Corp., Transferor, and SBC
    Communications Inc., 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*, CC Docket No.
    98-141, Memorandum Opinion and Order, 14 FCC Rcd 14712 (1999)
    (*SBC/Ameritech Merger Order*), *vacated in part sub nom.*, *Ass'n
    of Communications Enters. v. FCC*, 235 F.3d 662 (D.C. Cir. 2001)
    (*ASCENT v FCC*).

[^6]: *Review of Regulatory Requirements for Incumbent LEC Broadband
    Telecommunications Services*, CC Docket No. 01-337, Memorandum
    Opinion and Order, 17 FCC Rcd 27000 (2002) (*SBC Advanced Services
    Forbearance Order*).

[^7]: The term "interLATA service" is defined in the Act as
    "telecommunications between a point located in a local access and
    transport area and a point located outside such area." 47 U.S.C. §
    153(21). "Telecommunications" is defined as "the transmission,
    between or among points specified by the user, of information of the
    user's choosing, without change in the form or content of the
    information as sent and received." 47 U.S.C. § 153(43).

[^8]: 47 U.S.C. § 271(b)(1). BOCs have now been granted section 271
    authority to provide interLATA services in all of their in-region
    states. *See* FCC, *Federal Communications Commission Authorizes
    Qwest to Provide Long Distance Service in Arizona; Bell Operating
    Companies Long Distance Application Process Concludes; Entire
    Country Authorized for "All Distance" Service*, News Release (Dec.
    3, 2003).

[^9]: *See* 47 U.S.C. § 272(a)(2)(B), (f)(1) (requiring separate
    affiliate for three years "unless the Commission extends such 3-year
    period by rule or order"); *see also Section 272(f)(1) Sunset of the
    BOC Separate Affiliate and Related Requirements*, WC Docket No.
    02-112, Memorandum Opinion and Order, 17 FCC Rcd 26869, 26876, para.
    13 (2002) ("We find that section 272(f)(1) should be interpreted as
    providing for a state-by-state sunset of the section 272 separate
    affiliate and related requirements."). Even when the separate
    affiliate obligation sunsets, BOCs may elect, and have elected, to
    continue the affiliate structure due to the dominant carrier
    regulations to which they would be subject if they integrated.
    Therefore, this rule change may have relevance beyond the formal
    sunset period. *See generally* *Section 272(f)(1) Sunset of the BOC
    Separate Affiliate and Related Requirements; 2000 Biennial
    Regulatory Review Separate Affiliate Requirements of Section 64.1903
    of the Commission's Rules*, WC Docket No. 02-112; CC Docket No.
    00-175, Further Notice of Proposed Rulemaking, 18 FCC Rcd 10914
    (2003). The section 272 provisions (other than section 272(e)) have
    sunset in New York, Texas, Kansas, and Oklahoma. *See Section 272
    Sunsets for Verizon in New York State by Operation of Law on
    December 23, 2002 Pursuant to Section 272(f)(1)*, WC Docket No.
    02-112, Public Notice, 17 FCC Rcd 26864 (2002); *Section 272 Sunsets
    for SBC in the State of Texas by Operation of Law on June 30, 2003
    Pursuant to Section 272(f)(1)*, WC Docket No. 02-112, Public Notice,
    18 FCC Rcd 13566 (2003); *Section 272 Sunsets for SBC in Kansas and
    Oklahoma by Operation of Law on January 22, 2004 Pursuant to Section
    272(f)(1)*, WC Docket No. 02-112, Public Notice, FCC 04-14 (rel.
    Jan. 22, 2004).

[^10]: 47 U.S.C. § 272(b)(1).

[^11]: *Id.*

[^12]: *See 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, 21981-84, paras. 158-62
    (1996) (*Non-Accounting Safeguards Order*), Order on
    Reconsideration, 12 FCC Rcd 2297 (1997), Second Order on
    Reconsideration, 12 FCC Rcd 8653 (1997) (*Non-Accounting Safeguards
    Second Order on Recon.)*, *aff'd sub nom. Bell Atlantic Tel. Cos. v.
    FCC*, 131 F.3d 1044 (D.C. Cir. 1997), Third Order on
    Reconsideration, 14 FCC Rcd 16299 (1999) (*Non-Accounting Safeguards
    Third Order on Recon.)*; 47 C.F.R. § 53.203(a)(1).

[^13]: *See* *Non-Accounting Safeguards Order*, 11 FCC Rcd at 21981-82,
    21984-86, paras. 158, 163-66; 47 C.F.R. § 53.203(a)(2)-(3). The
    Commission reasoned that allowing joint ownership of facilities and
    sharing of OI&M functions between BOCs and their section 272
    affiliates could create opportunities for improper cost allocation
    and discrimination that the separate affiliate requirement was
    intended to prevent. *See id.* at 21981-82, para. 158. At the same
    time, the Commission recognized that these restrictions on sharing
    of facilities and OI&M services impose costs, including
    inefficiencies within the BOCs' corporate structures, and that the
    economies of scale and scope inherent to integration produce
    economic benefits to consumers. *See id.* at 21983-84, 21986, 21991,
    paras. 162, 167-68, 179; *see also* *Non-Accounting Safeguards
    Second Order on Recon.*, 12 FCC Rcd at 8683, para. 55.

[^14]: The Commission clarified that "'sharing of services' means the
    provision of services by the BOC to its section 272 affiliate, or
    vice versa." *Non-Accounting Safeguards Order*, 11 FCC Rcd at
    21990-91, para. 178.

[^15]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21981-82,
    21984-86, paras. 158, 163-66; 47 C.F.R. § 53.203(a)(2)-(3).

[^16]: *See Non-Accounting Safeguards Third Order on Recon.*, 14 FCC Rcd
    at 16309-11, paras. 13-15; *see also id.* at 16314-15, para. 20
    (affirming the OI&M sharing prohibition).

[^17]: *Id.* at 16310, para. 14.

[^18]: *Id.* at 16310-11, paras. 14-15 (citing *Pauley v. Bethenergy
    Mines, Inc.*, 501 U.S. 680, 696 (1991) ("Judicial deference to an
    agency's interpretation of ambiguous provisions of the statutes it
    is authorized to implement reflects a sensitivity to the proper
    roles of the political and judicial branches. ... \[T\]he resolution
    of ambiguity in a statutory text is often more a question of policy
    than of law.")).

[^19]: *See* *Non-Accounting Safeguards Third Order on Recon.*, 14 FCC
    Rcd at 16310, para. 14.

[^20]: Petition of Verizon for Forbearance from the Prohibition of
    Sharing Operating, Installation, and Maintenance Functions under
    Section 53.203(a)(2) of the Commission's Rules, CC Docket No. 96-149
    (filed Aug. 5, 2002) (Verizon Petition); Petition of SBC for
    Forbearance from the Prohibition of Sharing Operating, Installation,
    and Maintenance Functions under Sections 53.203(a)(2) and
    53.203(a)(3) of the Commission's Rules and Modification of
    Operating, Installation, and Maintenance Conditions Contained in the
    SBC/Ameritech Merger Order, CC Docket Nos. 96-149, 98-141 (filed
    June 5, 2003) (SBC Petition); Petition of BellSouth Corporation for
    Forbearance from the Prohibition of Sharing Operating, Installation,
    and Maintenance Functions Under Section 53.203(a)(2)-(3) of the
    Commission's Rules, CC Docket No. 96-149 (filed July 14, 2003)
    (BellSouth Petition).

[^21]: *See Petition of Verizon for Forbearance from the Prohibition of
    Sharing Operating, Installation, and Maintenance Functions Under
    Section 53.203(a)(2) of the Commission's Rules*, CC Docket No.
    96-149, Memorandum Opinion and Order, 18 FCC Rcd 23525 (2003)
    (*Verizon OI&M Forbearance Order*), *appeal pending*, *Verizon Tel.
    Cos. v. FCC*, D.C. Cir. No. 03-1404. Although we denied the Verizon
    Petition, we did not reach the merits of the three-prong analysis
    under section 10(a). In this Order, we dismiss SBC's and BellSouth's
    forbearance petitions as moot.

    Qwest also filed a petition for forbearance. On November 14, 2003,
    the Wireline Competition Bureau (Bureau) granted Qwest's request to
    withdraw and dismissed Qwest's forbearance petition. *See Petition
    of Qwest Services Corporation for Forbearance from the Prohibition
    of Performing Operating, Installation, and Maintenance Functions
    under Section 53.203(a)(2)-(3) of the Commission's Rules*, CC Docket
    No. 96-149, Order, 18 FCC Rcd 24016 (WCB 2003); Petition of Qwest
    Services Corporation for Forbearance from the Prohibition of
    Performing Operating, Installation, and Maintenance Functions under
    Section 53.203(a)(2)-(3) of the Commission's Rules, CC Docket No.
    96-149 (filed Oct. 3, 2003).

[^22]: *See* SBC Petition at 25-27. Comments on the SBC Petition were
    filed on July 1, 2003 by AT&T, Sprint, Verizon, and MCI. Reply
    comments were filed on July 15, 2003 by SBC. *See Comment Dates Set
    for Petition for Forbearance and Modification Filed by SBC
    Communications Inc.*, CC Docket Nos. 96-149, 98-141, Public Notice,
    18 FCC Rcd 11504 (2003).

[^23]: SBC Petition at 26. In its petition, SBC refers to the *SBC
    Advanced Services Forbearance Order* as the "ASI Tariffing
    Forbearance Order." *See, e.g.*, SBC Petition at 2 n.4.

[^24]: *See SBC Advanced Services Forbearance Order,* 17 FCC Rcd at
    27002-03, paras. 3-5*; SBC/Ameritech Merger Order*, 14 FCC Rcd at
    14988-89, Condition I.12; *cf.* *Application of GTE Corporation,
    Transferor, and Bell Atlantic Corporation, Transferee for Consent to
    Transfer Control of Domestic and International Section 214 and 310
    Authorizations and Applications to Transfer Control of a Submarine
    Cable Landing License*, CC Docket No. 98-184, Order, 16 FCC Rcd
    16915, 16916, para. 2 n.5 (Com. Car. Bur. 2001) (concluding that, as
    a result of the holding in *ASCENT v. FCC*, a similar condition for
    Verizon's advanced services operations sunset on January 9, 2002).

[^25]: *See SBC Advanced Services Forbearance Order*, 17 FCC Rcd at
    27003, 27008, para. 5, 13.

[^26]: *See* SBC Petition at 26-27.

[^27]: 47 C.F.R. § 53.203(a).

[^28]: *See* AT&T Comments at 29, 31; MCI Comments at 1-4; Sprint
    Comments at 4; AT&T Reply at 8-10, 14; MCI Reply at 1-2; Sprint
    Reply, Attach. 1 at 3-4, Attach. 2 at 4, 10. *But see* Qwest Reply
    at 8-9; Verizon Reply at 2-4. In the *Non-Accounting Safeguards
    Order*, the Commission concluded that, based on the principle that a
    statute should be construed so as to give effect to each of its
    provisions, the "operate independently" language of section
    272(b)(1) imposes requirements on section 272 separate affiliates
    beyond those detailed in section 272(b)(2)-(5). To give independent
    meaning to the "operate independently" language, the Commission
    adopted the OI&M sharing prohibition and the joint facilities
    ownership restriction. *See Non-Accounting Safeguards Order*, 11 FCC
    Rcd at 21981, para. 156. Section 272(b)(2)-(5) provides that the
    section 272 separate affiliate "(2) shall maintain books, records,
    and accounts in the manner prescribed by the Commission which shall
    be separate from the books, records, and accounts maintained by the
    \[BOC\] of which it is an affiliate; (3) shall have separate
    officers, directors, and employees from the \[BOC\] of which it is
    an affiliate; (4) may not obtain credit under any arrangement that
    would permit a creditor, upon default, to have recourse to the
    assets of the \[BOC\]; and (5) shall conduct all transactions with
    the \[BOC\] of which it is an affiliate on an arm's length basis
    with any such transactions reduced to writing and available for
    public inspection." 47 U.S.C. § 272(b)(2)-(5).

[^29]: *See, e.g.,* AT&T Reply at 8-10; Letter from Frank S. Simone,
    Government Affairs Director, AT&T, to Marlene H. Dortch, Secretary,
    Federal Communications Commission, WC Docket No. 03-228, Attach. at
    1-6 (filed Feb. 20, 2004). *But see* Letter from Colin S. Stretch,
    Counsel for SBC, to Marlene H. Dortch, Secretary, Federal
    Communications Commission, WC Docket No. 03-228, Attach. at 1-4
    (filed Feb. 26, 2004) (SBC Feb. 26, 2004 *Ex Parte* Letter); Letter
    from Dee May, Vice President -- Federal Regulatory Affairs, Verizon,
    to Marlene H. Dortch, Secretary, Federal Communications Commission,
    WC Docket No. 03-228, Attach. at 1-4 (filed Mar. 4, 2004); Letter
    from Melissa E. Newman, Vice President -- Federal Regulatory, Qwest,
    to Marlene H. Dortch, Secretary, Federal Communications Commission,
    WC Docket No. 03-228 at 2-3 (filed Feb. 4, 2004) (Qwest Feb. 4, 2004
    *Ex Parte* Letter).

[^30]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21917-18,
    para. 23; *id.* at 21976, para. 147 ("The Act does not elaborate on
    the meaning of the phrase 'operate independently.'"); *id.* at
    21998-87, paras. 156-70 (interpreting "operate independently");
    *Non-Accounting Safeguards Third Order on Recon.*, 14 FCC Rcd at
    16309-11, paras. 13-15.

[^31]: *See, e.g.,* *Non-Accounting Safeguards Order*, 11 FCC Rcd at
    21982, 21984, paras. 159, 163.

[^32]: As discussed above, the rules adopted to implement the "operate
    independently" requirement were policy choices within a range of
    reasonable options for interpreting the statutory provision, not
    mandates of section 272(b)(1) itself. Section 272(b)(1) directs BOCs
    and their section 272 affiliates to "operate independently" but does
    not otherwise specify requirements. As a result, the Commission
    concluded that the term "operate independently" was ambiguous.

[^33]: *See* 47 U.S.C. § 272(c)(1) (imposing a nondiscrimination
    requirement on a BOC's dealings with its section 272 affiliate).

[^34]: *See* 5 U.S.C. § 553; 47 U.S.C. § 201(b); *AT&T Corp. v. Iowa
    Utils. Bd.*, 525 U.S. 366, 377-78 (1999); *Greater Boston Television
    Corp. v. FCC*, 444 F.2d 841, 852 (D.C. Cir. 1972) (explaining that
    an agency may change its rules so long as it supplies a reasoned
    analysis that prior policies and standards are being deliberately
    changed); *see also* Americatel Comments at 10; BellSouth Comments
    at 7 n.13; Verizon Comments at 6; Verizon Reply at 2, 7.

[^35]: *See Notice*, 18 FCC Rcd at 23541, para. 6.

[^36]: *Non-Accounting Safeguards Order,* 11 FCC Rcd at 21986, para.
    168.

[^37]: AT&T Reply at 8.

[^38]: *Merriam Webster's Collegiate Dictionary* 591(10th ed. 1996)
    (*Webster's Dictionary*); *see* SBC Feb. 26, 2004 *Ex Parte* Letter,
    Attach. at 1 (citing *American Heritage Dictionary* 654 (2d Ed.
    1991)).

[^39]: *Webster's Dictionary* at 591.

[^40]: 47 U.S.C. § 272(b)(3).

[^41]: 47 U.S.C. § 274(b)(7)(B). We found that these differences
    strongly suggest that the term "operate independently" must be read
    in the context of the specific statutory section. *See
    Non-Accounting Safeguards Order,* 11 FCC Rcd at 21981, para. 157.
    Moreover, the fact that Congress found it necessary to outline in
    detail the "operate independently" requirements for section 274
    affirm our finding that the term is ambiguous.

[^42]: *See* AT&T Comments at 29-30 (citing *ASCENT v. FCC*, 235 F.3d at
    666); *see also* Sprint Reply at 2-3. *But see* Letter from David L.
    Lawson, Counsel for AT&T, to Marlene Dortch, Secretary, Federal
    Communications Commission, CC Docket No. 96-149 at 8 (filed July 9,
    2003).

[^43]: *See* AT&T Comments at 29 (citing *Verizon OI&M Forbearance
    Order*, 18 FCC Rcd 23525).

[^44]: *See* AT&T Comments at 30 (citing *ASCENT v. FCC*, 235 F.3d at
    666).

[^45]: *ASCENT v. FCC*, 235 F.3d at 665.

[^46]: *See id.*

[^47]: *Id.* at 668.

[^48]: *See, e.g., id.* at 665, 668; *see also* Qwest Reply at 6-7; SBC
    Reply at 2-3; Verizon Reply at 2 n.3.

[^49]: *See, e.g., Bell Atl. Tel. Cos. v. FCC*, 131 F.3d 1044, 1048-49
    (D.C. Cir. 1997) (citing *Troy Corp. v. Browner,* 120 F.3d 277, 285
    (D.C. Cir. 1997) (agency interpretation must be "reasonable and
    consistent with the statutory purpose"); *Cleveland, Ohio v. U.S.
    Nuclear Regulatory Comm\'n,* 68 F.3d 1361, 1367 (D.C. Cir. 1995)
    (agency interpretation must be "reasonable and consistent with the
    statutory scheme and legislative history")); *see also* Qwest Reply
    at 7 nn.23-24.

[^50]: *See* AT&T Comments at 30 (emphasis added).

[^51]: As noted above, we have expressly held that we may not forbear
    from the OI&M sharing prohibition until section 272 is "fully
    implemented," as required by section 10(d). *See* *Verizon OI&M
    Forbearance Order*, 18 FCC Rcd 23525.

[^52]: We do not disturb the requirements of section 53.203(a)(1). This
    provision is unrelated to the OI&M sharing prohibition and
    implements section 272(b)(1)'s "operate independently" requirement.

[^53]: The OI&M sharing prohibition also prohibits a BOC affiliate,
    other than the section 272 affiliate itself, from performing OI&M
    functions for the section 272 affiliate. *See* 47 C.F.R. §
    53.203(a)(3). In adopting this provision, the Commission reasoned
    that allowing a third affiliate to provide OI&M services to the
    section 272 affiliate would create a loophole around the OI&M
    sharing prohibition of the separate affiliate requirement. *See
    Non-Accounting Safeguards Order*, 11 FCC Rcd at 21984, para. 163;
    *Non-Accounting Safeguards Third Order on Recon.*, 14 FCC Rcd at
    16314-15, para. 20. Our elimination of the OI&M sharing prohibition
    includes the prohibition against a non-section 272 affiliate
    providing OI&M services to a section 272 affiliate. Because the
    primary purpose of the rule was to ensure that the prohibition was
    not easily avoided and we now have lifted that prohibition in this
    Order, there is also no need to prohibit sharing of OI&M services
    between affiliates.

[^54]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21984, para.
    163.

[^55]: *See* Americatel at 4; AT&T Comments at 3, 23; Sprint Comments at
    2-4, Attach. 3 at 12, Attach. 4 at 4; AT&T Reply at 17-18; MCI Reply
    at 2-5; Sprint Reply, Attach. 2 at 11, 15.

[^56]: *See, e.g.,* Qwest Comments at 5; Verizon Comments at 10-11;
    Qwest Reply at 9-12. Recognizing the effectiveness of non-structural
    safeguards, the Commission declined, in the *Non-Accounting
    Safeguards Order*, to impose additional structural restrictions on
    the joint ownership of other property between the BOC and its
    section 272 affiliate or on the sharing of services. The Commission
    concluded that additional structural separation requirements were
    unnecessary given non-structural safeguards, including the
    nondiscrimination provisions, the biennial audit requirement, and
    other requirements imposed by section 272. *See Non-Accounting
    Safeguards Order*, 11 FCC Rcd at 21986, para. 167 ("We decline to
    impose additional structural separation requirements given the
    nondiscrimination safeguards, the biennial audit requirement, and
    other public disclosure requirements imposed by section 272. In
    combination with the accounting protections established in the
    *Accounting Safeguards Order*, we believe the requirements set forth
    herein will protect against potential anticompetitive behavior.");
    *see also id.* at 21983-84, para. 162 ("We find that joint ownership
    of other property, such as office space and equipment used for
    marketing or the provision of administrative services, may provide
    economies of scale and scope without creating the same potential for
    discrimination by the BOCs. Moreover, we believe that the
    Commission\'s accounting rules; the separate books, records, and
    accounts requirement of section 272(b); and the audit requirement of
    section 272(d) provide adequate protection against the potential for
    improper cost allocation.") (citations omitted).

[^57]: Because we conclude that the existing safeguards are effective,
    we decline to adopt additional safeguards proposed by Americatel in
    this proceeding. *See* Americatel Comments at 4-5.

[^58]: *See, e.g.,* Verizon Comments at 11-12; Verizon Reply at 14.

[^59]: 47 U.S.C. § 272(b)(5).

[^60]: *See* 47 C.F.R. § 53.203(e).

[^61]: *See* 47 U.S.C. § 272(c), (e)(2), (e)(4).

[^62]: *See* 47 U.S.C. § 272(e). BOCs will also remain fully subject to
    the remaining structural requirements of sections 272(b)(1)-(5).
    *See* n.Error: Reference source not found, *supra*.

[^63]: *See* Qwest Comments at 7-8; Verizon Comments at 12; Qwest Reply
    at 10; Verizon Reply at 4 n.6. We note that these safeguards do not
    apply to transactions between affiliates. However, as discussed
    above, the primary purpose of the rule prohibiting sharing between
    affiliates was to ensure that the prohibition against sharing
    between the BOC and the section 272 affiliate was not easily
    avoided. Because we no longer prohibit sharing between a BOC and a
    section 272 affiliate, we no longer have concern that BOCs will use
    affiliates as a loophole around the sharing prohibition. Because we
    did not impose the prohibition on affiliate-to-affiliate
    transactions due to a concern about cost misallocation between the
    affiliates, these transactions need not be included within these
    safeguards. *See* n.Error: Reference source not found, *supra*.

[^64]: *See, e.g.,* AT&T Comments at 26-27; AT&T Reply at 19-21.

[^65]: *See* 47 C.F.R. § 64.903(a).

[^66]: CAM modifications are filed with the Commission for review and
    the Commission seeks public comment on the modifications. If there
    is no opposition to the proposal, the Commission need not issue a
    written order approving the CAM proposal. Rather, the CAM
    modifications will take effect unless suspended by the Bureau for a
    period not to exceed 180 days. If the proposal is opposed or if the
    Commission identifies an issue with the proposal, the Commission or
    the Bureau will issue an order approving or rejecting the CAM
    proposal. *See* 47 C.F.R. § 64.903(b).

[^67]: 47 U.S.C. § 272(d).

[^68]: The Commission did issue a Notice of Apparent Liability against
    Verizon concluding that Verizon had apparently violated section
    220(d) of the Act and section 32.27 of our rules, which pertain to
    how the BOCs must account for affiliate transactions. *See Verizon
    Telephone Companies, Inc. Apparent Liability for Forfeiture*, File
    No. EB-03-IH-0245, Notice of Apparent Liability for Forfeiture, 18
    FCC Rcd 18796 (2003) (*Verizon NAL*). The *Verizon NAL* did not
    concern any OI&M issues. Two recent audit reports have disclosed
    certain OI&M issues. *See* BellSouth Section 272 Biennial Report on
    Agreed Upon Procedures for the Period May 24, 2002 to May 23, 2003
    Prepared by PricewaterhouseCoopers, Appendix B: 64-65 filed November
    10, 2003 in EB Docket No. 03-197; Verizon Section 272 Biennial
    Report on Agreed Upon Procedures for the Period January 3, 2001 to
    January 2, 2003 Prepared by PricewaterhouseCoopers, Appendix B: 2-3
    filed December 12, 2003 in EB Docket No. 03-200. While we may
    consider enforcement action with respect to these issues, there is
    no indication that these instances represent systemic discrimination
    by the BOCs in favor of their long distance affiliates.

[^69]: *See* *generally* *Access Charge Reform; Price Cap Performance
    Review for Local Exchange Carriers, Low-Volume Long Distance Users,
    Federal-State Joint Board on Universal Service*, CC Docket Nos.
    96-262, 94-1, 99-249, 96-45, Sixth Report and Order; Report and
    Order; Eleventh Report and Order, 15 FCC Rcd 12962 (2000) (*CALLS
    Order*) (subsequent history omitted); *see also id.* at 12969, para.
    17 ("In the past, all or some price cap LECs were required to
    'share,' or return to ratepayers, earnings above specified levels.
    This sharing requirement was eliminated in 1997.") (citing *Price
    Cap Performance Review for Local Exchange Carriers*, CC Docket Nos.
    94-1, 96-262, 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,
    16700 (1997), *aff\'d in part, rev\'d in part*, *USTA v. FCC*, 188
    F.3d 521 (D.C. Cir. 1999)).

[^70]: *See*, *e.g.,* BellSouth Comments at 9-10; Qwest Comments at 6-7;
    SBC Comments at 3; USTA Comments at 3; Verizon Comments at 8-9;
    BellSouth Reply at 4-9; Qwest Reply at 10; SBC Reply at 2; Verizon
    Reply at 12-13.

[^71]: *See, e.g.,* Americatel Comments at 8-9; AT&T Comments at 23-26,
    Exh. A; Sprint Reply, Attach. 1 at 10-11, Attach. 2 at 6.

[^72]: *See* *Non-Accounting Safeguards Order*, 11 FCC Rcd at 21992,
    para. 181 ("We agree with commenters who contend that, in any event,
    federal price cap regulation reduces a BOC's incentives to allocate
    costs improperly.") (citations omitted); *CALLS Order*, 15 FCC Rcd
    at 12969, para. 17 ("Although price cap regulation eliminates the
    direct link between changes in allocated accounting costs and change
    in prices, it does not sever the connection between accounting costs
    and prices entirely."); *see also* *Verizon v. FCC*, 535 U.S. 467,
    487 (2002) ("Although the price caps do not eliminate gamesmanship,
    since there are still battles to be fought over the productivity
    offset and allowable exogenous costs, they do give companies an
    incentive 'to improve productivity to the maximum extent possible,'
    by entitling those that outperform the productivity offset to keep
    resulting profits.") (citations omitted). One vestige of
    rate-of-return regulation that the price cap system retained -- the
    low-end adjustment mechanism -- has been eliminated for any price
    cap carriers exercising pricing flexibility. *See* 47 C.F.R. §
    69.731. As a result, none of the BOCs may resort to the low-end
    adjustment, which would otherwise allow them to raise rates to
    target a 10.25% rate of return if they suffer low earnings.

[^73]: *See* AT&T Comments, Declaration of Lee L. Selwyn, paras. 29-32
    (AT&T Selwyn Decl.).

[^74]: AT&T Selwyn Decl., para. 30; *see* 47 C.F.R. § 32.27(d); *see
    also* Sprint Reply, Attach. 1 at 21. *But see* BellSouth Reply at
    12-13.

[^75]: *See* AT&T Selwyn Decl., para. 30 (citing *Accounting Safeguards
    Order*, 11 FCC Rcd 17539, 17601, para. 137).

[^76]: *See* AT&T Selwyn Decl., para.30. *But see* BellSouth Comments at
    10-12; Verizon Comments at 10; Verizon Reply at 12 n.23; Letter from
    Brett A. Kissel, Associate Director -- Federal Regulatory, SBC, to
    Marlene H. Dortch, Secretary, Federal Communications Commission, WC
    Docket No. 03-228, Attach. at 1 (filed Jan. 21, 2004); Letter from
    Dee May, Vice President -- Federal Regulatory, Verizon, to Marlene
    H. Dortch, Secretary, Federal Communications Commission, WC Docket
    No. 03-228 at 3-4 (filed Jan. 23, 2004); Qwest Feb. 4, 2004 *Ex
    Parte* Letter at 3-4. We note that, based on the record in this
    proceeding, it does not appear that AT&T has requested OI&M services
    from a BOC.

[^77]: *See* 47 U.S.C. § 254(k); 47 C.F.R. § 64.901(c).

[^78]: On December 23, 2003, the Commission sought comment on a proposal
    by the Federal-State Joint Conference on Accounting to raise the
    qualification threshold for using the method of prevailing price
    valuation of affiliate transactions from 25 percent to 50 percent.
    The notice does not seek comment on the prevailing price rule as it
    applies to the section 272 transactions at issue here. *See*
    *Federal-State Joint Conference on Accounting Issues; 2000 Biennial
    Regulatory Review -- Comprehensive Review of the Accounting
    Requirements and ARMIS Reporting Requirements for Incumbent Local
    Exchange Carriers Phase II, Jurisdictional Separations Reforms and
    Referral to the Federal-State Joint Board, Local Competition and
    Broadband Reporting*, WC Docket No. 02-269; CC Docket Nos. 00-199,
    80-286, 99-301, Notice of Proposed Rulemaking, 18 FCC Rcd 26991,
    26993-94, para. 5 (2003); *see also* Letter from Federal-State Joint
    Conference on Accounting Issues, to Marlene H. Dortch, Secretary,
    Federal Communications Commission, WC Docket No. 02-269, Attach. at
    23-24 (filed Oct. 9, 2003).

[^79]: *See* MCI Comments at 5-7; MCI Reply at 3-5; Sprint Reply,
    Attach. 1 at 11-14, 20, Attach. 2 at 8-9. *But see* BellSouth
    Comments at 10-12; Qwest Comment at 8-11; SBC Comments at 3 n.6;
    USTA Comments at 3; BellSouth Reply at 9-10; Qwest Reply at 11.

[^80]: 47 U.S.C. § 272(c)(1), (e).

[^81]: *See Performance Measurements and Standards for Interstate
    Special Access Services*, CC Docket No. 01-321, Notice of Proposed
    Rulemaking, 16 FCC Rcd 20896 (2001); *see also, e.g.,* MCI Comments
    at 6-7; Sprint Comments, Attach. 3 at 13, Attach. 4 at 4; MCI Reply
    at 4-5 (urging the Commission to adopt special access performance
    metrics).

[^82]: 47 U.S.C. § 272(d). We note that our rule change here is
    prospective only. All audits for periods up to the effective date of
    this Order are still subject to the rules that existed during the
    time period covered by a particular audit.

[^83]: *See, e.g.,* 47 U.S.C. §§ 208, 271(d)(6).

[^84]: *See* BellSouth Comments at 12-13; Letter from Mary L. Henze,
    Assistant Vice President, Federal Regulatory, BellSouth, to Marlene
    Dortch, Secretary, Federal Communications Commission, WC Docket No.
    03-28 at 1 & Attach. at 1-5 (filed Feb. 3, 2003) (BellSouth Feb. 3
    *Ex Parte* Letter); Qwest Comments at 4, 11; Qwest Comments,
    Declaration of Rodney L. Miller, paras. 4-5 (Qwest Miller Decl.);
    Qwest Comments, Declaration of Pamela J. Stegora Axberg, paras. 3-6
    (Qwest Stegora Axberg Decl.); SBC Petition at 20 & Attach. 1,
    Declaration of Richard Deitz, paras. 11-22 (SBC Deitz Decl.);
    Verizon Comments at 19-23 & Attach. 1, Verizon Petition, Declaration
    of Fred Howard, paras. 2-5 (Verizon Howard Decl.); Verizon Comments,
    Attach. 16, Verizon June 4 *Ex Parte* Letter (Verizon June 4 *Ex
    Parte* Letter); Verizon Comments, Attach. 18 at 6-12 (Verizon June
    24 *Ex Parte* Letter); Verizon Comments, Attach. 19 at 4-6 (Verizon
    Aug. 11 *Ex Parte* Letter); Verizon Comments, Attach. 19,
    Supplemental Declaration of Fred Howard, paras. 2-5 (Verizon Howard
    Supp. Decl.).

[^85]: *See, e.g.,* *Non-Accounting Safeguards Order*, 11 FCC Rcd at
    21911, 21913, paras. 7, 13; *Non-Accounting Safeguards Second Order
    on Reconsideration*, 12 FCC Rcd at 8683, para. 55.

[^86]: *See* Bellsouth Comments at 4-5; BellSouth Feb. 3 *Ex Parte*
    Letter, Attach. at 5. Qwest estimates that it could save
    approximately \$20 million in OI&M activities in 2004 if it and its
    Section 272 affiliate were permitted to share OI&M functions. *See*
    Qwest Comments at 4, 11; Qwest Miller Decl., paras. 4-5; Qwest
    Stegora Axberg Decl., paras 3-6. Verizon's Global Networks Inc.
    (GNI) is Verizon's section 272 affiliate that provides OI&M services
    to its other affiliates. Verizon estimates that GNI would save
    approximately \$183 million from 2003 to 2006 (\$45.6 million per
    year). *See* Verizon Comments at 20. SBC estimates annual saving of
    \$78 million, but this estimate is from integrating its section 272
    affiliates, ASI, and its other data services affiliates, rather than
    from integrating its section 272 affiliates into its BOCs. *See* SBC
    Comments at 2-3; SBC Deitz Decl., para. 11.

[^87]: *See* BellSouth Comments at 12-14; MCI Comments at 5; Qwest
    Comments at 11; AT&T Reply at 3, 11. For example, BellSouth's
    section 272 affiliate made a business decision to lease facilities
    and to outsource more of the OI&M functions than the other BOC
    section 272 affiliates. *See* BellSouth Comments at 12-13.

[^88]: There are significant differences in the time horizon from the
    present to end of the third year from the date of each BOC's last
    section 271 approval: BellSouth approximately 21 months (12/05);
    Qwest approximately 33 months (12/06); Verizon approximately 24
    months (3/06); SBC approximately 31 months (10/06). *See* FCC,
    *R**BOC Applications to Provide In-region, InterLATA Services Under
    § 271* (visited Mar. 11, 2004)
    \<http://www.fcc.gov/Bureaus/Common_Carrier/in-region_applications/\>.

[^89]: *See* Verizon June 24 *Ex Parte* Letter, Attach. 1 at 9-10. As of
    the fourth quarter of 2003, Verizon had 16.6 million long distance
    lines, SBC had 14.4 million long distance lines, BellSouth had
    approximately 4 million long distance customers, and Qwest had 2.3
    million long distance customers. *See* Verizon, *Verizon Reports
    Solid Overall Fourth-Quarter and Year-End Results, Based on Strong
    Fundamentals*, Press Release (Jan. 29, 2004); SBC, *SBC Reports
    Strong 4th-Quarter Long Distance Launch in Midwest, Improved Retail
    Access Line Trends, Record Gains in Long Distance, DSL*, Press
    Release (Jan. 27, 2004); BellSouth, *BellSouth Reports Fourth
    Quarter Earnings*, Press Release (Jan. 22, 2004); Qwest, *Qwest
    Communications Reports Fourth Quarter 2003 Net Loss Per Diluted
    Share of \$0.17; Full Year 2003 Earnings Per Diluted Share of
    \$0.93*, Press Release (Feb. 19, 2004).

[^90]: For example, while Verizon's estimates assume a three-year phase
    in to integrate GNI's OI&M functions into the BOC, Verizon's
    analysis attempts to minimize the abandonment of sunk investments
    and the costs to integrate GNI's and the BOC's OI&M operations.
    *See* Verizon Comments at 15 n. 22; Verizon June 4 *Ex Parte*
    Letter, Attach. 3 at 1, 4-6; Verizon June 24 *Ex Parte* Letter,
    Attach. 1 at 11-12; *see also* BellSouth Feb. 3 *Ex Parte* Letter at
    1 & Attach. at 2-3.

[^91]: *See* AT&T Reply at 3, 13-14; AT&T Comments, Exh. A, AT&T
    Opposition at 3, 12-13 (AT&T Opposition); AT&T Opposition, Reply
    Declaration of Lee Selwyn, paras. 26-27 (AT&T Selwyn Reply Decl.);
    AT&T Comments, Exh. B, at 16-20 (AT&T Reply to SBC Petition); AT&T
    Comments, Exh. E, at 5-6 (AT&T Nov. 15 *Ex Parte* Letter*)*; AT&T
    Comments, Exh. F, paras 3-6 (AT&T Selwyn Nov. 15 *Ex Parte* Decl.);
    AT&T Comments, Exh. G at 3-4 (AT&T July 9 *Ex Parte* Letter); AT&T
    Comments, Exh. H, paras. 3-4 (AT&T Selwyn July 9 *Ex Parte* Decl.);
    AT&T Comments, Exh. J at 2-3 (AT&T Oct. 1 *Ex Parte* Letter); MCI
    Reply at 5-6; Sprint Reply, Attach. 1, at 15, 22; Sprint Reply,
    Attach. 2 at 10.

[^92]: *See* AT&T Comments, Attach. J at 6 (AT&T Oct. 1 *Ex Parte*
    Letter); AT&T Reply at 3, 11-13.

[^93]: *See* AT&T Nov. 15 *Ex Parte* Letter at 7; AT&T Selwyn Nov. 15
    *Ex Parte* Decl., para. 8.

[^94]: *See, e.g.,* *Non-Accounting Safeguards Order*, 11 FCC Rcd at
    21911, 21913, paras. 7, 13; *Non-Accounting Safeguards Second Order
    on Reconsideration*, 12 FCC Rcd at 8683, para. 55.

[^95]: *See* n.Error: Reference source not found, *supra*. We find that
    the savings the BOCs will likely attain from the elimination of the
    OI&M sharing prohibition are sufficient such that they will exceed
    any benefits from maintaining this rule, while also maintaining the
    other requirements of section 272(b)(1). *See* para. 31, *infra.*
    Moreover, we reject AT&T's criticism that Verizon's analysis
    neglects to consider the costs to integrate the BOC's and GNI's OI&M
    functions because Verizon asserts its methodology specifically
    sought to minimize these costs. Verizon's analysis does not assume a
    flash cut to fully integrate the BOC's and GNI's OI&M operations,
    but rather assumes GNI phases in organizational changes over time to
    take full advantage of attrition during the transition period and to
    avoid the write off of sunk investments due to the Commission's
    separate affiliate rules. *See* Verizon June 24 *Ex Parte* Letter,
    Attach. at 11-13.

[^96]: *See* AT&T Nov. 15 *Ex Parte* Letter at 7; AT&T Selwyn Nov. 15
    *Ex Parte* Decl., para. 8.

[^97]: *See, e.g.*, *Regulatory Treatment of LEC Provision of
    Interexchange Services Originating in the LEC\'s Local Exchange
    Area; Policy and Rules Concerning the Interstate, Interexchange
    Marketplace*, CC Docket Nos. 96-149, 96-61, Second Report and Order
    in CC Docket No. 96-149; Third Report and Order in CC Docket No.
    96-61, 12 FCC Rcd 15756, 15805, para. 86 (1997) ("Because we
    previously have found that markets for long distance services are
    substantially competitive in most areas, marketplace forces should
    effectively deter carriers that face competition from engaging in
    the practices that Congress sought to address through the section
    214 requirements."); *see* AT&T Opposition to Petition at 16 n.12.

[^98]: *See generally* Edgar Browning & Jacqueline Browning,
    *Microeconomic Theory and Applications* 340-49 (2d ed. 1986).

[^99]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21981, para.
    156 (stating that the Commission's task was "to implement section
    272 in a manner that ensures that the fundamental goal of the 1996
    Act is attained -- to open all telecommunications markets to robust
    competition -- but at the same time does not impose requirements on
    the BOCs that will unfairly handicap them in their ability to
    compete.").

[^100]: *See* Qwest Comments at 11-15, Qwest Stegora Axberg Decl., para.
    6 ("The benefits to Qwest's interLATA customers from elimination of
    the OI&M restrictions are even more important that the direct cost
    savings to Qwest."); SBC Comments at 2-3; USTA Comments at 4.
    Opportunity cost is the value of a foregone alternative action.
    Thus, the OI&M sharing prohibition imposes opportunity costs that
    include the foregone services that could have been provided in the
    absence of the prohibition. *See The MIT Dictionary of Modern
    Economics* 315 (David W. Pearce ed., 4th ed. 1996).

[^101]: Verizon Comments, Attach. 1, Declaration of Steven G. McCully,
    para. 4.

[^102]: *See* BellSouth Comments at 6-8, 13-14; Qwest Comments at 14-15;
    Verizon Comments at 16; Verizon Reply at 17-18.

[^103]: *See* BellSouth Comments at 5; SBC Comments at 3; USTA Comments
    at 4; Verizon Comments at 14; BellSouth Reply at 14; SBC Reply at 2
    n.2; Verizon Reply at 16-17.

[^104]: *See* Americatel Comments at 7-8; AT&T Comments at 28; MCI
    Comments at 5; AT&T Reply at 14-17; MCI Reply at 2-3, 6-7; Sprint
    Reply, Attach. 1 at 18-20, Attach. 2 at 13-14

[^105]: We note that this holding applies to all interLATA
    telecommunications services provided pursuant to section 272. These
    services include both interstate and intrastate interLATA services.
    Therefore, we affirm the Commission's conclusion in the
    *Non-Accounting Safeguards Order* that "the rules we establish to
    implement section 272 are binding on the states, and the states may
    not impose, with respect to BOC provision of intrastate interLATA
    service, requirements inconsistent with sections 271 and 272 and the
    Commission\'s rules under those provisions." *Non-Accounting
    Safeguards Order*, 11 FCC Rcd at 21929, para. 47; *see* SBC Comments
    at 5-6.

[^106]: *See Non-Accounting Safeguards Order*, 11 FCC Rcd at 21981-84,
    paras. 158-62.

[^107]: 47 C.F.R. § 53.203(a)(1).

[^108]: *See, e.g.,* Americatel Comments at 9-13; AT&T Comments at
    10-21; AT&T Reply at 4-7.

[^109]: *See, e.g.*, AT&T Comments at 17.

[^110]: *See, e.g.,* Americatel Comments at 9-13; AT&T Comments at
    10-21; BellSouth Comments at 14-16; Qwest Comments at 13; SBC
    Comments at 6; USTA Comments at 4; AT&T Reply at 4-7; BellSouth
    Reply at 15-17; SBC Reply at 3-7.

[^111]: *See* SBC Petition at 25-27.

[^112]: *See SBC/Ameritech Merger Order*, 14 FCC Rcd at 14969-74,
    Condition I.3.

[^113]: *See SBC Advanced Services Forbearance Order*, 17 FCC Rcd at
    27003, 27008, paras. 5, 13.

[^114]: *See* AT&T Comments, CC Docket Nos. 96-149, 98-141 at 12-16
    (filed July 1, 2003) (AT&T Merger Modification Comments); Sprint
    Comments, CC Docket 98-141 at 1-2 (filed July 1, 2003).

[^115]: AT&T Merger Modification Comments at 14.

[^116]: *See id*.

[^117]: *See SBC/Ameritech Merger Order*, 14 FCC Rcd at 14860-61, paras.
    364-65.

[^118]: We note that this modification is necessary to allow SBC to
    realize fully the benefits of eliminating the OI&M sharing
    prohibition.

[^119]: 47 U.S.C. § 160(a)(1).

[^120]: *See* 47 U.S.C. § 160(a)(2).

[^121]: *See* 47 U.S.C. § 160(a)(3).

[^122]: 47 U.S.C. § 160(b).

[^123]: *SBC Advanced Services Forbearance Order*, 17 FCC Rcd at
    27016-17, para. 30.

[^124]: *See SBC Advanced Services Forbearance Order*, 17 FCC Rcd at
    27008, para. 13.

[^125]: *See generally* SBC Petition; BellSouth Petition. As noted
    above, the Bureau has already dismissed Qwest's forbearance
    petition. *See* n.Error: Reference source not found, *supra*.

[^126]: Pursuant to sections 1.103(a) and 1.427(b) of the Commission's
    rules, we find good cause for this Order to be effective upon
    publication in the Federal Register because the Order relieves
    restrictions upon carriers under our existing rules. *See* 47 C.F.R.
    §§ 1.103(a), 1.427(b).

[^127]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601-12, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^128]: 5 U.S.C. § 605(b).

[^129]: 5 U.S.C. § 601(6).

[^130]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small-business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a
    small business applies "unless an agency, after consultation with
    the Office of Advocacy of the Small Business Administration and
    after opportunity for public comment, establishes one or more
    definitions of such term which are appropriate to the activities of
    the agency and publishes such definition(s) in the Federal
    Register."

[^131]: 15 U.S.C. § 632.

[^132]: 47 U.S.C. § 272(b)(1).

[^133]: 47 C.F.R. § 53.203(a)(2)-(3).

[^134]: 47 C.F.R. § 53.203(a)(1).

[^135]: 47 C.F.R. § 53.203(a)(2)-(3).

[^136]: 47 C.F.R. § 53.203(a)(1).

[^137]: 13 C.F.R. § 121.201, NAICS code 517110.

[^138]: *Id*.

[^139]: 13 C.F.R. § 121.103(a)(4).

[^140]: *See* 13 C.F.R. § 121.103(c).

[^141]: *See* FCC, Wireline Competition Bureau, Industry Analysis and
    Technology Division, *Trends in Telephone Service* at Table 5.3,
    page 5-5 (Aug. 2003). This source uses data that are current as of
    December 31, 2001.

[^142]: *See* 5 U.S.C. § 801(a)(1)(A).

[^143]: *See* 5 U.S.C. § 605(b).

[^144]: 47 C.F.R. § 53.203(a)(2)-(3).

[^145]: *Petition of Verizon for Forbearance from the Prohibition of
    Sharing Operating, Installation, and Maintenance Functions Under
    Section 53.203(a)(2) of the Commission's Rules*, Memorandum Opinion
    and Order, 18 FCC Rcd 23525 (rel. Nov. 4, 2003) (*OI&M Forbearance
    Denial Order*).

[^146]: *OI&M Forbearance Denial Order*, 18 FCC Rcd at 23527, ¶ 8.