**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

In re Application of )

)

GTE CORPORATION, )

Transferor, )

)

and )

) CC Docket No. 98-184

BELL ATLANTIC CORPORATION, )

Transferee )

)

For Consent to Transfer Control of Domestic )

and International Sections 214 and 310 )

Authorizations and Application to Transfer )

Control of a Submarine Cable Landing License )

)

**MEMORANDUM OPINION AND ORDER**

**Adopted: June 16, 2000 Released: June 16, 2000**

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

**TABLE OF CONTENTS**

**Paragraph**

I. INTRODUCTION 1

II\. EXECUTIVE SUMMARY 5

III\. BACKGROUND 6

A. The Applicants 6

B. The Merger Transaction [10](#the-merger-transaction)

C. The Merger Review Process [11](#the-merger-review-process)

1\. Department of Justice Review [11](#department-of-justice-review)

2\. State Review [12](#state-review)

3\. Commission Review [12](#commission-review)

IV\. PUBLIC INTEREST FRAMEWORK 20

V. COMPLIANCE WITH SECTION 271 26

A. Applicants' Spin-off Proposal 29

B. Discussion 39

1\. Ownership 41

2\. Analysis of the Applicants' Spin-off Proposal 59

3\. Control 76

4\. Other Issues 92

VI\. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS 96

A. Overview 96

B. Loss of Competition Between Bell Atlantic and GTE in the Local Market
97

1\. Background 97

2\. Discussion 100

3\. Relevant Markets 101

C. Comparative Practices Analysis 127

1.Need for Comparative Practices Analyses 132

2.Effect of Reduction in Number of Benchmarks 134

3.Adverse Effects of Bell Atlantic/GTE Merger 143

4.Continued Need for Major Incumbent LEC Benchmarks 152

5.Conclusion 171

D. Increased Discrimination 173

1\. Overview 173

2\. Analysis 179

VII\. ANALYSIS OF PUBLIC INTEREST BENEFITS 209

A. Background 209

B. Internet Backbone Services 214

C. Local Exchange and Bundled Services 218

1\. Entry into Out-of-Region Local Exchange Markets 220

2\. Provision of Nationwide Bundled Services 226

D. Long Distance Services 232

E. Wireless Services 235

F. Efficiencies 239

G. Conclusion 245

VIII\. CONDITIONS 248

A. Adopted Conditions 248

1\. Promoting Equitable and Efficient Advanced Services Deployment 260

2\. Ensuring Open Local Markets 279

3\. Fostering Out-of-Territory Competition 319

4\. Improving Residential Phone Service 324

5\. Ensuring Compliance with and Enforcement of these Conditions 332

B. Benefits of Conditions 349

1\. Mitigating Harm from Loss of Potential Competition 350

2\. Mitigating Harm from Loss of Benchmarks 353

3\. Mitigating Harm from Potential Increased Discrimination 359

4\. Additional Benefits from Conditions 366

C. Other Requested Conditions or Modifications to Proffered Conditions.
373

IX\. MOBILE COMMUNICATIONS SERVICES 376

A. Licenses and Service Offerings 378

B. Analysis of Potential Competitive Harms 380

1\. Overlapping Ownership Interests 380

2\. Revised Consent Decree 383

3\. Compliance with CMRS Ownership Rules 385

4\. Other Competitive Issues 390

C. Conclusion 393

X. INTERNATIONAL ISSUES 394

A. General 394

B. Foreign Affiliation 400

1\. Standards 402

2\. Specific Affiliations 406

3\. Cable Landing Licenses 423

XI\. OTHER ISSUES 427

A. Service Quality Issues 427

B. Character Issues 429

C. Requests for Evidentiary Hearing 434

XII\. ORDERING CLAUSES 439

APPENDIX A: List of Commenters

APPENDIX B: Genuity Conditions

APPENDIX C: Summary of Confidential Information

\[TEXT NOT AVAILABLE IN PUBLICLY RELEASED VERSIONS\]

APPENDIX D: Market-Opening Conditions

APPENDIX E: GTE April 17, 2000 *Ex Parte* Letter

APPENDIX F: GTE April 28, 2000 *Ex Parte* Letter

# INTRODUCTION

1.  In this Memorandum Opinion and Order, we consider the joint
    applications of Bell Atlantic Corporation (Bell Atlantic) and GTE
    Corporation (GTE) (collectively, Applicants)[^1] pursuant to
    sections 214(a) and 310(d) of the Communications Act of 1934, as
    amended (Communications Act or Act),[^2] for approval to transfer
    control of licenses and lines from GTE to Bell Atlantic in
    connection with their proposed merger.[^3] In order to persuade us
    to grant their applications, Bell Atlantic and GTE must demonstrate
    that their proposed transaction will serve the public interest,
    convenience, and necessity.[^4] As described in more detail below,
    Bell Atlantic and GTE supplemented their original applications with
    an additional filing that included proposed merger conditions to
    which both parties voluntarily committed.[^5] In addition, the
    Applicants submitted a proposal to transfer the Internet and related
    assets of GTE Internetworking, Inc., now known as Genuity, Inc.
    (Genuity), to an independently owned public corporation so that
    consummation of the merger would not instantly result in a violation
    of section 271[^6] of the Telecommunications Act of 1996.[^7]

2.  We first conclude that the Applicants' proposal to spinoff GTE's
    Internet backbone and related assets into a separate public
    corporation is sufficient to demonstrate that completion of the
    merger would not result in a violation of section 271. Under the
    transaction we approve herein and that the Applicants must complete
    prior to merger closing, the Applicants will retain shares that
    represent less than 10 percent of the spun-off entity and that
    contain a conditional conversion right. Applying a three-part test,
    we conclude that the merged firm will not own an equity interest or
    the equivalent thereof of more than 10 percent of Genuity. We
    further find that the merged firm will not control Genuity, nor will
    it be providing interLATA services through its post-spin-off
    relationship with Genuity.

3.  In addition, we find in this Order that, absent conditions, the
    merger of Bell Atlantic and GTE will harm consumers of
    telecommunications services by (a) denying them the benefits of
    future probable competition between the merging firms; (b)
    undermining the ability of regulators and competitors to implement
    the pro-competitive, deregulatory framework for local
    telecommunications that was adopted by Congress in the 1996 Act;
    and (c) increasing the merged entity's incentives and ability to
    discriminate against entrants into the local markets of the merging
    firms. Moreover, we also find that the asserted public interest
    benefits of the proposed merger will not outweigh these public
    interest harms.

4.  The Applicants, however, have proposed conditions that will alter
    the public interest balance. These conditions are designed to
    mitigate the potential public interest harms of the Applicants'
    transaction, enhance competition in the local exchange and exchange
    access markets in which Bell Atlantic or GTE is the incumbent local
    exchange carrier (incumbent LEC), and strengthen the merged firm's
    incentives to expand competition outside of its territories. We
    believe that the voluntary merger conditions proposed by the
    Applicants and adopted in this Order will not only substantially
    mitigate the potential public interest harms of the merger, but also
    provide public interest benefits that extend beyond those resulting
    from the proposed transaction. Accordingly, we conclude that
    approval of the applications to transfer control of Commission
    licenses and lines from GTE to Bell Atlantic serves the public
    interest, convenience, and necessity and, therefore, satisfies
    sections 214 and 310(d) of the Communications Act given these
    significant and enforceable conditions.

# EXECUTIVE SUMMARY

5.  The applications before us concern the proposed merger of one of
    four remaining Regional Bell Operating Companies (RBOCs) and an
    incumbent LEC of a size comparable to that of an RBOC.[^8] We
    conclude that, with the conditions adopted in this Order, the
    Applicants have demonstrated that the proposed transfer of licenses
    and lines from GTE to Bell Atlantic will serve the public interest.
    We also make the following determinations in support of this
    conclusion:

-   *Compliance with Section 271*. Because GTE will transfer its
    Internet backbone and related assets to a separate public
    corporation (Genuity) prior to merger closing, the proposed
    transaction will not result in a violation of section 271 of the
    Act. The merged firm will retain shares of Genuity stock that will
    comprise less than 10 percent of Genuity's voting, dividend and
    distribution rights. These Class B shares will contain a contingent
    right that enables the merged firm to convert the shares into
    additional shares of up to 80 percent of Genuity only if it obtains
    section 271 authority with respect to 95 percent of Bell Atlantic's
    in-region access lines within five years of the merger's closing. We
    conclude that this conditional conversion right is not an equity
    interest or its equivalent within the meaning of the Act, for the
    following reasons:

1)  The exercise of the conversion right is genuinely in question. The
    merged firm will be able to exercise its conversion right only if it
    obtains section 271 authority with respect to 95 percent of Bell
    Atlantic's in-region access lines within five years. It also must be
    in a position to operate Genuity's business consistent with section
    271 in all Bell Atlantic in-region states prior to actual
    conversion. If the merged entity seeks to sell its conversion right
    prior to satisfying this 95-percent threshold, it must first offer
    to sell those shares to Genuity in exchange for a debt instrument in
    an amount equal to its initial investment plus a rate of return
    based on the Standard & Poor's 500 Index or the fair market value of
    the shares, whichever is less. If Genuity declines, the merged firm
    will transfer the shares to a liquidating trustee for disposition,
    and the merged firm would receive limited sales proceeds that would
    not exceed the value of its initial investment plus a rate of return
    based on the Standard & Poor's 500 Index.

2)  The interest furthers the purposes of section 271 by increasing the
    merged firm's incentive to achieve section 271 compliance quickly
    throughout the Bell Atlantic region. This is reinforced by the
    requirement that the merged firm forgo ratably any appreciation that
    is attributable to the period of time prior to section 271
    authorization in any state.

3)  The interest will not increase the likelihood that the merged firm
    will discriminate against Genuity's rivals because any
    discriminatory behavior would be readily detectable, either by an
    independent auditor or through the section 271 approval process, and
    may result in appropriate enforcement action.

-   *Potential Public Interest Harms*. The proposed merger of this RBOC
    and major incumbent LEC threatens to harm consumers of
    telecommunications services in three ways.

1)  The merger will remove GTE as one of the most significant potential
    participants in the local telecommunications mass markets within
    Bell Atlantic's region, thus substantially reducing the prospect of
    competition in those markets, which Congress has determined will
    serve the public interest.

2)  The merger will reduce the Commission's ability to implement the
    market-opening requirements of the 1996 Act through comparative
    practice oversight (benchmarking) methods. Contrary to the
    deregulatory, competitive purpose of the 1996 Act, this will
    increase the duration of the entrenched firms' market power and
    raise the costs of regulating them and make it more difficult for
    the Commission to achieve the Act's deregulatory objective.

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

-   *Potential Public Interest Benefits*. The asserted benefits of the
    proposed merger do not outweigh the significant harms detailed
    above.

1)  The Applicants have not met their burden of demonstrating that the
    proposed merger will produce a public interest benefit by promoting
    competition in the provision of Internet backbone services
    because (a) the ultimate recombination of GTE's Internet data
    business with Bell Atlantic's local customers is entirely
    speculative and (b) the Applicants have not demonstrated that such
    combination will result in a benefit to the Internet and data
    services market.

2)  The Applicants have failed to demonstrate that the merger is
    necessary to obtain the benefits to local competition of its
    out-of-region expansion plan, in which the merged firm will enter
    twenty-one out-of-region local markets as a competitive LEC.

3)  The Applicants have not demonstrated with any specificity that their
    merger is likely to produce public interest benefits in the long
    distance market.

4)  The proposed merger produces some public interest benefits to the
    market for wireless communications. The recently completed merger of
    Bell Atlantic and Vodafone created a carrier with a substantial
    wireless footprint, and the addition of GTE\'s wireless markets to
    this footprint will afford consumers in these markets the option of
    selecting Bell Atlantic/Vodafone services.

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

-   *Conditions.* On January 27, 2000, the Applicants supplemented their
    initial application by submitting a set of voluntary commitments as
    conditions of approval of their proposed transfer of licenses and
    lines. Following a period of public comment regarding their proposed
    conditions, the Applicants revised their commitments on April 14,
    2000, April 28, 2000, and May 19, 2000. Assuming the merged firm's
    satisfactory compliance with their proposals, implementation of the
    conditions adopted herein will further the following goals:

1)  promote advanced services deployment;

2)  enhance the openness of in-region local telecommunications markets;

3)  foster out-of-region local competition;

4)  improve residential phone service; and

5)  enforce the Merger Order.

> These commitments are sufficient to alter the public interest balance
> such that the application to transfer licenses and lines is, overall,
> in the public interest and should be approved.

-   *Wireless*. Bell Atlantic and GTE are required by the U.S.
    Department of Justice (DOJ) and as a condition of this Order to
    divest one of the cellular telephone licenses in ninety-six
    Metropolitan Statistical Areas and Rural Service Areas where the two
    companies have wireless licenses that overlap geographically.

-   *International*. The public interest will be served by transferring
    control of GTE's international section 214 authorizations and
    submarine cable landing licenses (other than those being transferred
    to Genuity).to Bell Atlantic, subject to the condition that the
    merged firm's subsidiaries be classified as dominant international
    carriers in their provision of service on the U.S.-Gibraltar,
    U.S.-Dominican Republic, and U.S.-Venezuela routes.

# BACKGROUND

## The Applicants

6.  *GTE Corporation*. GTE is the nation's largest independent incumbent
    LEC, providing local exchange and exchange access services in
    twenty-eight states, with service to more than 26 million access
    lines.[^9] In 1999, GTE's operating revenues exceeded \$25
    billion.[^10] Not one of the original RBOCs created during the
    dismantling of the Bell System, GTE was created from the combination
    of smaller telephone companies.[^11] After its initial formation in
    1918, GTE evolved and grew as a result of a series of acquisitions
    of telephone companies, including Peninsular Telephone, Hawaiian
    Telephone, and Northern Ohio Telephone. In 1990, GTE merged with
    Contel Corporation, and in 1999, GTE acquired a 40 percent ownership
    interest in the Puerto Rico Telephone Company.[^12]

7.  In addition to providing local exchange and exchange access
    services, GTE provides wireless, Internet access, and directory
    publishing services. Not subject to the interLATA restrictions
    governing BOCs, GTE entered the long distance market in 1997 through
    a long-term agreement with LDDS WorldCom.[^13] GTE also has
    significant investments in communications and information services
    business in Canada, the Dominican Republic, Venezuela, Argentina,
    Micronesia, and China.[^14]

8.  In 1997, GTE acquired BBN, a company involved in Internet
    activities, and purchased fiber-optic capacity from Qwest to develop
    internetworking capabilities. BBN, which evolved into GTE
    Internetworking and is now known as Genuity, operates a national
    Internet backbone network and provides a host of Internet-related
    services including dedicated and dial-up Internet access and Web
    hosting and security services.[^15]

9.  GTE holds numerous Commission licenses and operates lines used in
    interstate and international communications, including domestic and
    international lines authorized under section 214, and various Title
    III licenses necessary to operate cellular, paging, PCS,
    experimental radio, business radio, mobile radio, and microwave
    services, as well as earth station authorizations.[^16]

10. *Bell Atlantic*. Bell Atlantic, one of the original seven regional
    Bell Operating Companies formed as part of the divestiture of AT&T's
    local operations, is the primary incumbent LEC in thirteen states in
    the mid-Atlantic and northeastern United States, in addition to the
    District of Columbia.[^17] Through its operating companies, Bell
    Atlantic services more than 43 million local exchange access lines
    and had 1999 operating revenues in excess of \$33 billion.[^18] In
    1997, Bell Atlantic acquired NYNEX Corporation, which had been the
    incumbent provider of local exchange and exchange access services in
    the states of the northeastern United States, extending its
    in-region incumbent LEC activities substantially.[^19]

11. In addition to local exchange and exchange access services, Bell
    Atlantic's operating companies provide a wide range of other
    services, including cellular, personal communications services
    (PCS), paging, Internet access, and directory publishing
    services.[^20] Bell Atlantic's wireless operations include service
    provided throughout the United States as well as investments in
    Latin America, Europe, and the Pacific Rim.[^21] In 1999, Bell
    Atlantic's wireless companies provided service to more than 27
    million subscribers.[^22] Bell Atlantic also has many overseas
    investments, including direct or indirect financial interests in
    communications and information services businesses in New Zealand,
    Mexico, Italy, Indonesia, Thailand, Gibraltar, the Philippines, the
    United Kingdom, Greece, Slovakia, and the Czech Republic.[^23]

12. On March 30, 2000, the Wireless Telecommunications and International
    Bureaus, acting upon delegated authority, granted approval of Bell
    Atlantic and Vodafone AirTouch, PLC (Vodafone), a U.K. corporation,
    to transfer control of their U.S. wireless licenses and
    authorizations to Cellco Partnership (Cellco).[^24] In doing so, the
    Bureaus concluded that the transaction would not present competitive
    concerns, but rather, would likely result in a number of public
    interest benefits. Cellco is the vehicle through which Bell Atlantic
    and Vodafone formed a domestic, nationwide wireless business that
    combines their cellular, PCS, paging, and other wireless properties
    in the United States.[^25]

## The Merger Transaction

13. *Proposed Transaction*. On July 28, 1998, Bell Atlantic and GTE
    announced their Agreement and Plan of Merger (Merger Agreement),
    under which a wholly-owned subsidiary of Bell Atlantic would merge
    with GTE, and GTE would be the surviving corporation and would
    itself become a wholly-owned subsidiary of Bell Atlantic. [^26] GTE
    would therefore survive as a wholly-owned subsidiary of Bell
    Atlantic, and the GTE subsidiaries holding section 214
    authorizations, submarine cable landing licenses, or radio licenses
    would survive as wholly-owned subsidiaries of GTE.[^27] Following
    the merger, approximately 57 percent of the shares of Bell Atlantic
    would be held by the current shareholders, and approximately 43
    percent of the shares of Bell Atlantic would be held by the
    shareholders of GTE. The board of directors of the merged firm would
    be comprised of an equal number of members from Bell Atlantic's
    board and GTE's board.[^28]

14. Together, Bell Atlantic and GTE would serve more than 69 million
    local access lines, representing more than one third of the nation's
    total access lines.[^29] As determined from the December 1999
    statistics of both companies, the merged entity would have annual
    revenues in excess of \$58 billion.[^30] Accordingly, as measured by
    revenues, a combined Bell Atlantic and GTE would be the second
    largest telecommunications company in the country behind only AT&T.
    Based on the extensive breadth of the companies' operations, the
    proposed merger between Bell Atlantic and GTE requires the review of
    several government agencies, including the DOJ, state public utility
    commissions, and this Commission.

## The Merger Review Process

### Department of Justice Review

15. The DOJ reviewed the proposed transaction as part of the pre-merger
    review process under the Hart-Scott-Rodino Antitrust Improvements
    Act of 1976.[^31] On May 7, 1999, the DOJ filed a civil antitrust
    complaint alleging that the proposed transaction would violate
    section 7 of the Clayton Act by lessening competition in the markets
    for wireless mobile telephone services in ten major trading areas
    (MTAs), constituting sixty-five metropolitan statistical areas
    (MSAs) and rural statistical areas (RSAs) in nine states.[^32] A
    proposed final judgment was also filed, requiring either Bell
    Atlantic or GTE to divest its wireless telephone business in the
    markets where the two companies' businesses overlap.[^33] After Bell
    Atlantic entered into a partnership with Vodafone to form a national
    wireless business, the DOJ amended the complaint and proposed final
    judgment to address the additional cellular overlap areas resulting
    from Bell Atlantic's affiliation with Vodafone.[^34] The DOJ
    concluded that the combined effect of the Bell Atlantic/GTE and Bell
    Atlantic/Vodafone transactions would be to lessen competition in the
    markets for wireless services in thirteen MTAs and ninety-six MSAs
    and RSAs in fifteen states.[^35] On April 20, 2000, the parties
    submitted to the court a proposed final judgment that requires Bell
    Atlantic, GTE, or Vodafone to divest wireless assets in ninety-six
    cellular overlap markets.[^36]

### State Review

16. The proposed merger of Bell Atlantic and GTE also has required the
    review of or notification to a number of state governing bodies.
    Twenty-seven states conducted proceedings examining the proposed
    transaction, each approving it and many imposing conditions.[^37]
    Twenty-three additional states declined jurisdiction over the
    transaction.[^38] On March 2, 2000, the California Public Utilities
    Commission granted the Applicants the final necessary state approval
    for the proposed merger.[^39]

### Commission Review

17. Bell Atlantic and GTE filed their initial applications for transfer
    of control on October 2, 1998, requesting Commission approval of the
    transfer of control to Bell Atlantic of licenses and lines owned or
    controlled by GTE or its affiliates or subsidiaries.[^40] More than
    fifty parties have filed timely comments or petitions to deny the
    application.[^41] In addition, the Commission held a series of three
    public forums at which a number of parties expressed their views on
    the proposed merger, including the Applicants, states, economists,
    and consumer groups, community organizations, and industry
    participants.[^42]

18. On February 24, 1999, in response to concerns raised by Commission
    staff, Bell Atlantic and GTE filed a *Report on Long Distance Issues
    in Connection with their Merger and* *Request for Limited Interim
    Relief*. With respect to long distance voice services, Applicants
    requested that the Commission grant a reasonable transition period
    to permit GTE to transfer to other interexchange carriers its
    existing customers within Bell Atlantic's region.[^43] Applicants
    also requested that the Commission grant interim relief to enable
    the merged firm to continue providing interLATA data services
    through GTE's Internet backbone provider, GTE Internetworking, while
    the merged company pursued section 271 authority for Bell Atlantic's
    in-region states.[^44] The Applicants subsequently asked that the
    Commission hold its Request for Interim Relief in abeyance pending
    later filings addressing the long distance issues.[^45] On April 14,
    1999, Applicants requested that the Commission suspend processing of
    their merger application pending a further submission following Bell
    Atlantic's filing with the Commission of its application for section
    271 relief in New York.[^46]

19. Bell Atlantic and GTE renewed and supplemented their initial
    application by submitting a January 27, 2000 Supplemental Filing,
    which included their Internet backbone spin-off proposal and a set
    of proposed merger conditions to which they voluntarily
    committed.[^47] Bell Atlantic and GTE subsequently clarified the
    Internet backbone proposal and their proposed merger conditions
    through subsequent filings made on April 3, 2000,[^48] April 14,
    2000,[^49] April 28, 2000,[^50] May 19, 2000,[^51] June 7,
    2000,[^52] and June 14, 2000.[^53] On April 28, 2000, the Commission
    sought further comment on the altered spin-off proposal and modified
    merger conditions.[^54]

# Public interest framework

20. Before approving the transfer of control of licenses and lines in
    connection with the proposed merger, the Commission must determine,
    pursuant to sections 214(a) and 310(d) of the Communications Act,
    that the proposed transfers serve the public interest.[^55] In
    accordance with the Act's public interest standard, we must weigh
    any potential public interest harms of the proposed transaction
    against the potential public interest benefits to ensure that, on
    balance, the merger services the public interest, convenience, and
    necessity.[^56] In doing so, we examine, *inter alia*, possible
    competitive effects of the proposed transfers and measure the effect
    of the merger on both the broader aims of the Communications Act and
    federal communications policy.[^57]

21. Section 214(a) of the Communications Act generally requires carriers
    to obtain from the Commission a certificate of public convenience
    and necessity before constructing, acquiring, operating or engaging
    in transmission over lines of communication, or before
    discontinuing, reducing or impairing service to a community.[^58] In
    this case, section 214(a) requires the Commission to find that the
    \"present or future public convenience and necessity require or will
    require\" Bell Atlantic to operate the acquired telecommunications
    lines and that \"neither the present nor future public convenience
    and necessity will be adversely affected\" by the discontinuance of
    service from GTE.[^59] Section 310(d) provides that no construction
    permit or station license may be transferred, assigned, or disposed
    of in any manner except upon a finding by the Commission that the
    "public interest, convenience, and necessity will be served
    thereby."[^60] Accordingly, the Commission must determine that the
    proposed transfer of licenses from GTE to Bell Atlantic \"serves the
    public interest, convenience, and necessity\" before it can approve
    the transaction.[^61]

22. The public interest standard under sections 214(a) and 310(d)
    involves a balancing process that weighs the potential public
    interest harms of the proposed transaction against its potential
    public interest benefits.[^62] The Applicants bear the burden of
    proving by a preponderance of the evidence that, on balance, the
    proposed transaction serves the public interest.[^63] In applying
    this public interest test, the Commission considers four
    questions: (1) whether the transaction would result in a violation
    of the Communications Act; (2) whether the transaction would result
    in a violation of the Commission's rules; (3) whether the
    transaction would substantially frustrate the Commission\'s ability
    to implement or enforce the Communications Act; and (4) whether the
    merger promises to yield affirmative public interest benefits that
    could not be achieved without the merger.[^64]

23. Our analysis of public interest benefits and harms under parts three
    and four of the public interest test includes, but is not limited
    to, an analysis of the potential competitive effects of the
    transaction, as informed by traditional antitrust principles.[^65]
    Although an antitrust analysis focuses solely on whether the effect
    of a proposed merger "may be substantially to lessen
    competition,"[^66] the Communications Act requires the Commission to
    apply a different standard. The Commission must make an independent
    public interest determination that includes an evaluation of the
    merger\'s likely effect on future competition.[^67] Because Congress
    has determined that additional competition in telecommunications
    markets will better serve the public interest, in order to conclude
    that a merger is in the public interest, the Commission must "be
    convinced that it will enhance competition, not merely lessen
    it."[^68]

24. Where necessary, the Commission can attach conditions to a transfer
    of lines and licenses to ensure that the public interest is served
    by the transaction.[^69] Section 214(c) of the Act authorizes the
    Commission to attach to the certificate \"such terms and conditions
    as in its judgment the public convenience and necessity may
    require.\"[^70] Similarly, section 303(r) of the Communications Act
    authorizes the Commission to prescribe restrictions or conditions,
    not inconsistent with law, that may be necessary to carry out the
    provisions of the Act.[^71] Indeed, unlike the role of antitrust
    enforcement agencies, the Commission's public interest authority
    enables it to rely upon its extensive regulatory and enforcement
    experience to impose and enforce conditions to ensure that the
    merger will yield overall public interest benefits.[^72]

25. Finally, as noted in the *SBC/Ameritech* and *AT&T-TCI Orders*, many
    transfer applications on their face demonstrate that the merger
    would yield affirmative public interest benefit and would neither
    violate the Communications Act or Commission rules nor frustrate the
    policies and enforcement of the Communications Act.[^73] Such cases
    do not require extensive review by the Commission and interested
    parties. Because that is not the case with respect to this proposed
    transaction, we analyze the potential public interest harms and
    benefits of this proposed merger, absent conditions, in the
    following sections.

# Compliance with Section 271

26. As an initial matter, we first consider whether the Applicants'
    proposed transaction would result in a violation of the
    Communications Act. Section 271 of the Act prohibits a Bell
    operating company or its affiliate from entering the in-region,
    interLATA market unless and until the BOC demonstrates that its
    local market is open to competition by satisfying a checklist of
    market-opening and other requirements set forth in the statute.[^74]
    Bell Atlantic is comprised of several Bell operating companies,[^75]
    and, to date, has obtained section 271 authorization only in New
    York.[^76] GTE is not comprised of any BOCs and thus, prior to the
    contemplated license transfer application, was not subject to
    section 271's restrictions. At the time of the Application, GTE in
    fact provided interLATA services nationwide through various
    subsidiaries.

27. In anticipation of its merger with Bell Atlantic, GTE agreed to exit
    various interLATA businesses, including resold voice long distance
    service, in the section 271-restricted Bell Atlantic states before
    closing the merger.[^77] GTE Communications Corporation, for
    example, terminated its direct dialing, dial around, 800 toll free,
    operator, private line and frame relay data services, and agreed to
    deactivate all calling cards of customers in the affected states and
    cease origination of calling card calls in that region.[^78] In
    addition, GTE transferred to unaffiliated carriers the dedicated
    capacity services provided by GTE Data Services Incorporated, GTE
    Telecommunication Services, Inc. and GTE Network Services, and
    interLATA transmission services provided by GTE.net that originated
    in Bell Atlantic states other than New York. GTE also agreed to
    divest the retail private line resale business of GTE Telecom Inc.
    (GTE Telecom) prior to merger close.[^79] With respect to GTE
    Telecom's private line wholesale services, GTE is seeking Commission
    approval to transfer corporate control of GTE Telecom to Genuity.

28. Genuity (formerly GTE Internetworking), a wholly-owned subsidiary of
    GTE, is a facilities-based Internet infrastructure supplier offering
    a comprehensive set of managed Internet access, web hosting and
    value-added e-business services, such as virtual private networks
    for secure data transmission and security services.[^80] It operates
    a global network consisting of domestic broadband fiber optic cable,
    points of presence where Internet access is provided to end users
    and secure data centers. With its extensive network and customer
    base, Genuity is commonly regarded as a Tier I Internet backbone
    provider.

## Applicants' Spin-off Proposal

29. Under the Applicants' spin-off proposal,[^81] GTE will transfer
    substantially all[^82] of Genuity's nationwide data business to a
    separate public corporation. Before merging with Bell Atlantic, GTE
    will exchange its stockholdings in Genuity for shares of a new class
    of common stock, Class B common stock. Through an initial public
    offering (IPO) conducted prior to closing the merger with Bell
    Atlantic, public shareholders will purchase shares of Genuity Class
    A common stock initially carrying 90.5 percent of the voting rights
    and the right to receive 90.5 percent of any dividends or other
    distributions.[^83] The merged Bell Atlantic/GTE's Class B shares
    will carry 9.5 percent of the voting rights and the right to receive
    9.5 percent of any dividends or other distributions, along with a
    conversion right and certain investor safeguards.[^84] Subject to
    satisfying certain conditions, the Class B shares will be
    convertible into newly-issued shares representing 80 percent of the
    shares of Genuity outstanding immediately after the IPO.

30. *Conditions to Sale or Exercise of Conversion Rights*. The potential
    for the holder of the Class B shares to convert those shares into a
    greater economic interest is subject to a number of restrictions
    described below.

-   *50-Percent Threshold*. Unless and until the merged Bell
    Atlantic/GTE eliminates section 271 restrictions as to at least 50
    percent of total Bell Atlantic in-region lines, the Class B holder
    will only have the right to convert the shares into Class A stock
    representing a 10-percent interest in Genuity.[^85] If the merged
    firm fails to meet this 50-percent threshold within five years from
    the closing of the merger, the Class B shares will never be
    convertible into more than a 10-percent interest, and the public
    shareholders' ownership of at least 90 percent of the company will
    not be diluted. Thus, if the merged entity were to sell all or a
    portion of the Class B shares before meeting the 50-percent
    threshold, the shares would be convertible into only 10 percent, or
    the proportionate lesser amount, of Genuity's then-outstanding
    shares. Similarly, if Bell Atlantic/GTE were to attempt to convert
    the Class B shares before satisfying the 50-percent threshold, the
    shares would be convertible only into Class A common stock
    representing 10 percent of the then-outstanding shares of Genuity.

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-   *95-Percent Threshold for Bell Atlantic/GTE Conversion*. If the
    merged firm satisfies the 50-percent threshold, the ability of Bell
    Atlantic/GTE itself to convert remains subject to a further
    restriction. The merged firm can exercise the right to convert the
    Class B shares into shares representing approximately 80 percent of
    the shares of Genuity outstanding immediately after the IPO[^86]
    only if it eliminates section 271 restrictions as to at least 95
    percent of Bell Atlantic in-region lines within five years from
    merger closing, and eliminates any section 271 restrictions with
    respect to all remaining lines.[^87] If, therefore, Bell
    Atlantic/GTE satisfies this 95-percent threshold, it can exercise
    the Class B conversion right for the purpose of immediately bringing
    Genuity's business into compliance with section 271. As set forth in
    an agreement between the merged firm and Genuity, however, the
    merged firm may require Genuity to reconfigure its operations to
    conform to section 271 in the states for which the merged firm has
    not obtained section 271 authorization only if those states in the
    aggregate represent no more than 3 percent of Genuity's revenues and
    if Bell Atlantic/GTE reimburses Genuity for the costs of coming into
    compliance with section 271.[^88] Under the proposal, at least 90
    days before the merged firm intends to convert and require Genuity
    to reconfigure its operations, it will notify the Commission and
    submit to the Chief of the Common Carrier Bureau a plan for how it
    would reconfigure Genuity's operations in the relevant states.[^89]

    If the merged Bell Atlantic/GTE entity itself converts the Class B
    shares, they will convert into the appropriate number of Class C
    shares, which are identical to Class A shares except that they carry
    enhanced voting rights (five votes per share). If the merged firm
    transfers the Class B shares to another entity, that party may only
    convert them into Class A shares with ordinary voting rights (one
    vote per share).

    Even if the merged firm eliminates these section 271 restrictions
    and is able to convert, it may not retain the portion of any
    appreciation that is attributable to Bell Atlantic in-region states
    during the period before it obtained section 271 authorization for
    those states.[^90] Instead, that portion of the appreciation will be
    transferred to Genuity's public shareholders.[^91] The relevant
    portion of appreciation will be calculated based on the number of
    Bell Atlantic in-region access lines compared to the number of the
    merged firm's access lines nationwide.[^92]

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-   *Options between 50 and 95 percent*. If the merged firm meets the
    50-percent threshold but not the 95-percent threshold, it can
    dispose of all or a portion of its Class B shares,[^93] but the
    merged firm can only retain sale proceeds that do not exceed the
    value of its original investment (or ratable portion thereof) plus a
    return based on the Standard & Poor's 500 Index.[^94] Nonetheless,
    if Bell Atlantic/GTE intends to dispose of all or a portion of its
    shares, it must first offer to sell the shares to Genuity for an
    amount that is the lesser of the value of its original investment
    (or ratable portion thereof) plus a return based on the Standard &
    Poor's 500 Index or the fair market value of such shares at the time
    of their disposition.[^95] Genuity may pay the purchase price
    through a marketable debt instrument that will bear interest at a
    commercially reasonable rate.[^96] If Genuity declines to purchase
    Bell Atlantic/GTE's shares, the merged firm would be able to
    transfer the shares to a disposition trustee for sale to third
    parties, subject to the limitation on the firm's receipt of sales
    proceeds.[^97]

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-   *Extension of Conversion Period*. If, at the end of five years, Bell
    Atlantic/GTE has eliminated section 271 restrictions as to at least
    90 percent of total Bell Atlantic in-region lines (or 95 percent but
    for one state), Bell Atlantic/GTE may file a petition with the
    Commission requesting an additional year in which to eliminate the
    remaining section 271 restrictions. The Commission shall have the
    discretion whether to approve such a petition.[^98] Moreover, if at
    the end of the five-year conversion period, litigation is pending
    over whether Bell Atlantic/GTE has eliminated section 271
    restrictions as to certain lines, and if a court subsequently
    determines that the company has eliminated such restrictions, then
    the merged entity shall be deemed to have eliminated those
    restrictions within the conversion period.[^99]

31. *Officers and Directors*. Under the proposed structure for the
    Genuity board of directors, Genuity ultimately will have a
    thirteen-member board, twelve of whom are periodically elected by
    the Class A shareholders. Bell Atlantic/GTE, as the holder of the
    Class B shares, will designate the other member. In order to
    establish an independent board, GTE will appoint six directors
    before the IPO: one will be the CEO of Genuity, one will be
    designated by GTE (as the Class B designee), and the other four will
    be independent directors who have no prior relationship with Bell
    Atlantic or GTE.[^100] Within 90 days after the IPO, the four
    independent directors will select seven additional directors who
    have no prior relationship with Bell Atlantic or GTE. This will
    bring the total board membership to 13 directors, a majority of whom
    will have been selected after the IPO.

32. As soon as possible, but no later than nine months after the IPO,
    all directors other than the Class B designee will stand for
    election by the Class A shareholders.[^101] From that point, every
    year four of the twelve publicly elected directors will stand for
    reelection.[^102] The Class B director stands for election annually.
    The Class B director will abstain from any vote until the board
    consists of at least ten members, and will at no time serve as
    chairman of the board.

33. The officers and directors of Genuity will owe fiduciary duties to
    the public shareholders. Incentive compensation for Genuity's
    managers will be tied to the performance of Genuity and the value of
    its publicly traded stock, not to the financial performance or stock
    value of the merged Bell Atlantic/GTE.[^103]

34. *Investor Safeguards*. The Class B shares also contain certain
    investor safeguards designed to protect the merged firm's interest
    as a minority investor and potential future majority
    shareholder.[^104] The merged company will have these rights only
    until it converts its Class B shares or no longer has the
    possibility of converting into more than a 10-percent
    interest.[^105] These safeguards include the right to approve
    certain fundamental business changes such as a change in control of
    Genuity or the sale of a significant portion of its assets. Some
    safeguards require a vote of the Class B shares,[^106] while others
    require Genuity to obtain consent from the merged company.[^107] In
    addition, no single holder or group of Class A shareholders may vote
    more than 20 percent of the Class A stock.[^108] Moreover, insofar
    as Genuity's business plan does not contemplate the acquisition of a
    traditional voice long distance service provider, pursuant to these
    investor safeguard rights, Bell Atlantic/GTE will withhold its
    consent from Genuity's acquisition of such a carrier absent
    Commission approval.[^109]

35. *Financing*. A major source of Genuity's capital would consist of
    the proceeds from the sale of Class A stock in the IPO. Additional
    funding required by Genuity's business operations would be raised
    from the public markets, possibly by issuing additional Class A
    shares, by issuing debt to the public, or by arm's-length commercial
    loans, which could include loans from Bell Atlantic/GTE.[^110] Under
    the proposal, however, if Bell Atlantic/GTE loans money to Genuity,
    it could provide no more than 25 percent of Genuity's aggregate debt
    financing.[^111]

36. *Commercial Contracts*. All commercial interactions between the
    merged Bell Atlantic/GTE (and any affiliates) and Genuity will be
    pursuant to commercially reasonable contracts. For example, the
    companies will enter into contracts for the merged company to
    provide transitional administrative support services. Each contract
    will have a term of one year or less, and will be terminable at any
    time by Genuity without penalty.[^112] In view of the transitional
    nature of the contracts, the contracts will not be renewed by the
    parties. Although the contracts enable the merged firm to provide
    some human resources administrative support, the merged firm will
    not have any role in hiring or firing Genuity employees.[^113] In
    addition, Genuity will not rely upon any network monitoring from the
    merged firm after October 31, 2000.[^114]

37. Because a significant portion of Genuity's business is outside the
    Bell Atlantic region or in New York, where Bell Atlantic has
    obtained section 271 approval, the companies will enter into a
    marketing agreement for the period before conversion of the Class B
    shares. Pursuant to the Purchase, Resale and Marketing Agreement,
    Bell Atlantic/GTE will market Genuity's services (or the two
    companies will market their services jointly) as and where permitted
    by law.[^115] In New York, for example, where Bell Atlantic has
    received section 271 approval, the merged firm and Genuity will
    jointly market Genuity's Internet connectivity services. The
    Agreement, however, provides that Bell Atlantic/GTE will not provide
    or joint market any interLATA service of Genuity in any state where
    Bell Atlantic does not have interLATA authority.[^116] The Agreement
    is also non-exclusive, so that either company may purchase from or
    sell to others.

38. *Independent Auditor*. Under their proposal, the Applicants further
    commit to hire an independent auditor, acceptable to the Chief of
    the Common Carrier Bureau, to monitor ongoing compliance with the
    terms of the spinoff proposal.[^117]

## Discussion

39. Section 271 of the Act states that "\[n\]either a Bell operating
    company, nor any affiliate of a Bell operating company, may provide
    interLATA services" except as set forth in that section.[^118] The
    term "affiliate" is not defined in section 271, but is defined
    generally in section 3(1) of the Act:

> The term "affiliate" means a person that (directly or indirectly) owns
> or controls, is owned or controlled by, or is under common ownership
> or control with, another person. For purposes of this paragraph, the
> term "own" means to own an equity interest (or the equivalent thereof)
> of more than 10 percent.[^119]

40. In considering whether the proposed merger of Bell Atlantic and GTE
    would result in a violation of the Communications Act, we must first
    determine whether Genuity (following its proposed spin-off from GTE)
    would be owned or controlled by the merged entity within the meaning
    of section 3(1) because such ownership or control would render
    Genuity an "affiliate" of the merged entity.

### Ownership

41. For the reasons set forth below, we conclude that Bell Atlantic/GTE
    will not own Genuity within the meaning of section 3(1) of the Act.
    We find that, prior to exercise of its conditional conversion right
    to acquire additional shares, Bell Atlantic/GTE will not directly or
    indirectly own an equity interest or its equivalent in Genuity of
    greater than 10 percent. First, we establish that an equity interest
    under section 3(1) can include conditional conversion rights.
    Second, we apply a three-part test to determine whether the
    conversion right at issue should be deemed an equity interest or its
    equivalent. Under the facts of the instant proceeding, we conclude
    that it should not.

#### Statutory Meaning and History of "Equity Interest" and its "Equivalent"

42. In defining the term "affiliate," section 3(1) specifies that
    "\[f\]or purposes of this paragraph, the term 'own' means to own an
    equity interest (or the equivalent thereof) of more than 10
    percent."[^120] The terms "equity interest" and the "equivalent
    thereof" are not defined in section 3(1) or elsewhere in the Act.
    The issue in this case is whether Bell Atlantic/GTE's retention of
    Class B shares, comprising 9.5 percent of Genuity's outstanding
    shares and carrying a potential right to convert into newly-issued
    shares representing up to 80 percent of Genuity upon satisfaction of
    certain conditions, represents "an equity interest (or the
    equivalent thereof) of more than 10 percent."[^121] We therefore
    must determine whether the merged entity's conditional conversion
    right should be considered an equity interest or its equivalent that
    is presently attributable to Bell Atlantic/GTE or whether this right
    does not become an equity interest or its equivalent until
    exercised. To answer this question, our first step is to determine
    whether the terms "equity interest (or the equivalent thereof)"
    include conditional interests.

43. Both the Applicants and AT&T have asserted facially plausible, yet
    opposing, meanings for the terms "equity interest" and its
    "equivalent." The Applicants interpret these terms narrowly and
    argue that a conversion right, or an option to acquire an equity
    interest in the future, is not an "equity interest" prior to
    conversion if it confers none of the three legal rights that, they
    contend, traditionally attend equity ownership: to vote, to
    participate in corporate earnings, and to participate in dissolution
    proceeds.[^122] This interpretation, they maintain, is supported by
    the statute's use of the present tense ("owns," "is owned," and "is
    under common ownership"), which they claim evidences that Congress
    intended to capture only current possession of equity interests, not
    interests that give rise to an equity interest in the future.[^123]
    In further support of their interpretation, the Applicants cite the
    treatment of options in other contexts, including bankruptcy and
    accounting principles,[^124] in court cases construing the notion of
    equity ownership and the rights conferred through options,[^125] and
    Fletcher's Cyclopedia, which states that "\[a\]n option to purchase
    stock does not vest in the prospective purchaser an equitable title
    to, or any interest or right in the stock."[^126]

44. Conversely, AT&T and other commenters interpret these terms broadly,
    contending that the term "equity interest" plainly encompasses a
    conversion right embedded in an underlying equity security, as well
    as other convertible interests such as standalone options.
    Specifically, AT&T claims that options are treated as equity under
    securities law,[^127] bankruptcy law,[^128] corporate law[^129] and
    financial accounting practices.[^130] In particular, AT&T cites the
    American Law Institute's Principles of Corporate Governance, which
    defines an "equity interest" as an "an equity security in a
    corporation,"[^131] which in turn is defined to include any
    instrument "convertible \[into\] a share in a corporation."[^132]

45. The parties also disagree on the scope and meaning of term
    "equivalent" under section 3(1). The Applicants maintain that the
    "equivalent" of an equity interest refers to "those arrangements
    that confer the same (or very similar) participation rights as
    equity interests."[^133] AT&T, on the other hand, interprets the
    term more flexibly to mean something equal in value or worth.
    Consequently, AT&T regards as decisional the value that the market
    would place on Bell Atlantic/GTE's Class B shares, which it asserts
    would amount to nearly 80 percent of Genuity.[^134] We find that
    both of these positions are plausibly supported by common uses of
    the term. The first of Black's Law Dictionary's two definitions of
    the term "equivalent," meaning "\[e\]qual in value, force, amount,
    effect, or significance,"[^135] could be read to support AT&T's
    assertion that the primary indicia of ownership is the amount of
    Genuity's value attributed by the market to the Class B shares. By
    incorporating functional concepts, however, the second definition,
    "\[c\]orresponding in effect or function; nearly equal; virtually
    identical"[^136] seemingly supports a more narrow interpretation
    related to the indicia of ownership asserted by the Applicants
    (*i.e*., voting rights, earnings rights and liquidation rights).
    Other definitions of "equivalent" similarly reference both value and
    effect.[^137]

46. In light of the varying authorities cited by the Applicants and the
    merger opponents, we reject the parties' contrary assertions that
    the meaning of the term "equity interest" or its "equivalent" in the
    context of a conditional conversion right is clear and unambiguous.
    Our examination of corporate law and the other authorities cited
    produces no plain meaning of the terms when applied to a conditional
    conversion right. Although AT&T cites ALI principles, we believe
    that the ALI definition proves too much in the case of a conditional
    conversion right. If, for example, a party held a convertible
    instrument for which the conversion right was expressly conditioned
    upon something that was nearly certain not to occur, we believe that
    a bright line principle treating that interest as equity may result
    in unintended consequences. For this reason, we believe that we must
    look to other sources to determine a reasonable meaning of "equity
    interest (or the equivalent thereof)" in the context of a
    conditional conversion right. Moreover, we believe that if Congress
    intended that the Commission strictly apply the securities law
    understanding of an equity interest, reflected in the ALI principles
    cited by AT&T, it could have indicated as much in the language of
    the statute. Indeed, in another provision of the Act, Congress did
    just that and expressly defined "control" as having the same meaning
    as that term is defined in Securities and Exchange Commission
    regulations.[^138]

47. The issue of whether a conditional conversion right constitutes an
    "equity interest (or the equivalent thereof)" under section 3(1)
    presents a novel question for the Commission.[^139] Although the
    Commission has considered the treatment of options and conversion
    rights in other contexts, we find that these do not control our
    analysis of "equity interest" or its "equivalent" under section
    3(1). As the Applicants point out, the Commission traditionally has
    not attributed options, warrants and other convertible securities as
    current ownership interests under the CMRS spectrum cap rules,[^140]
    the LEC/LMDS cross-ownership rules,[^141] the application of section
    310's foreign ownership restrictions,[^142] and the broadcast[^143]
    and cable[^144] attribution rules. We nonetheless agree with AT&T's
    observation that the "equity plus debt" rule recently adopted as
    part of the broadcast and cable attribution rules implies that such
    interests, if of a certain size, may be considered.[^145] As AT&T
    further observes, the Commission's rules for designated entities in
    spectrum auctions treat options "as if the rights thereunder already
    have been fully exercised."[^146] We find, therefore, that the
    Commission's treatment of convertible instruments differs depending
    on the structure and purposes of the specific statute at issue.
    Insofar as none of precedents cited seek to interpret section 3(1)
    or the specific terms "equity interest" and its "equivalent," we do
    not find that any particular precedent is controlling for our
    purposes. In addition, we note that the equity plus debt rule in the
    broadcast and cable attribution context seeks to identify not only
    entities with ownership and control, but also entities with
    "influence" over a licensee. Further, we note that, unlike the
    broadcast and cable attribution context, here we are not concerned
    with promoting localism or a diversity of viewpoints. We conclude
    therefore that none of these precedents controls our analysis.

48. Thus, employing the traditional tools of statutory
    construction,[^147] we conclude that the undefined terms "equity
    interest" or its "equivalent," as discussed above, are susceptible
    to varying interpretations. Neither the text of statute nor the
    context in which the terms "equity interest (or the equivalent
    thereof)" are used provide any specific guidance on the
    characterization of a conditional conversion right.

49. Insofar as the terms are ambiguous, we turn next to the legislative
    history for guidance. Congress did not specifically address the
    question of the status of a conditional interest as an "equity
    interest" or its "equivalent," and we find that the legislative
    history is ultimately inconclusive. The Applicants contend that
    Congress intended the term "affiliate" to have the meaning set forth
    in the MFJ. There is some suggestion that, in adding section 3(1) as
    part of the 1996 Act, Congress may have derived the definition of
    "affiliate" from the MFJ and specifically intended it to have the
    same meaning as under the MFJ. Section IV(A) of the MFJ contained a
    definition of an "affiliate" that closely parallels section 3(1)'s
    language, with the only substantive change reflecting a reduction in
    the percentage of equity ownership from 50 percent in the MFJ to ten
    percent in section 3(1).[^148] Committee Reports from bills that
    preceded the 1996 Act suggest that the definition of "affiliate" in
    those earlier bills was drawn from the MFJ and was intended to have
    the same meaning:

> Section 106 of the bill contains the definitions to the terms used in
> title I of the Act. The definition of "affiliate" \[and other terms
> relating to the BOC restrictions\] are drawn from definitions in the
> MFJ. The Committee intends that these terms have the same meaning as
> under the MFJ.[^149]

50. While this history is instructive,[^150] in the end we find the
    Applicants' argument that the MFJ controls in interpreting "equity
    interest" and "equivalent thereof" unpersuasive and that the
    wholesale adoption of factors employed under the MFJ would be
    reading too much into the legislative history. The 1996 Act
    expressly overhauled the MFJ in favor of a pro-competitive and
    deregulatory regime designed to open all telecommunications markets
    to competition,[^151] and we decline to import into the Act an
    understanding of the term "affiliate" derived solely from the MFJ.

#### Statutory Purpose and Structure

51. Accordingly, having examined the statutory text, context and
    legislative history, we decline suggestions by both the Applicants
    and merger opponents that we adopt a bright-line characterization of
    conditional interests. Rather, based on the context and relevant
    legislative history, we can reasonably conclude that the terms
    "equity interest (or the equivalent thereof)" neither encompass nor
    exclude all forms of conditional interests. We find that some
    conditional interests may appropriately be deemed an equity interest
    or its equivalent, thereby potentially giving rise to an affiliate
    relationship, while others may not. AT&T's overly broad
    interpretation, however, could prohibit relationships that involve
    the potential right to acquire an equity interest, no matter how
    unlikely the occurrence of the contingency. Similarly, the
    Applicants' overly narrow interpretation could fail to include some
    investments that, by their nature, enable the holder to obtain
    material benefits from conduct that the holder is restricted from
    engaging in itself, or that give rise to the very incentives that
    the particular statute at issue is designed to prevent. We note that
    our recognition that some conditional interests may constitute
    equity interests comports with the general notion that certain
    future interests may be attributable under the "equity plus debt"
    exception to the broadcast and cable attribution rules.[^152]

52. For these reasons, we reject either of the bright line tests that
    the parties have advocated for purposes of section 3(1). Having
    examined the conflicting corporate law authorities on the record, we
    are convinced that they do not resolve the question before us.
    Rather, we conclude that our analysis of whether this contingent
    interest constitutes an equity interest or its equivalent under
    section 3(1) should be guided not by any rote application of
    corporate or securities law jurisprudence, but by the statutory
    purposes and the structure of the 1996 Act. Indeed, the divergence
    of authority regarding characterization of conditional interests
    under other fields of law persuades us that Congress could *not*
    have intended that we determine the status of conversionary
    interests, under section 3(1) of the Communications Act, by
    reference to any single external body of law, given the considerable
    debate and conflicting views on this question.

53. Therefore, we resolve this issue from the perspective of
    communications jurisprudence and the statutory purposes underlying
    the provisions at issue. In making these determinations, we will
    evaluate, on a case-by-case basis, whether exclusion of the
    particular conditional interest from the status of an equity
    interest or equivalent would undermine Congress' intentions. Where
    failure to treat a specific conditional interest as an "equity
    interest (or the equivalent thereof)" \-- and thus as an "affiliate"
    \-- would thwart the underlying statutory provision in which the
    term "affiliate" is used, we would find that such a conditional
    interest constitutes an "equity interest or equivalent." We
    conclude, therefore, that a close evaluation of statutory purposes
    is an important part of any test for determining the
    characterization of a conditional interest.

54. Before we examine the purposes of the particular statutory
    provision, we first must find that the conditional interest at issue
    is a *bona fide* "conditional" interest. In other words, we must be
    satisfied that the actual exercise of the option or other
    conditional interest is sufficiently uncertain that it should not be
    considered a present equity interest or equivalent. Under this prong
    of our test, we will examine whether the occurrence of one or more
    contingencies to the exercise of the option is genuinely in
    question. If the exercise were virtually certain, then we would deem
    the interest a present equity interest or equivalent, rather than a
    *bona fide* conditional interest.

55. A third factor is also critical. Recognizing that the term
    "affiliate" in section 3(1) is generally invoked in the statute to
    impose regulatory restrictions that prevent various types of
    anticompetitive conduct among related entities,[^153] we believe an
    appropriate factor in evaluating the scope of the term is whether
    the acquisition would increase the likelihood that the acquiring
    company would discriminate in favor of the company in which it will
    acquire the conditional interest. Indeed, through the BOC-specific
    Act provisions, just as during the MFJ years, BOCs are constrained
    from discriminating, and using their bottleneck control in the local
    and exchange access markets, to obtain an unfair advantage in the
    long distance market. Thus, we believe that ensuring that the
    acquisition of a conditional interest not result in a BOC's using
    its monopoly position to favor related entities (to its own economic
    advantage) while discriminating against competitors is plainly
    relevant and material to our consideration here.

56. In sum, in evaluating whether or not a specific conditional interest
    constitutes an equity interest or equivalent thereof under section
    3(1), we will consider the following three factors: (1) whether the
    conditional interest is subject to a genuine contingency; (2)
    whether the interest furthers (or instead undermines) the particular
    statutory provision at issue; and (3) whether the interest would
    increase the likelihood that the acquiring company would
    discriminate in a manner that favors or benefits the entity in which
    it will acquire the conditional interest.

57. The test we have set forth expressly recognizes that some
    relationships will result in conditional interests that create an
    affiliate relationship, while other such interests may not. In this
    regard, our case-specific evaluation bears some similarity to that
    applied under the MFJ. In examining the status of a BOC's
    acquisition of a conditional interest, Judge Greene recognized that
    not all conditional interests would create relationships that would
    thwart the BOC line-of-business restrictions with which he was
    concerned.[^154] By establishing a framework for BOC acquisitions of
    conditional interests, Judge Greene implicitly recognized that some
    conditional interests would lead to an "affiliated enterprise"
    relationship, while others would not.[^155] While we consider a
    different set of factors than those evaluated by Judge Greene, our
    goals and analyses have aspects in common. Both the MFJ regime and
    the 1996 Act evidence concerns about BOC use of bottleneck control
    in the local and exchange access markets to obtain an unfair
    advantage in the long distance market. Under both the MFJ test and
    our own, we require that any interests be truly conditional, with
    genuine contingencies; and we give serious consideration to an
    acquiring carrier's ability or incentive to discriminate so as to
    advantage the target company or disadvantage that company's
    competitors. In the context of construing the 1996 Act and its
    numerous statutory requirements, however, we must do more, and
    accordingly we find pivotal to our analysis consideration of whether
    the interest furthers the purposes of the Act, including the
    particular statutory provision where the term "affiliate" is used.

58. In analyzing these factors, we recognize, as AT&T points out, that
    the ambiguous terms "equity interest" and its "equivalent" are found
    in a general definitional section of the Act, and that the defined
    term, "affiliate," is used throughout the Act.[^156] We therefore
    believe it is appropriate, in assessing the scope of an ambiguous
    definition, to examine the instances in which the term is used, and
    we have made that a requirement of our test. Thus, we believe that
    the framework we establish today could accommodate for any
    differences required by the particular statutory provision at issue,
    to the extent any such differences exist.[^157] As noted, however,
    several of the references to an "affiliate" are in the specific
    provisions of the Act that pertain to the BOCs, and for that reason
    the MFJ precedent can be instructive.

### Analysis of the Applicants' Spin-off Proposal

59. In applying the factors to the Applicants' spin-off proposal, we
    find on this record that the merged firm's Class B conversion rights
    are not an "equity interest (or the equivalent thereof)" under
    section 3(1) of the Act because (i) their conversion rights are
    genuinely in question, (ii) their interest furthers the statutory
    purposes by increasing the merged entity's incentive to achieve
    section 271 compliance throughout the Bell Atlantic territory,
    and (iii) the interest will not increase the likelihood that the
    merged firm would discriminate against Genuity's rivals.

##### Genuine Contingency

60. Because the likelihood of the contingency's occurrence is inherently
    related to the nature of the instrument as a bona fide conditional
    interest, we examine first whether the occurrence of the contingency
    is genuinely in question. With respect to the Applicants' proposed
    spin-off, we find that Bell Atlantic/GTE's ability to convert its
    shares into greater than 10 percent of Genuity's outstanding shares
    is genuinely in question.

61. As an initial matter, we reject the suggestion that Bell
    Atlantic/GTE's conversion right is not conditional. First, the terms
    of the proposed conversion right are conditioned in such a way that
    the Class B shares may never be convertible into greater than ten
    percent of Genuity's outstanding shares. If Bell Atlantic/GTE fails
    to achieve section 271 approval representing 50 percent of Bell
    Atlantic's total access lines within five years, the Class B shares
    will be convertible only into ten percent of Genuity's outstanding
    shares. This 50-percent threshold requirement, as the Applicants
    point out, entails a risk that the GTE and Bell Atlantic would never
    be in a position to recoup the value of the initial assets that they
    contributed by obtaining an equity interest greater than ten
    percent. Second, the Applicants' proposal contains a significant
    access line limitation that renders its ability to convert the Class
    B shares uncertain. If Bell Atlantic/GTE fails to achieve section
    271 approval representing 95 percent of Bell Atlantic's access lines
    in five years, it may receive at most a marketable note, the face
    value of which is subject to express limitations. Should Genuity
    decide not to purchase the interests so tendered, a liquidating
    trustee will sell that interest subject also to limitations on the
    amount that may be realized by the merged entity. Thus, under the
    current proposal, Bell Atlantic/GTE will be able to exercise the
    full conversion rights to obtain more than 10 percent of the equity
    shares of Genuity only after the merged entity has satisfied the
    95-percent threshold.

62. We conclude that the 95-percent access line threshold that the
    merged firm must achieve in order to exercise the full conversion
    right represents a genuine contingency.[^158] We therefore reject
    AT&T's argument, premised on an earlier version of the proposal,
    that the conversion right lacks the element of speculation that
    characterizes a conditional interest.[^159] With respect to the
    current proposal, nothing in the record suggests that obtaining
    section 271 approvals representing 95 percent of Bell Atlantic's
    access lines within five years will be an easy task.[^160] In this
    regard, we observe that in the four years following the Act, only
    one such application has been approved,[^161] while several others
    have been rejected.[^162] While we agree with AT&T that section 271
    approval in any given state is primarily within Bell Atlantic's
    control, we do not find that this fact requires us to disregard the
    contingent nature of the 95-percent threshold. While the tools for
    satisfying section 271 approval rest with Bell Atlantic, a great
    variety of factors can impact the ultimate timing of section 271
    approval. In particular, even though Bell Atlantic has obtained
    approval in one state, our review focuses heavily on the performance
    of a BOC's operations support systems, and Bell Atlantic does not
    use the same systems in all of its states. In addition, technical
    issues, such as problems with its systems or other network
    modifications that are necessary to comply with the BOC's
    obligations under the Act, might impede the progress made towards
    compliance. Further, regulatory entities or persons in addition to
    this Commission are involved in the section 271 process, most
    significantly various state regulatory entities and the Attorney
    General (to whose evaluation the Commission must afford "substantial
    weight"). Therefore, while a BOC does, in the final analysis, hold
    the key to its own section 271 success, a number of external or
    technical factors continue to pose challenges to good faith efforts
    to satisfy the statutory standards that govern section 271 approval
    by this agency. We believe that, in judging the nature of the
    contingency, the fact that this Commission must approve section 271
    applications covering 95 percent of Bell Atlantic's access lines
    prior to it having any right to convert makes this right genuinely
    contingent as to Bell Atlantic.

63. We do not find that the absence of a payment by the merged firm to
    convert its right eviscerates the contingent nature of the
    instrument so as to render the instrument a present equity interest
    or its equivalent.[^163] Although the pre-paid nature of the
    Applicants' conversion right is not typically present in option
    arrangements, we do not believe, where a conversion right is
    otherwise contingent, that paying for that right up front will
    automatically render it a present interest.[^164] The up-front
    payment does not change the fact that the conversion right may never
    be exercised. The 95-percent access line threshold in the
    Applicants' proposal provides sufficient assurance that the full
    conversion right may never be exercised, regardless of any payment
    required for actual conversion.

64. We also find unavailing arguments by merger opponents that because
    the conversion right could be sold for value after the merged entity
    met the 50-percent threshold, it should therefore be characterized
    as equity. That argument is not persuasive in light of the terms of
    the current proposal.[^165] Specifically, under the proposal that we
    consider herein, we find that, if the conversion right were
    exercised between 50 and 95 percent, it would most properly be
    characterized as debt, not equity. The Commission, in other
    contexts, has established criteria to distinguish bona fide debt
    from equity that examine (1) whether there is a written
    unconditional promise to repay the money on demand and to pay a
    fixed rate of interest; (2) whether there is subordination to or
    preference over any indebtedness of the company; (3) the company's
    debt/equity ratio; (4) whether the alleged debt is convertible to
    stock; and (5) the relationship between holdings of stock in the
    corporation and holdings of the interest in question.[^166] The
    Applicants' proposal provides for a note that appears to satisfy the
    first, second, fourth and fifth prongs. The note must be payable
    upon demand and at a fixed rate of interest once issued,[^167] would
    not be convertible to equity and would be unsubordinated to other
    indebtedness of Genuity. In addition, there is no indication that
    the debt instrument would confer any of the benefits normally
    reflected in corporate ownership.[^168] While satisfaction of the
    criteria, and in particular the third factor, can be assessed
    conclusively only at such time as Genuity may choose to purchase the
    shares from the merged entity, we anticipate that Genuity would
    likely finance any note, or arrange to pay it off on an accelerated
    basis, by raising capital through such measures as a secondary
    offering. Under that circumstance, we would expect that the
    company\'s debt-equity ratio would be well within a range adequate
    to find that the note were debt. Consequently, if we were to apply
    these factors to the Applicants' potential debt instrument, we would
    likely find that the debt instrument would properly be considered
    bona fide debt. We expect the Applicants to inform the Commission if
    this contingency arises and to provide the Commission with any
    agreements between the Applicants and Genuity or the liquidating
    trustee.

65. We also disagree with opponents of the merger that the value the
    public places on the IPO shares should control our assessment of the
    likelihood of the contingency. Prior to any potential conversion,
    which may never occur, the merged entity is not entitled to 80
    percent of the economic incidents of Genuity's operation, such as
    flowing through operating losses for tax purposes or obtaining
    dividends or other distributions beyond 10 percent.[^169] Although
    AT&T and other merger opponents claim that, under an earlier version
    of the proposal, the post-IPO public shareholders will value their
    interest as approximately 20 percent of Genuity,[^170] we find that
    the likelihood of the contingency depends upon Bell Atlantic's
    showing of compliance with the requirements of section 271 of the
    Act, matters within the Commission's expertise. Our assessment of
    the strength of a contingency predicated on section 271 compliance,
    therefore, may differ from the perception of market participants who
    value securities using forward-looking valuation methodologies, even
    if those approaches seek to weigh the likelihood that certain
    contingencies will take place. In addition, countering the emphasis
    that AT&T places on the market's perception of the value of the
    company is the actual accounting treatment of these assets -- the
    Applicants have assured us that they will not be considered equity
    until converted.[^171] Thus, where the market may view the
    occurrence as not contingent, established accounting practices
    support that these assets should not be treated as equity prior to
    actual conversion.

##### The Purposes of Section 271

66. We find that Bell Atlantic/GTE's retention of a conditional interest
    in Genuity is consistent with and furthers the purposes underlying
    section 271, the particular statutory provision at issue in this
    case. In examining the effects of the conditional interest in light
    of the purposes of section 271, we believe it is relevant to
    consider whether the conditional interest is so significant that it
    would economically or otherwise disincentivize or divert resources
    from the carrier's obligations under the Act. Thus, in examining the
    status of a conditional interest under the 1996 Act, we are not
    concerned solely with the size of the investment but rather with the
    effect of the investment on the purposes of the particular statute
    at issue. As explained below, we find that the spin-off proposal
    will increase the merged firm's incentives to complete the section
    271 process quickly so as not to lose the right to reacquire
    ownership and control of Genuity.

67. The Commission has often expressed section 271's dual underlying
    objectives. First, section 271 seeks to bring additional competition
    to the long distance market by offering the BOCs the potential
    opportunity to participate in that market.[^172] Second, by
    conditioning BOC entry into the in-region, interLATA market on the
    BOC opening its local markets to competition, section 271 seeks to
    facilitate entry by new entrants into the BOC's local exchange
    market.[^173] Together, these dual objectives further the overall
    purpose of the 1996 Act in facilitating competition in all
    telecommunications markets by fundamentally altering the incentives
    for market entry and by eliminating remaining monopoly
    bottlenecks.[^174] Congress therefore used the promise of long
    distance entry as an incentive to prompt the BOCs to cooperate in
    facilitating competition in their local markets.[^175]

68. We find that, rather than disincentivize the merged firm from
    opening its local markets, the spin-off proposal will provide Bell
    Atlantic with a substantial and compelling incentive to obtain
    section 271 authority quickly in order to reintegrate the operations
    of Genuity. Specifically, the spin-off proposal places Bell Atlantic
    under a time restriction requiring it to obtain section 271
    authority representing 95 percent of its access lines within five
    years in order for the merged firm to acquire the right to convert
    the assets into a controlling interest.[^176] Moreover, as discussed
    below, because the spin-off proposal requires the merged firm to
    ratably disgorge appreciation attributable to the period before it
    obtains section 271 approvals in the relevant states, Bell
    Atlantic/GTE has a substantial incentive to obtain section 271
    authorizations as expeditiously as possible.[^177] In addition, the
    risk that the merged firm will fail to obtain section 271 authority
    representing 50 percent of Bell Atlantic's access lines, and thereby
    lose its ability to recoup the value of the assets spun off to
    Genuity beyond a 10-percent interest, will provide a potent
    incentive for the merged firm to obtain section 271 authority
    quickly. In particular, because the spin-off involves all of the
    assets of Genuity, some of which are located outside of Bell
    Atlantic's region and could potentially be owned and operated by the
    merged firm lawfully, the shareholders of the combined firm bear the
    risk of losing the value of these out-of-region assets. This heavy
    shareholder burden should inspire Bell Atlantic/GTE's management to
    expend considerable resources in pursuit of demonstrating the
    openness of its local markets. Thus, the Applicants' proposal is
    designed to enhance Bell Atlantic's desire to satisfy the
    market-opening criteria established by Congress and thereby ensure
    that consumers will enjoy the long term benefits of competition
    among telecommunications providers.

69. We also reject arguments by merger opponents that the spin-off
    proposal enables Bell Atlantic/GTE to gain impermissibly the
    appreciation of a prohibited entity or realize substantial material
    benefits prior to attaining section 271 authorization. Rather, we
    find that, by requiring the merged firm to ratably disgorge
    appreciation attributable to the period before it obtains section
    271 approval in the relevant states, the proposal gives the merged
    firm an added incentive to obtain section 271 authorizations as
    quickly as possible. In particular, AT&T and others criticized an
    earlier version of the Applicants' proposal that would have allowed
    the merged entity, if and when it obtained the requisite approval
    under section 271, to convert its interests into shares of Genuity
    that would fully capture any prior appreciation in the value of
    Genuity shares, including appreciation attributable to Genuity's
    interLATA activities in states in which the merged entity did not at
    the time have section 271 approval.[^178] These opponents argued
    that the potential retroactively to capture appreciation
    attributable to what were at the time prohibited services was
    evidence of "ownership" and diminished the incentive to comply with
    section 271 prior to the five-year deadline. The Applicants revised
    the proposal to address this concern by excluding from the benefits
    captured by Genuity upon conversion the amount of appreciation
    roughly proportional to revenues from areas in which section 271
    approval had not yet been obtained. Thus, rather than having an
    incentive to delay section 271 approval, the merged entity will have
    an incentive to obtain approval as quickly as possible so that it
    may fully participate in any appreciation in the value of its
    potential interest.

##### Likelihood of Discrimination 

70. We recognize that, through its ownership of the Class B shares, the
    merged firm has an incentive to enhance the value of Genuity's
    stock. Although Bell Atlantic/GTE's retention of a conditional
    interest will increase its incentive to engage in discriminatory
    behavior,[^179] any such behavior on the merged entity's part would
    be readily detectable. We find that the significant risk of
    detection of any discriminatory conduct on Bell Atlantic/GTE's part
    should serve to restrain the company from acting on any incentive to
    discriminate in favor of Genuity.

71. Although we have no doubt that incumbent local exchange carriers
    would be able to use their bottleneck local exchange facilities to
    discriminate in the provision of Internet and data services, for the
    reasons set forth below, we find that any attempt by the merged
    entity to discriminate in such a manner would be readily detectable.
    At the same time, however, we note the weakness of the argument by
    opponents of the merger that the Applicants would be able to
    discriminate in favor of Genuity. AT&T, for example, provides only a
    limited discussion in support of its contention that the merged
    entity can plainly "discriminate."[^180] Although AT&T notes Bell
    Atlantic's "continued control of bottleneck local exchange
    facilities," the Applicants respond, without contradiction, that
    Genuity does not currently "rely to any significant degree on Bell
    Atlantic's core LEC facilities" -- Applicants' euphemism for
    bottleneck facilities -- "to provide Internet and data
    services."[^181] Second, AT&T argues that the merged firm could
    discriminate in favor of ISPs that resell Bell Atlantic's DSL
    service by providing superior quality of transport service to their
    internet backbone provider.[^182] However, the Applicants respond,
    again without contradiction, that "traffic from Bell Atlantic's
    DSLAMs is not directly connected to any Internet backbone provider,"
    but instead is aggregated and delivered to the ISP premises, where
    the ISP controls the link to the Internet backbone provider.[^183]
    In any event, however, we conclude for the reasons stated below that
    the merged entity will be unlikely to discriminate because of the
    likelihood that any such discrimination would be detected and
    appropriate enforcement action would be taken.

72. Specifically, to the extent that Genuity purchases access services,
    tariffed or otherwise, from the merged entity, we require the merged
    entity to report, on a disaggregated, company-specific basis,[^184]
    certain measurements, all but one of which it currently provides as
    part of the Commission's ARMIS requirements.[^185] With respect to
    its provision of high-speed special access and regular special
    access services, we require Bell Atlantic/GTE, or any applicable
    affiliate,[^186] to report: the percent of commitments met; the
    average interval (in days); the average delay days due to lack of
    facilities;[^187] the average interval to repair service (in hours)
    and the trouble report rate.[^188] These measurements should be
    reported on a monthly basis and made available to the independent
    auditor.[^189] Thus, if, as ITAA suggests, the merged entity were to
    attempt to discriminate by favoring Genuity in the provision of high
    capacity special access circuits,[^190] we find that this would be
    detectable by the independent auditor and this Commission.

73. Moreover, if, as ITAA also suggests, the merged entity were to
    attempt to discriminate in favor of Genuity by providing it
    "preferential access" to conditioned copper loops used to provide
    advanced services,[^191] we find that this behavior would be readily
    detectable as well. Specifically, to the extent that Genuity
    purchases loops from the merged entity as unbundled network elements
    pursuant to section 251, we find that any discrimination in the
    provisioning of such loops would become apparent in the section 271
    approval process. In this respect, we note that Bell Atlantic/GTE
    must obtain section 271 approval with respect to 50 percent of its
    access lines to avoid a major loss. In addition, it cannot convert
    its interest in Genuity until it receives approval with respect to
    95 percent of its access lines, and will lose part of any
    appreciation of Genuity on account of any delay in obtaining section
    271 approval. In order to obtain section 271 approval, of course,
    Bell Atlantic/GTE must show that it provides nondiscriminatory
    access to its bottleneck facilities.[^192] In these circumstances,
    any attempt to use its bottleneck facilities to discriminate would
    jeopardize the merged firm's ability to reacquire ownership and
    control of Genuity[^193] or, at the least, subject it to losses due
    to delay in obtaining section 271 approvals.

74. We find that the requirements that we adopt today with respect to
    providing disaggregated data on the merged entity's provision of
    special access circuits and the showing of nondiscriminatory access
    to unbundled loops required for the merged firm to demonstrate
    section 271 checklist compliance, will make any attempted
    discrimination in favor of Genuity in the provision of these
    services highly detectable. To the extent that parties allege that
    the merged firm could use its control over bottleneck assets to the
    detriment of Genuity's competitors in other ways,[^194] such
    behavior may be readily apparent to the independent auditor, and, in
    any event, parties are always free to file section 208 formal
    complaints alleging a violation of the nondiscrimination provisions
    of the Act.[^195] Thus, we conclude that the detectability of
    anticompetitive behavior, combined with the merged firm's incentive
    to obtain section 271 authority, will provide a potent deterrent to
    restrain the merged firm from acting on any incentive to impede
    competition through the use of Bell Atlantic's bottleneck
    facilities. Accordingly, we find that the ease in detecting
    discrimination on the merged firm's part in favor of Genuity serves
    to decrease the likelihood that such discrimination will in fact
    occur.

75. We note that this conclusion is similar to Judge Greene's findings
    in *Tel-Optik*. In that case, Judge Greene recognized the
    possibility that an acquisition of a conditional interest could
    provide a BOC with "substantial incentive and ability unfairly to
    impede competition by use of its monopoly position in the market it
    is thus entering."[^196] He concluded, however, that if the BOC
    would attempt to use its monopoly position to disadvantage
    competitors, "that attempt would almost certainly be made known to
    the Court during any subsequent waiver proceedings." Similarly, in
    the instant case, the knowledge that discrimination would be
    detected either by the independent auditor or in subsequent section
    271 proceedings, and possibly deprive the BOC of its ability to
    exercise the conversion right, reduces the likelihood that the
    merged entity will engage in such behavior.

### Control

76. As set forth below, we conclude that Bell Atlantic/GTE will not
    control Genuity.[^197] We find that, under the Applicants' proposal,
    Bell Atlantic/GTE will not exercise *de jure* or *de facto* control
    of Genuity prior to the potential conversion of its Class B shares.
    As an initial matter, we find no evidence that, prior to any
    potential conversion, Bell Atlantic/GTE will have *de jure* control,
    or voting control, of Genuity.[^198] We recognize that *de facto*
    control, or actual control of a company, presents a closer question.
    As discussed below, having examined the composition of the board and
    management, the minority shareholder protections, Genuity's
    financing arrangements, the contractual relationship between the
    entities following the spin-off, and other factors, we find that the
    merged firm will not have the power to dominate Genuity's corporate
    affairs and, therefore, is not in actual control of Genuity. We
    note, however, that we base our conclusion on representations made
    by the Applicants regarding the relationship between the merged firm
    and Genuity after the spin-off. Should the actual relationship
    between Bell Atlantic/GTE and Genuity deviate from or extend beyond
    those representations, the Commission would be compelled to
    reevaluate its assessment of whether the merged firm controls
    Genuity. In the event that the Commission finds that, in light of
    the changed circumstances, the merged firm does, indeed, control
    Genuity, we will take appropriate enforcement action which may
    include issuing a standstill order.[^199]

77. The determination as to whether an entity is in *de facto*, or
    actual, control of another entity "transcends formulas, for it
    involves an issue of fact which must be resolved by the special
    circumstances presented."[^200] Because the inquiry is inherently
    factual and not subject to a precise formula, we must look at all
    relevant factors and the totality of the circumstances.[^201] In
    ascertaining where actual control resides, "we are governed chiefly
    by the demonstration of \[the shareholder's\] power to dominate the
    management of corporate affairs."[^202] Although the percentage of
    voting stock held by a minority shareholder is relevant, the
    Commission also has considered as important factors the right to
    elect members of the company's board of directors, to determine the
    manner of operation, to make strategic decisions, and to control
    personnel and financing decisions.[^203] The Commission has
    recognized that spin-off situations may warrant greater flexibility
    in applying these factors.[^204]

78. Having reviewed these and other factors, both individually and
    cumulatively, below, we are persuaded that Bell Atlantic/GTE would
    not exercise *de facto* control of Genuity. Prior to any potential
    conversion of the Class B shares, the public shareholders will have
    90 percent of the voting rights, will elect twelve of the thirteen
    directors, and will have a potential right to acquire Bell
    Atlantic/GTE's shares if the contingency is not satisfied. Nothing
    on the record undermines the public shareholders' ability to manage
    and operate Genuity through this substantial voting control and
    board participation. Consequently, as described below, the merged
    firm will not be in a position to dominate the management of
    Genuity, or control its business decisions, personnel practices or
    finances. Although we do not dispute that the merged firm may have
    limited influence over Genuity, we find that this limited influence
    will not exceed the degree permitted by section 3(1).

79. *Voting Control*. While control over an entity confers affiliate
    status under section 3(1), the structure of the statute implies that
    a limited degree of influence, short of control, is permissible.
    This conclusion follows implicitly from section 3(1)'s recognition
    that a BOC may hold up to ten percent of the stock in a prohibited
    entity.[^205] Our concern in section 3(1), therefore, must be
    whether the entity holds *de facto* control, or exercises influence
    beyond the implicit *de minimis* level permitted by the statute.
    Thus, the mere fact that Bell Atlantic/GTE will be a 9.5-percent
    voting shareholder of Genuity, a widely held, publicly traded
    company, is not dispositive of the locus of control. In fact, we
    note that under the proposal other entities may exercise voting
    control twice that of Bell Atlantic/GTE.[^206]

80. *Investor Safeguards*. We find that the minority investor
    protections afforded to the Class B shareholder or Bell
    Atlantic/GTE, as the case may be, are narrowly tailored and do not
    rise to a level that would consistently inject the merged firm into
    Genuity's business and policy decisions.[^207] Commission precedent
    recognizes that non-controlling shareholders have an incentive to
    act to protect their investment and may influence the operation of a
    company.[^208] Accordingly, the Commission has permitted minority
    shareholders "to wield significant influence, including the ability
    to affect the outcome of votes or the day-to-day operations of a
    company, so long as that influence does not rise to a consistent
    level of dominance at which the minority shareholder is determining
    how the company runs and what business choices it makes."[^209]
    Minority investor protections, for example, are commonly used to
    induce investment and ensure that the basic interests of minority
    stockholders are protected.[^210] Accordingly, the Commission has
    stated that "the right to vote on matters involving extraordinary
    corporate actions does not ordinarily undermine the nonattributable
    character of otherwise non-cognizable interests, so long as that
    right is narrowly circumscribed."[^211]

81. We find that the minority investor protections accorded to the Class
    B shareholders or Bell Atlantic/GTE are narrowly tailored to protect
    the company's initial equity investment and its potential right to
    convert the Class B shares upon satisfaction of the
    conditions.[^212] By leaving room for Genuity's management to, for
    example, enter into acquisitions of up to 20 percent of Genuity's
    fair market value without Bell Atlantic/GTE's consent, the
    safeguards do not enmesh the merged firm in all major decisions
    regarding how the company runs it operations or what business
    choices it makes. Moreover, through its veto rights, the merged firm
    cannot compel Genuity's officers and directors to pursue any
    particular course of action. Instead, the merged firm can only
    block, by withholding its consent, certain actions contemplated by
    Genuity's management.

82. *Officers and Directors*. We find that the selection and composition
    of Genuity's officers and directors do not evidence control of
    Genuity by the merged firm. In particular, we note that the board
    structure is designed to minimize concern that GTE's initial
    selection of board members will result in Bell Atlantic/GTE
    controlling Genuity or its board. As with other spin-off situations,
    the initial board of Genuity has been selected by GTE, its former
    parent. In this case, however, potential concern over board
    independence stemming from GTE's initial selection is tempered by
    the fact that shortly after the IPO a majority of the directors will
    be individuals who were not selected by GTE and who have no prior
    affiliation with either Bell Atlantic or GTE.[^213] Specifically,
    within 90 days of the IPO, the four initial independent directors
    selected by GTE will select seven other independent directors. As a
    further safeguard against any potential lack of independence, rather
    than being locked in for specific multi-year terms, twelve directors
    (the four selected by GTE plus the additional independent directors
    selected by those four, as well as the Genuity CEO) will stand for
    election by the public shareholders within 9 months of the IPO. The
    potential for board turnover substantially mitigates potential
    concern over the independence of the initial board members.

83. Although we note that the Class B shareholder has the right to
    designate one board member (who will refrain from voting until the
    board comprises at least 10 members), we do not find that such
    designation grants the Class B shareholder control over Genuity or
    its board.[^214] There will be a clear majority of board members
    with no interest in Bell Atlantic/GTE, and no past association with
    either company. All of the directors, including the Class B
    designee, should have every incentive, as well as a clear fiduciary
    duty, to serve only the best interests of Genuity, regardless of
    whether this is also in the best interests of the merged firm.[^215]
    We note that the proposal gives the directors the power and
    opportunity to carry out their fiduciary duties. Thus, we find
    nothing on the record to doubt that the directors will act in strict
    accordance with their clear fiduciary responsibility.[^216] This
    expectation similarly applies to those officers and managers of
    Genuity who were previously employed by one of the merging
    parties.[^217]

84. We have carefully examined the impact of any prior relationship with
    the merging parties upon the ability of Genuity's officers and
    directors to control major business and policy decisions of the
    company.[^218] Because Genuity is being spun off from GTE, a number
    of initial decisions affecting Genuity were made by GTE prior to the
    spin-off. We find, however, that these decisions do not lock in
    Genuity's officers and directors to specified courses of action, but
    rather are of a transitional nature and allow for the officers and
    directors to make independent business decisions on a going-forward
    basis. We note that several members of Genuity's management worked
    for Genuity's precursor, BBN, prior to its acquisition in 1997 by
    GTE, and thus have experience with independently managing and
    growing an Internet backbone company.

85. Given the contingent nature of the conversion right, we also find
    that, to the extent the existence of the Class B conversion right
    carries any degree of control in the eyes of Genuity's officers and
    directors,[^219] any such control premium will be negligible.[^220]
    Genuity's management undoubtedly will be cognizant of the
    conditional conversion right that carries with it a possibility that
    Bell Atlantic/GTE will obtain control of the company at some point
    in the future. Nonetheless, the merged firm will not have an
    absolute legal right to reacquire Genuity. Genuity's officers and
    directors therefore cannot be certain that the merged firm will
    satisfy the access line thresholds. Moreover, in the event that Bell
    Atlantic/GTE fails to meet the 95-percent threshold, the public
    shareholders will have the right to purchase its shares in return
    for a debt instrument. Thus, although the officers and directors
    will be aware of the possibility that Bell Atlantic/GTE will
    reacquire the company, they also will recognize that the Class A
    shareholders may ultimately retain full ownership of the company.
    This countervailing consideration weighs against ascribing an
    influential degree of control to the mere existence of Bell
    Atlantic/GTE's conditional conversion right.[^221]

86. *Finances*. We find that Bell Atlantic/GTE will not have control of
    Genuity's finances. At the time of the spin-off, the proceeds of the
    IPO will represent the primary source of financing for Genuity, and
    the spun-off entity will not be obligated to Bell Atlantic/GTE on
    any loan. Genuity retains the right to seek additional funding
    through arm's-length loans from the merged firm, but is not
    obligated to do so. If it does obtain loans from Bell Atlantic/GTE,
    these cannot amount to more that 25 percent of the total outstanding
    debt of Genuity. Because Genuity is under no obligation to obtain
    funding from the merged firm, and Bell Atlantic/GTE's ability to
    loan money to Genuity is restricted in any event, we conclude that
    any potential financing arrangements with the merged firm will not
    vest control of Genuity's finances in Bell Atlantic/GTE. Indeed, as
    a public corporation, Genuity has the ability to issue additional
    shares to finance some of its operational needs. In addition to
    examining the source of the funds, we also assess whether the locus
    of Genuity's financing decisions remains with Genuity, and find that
    it does. Although under the investor safeguards the merged firm's
    consent is required for Genuity to issue debt in excess of \$11
    billion, we are persuaded that the size of this restriction leaves
    sufficient room for Genuity to control major decisions regarding
    financing. Thus, we find that the potential right to obtain
    arm's-length loans from the merged entity and the limited role of
    the merged firm in approving debt beyond \$11 billion do not vest
    control of Genuity's finances in Bell Atlantic/GTE.

87. *Commercial Contracts*. We find that the contractual relationship
    between Bell Atlantic/GTE and Genuity following the spin-off will
    not result in transferring day-to-day operational control of Genuity
    to Bell Atlantic/GTE. By their nature, the administrative support
    services contracts are transitional, limited to not more than one
    year, and expressly terminable by Genuity without penalty at any
    time.[^222] We note also that the services provided by the former
    parent do not appear to involve the merged firm in Genuity's core
    operations. Many of the support services that are included in the
    contracts appear to be functions that are commonly outsourced, such
    as billing, payroll services, benefits administration and
    processing, cash processing, realty and leasing management,
    environmental and safety services and information technology
    services.[^223] The merged firm will not, for example, have any role
    in hiring or firing Genuity employees, in training employees, in
    strategic planning and business development, in legal counsel and
    regulatory affairs support, and in advertising and other corporate
    communications.[^224] We therefore find it reasonable in this case
    that the merged entity may continue to provide narrowly-defined
    support services for a limited transitional period following the
    spin-off. Given the transitional nature of these narrowly-defined
    support services, which will not entail Genuity's core operations,
    we also conclude that Bell Atlantic/GTE will not be "providing"
    in-region, interLATA services in violation of section 271 through
    these contractual relationships.[^225]

88. We further find that the joint marketing agreement between the
    merged firm and Genuity does not confer control over Genuity.
    Although the Purchase, Resale and Marketing Agreement has a
    five-year term and obligates Genuity to provide most favored
    customer pricing to Bell Atlantic/GTE, the Agreement is not
    exclusive and does not apply to those states in which the combined
    entity is prohibited from providing in-region, interLATA services.
    Genuity therefore has the right to market, distribute and sell its
    services nationwide, either directly or indirectly through other
    dealers or distributors, and according to the prices and volume or
    other purchase discount arrangements that it desires to make
    available to its other customers. In addition, we find that the
    agreement specifies that the prices for certain Genuity services
    will be renegotiated annually, or even quarterly. Moreover, because
    the contract specifies that the merged firm will not provide or
    jointly market in any state for which it has not obtained section
    271 authority any Genuity service that is, or includes as a bundled
    component, an interLATA service, we also conclude that Bell
    Atlantic/GTE will not be "providing" in-region, interLATA services
    in violation of section 271 through the joint marketing agreement
    between the companies following the spinoff.[^226]

89. *EDP Distinctions*. AT&T further suggests that various attribution
    rules under our *Cable Attribution Order* and *Broadcast Attribution
    Order* are pertinent to the control analysis and support a finding
    that Genuity would be an affiliate of the merged entities.[^227] We
    disagree. Both the broadcast equity-debt plus (EDP) attribution rule
    and the cable equity plus debt rule provide, in specific
    circumstances, for attribution of certain financial investments
    (including options and warrants) when the investor holds an interest
    in excess of 33 percent of the total asset value of the
    entity.[^228] These rules focus directly on those financial
    relationships in which there is significant incentive and ability
    for the otherwise nonattributable interest holder to exert influence
    over the core operations of the licensee. As we explained in the
    *Broadcast Attribution Order*, "\[t\]he approach of focusing on
    specific triggering relationships would extend the Commission's
    current recognition that the category or nature of the interest
    holder is important to whether an interest should be
    attributed."[^229] A similar equity-debt rule arises under our
    *Cable Attribution Order*. We stated in that Order that, in adopting
    the ED rule, "\[w\]e affirm our conclusion in the *Broadcast
    Attribution Order* that there is the potential for certain
    substantial investors or creditors to exert significant influence
    over key decisions, which may undermine the diversity of voices we
    seek to promote."[^230] Therefore, reflecting our view that
    relationships that offer potential for significant influence or
    control should be counted in applying the broadcast and cable
    ownership rules, which promote diversity and competition, we adopted
    a targeted prophylactic, structural rule under which we would make
    certain interests attributable using a bright line test.

90. That same range of concerns is absent here, where we are primarily
    focused upon the competitive considerations underlying section 271,
    a provision that entails case-specific inquiry. Accordingly, we
    decline to adopt in this proceeding any bright line test for
    assessing whether an entity is an affiliate within the meaning of
    section 3(1). Instead, in this instance, we employ a case-specific
    evaluation tailored to the circumstances now before us, which
    implicate section 271. Thus, unlike the cable and broadcasting
    contexts, the specific policy concerns present here persuade us that
    a case-specific evaluation will best effectuate the applicable
    statutory purposes.

91. Finally, a third application of the equity-debt rule arises under
    section 623 of the Act, for which we have developed the LEC
    effective competition test. Under that test, effective competition
    exists (sufficient to free rates of a cable operator from
    regulation) where a LEC or its "affiliate" provides video
    programming services comparable to those of an unaffiliated cable
    operator. In determining affiliation for these purposes, the
    Commission has used the ED rule: "We believe that an ED investment,
    given its size, by a LEC gives an MVPD significant access to the
    resources of a LEC such that it can be presumed that there is
    effective LEC competition \[with the cable operator\]."[^231] The
    question here, however, was not whether or not the LEC would have
    "control" over the related entity. Instead, our focus was different
    -- whether the related entity would have sufficient support from the
    LEC and access to its resources, so that it could effectively
    compete with the unaffiliated cable operator. That is a concern very
    specific to section 623 of the Act. As a result, the policy concerns
    driving that bright line test are inapplicable here.

### Other Issues

#### Transfer of GTE Telecom Wholesale Services to Genuity

92. As part of our finding that the proposed spin-off of GTE's Internet
    backbone and related assets will not result in a violation of
    section 271, we also approve the transfer of control to Genuity of
    certain domestic and international section 214 authorizations and
    cable landing licenses currently held by various GTE operating
    subsidiaries, including GTE Telecom.[^232] Pursuant to domestic and
    international section 214 authorizations, GTE Telecom provides
    domestic interexchange and international wholesale services.[^233]
    Although GTE Telecom will divest its private line, point-to-point
    service to commercial and financial customers before closing the
    merger,[^234] the Applicants maintain that the transfer of GTE
    Telecom's wholesale services is necessary to preserve the integrity
    of Genuity's business.[^235] Because supplying private line services
    on a wholesale basis to other carriers is integrally related to
    Genuity's business, we find that the transfer of the authorizations
    associated with this business is in the public interest.

93. With respect to the international transfer, we modify the
    international section 214 authorizations that will be transferred to
    Genuity, and held by its international carrier subsidiary GTE
    Telecom, to reclassify GTE Telecom as a nondominant international
    carrier on the U.S.-Dominican Republic and U.S.-Venezuela routes.
    After the spin-off to Genuity, GTE Telecom will no longer have an
    "affiliation," within the meaning of section 63.09 of the rules,
    with any carrier that has market power on the foreign end of a U.S.
    international route.[^236] Accordingly, pursuant to section
    63.10(a)(1) of the rules, we find no basis in this record to
    regulate GTE Telecom as a dominant international carrier to the
    Dominican Republic and Venezuela.[^237]

#### Waiver of Affiliate Transactions Rules

94. We also decline to grant the Applicants' request for a waiver of the
    affiliate transactions rules.[^238] Specifically, the Applicants
    seek permission to effectively treat Genuity as an affiliate for
    accounting purposes so that the merged firm's provision of services
    to Genuity through a "separate services affiliate" would not alter
    the manner in which the separate services affiliate provides service
    to other members of Bell Atlantic/GTE's corporate family.[^239] By
    ensuring arm's length transactions between a dominant incumbent LEC
    and its nonregulated affiliate, the affiliate transactions rules
    deter potential cost misallocations and protect ratepayers of
    regulated services from bearing the costs of competitive
    ventures.[^240]

95. We deny the Applicants' waiver request for three reasons. First, the
    Applicants fail to demonstrate special circumstances that warrant a
    waiver.[^241] Although they claim that the waiver would only apply
    for a limited period of time, we note that, under the request, the
    separate services affiliate would provide certain services for up to
    a year. Similarly, the Applicants do not persuasively demonstrate
    that a waiver is necessary to ensure Genuity meets its operational
    schedule. We note that the services at issue (*e.g*., human
    resources, accounting, real estate, and billing and collection) are
    readily available on the open market so that denying the Applicants'
    request does not prevent Genuity from obtaining these services in
    time for it to begin operations. Second, granting a waiver could
    result in ratepayers of regulated services directly or indirectly
    funding a portion of Genuity's start-up costs.[^242] Finally,
    granting the request could have some bearing on our overall
    evaluation of Genuity's ownership and control. Our affiliate
    transactions rules apply only to incumbent LECs and their
    affiliates, and not to unaffiliated entities like Genuity. For these
    reasons, we conclude that waiving the affiliate transactions rules
    would be inconsistent with our findings in this order. We note,
    however, that Bell Atlantic/GTE may continue to provide such
    services, as long as it does so in accordance with all applicable
    requirements.[^243]

# Analysis of potential public interest harms

## Overview

96. In the 1996 Act, Congress determined that the public interest is
    served when telecommunications markets are both more competitive and
    less regulated. In this Order, we conclude that if considered
    without the supplemental conditions proposed by the Applicants, the
    proposed merger threatens our ability to fulfill our statutory
    mandate in three respects. First, the merger of Bell Atlantic and
    GTE decreases the potential for competition in local
    telecommunications markets among large incumbent LECs. Second, the
    proposed merger frustrates the ability of the Commission and state
    regulators to implement the market-opening provisions of the 1996
    Act through the use of comparative practices analyses, or
    "benchmarking," which can assist regulators in defining incumbent
    LEC obligations and implementing market-opening policies under
    section 251, section 271, and state law in a less regulatory manner.
    Third, the proposed merger would increase the incentives and ability
    of the merged entity to discriminate against rivals in local,
    advanced services, and long distance markets. Specifically, we
    conclude that the increase in the number of local calling areas
    controlled by Bell Atlantic as a result of the merger will increase
    its incentive and ability to discriminate against carriers competing
    in retail markets that depend upon access to Bell Atlantic's inputs
    in order to provide services. Accordingly, as described below,
    absent the supplemental conditions proposed by the Applicants, we
    would conclude that the proposed merger does not serve the public
    interest, convenience, or necessity because it would inevitably slow
    progress in opening local telecommunications markets to
    consumer-benefiting competition, thereby requiring us to engage in
    more regulation, which is contrary to Congressional policy.

## Loss of Competition Between Bell Atlantic and GTE in the Local Market

### Background

97. We begin our review of the proposed merger by examining the
    transaction's likely effects on interactions between the merging
    firms. Until 1996, carriers seeking to compete with incumbent LECs
    in most geographic markets for local exchange and exchange access
    services had been prevented or deterred from doing so due to legal,
    regulatory, economic, and operational barriers. As in the
    *SBC/Ameritech Order*, we recognize that local telecommunications
    markets are evolving into markets characterized by competitive
    conditions and, therefore, employ an analysis that accounts for the
    transitional nature of those markets.[^244]

98. As explained in the *WorldCom/MCI Order*, our framework for
    analyzing transitional markets reflects the values of, but does not
    attempt to replicate, the "actual potential competition" doctrine
    established in antitrust case law.[^245] Under the actual potential
    competition doctrine, a merger between an existing market
    participant and a firm that is not currently a market participant,
    but that would have entered the market but for the merger, violates
    antitrust laws if the market is concentrated and entry by the
    nonparticipant would have resulted in deconcentration of the market
    or other pro-competitive effects.[^246] The transitional markets
    framework set forth in the *Bell Atlantic/NYNEX Order* identifies as
    \"most significant market participants\" not only firms that already
    dominate transitional markets, but also those that are most likely
    to enter in the near future, in an effective manner, and on a large
    scale once a more competitive environment has been
    established.[^247] The Commission seeks to determine whether either
    or both of the merging parties are among a small number of these
    most significant market participants,[^248] in which case its
    absorption by the merger could harm the public interest in violation
    of the Communications Act unless offset by countervailing positive
    effects.

99. In this portion of the Order, we conduct an analysis of the probable
    competitive effects of the merger of Bell Atlantic and GTE on the
    provision of local exchange and exchange access services.[^249] We
    utilize the \"transitional markets\" analytical framework set forth
    in the *Bell Atlantic/NYNEX Order* to determine whether the proposed
    merger would result in a potential harm to the public interest by
    diminishing the potential for competition in local exchange and
    exchange access markets in Bell Atlantic's or GTE's regions.

### Discussion

#### Overview 

100. We conclude that the proposed merger is likely to result in a
     public interest harm by eliminating GTE as among the most
     significant potential participants in the mass market for local
     exchange and exchange access services in Bell Atlantic's operating
     areas. Specifically, with respect to the mass market for local
     services, we find that GTE is a most significant market participant
     in Bell Atlantic service areas adjacent to and surrounding its
     GTE's service areas and in which it has a cellular presence. We
     base this finding in part on our analysis of the plans of GTE to
     expand out-of-region and, in particular, into Bell Atlantic's
     territories within Pennsylvania and Virginia. We find that this
     elimination of GTE as a competitor in the mass market for these
     services will result in a significant public interest harm. We also
     conclude that Bell Atlantic, despite having the capabilities to be
     a most significant market participant in GTE's service area, lacks
     the incentives to enter the mass market in GTE's territory. In the
     larger business market for local exchange and exchange access
     services, we conclude that both Bell Atlantic and GTE are only two
     of a larger number of most significant actual and potential
     competitors in each other's service areas. The merger would thus be
     less likely to have adverse competitive effects leading to public
     interest harms in these markets.[^250]

### Relevant Markets

101. We begin our analysis of the proposed merger by defining the
     relevant product and geographic markets.[^251] We then consider
     whether the merger frustrates the Communications Act's goal of
     encouraging greater competition in those markets.

102. *Product Markets*. We analyze the competitive effects of the
     proposed merger on the provision of local exchange and exchange
     access services.[^252] Defining relevant product markets involves
     identifying and aggregating consumers with similar demand patterns.
     For purposes of analyzing the competitive effects of this merger on
     local exchange and exchange access services we identify two
     distinct relevant product markets: (1) residential consumers and
     small business (mass market) and (2) medium-sized and large
     business customers (larger business market).[^253]

103. *Geographic Markets.* We conclude that the relevant geographic
     market in which to measure the effects of this merger on local
     exchange and exchange access services consists of the geographic
     markets for those services in which one or both of the merging
     parties provide service.[^254] It is in these markets that the
     merging parties actually operate and where the potential is
     greatest for both parties to operate in the future. In focusing our
     analysis upon these markets, we recognize that the proposed merger
     can produce anticompetitive effects only in markets in which both
     firms actually or potentially operate.[^255] Furthermore, as was
     the case in the *WorldCom/MCI Order*, we conclude that, for
     purposes of this transaction, we need not conduct a separate
     assessment of each local area in which Bell Atlantic and/or GTE
     have facilities to determine whether there are potential
     anticompetitive effects.[^256]

#### Market Participants

104. When analyzing the probable effects of this merger on the relevant
     product and geographic markets, we begin by identifying significant
     market participants. We first note that Bell Atlantic and GTE
     remain dominant within their traditional service areas and
     therefore are included in the list of most significant market
     participants within their respective traditional markets. Next we
     consider whether, but for the merger, either of the merging parties
     would be a significant potential competing provider of local
     exchange and exchange access services in the other's markets. In
     doing so, we examine each of Bell Atlantic's and GTE's capabilities
     and incentives to provide local exchange and exchange access
     services outside the region in which it is an incumbent LEC, with
     particular emphasis on analyzing existing plans and any past
     attempts to do so. We then examine other firms that may be
     considered most significant market participants in the relevant
     markets to determine the competitive impact of the loss of one of
     the Applicants as an independent entity.[^257]

105. We consider all available evidence indicating that precluded
     competitors possess the capability to and would likely have entered
     the relevant markets.[^258] For instance, parties' plans or
     attempts to enter the relevant markets represent probative evidence
     of each firm's own perception that it possesses the capabilities
     and incentives necessary to be a significant market participant. We
     similarly examine unsuccessful plans to enter a relevant market in
     the past. While recognizing that a failed attempt could suggest
     that a firm is not a significant market participant, we would also
     consider all relevant circumstances, including changed market
     conditions, that might facilitate successful subsequent entry and
     the strategic business consequences to a firm of failing to enter
     into a relevant market.[^259]

##### Mass Market

106. With respect to the mass market for local exchange and exchange
     access services, we conclude that Bell Atlantic and GTE each has
     the capabilities to be considered a significant market participant
     in the other's operating areas. In addition, as major incumbent
     LECs, both Bell Atlantic and GTE are equipped with advantages when
     expanding out-of-region that other potential local service market
     entrants lack. GTE has had the incentive and intention to enter
     portions of Bell Atlantic's region, and we therefore find that it
     is a most significant participant in the mass market for local
     exchange and exchange access services in Bell Atlantic's region.
     Because we find that Bell Atlantic lacks the incentives to enter
     GTE's region, however, we conclude that it is not among the most
     significant potential participants in the mass market within GTE's
     service area.

107. *Capabilities and Incentives*. We conclude that both Bell Atlantic
     and GTE have the operational capabilities necessary to enter
     out-of-region markets. In general, as major incumbent LECs, both
     have the requisite access to the necessary facilities, "know how,"
     and operational infrastructure such as customer care, billing, and
     related systems that are essential to the provision of local
     exchange services to a broad base of residential and business
     customers.[^260] These systems are required whether entry occurs
     through resale, use of UNEs, or some other form of facilities-based
     entry. Similarly, Bell Atlantic and GTE also possess special
     expertise that they could bring to the interconnection negotiation
     and arbitration process when entering out-of-region markets because
     of their intimate knowledge of local telephone operations and
     experience negotiating interconnection agreements with new
     entrants.[^261]

108. Moreover, as was the case in the merger of SBC and Ameritech, Bell
     Atlantic and GTE have the additional advantage in Pennsylvania and
     Virginia of adjacent territories, a cellular presence, or
     both.[^262] In Virginia, for instance, each of the areas served by
     GTE's incumbent LEC is abutted by Bell Atlantic's territory.[^263]
     Additionally, GTE's substantial wireless presence in Virginia is
     largely within Bell Atlantic's wireline territory.[^264] Each
     company has an array of switches and switching locations that have
     capacity or can be readily upgraded to provide switching to
     contiguous territories, and, in fact, GTE's own local entry
     strategy indicates its intent to leverage upgraded wireless
     switches to provide wireline service to "near-franchise"
     areas.[^265] Thus, in their contiguous service areas in
     Pennsylvania and Virginia, Bell Atlantic or GTE could lease or
     build transport from their existing switches to a newly entered
     market more readily than other potential local service providers
     because of their proximity to the newly entered market, as well as
     their understanding of the requirements of providing local exchange
     services.[^266] In addition, both Bell Atlantic and GTE have brand
     recognition in contiguous regions because of extensive advertising
     in media markets that cross these regions, as well as nationally
     recognized brand names resulting from extensive advertising
     campaigns.[^267] Finally, the wireless assets that Bell Atlantic
     and GTE possess in Pennsylvania and Virginia also provide unique
     advantages for out-of-region entry, for a wireless presence can
     provide a ready customer base for expanding into wireline local
     telephony.[^268] As discussed below, this is indicated by GTE's own
     entry plans.[^269]

109. *GTE's Out-of-Region Plans*. In addition to having the capability
     to do so, we conclude that GTE also possesses the incentives to be
     a most significant participant in the mass market for local
     exchange and exchange access services in Bell Atlantic's region,
     particularly in Pennsylvania and Virginia. By 1998, when it
     announced the proposed merger with Bell Atlantic, GTE had entered
     and was providing service as a competitive LEC in the small
     business market for local exchange and exchange access services in
     several states spread across the territories of each Bell Operating
     Company (BOC) with the exception of Bell Atlantic.[^270] In those
     markets, GTE offered local services through resale, as well as
     through utilization of proximate wireless switches in certain
     places.[^271] As with many other competitive LECs that initially
     enter a market through resale of the incumbent LEC's services,
     GTE's business plans indicate that it intended to convert its
     resale activities into facilities-based services as its customer
     base expanded.[^272]

110. We find that, absent the merger, it is highly likely that GTE would
     have continued entering local markets, including Bell
     Atlantic-controlled markets, and would have continued converting
     its resale operations into facilities-based service. The fact that
     prior to the merger announcement GTE had not begun offering local
     wireline services in Bell Atlantic's region does not establish that
     it lacked the capabilities and incentives to do so.[^273] Rather,
     GTE's internal documents indicate that it planned to continue
     expanding its local presence by offering services through resale
     and by leveraging its existing facilities and wireless and long
     distance customer bases to offer bundled service packages.[^274]

111. Both Bell Atlantic and GTE are incumbent LECs in substantial
     geographic areas within Virginia and Pennsylvania. Internal GTE
     documents indicate that GTE had long-standing plans to enter Bell
     Atlantic's local markets in each of these states.[^275] For
     instance, GTE's competitive LEC had completed interconnection
     negotiations with Bell Atlantic and submitted interconnection
     agreements to the Pennsylvania and Virginia state utility
     commissions for approval.[^276] Significantly, GTE withdrew its
     request for approval of its interconnection agreement with Bell
     Atlantic in Virginia the day before it filed its application for
     approval of the merger with this Commission,[^277] further
     indicating that GTE would have expanded into Bell Atlantic's
     Virginia market but for its merger with Bell Atlantic.

112. In addition to its significant presence in Virginia as an incumbent
     LEC, GTE has a substantial wireless presence in Virginia, with
     several wireless switches from which it could offer
     facilities-based local exchange and exchange access services in
     Bell Atlantic's region. Despite its wireless presence in
     Pennsylvania being more limited, GTE's wireline presence throughout
     the state would permit it to implement its competitive LEC's plans
     to enter adjacent "near-franchise" areas. Although it appears that
     GTE's plans to enter Bell Atlantic's region suffered several delays
     during 1998, documents created after the proposed merger was
     announced indicate that GTE had not abandoned its plans to enter
     the local markets in either of these states. To the contrary, GTE
     continued to have definite plans and articulated strategies for
     entering Bell Atlantic's local markets in 1999.[^278] Accordingly,
     we conclude that GTE is a significant market participant in the
     mass market for local exchange and exchange access service in Bell
     Atlantic's local markets in Pennsylvania and Virginia.

113. In addition, GTE had long-term plans to expand into many additional
     states within Bell Atlantic's region. Indeed, at the time of the
     announcement of the merger, in addition to Pennsylvania and
     Virginia, GTE's competitive LEC had filed applications for
     certification as a competitive LEC in Connecticut, Maryland, New
     Hampshire, New York, Rhode Island, and the District of
     Columbia.[^279] Indeed, the Applicants' Supplemental Filing in this
     proceeding refers to the investment by GTE's competitive LEC of
     "hundreds of millions \[of dollars\] in \[operational\] support
     systems and other assets needed to compete outside its traditional
     local telephone service areas."[^280]

114. We are unpersuaded by GTE's contentions that its competitive LEC
     was pursuing an extremely limited out-of-region presence prior to
     the merger. Although GTE argues that its competitive LEC's initial
     launch in California demonstrated stark differences between its
     business plan and its actual commercial results, causing it to
     prepare to enter only one out-of-region city in 1999,[^281] GTE's
     internal documents indicate that it in fact planned to enter
     several additional markets as a competitive LEC in 1999, including
     Bell Atlantic's incumbent LEC markets of Pennsylvania and
     Virginia.[^282] Similarly, GTE's argument that its competitive
     LEC's entry plans focused nearly exclusively on reselling its
     incumbent LEC's services to customers within its own region[^283]
     is belied by the evidence indicating that GTE, in fact, intended to
     offer local services to small businesses in several states in which
     its incumbent LEC has no presence.[^284]

115. Despite GTE's claims that its competitive LEC was considering
     canceling many of its out-of-region entry plans because of problems
     experienced with its competitive LEC's entry into the local market
     in California, it has presented no evidence to that effect. Rather,
     documents dated after the announcement of GTE's merger with Bell
     Atlantic indicate that GTE had extensive competitive local market
     entry activities planned for 1999.[^285] Moreover, whatever the
     merits of GTE's reasons for allegedly scaling back its competitive
     LEC's activities, none of them is described in contemporaneous
     documents as a reason for halting its plans for more extended
     entry. Indeed, there is no indication that GTE would not have
     continued developing its resale strategy, as well as its plans to
     begin offering facilities-based service, absent the announcement of
     the merger with Bell Atlantic. We therefore conclude that GTE's
     extensive entry plans were ultimately cancelled because it
     preferred to merge with Bell Atlantic rather than compete on its
     own in the mass market for local exchange and exchange access
     services.[^286]

116. We similarly disagree with GTE that its entry into the mass market
     for local services would have a limited impact on that market
     because its entry was resale-based.[^287] Relying on resale
     operations is a typical initial entry strategy employed by
     competitive LECs. As we recognized in the *SBC/Ameritech Order*, a
     competitor's entry by resale can be a necessary first step to
     facilities-based competition, not a *per se* disavowal of it.[^288]
     Nor do we find credible GTE's assertion that it lacks brand name
     recognition outside of its region. GTE operates in twenty-eight
     states, offers long distance, wireless, local, and Internet
     services, and has a decidedly national corporate focus.[^289]
     Moreover, we disagree with Applicants' contention that GTE has
     limited name recognition in Pennsylvania and Virginia.[^290]
     Although GTE's brand recognition in Pennsylvania and Virginia on a
     statewide basis may not approach that of the three largest
     interexchange carriers that also provide local services, it is
     likely to be extremely high in the Bell Atlantic areas adjacent to
     GTE's incumbent LEC operating areas simply because of advertising
     spillover. In any case, GTE's brand recognition nonetheless is
     greater than that of other competitive entrants due to its
     substantial presence in those states as an incumbent LEC and
     wireless provider. Additionally, GTE retained the services of a
     national advertising agency to begin implementing a national
     campaign to assist it with becoming a nationwide integrated
     provider of local, long distance, wireless, and data
     products.[^291]

117. We also find that, despite having the capability to enter the
     out-of-region mass market within GTE's service areas, Bell Atlantic
     lacked the incentive to enter that market. The record does not
     indicate that Bell Atlantic had any specific or concrete plans to
     enter the mass market for local exchange and exchange access
     services in GTE's service areas.[^292] Moreover, we note that
     because it contains largely rural and less populated areas and
     contains few concentrated geographic areas, GTE's local markets are
     not as attractive for entry as are those of Bell Atlantic.
     Accordingly, we do not find that Bell Atlantic is a most
     significant market participant in GTE's territory.

118. With respect to other significant market participants, we reaffirm
     our finding in prior decisions that the three largest interexchange
     carriers, AT&T, MCI WorldCom, and Sprint are among the most
     significant participants in the mass market for local exchange and
     exchange access services.[^293] We find that each of these firms
     each has the capabilities, incentives, and stated intentions to
     serve the mass market for local exchange services. Because each of
     these three firms has a substantial base of residential customers
     of their long distance services and established brand names
     resulting from their marketing of these services, they are among
     the best positioned to provide local services to residential
     customers. Furthermore, their stated intentions to begin serving
     the mass market for local services underscores their position as
     being among the most significant competitors.[^294] Nevertheless,
     in certain regions, such as adjacent territories or cellular
     markets, where incumbent LECs have brand name and/or customer base
     advantages similar to those enjoyed by the interexchange carriers
     with their customers, incumbent LECs have the additional advantage
     of their experience in providing local services to mass market
     customers as incumbent LECs.

119. Finally, as in previous merger orders, we conclude that other firms
     currently serving or planning to serve the mass market for local
     exchange and exchange access services out-of-region are not yet
     included in the list of most significant market participants.[^295]
     Competitive LECs have begun serving residential markets but do not
     yet have the existing customer base and brand name that enable
     AT&T, MCI WorldCom, and Sprint, as well as certain incumbent LECs,
     to become most significant competitors.

#####  Larger Business Market

120. We find that the larger business local exchange market has a number
     of market participants with similar incentives and capabilities as
     an incumbent LEC expanding out-of-region. As the Commission found
     in earlier orders, incumbent LECs still dominate the market for
     local exchange and exchange access services sold to larger business
     customers in their regions and are therefore most significant
     market participants.[^296] We recognize, however, that in contrast
     to the relative lack of competition incumbent LECs face in the
     market for local services sold to mass market customers, incumbent
     LECs face increasing competition from numerous new facilities-based
     carriers in serving the larger business market.[^297]

121. Because the record demonstrates that Bell Atlantic undertook
     significant efforts to win large business customers in GTE's region
     in Virginia, we conclude that Bell Atlantic is one of the more
     significant market participant in the larger business market for
     local exchange and exchange access services in GTE's service
     area.[^298] Similarly, GTE is likely to have pursued a number of
     its large business customers in out-of-region states in Bell
     Atlantic's territory, as documented by GTE's plans to offer local
     exchange services.[^299] Unlike in the mass market for local
     exchange and exchange access services, however, a large number of
     other firms may have similar capabilities and incentives expanding
     out-of-region to serve larger business customers.[^300] As we have
     noted previously, the larger business market for local exchange and
     exchange access services differs from the mass market.[^301] Larger
     business customers in general tend to be more sophisticated and
     knowledgeable purchasers of telecommunications services than mass
     market customers.[^302] Finally, broad-based brand name recognition
     and mass advertising are less important in attracting larger
     business customers,[^303] and, as a result, many more firms are
     entering the larger business market successfully than are entering
     the mass market for local exchange services.

#### Public Interest Analysis

122. Applying our analysis to the proposed transaction, we conclude that
     eliminating GTE as an actual or potential participant in the mass
     market for local exchange and exchange access services in Bell
     Atlantic's region, particularly in Pennsylvania and Virginia,
     results in a significant public interest harm by frustrating the
     Communications Act's objective of fostering greater competition in
     the markets for those services. More specifically, we find that the
     merger of Bell Atlantic and GTE is likely to cause a significant
     public interest harm by reducing the level of competition in the
     mass market for local exchange and exchange access services. One of
     the major purposes of the Act is to lower the entry barriers that
     gave incumbent LECs monopoly control over the local services
     offered to customers in their regions. The Act's goal is to
     introduce competition in these markets to the ultimate benefit of
     customers, both as entrants attempt to win consumers' business with
     lower prices and improved services and as incumbents are forced in
     turn to respond to the entrants or lose customers. The potential
     for achieving these goals is jeopardized if the incumbent and one
     of the most significant competitors in its region choose to merge
     instead of compete. This is true even where the competitor has not
     entered the market during the transitional period when entry
     barriers are being eliminated, for the merger will eliminate future
     entry and any corresponding competitive restraint it would place on
     the incumbent.

123. As discussed above, we base our conclusion on the following. First,
     until the merger was negotiated, GTE was implementing plans to
     enter the mass market for local services in both Pennsylvania and
     Virginia. Second, we conclude that GTE was among the most
     significant potential competitors to Bell Atlantic in Pennsylvania
     and Virginia. We base this finding on our determination that, as an
     incumbent LEC, GTE has the operational experience to be able to
     offer local exchange services on a large scale in out-of-region
     markets. In addition, GTE has a number of advantages for entering
     Bell Atlantic's territory in Pennsylvania and Virginia, including
     its substantial wireless customer base, brand reputation, and
     adjacency to those regions. Additional most significant potential
     market participants in the mass market for local services in
     Pennsylvania and Virginia are limited to the major interexchange
     carriers that are able to capitalize on their brand name and
     existing customer base.[^304] We thus conclude that the merger will
     eliminate GTE as one of a very limited number of most significant
     market participants in the mass market for local services in
     Pennsylvania and Virginia and, therefore, will result in a public
     interest harm.[^305]

124. Additionally, we further conclude that the proposed merger will
     likely result in the elimination of GTE as a significant market
     participant in other states within Bell Atlantic's region. As
     discussed above, the record indicates that GTE's competitive LEC
     had long-term plans to expand its operations into many states in
     which Bell Atlantic is the incumbent LEC. In view of the advantage
     of GTE's operational experience as both an incumbent LEC and a
     competitive LEC, we find that GTE had the capabilities and
     incentives to further expand into the mass market for local
     services in Bell Atlantic's region.

125. Accordingly, we conclude that the merger of Bell Atlantic and GTE
     results in the loss of a most significant potential competitor in
     the provision of mass market local exchange services in portions of
     Bell Atlantic's region, resulting in a potential public interest
     harm. The harm is significant because GTE is among a very few firms
     that are able to enter a market dominated by an entrenched
     monopolist that are equipped with genuine abilities to challenge
     that monopolist. Without accompanying conditions, we therefore
     would be forced to conclude that the proposed merger does not serve
     the public interest.

126. With respect to the provision of local exchange access services to
     larger business customers, we conclude that, absent the merger, GTE
     is likely to have followed a number of its large business customers
     in a number of out-of-region states in Bell Atlantic's territory,
     as documented by GTE's plans to offer local exchange services.
     Additionally, Bell Atlantic had demonstrated plans to win large
     business customers in GTE's service areas and would likely have
     continued its plans absent the merger.[^306] At the same time,
     however, we also conclude that there are a number of significant
     competitors equally competitive with Bell Atlantic and GTE in these
     larger business markets.[^307] Therefore, although Bell Atlantic
     and GTE are significant market participants, they are not among a
     limited number of most significant market participants.
     Accordingly, we do not find that the merger will substantially
     frustrate the goals of the Act and by reducing competition in the
     provision of local exchange and exchange access services to larger
     business customers.[^308]

## Comparative Practices Analysis

127. In this section, we analyze the effect of the proposed merger on
     the ability of regulators and competitors to use comparative
     analyses of the practices of similarly situated independent
     incumbent LECs to implement the Communications Act in an effective,
     yet minimally intrusive manner. As the Commission explained in the
     *SBC/ Ameritech Order*, comparative practices analyses, also
     referred to as "benchmarking," provide valuable information
     regarding the incumbents' networks, operating practices and
     capabilities to regulators and competitors seeking, in particular,
     to promote and enforce the market-opening measures required by the
     1996 Act and the rapid deployment of advanced services.[^309]
     Without the use of this tool, regulators would be forced, contrary
     to the goals of the 1996 Act and similar state laws, to engage in
     less efficient, more intrusive regulatory intervention in order to
     promote competition and secure quality service at reasonable rates
     for customers.[^310] We find that the proposed merger of Bell
     Atlantic and GTE would pose a significant harm to the public
     interest by severely handicapping the ability of regulators and
     competitors to use comparative practices analysis as a critical,
     and minimally intrusive, tool for achieving the objectives of the
     1996 Act.

128. The Commission's public interest test considers, among other
     things, "whether the merger. . .would otherwise frustrate our
     implementation or enforcement of the Communications Act and federal
     communications policy."[^311] In previous incumbent LEC mergers,
     the Commission has recognized that the declining number of
     independently-owned major incumbent LEC's limits the effectiveness
     of benchmarking for regulators in carrying out the competitive
     goals of the Communications Act in a less regulatory fashion.[^312]
     In the *SBC/Ameritech Order*, the Commission concluded that by
     further reducing the number of major incumbent LEC's, the merger
     increased the risk that the remaining firms will collude, either
     explicitly or tacitly, to conceal information and hinder the
     benchmarking efforts of regulators and competitors.[^313]
     Consequently, the Commission expressly noted that the SBC/Ameritech
     merger posed "a significant harm to the public interest."[^314] The
     Commission stated that the SBC/Ameritech "merger would result in
     dangerously few RBOC and major incumbent LEC benchmarks,"[^315] and
     posed "grave harms" to the regulatory processes and the operation
     of the 1996 Act's interconnection requirements.[^316]

129. Following the concerns expressed in prior merger orders*,* we must
     consider the effect that a further reduction in the number of large
     incumbent LEC's would have on the ability of regulators and
     competitors to use comparative practices analyses as a deregulatory
     means to advance the pro-competitive goals of the Communications
     Act.[^317] We find, as the Commission concluded in the
     *SBC/Ameritech Order,* that the major incumbent LECs (RBOCs and
     GTE), because they face similar statutory obligations and market
     conditions, remain uniquely valuable benchmarks for assessing each
     other's performance.[^318] Thus, a reduction in the few remaining
     major incumbent LECs would restrict the flow of information to
     regulators and competitors that otherwise could be used to promote
     innovative and deregulatory market-opening solutions or to identify
     and curtail unreasonable and discriminatory behavior that
     frustrates Congress' goal of encouraging vibrant competition.[^319]

130. As discussed in greater detail below, we find that the proposed
     merger's elimination of GTE and Bell Atlantic as separate
     independent major incumbent LECs,[^320] will adversely impact the
     ability of this Commission, state regulators and competitors to use
     comparative practices analyses to develop beneficial,
     pro-competitive deregulatory approaches to open telecommunications
     markets to competition and to promote rapid deployment of advanced
     services. More specifically, the loss of GTE and Bell Atlantic as
     separate independent sources of comparative practices analysis, and
     the increased incentive for the merged entity to reduce autonomy at
     the local operating company level, would severely restrict the
     diversity of practices that regulators and competitors could
     observe and, where pro-competitive and less regulatory, endorse. By
     further reducing the number of major incumbent LECs, the merger
     also increases the risk that the remaining firms will collude,
     either explicitly or implicitly, to conceal information and thereby
     hinder regulators' and competitors' ability to benchmark.[^321] We
     therefore conclude that the proposed merger of Bell Atlantic and
     GTE would impede the ability of regulators and competitors to
     effectively benchmark, precipitating more intrusive, more costly
     and less effective regulatory schemes, contrary to the deregulatory
     aims of the 1996 Act and the interests of regulated firms,
     consumers and taxpayers.

131. Our analysis of the effect on comparative practices analysis of the
     Bell Atlantic/GTE merger is comprised of: (1) the need for
     comparative practices analyses to offset the informational
     disadvantage of regulators and competitors; (2) the impact of a
     reduction in the number of comparable firms on benchmarking's
     effectiveness; (3) the adverse impact of the proposed Bell
     Atlantic/GTE merger on the effectiveness of benchmarking; and (4)
     the current inadequacy of other alternatives to large incumbent LEC
     benchmarks.

### Need for Comparative Practices Analyses

132. Comparative practices analyses of the practices and performances of
     similarly situated incumbent LECs, yield a plethora of valuable
     information for regulators and competitors. The 1996 Act requires
     regulators to oversee the opening of local telecommunications
     markets to competition and to promote rapid deployment of advanced
     services under circumstances in which regulators possess far less
     accurate and less complete information than incumbent LECs about
     the capabilities and constraints of existing networks.[^322]
     Without such information, regulators and competitors may not be
     able to make well informed decisions regarding the feasibility and
     costs of certain interconnection or access arrangements,
     particularly when disputes arise over the introduction of new
     technologies or services.[^323] The incumbent LEC's superior
     knowledge also give it a tangible advantage over competitors in
     negotiating prices, terms, and conditions for interconnection or
     network access.[^324]

133. In the *SBC/Ameritech Order,* we established the need for and
     importance of comparative practices analyses.[^325] Absent the
     ability to benchmark among major independent incumbent LECs, this
     Commission and state regulators would very likely have to engage in
     highly intrusive and time consuming regulatory practices, such as
     investigating the challenged conduct directly and at substantial
     cost to make an assessment regarding its feasibility or
     reasonableness.[^326] The increased need for such direct regulation
     would not only be more costly, but would clash with the
     deregulatory goals of the 1996 Act.[^327] Furthermore, these more
     intrusive, time consuming, and costly regulatory alternatives are
     unlikely to be as effective as comparative practices analysis in
     implementing the pro-competitive mandates of the 1996 Act, given
     the rapid evolution of technology, the incumbent LECs'
     informational advantage and their incentive to conceal such
     information.

### Effect of Reduction in Number of Benchmarks

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

#### Effect at Holding Company Level

135. A merger of two large incumbent LECs obviously eliminates an
     independent source of observation at the holding company level. The
     combined entity is unlikely to continue with two sets of policies
     and practices where the dual policies conflict with one another.
     Instead, it is likely to eliminate any divergent approaches in
     favor of a standard policy (which may represent a choice between
     the two firms' positions, or a compromise). Consequently, as the
     Commission explained in the *Bell Atlantic/NYNEX Order*, the result
     of the merger may be a reduction in the level of experimentation
     and variety of approaches observable to regulators and
     competitors.[^328]

136. When only a few similarly-situated benchmark firms remain, the
     harms to benchmarking increase more than proportionately with each
     successive loss of a firm as an independent source of
     observation.[^329] As the number of independent sources of
     observation declines, there is less likelihood that one of these
     firms will emerge to undertake a strategic or management decision
     that departs from the other incumbents, and that may establish a
     best practice in the industry. Moreover, the observed best practice
     is likely to become worse simply because there are fewer
     observations.[^330] Finally, as the number of independent sources
     of observation decreases, deviations from average practices can be
     identified less confidently as unreasonable and punishable.

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

#### Effect at Operating Company Level 

138. A merger of two holding companies is likely to reduce the relative
     autonomy of their local operating companies and hence the overall
     level of experimentation and diversity for decisions that were made
     at the operating company level. This is because a holding
     company\'s size increases, the cost it incurs when one of its
     operating companies' practices is used as a benchmark against the
     rest of the company also increases. For example, if each of the
     merging firms previously had five local operating companies, then
     each of these holding companies would have been concerned only with
     the cost of adopting a benchmark practice for its four other
     operating companies. Following the merger, however, the holding
     company would have to consider the cost of adopting this benchmark
     practice for a total of nine other operating companies.
     Accordingly, as a holding company acquires more operating companies
     and its service region expands, it has an increased incentive to
     ensure that all of its operating companies\' policies are uniform
     and consistent with each other and with those of the holding
     company.

139. Where a merger creates an incumbent LEC of sufficient size to
     dominate the setting of industry averages and standard practices,
     which are based on data from operating companies, the merged firm
     acquires an incentive to impose uniform practices in order to
     influence or set the *de facto* average benchmark. An incumbent LEC
     with few operating companies, for example, may allow its local
     operating companies to set the non-recurring charge (NRC)
     associated with cutting over a loop, because the data from its
     operating companies will have negligible impact on the industry
     average. If, however, as a result of a merger, the holding company
     controlled a large percentage of the nation's local loops, then it
     would have a strong incentive to establish a uniform NRC in order
     to influence the industry average.[^331] The result would be a loss
     of independent sources of observation for regulators and
     competitors seeking to use comparative practices analyses, rather
     than intrusive and expensive regulation, to promote competition and
     rapid deployment of advanced services.

#### Effect at Industry Level 

140. A reduction in the number of independently owned major incumbent
     LECs as a result of a merger increases the likelihood of
     coordination, either tacit or explicit, among the remaining firms
     in the industry for the purposes of reducing the effectiveness of
     comparative practices analyses. As general antitrust principles
     indicate, collusion is more likely to occur where only a few
     participants comprise a market and entry is relatively
     difficult.[^332] This is due in part to the fact that, with fewer
     firms, less potentially divergent interests must be accommodated by
     the coordinated behavior. On the other hand, with a large number of
     competitors and low barriers to entry, coordinated behavior is less
     likely.[^333]

141. In the context of comparative practices analysis, we expect that
     having fewer benchmark firms would result in the remaining firms
     being better able to coordinate their behavior. In this situation,
     the coordination of behavior could be designed not to raise price,
     but, rather, to conceal information concerning operating practices
     (particularly concerning interconnection), and strategic behavior
     (particularly dealing with nascent competitors) from regulators,
     and thereby impede the development of a competitive, less
     regulatory market. Unlike coordinated pricing activity, where each
     participant has a unilateral incentive to cheat on the agreement in
     order to raise its profits, no such incentive to cheat exists with
     respect to an agreement, tacit or explicit, to behave in a uniform
     way to conceal market-opening information from a regulator.

142. By reducing the number of benchmark firms, and thereby simplifying
     coordination of operational and strategic behavior, a merger
     between major incumbent LECs facilitates the ability of the
     remaining firms to conceal information to thwart the effectiveness
     of benchmarking.[^334] The remaining firms will find it easier to
     coordinate the withholding of certain types of information and the
     elimination of divergent operational practices that regulators and
     competitors could use in comparative practices analyses. For
     example, tacit coordination among fewer major incumbent LECs may
     make it easier for the remaining firms to agree not to provide a
     certain type of interconnection or access arrangement in order to
     prevent regulators and competitors from concluding that such
     arrangement is technically and practically feasible because another
     major incumbent is providing it. In this way, further consolidation
     among the major incumbent LECs could severely curtail regulators'
     abilities to constrain any tacit or explicit coordination by these
     incumbents to impede comparative practices analyses, especially as
     regulators seek to open the incumbents' markets to competition.

### Adverse Effects of Bell Atlantic/GTE Merger 

143. We conclude that the merger of Bell Atlantic and GTE will have an
     adverse impact on the ability of regulators and competitors to
     employ comparative practices analyses, which ultimately would force
     regulators to substitute more intrusive, more costly, and less
     effective methods of regulation to the detriment of the public
     interest. We now examine the merger's likely impact upon the
     diversity of approaches among major incumbent LECs to comply with
     the Communications Act and adopt market-opening measures (a) at the
     holding company level, (b) at the local operating company level,
     and (c) at the industry level.

#### Loss of GTE as Independent Holding Company

144. We find that, with only five major incumbent LECs remaining today
     (the RBOCs and GTE), the elimination of an independent source of
     observation impairs the ability of regulators and competitors to
     use comparative practices analyses to facilitate implementation of
     the Communications Act. Moreover, by reducing the number of major
     incumbent LECs, the merger makes it less likely that deviations
     from the average benchmark will be identified confidently as
     unreasonable and punishable.

145. We reject the Applicants' arguments that GTE's service areas are
     highly dispersed and largely rural, thus differentiating GTE from
     Bell Atlantic for benchmarking purposes.[^335] As an initial
     matter, we note that GTE has been selling many of its rural
     exchanges to other independent local telephone companies.[^336]
     Thus, on a going forward basis, it appears that GTE's service area
     is becoming increasingly less rural in nature. Similarly, we reject
     the Applicants' contentions that "GTE's value as a benchmark for
     RBOCs is limited,"[^337] and that the 1996 Act has created a far
     greater number of benchmarks than the seven RBOCs created by the
     MFJ.[^338] As we stated above and in license transfer proceedings
     associated with other RBOC mergers, the major incumbent LECs (RBOCs
     and GTE), because they face similar statutory obligations and
     market conditions, remain uniquely valuable benchmarks for
     assessing each other's performance.[^339] Instead, we find that the
     dispersed nature of GTE's service area makes it much more valuable
     as a benchmark, because it operates under a wide range of
     geographic, regulatory, and economic conditions. Moreover, GTE owns
     about 11% of customer loops in the United States, far more than any
     smaller independent LEC or competitive LEC, and comparable to the
     other major incumbent LECs.[^340]

146. We also reject the Applicants' argument that the merger represents
     "but a small loss in the effectiveness of one regulatory
     tool."[^341] This proposed merger cannot be evaluated in a vacuum.
     Rather, it must be examined in the context of recent developments
     in the telecommunications marketplace. Specifically, less than a
     year ago, the Commission concluded that the SBC/Ameritech merger
     would remove "another independent source of experimentation and
     diversity,"[^342] and that regulators and competitors would lose
     the problem-solving opportunities that flow from this diversity of
     approaches.[^343] The Bell Atlantic/GTE merger exacerbates this
     problem by further diminishing our regulatory capabilities.

#### Loss of Independence of Operating Companies

147. We find that, although the actual number of operating companies may
     not diminish following the merger of Bell Atlantic and GTE, the
     combined entity will have greater incentive to unify the practices
     of these companies, resulting in an overall loss of independence at
     the operating-company level, and in fewer independent points of
     observation for regulators and competitors.

148. The merged firm also will have a greater incentive to coordinate
     decisions made at the local operating company level in order to
     affect the outcome of average-practices benchmarking. The merger of
     Bell Atlantic and GTE would create the largest incumbent LEC
     controlling more than one-third of access lines nationwide.[^344]
     Because the merged firm would be disproportionately large compared
     to other incumbent LECs, the aggregate data reported by it will
     have a direct impact on the industry's average benchmarks. Thus,
     the merged firm will have both the capability and incentive to skew
     its decisions in order to affect the average benchmark
     strategically. Moreover, the merged firm's size could cause it to
     dominate the standards-setting process and establish *de facto*
     standards that advantage itself and disadvantage potential
     competitors or consumers. The proposed merger could thus seriously
     undermine the value of average-practices benchmarking among
     incumbent LECs.

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

149. The proposed merger, by reducing to four the number of major
     incumbent LECs, increases the incentive and ability of the
     remaining incumbents to coordinate their behavior, either
     explicitly or implicitly, to impede benchmarking, and to resist
     market-opening measures.[^345] As an initial matter, the merger of
     Bell Atlantic and GTE reduces by one the number of independent
     holding companies whose behavior must be coordinated, which
     simplifies the process of coordination.[^346] Coordination requires
     that the incentives of all parties are aligned, and reducing the
     number of companies reduces the number of incentives that must be
     aligned.[^347]

150. Reducing the number of firms also increases each firm's incentive
     to coordinate its behavior to undermine regulatory processes.[^348]
     Specifically, the merged firm will have a greater incentive to
     enter into tacit agreement with the remaining firms to convey
     minimal information to regulators and/or competitors and to
     eliminate outlying policies and practices that could become
     industry benchmarks.[^349] Moreover, the merger will create a
     demonstrably large incumbent LEC that can act as an industry leader
     for collusive purposes.[^350]

151. As a result of Bell Atlantic's merger with GTE, the other major
     incumbent LECs will also have more incentive to cooperate in
     attempts to impede comparative practices analysis.[^351]
     Cooperative ventures, either explicit or implicit, involve the risk
     that one or more parties will deviate from the cooperative
     behavior, thereby spoiling the venture.[^352] With the cooperation
     of fewer firms necessary, the merger reduces the risk that a
     venture will fail.[^353] By reducing the number of major incumbent
     LEC benchmark firms to four, each firm has more incentive to
     cooperate and less unilateral incentive to break an implicit or
     explicit agreement to impede benchmarking.[^354] Thus, the proposed
     merger will facilitate any attempts, especially implicit attempts,
     to coordinate behavior to conceal forms of competitive deterrence
     from regulators and competitors.[^355] The merger of Bell Atlantic
     and GTE therefore increases the incentive and abilities of the
     merged firm and other incumbent LECs to cooperate in becoming less
     effective benchmarks for regulators and competitors seeking to
     promote competitive entry and rapid deployment of advanced
     services.[^356]

### Continued Need for Major Incumbent LEC Benchmarks

152. Benchmarking among the large incumbent LECs will continue to be a
     crucial market-opening tool as regulators and competitors carry out
     the objectives of the 1996 Act. We find that the loss of GTE and
     Bell Atlantic as relevant independent benchmarks, and the creation
     of a new merged entity, severely curtails the benchmarking ability
     of regulators and competitors.[^357]

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

154. We agree with the broad principle that the methods of comparison
     may evolve over the course of the transition to full competition in
     local markets.[^358] Nonetheless, we find an acute present need for
     benchmarking to, among other tasks, facilitate implementation of
     the market-opening measures of the 1996 Act and promote the rapid
     deployment of advanced services.[^359] For these types of
     comparisons, we predict, as we did in the *SBC/Ameritech Order*,
     that the high percentage of access lines nationwide controlled by
     the RBOCs and GTE will keep them at the forefront in establishing
     benchmark rates, terms and conditions for an extended future
     period.[^360]

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

155. We reject the Applicants' contention that other types of firms
     serve as adequate benchmarks to the major incumbent LECs.[^361] We
     are not persuaded that the presence of small incumbent LECs and/or
     competitive LECs eliminate the need for regulators and competitors
     to make direct comparisons among the RBOCs and GTE. The Applicants'
     arguments ignore vital differences in the 1996 Act's treatment of
     large incumbent LECs, the RBOCs in particular, as compared with
     other incumbents and competitive carriers. Equally important,
     structural and operational differences between these carriers and
     the major incumbent LECs also make direct comparisons between them
     inappropriate.

##### Differences in Regulatory Treatment

156. We conclude that small incumbent LECs and competitive LECs cannot
     qualify as adequate alternatives to the RBOCs and GTE as benchmarks
     for implementation of the core market-opening provisions of the
     1996 Act. The Applicants fail to explain how smaller incumbent LECs
     or competitive LECs could substitute for major incumbent LECs in
     assessing compliance with certain prominent provisions of the 1996
     Act. At a minimum, both regulators and competitors have a strong
     continuing need for separate comparative practices analyses among
     major incumbent LECs in order to ensure compliance with the 1996
     Act.

157. Equally important, we find a pivotal distinction between the
     section 251 obligations imposed on the major incumbent LECs versus
     those of competitive LECs. In contrast to the major incumbent LECs
     that are subject to section 251(c)'s market-opening
     requirements,[^362] many of the competitive carriers cited by the
     Applicants are not subject to full section 251(c) obligations.
     First, by definition, competitive LECs do not fall within the 1996
     Act's definition of an "incumbent local exchange carrier" for the
     given service area, nor do such carriers own the operative
     facilities for which interconnection and access is sought.[^363]
     Instead, competitive LECs are subject to the lesser requirements of
     section 251(b) that are applicable to all LECs.[^364]

158. Second, many of the smaller incumbent LECs fall within section
     251(f)'s exemption from certain section 251(c) obligations for
     rural carriers.[^365] In the *SBC/SNET* *Order*, for instance, we
     concluded that the proposed merger was not likely to adversely
     affect the public interest in part, because SBC and SNET were not
     comparable in size. The Commission noted that "SNET is
     substantially smaller than the \'first tier\' LECs \-- the BOCs and
     GTE \-- and has long been subject to different regulatory
     treatment."[^366] Here, both Bell Atlantic and GTE are among the
     largest incumbent LECs, and thus are subject to the statutory
     obligations suitable to those entities. We reiterate, therefore,
     our finding in *SBC/Ameritech* that regulators and competitors are
     restricted largely to the class of large incumbent LECs,
     principally the RBOCs and GTE, in making benchmark comparisons
     under section 251(c).[^367]

##### Differences in Structure and Operation

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

160. *Small Incumbent LECs*. We find that, because their service areas
     include fewer large metropolitan areas and thus tend to be subject
     to less competitive entry and less demand for budding advanced
     services, smaller incumbent LECs are not likely to provide useful
     benchmarks for measuring the market-opening performance of major
     incumbent LECs. In contrast to the smaller incumbents, the major
     incumbents, including GTE, often operate in markets characterized
     by high population density or a large number of business lines,
     which generally are more attractive to new entrants. The level of
     competitive activity in a given area can implicate the network
     architecture or capability required of certain incumbent facilities
     such as OSS and physical collocation. A small incumbent facing
     little demand for interconnection, collocation or facilities for
     advanced services is less likely to have traffic levels or
     performance measurements that would render meaningful comparisons
     with a large incumbent who must employ more sophisticated
     management systems to meet greater demand. Moreover, different
     market structures may result in different network configurations
     that limit the usefulness of comparisons. For example, the loop
     costs of an urban/suburban major incumbent LEC, may not be
     comparable to those of a small rural incumbent LEC with longer
     average loops or less densely concentrated customers. Finally, in
     average-practices benchmarking, no small incumbent LEC could
     provide an adequate counterpoint to the combined entity's control
     of one-third of the nation's access lines.

161. *Competitive LECs*. We are not persuaded that competitive LECs
     presently stand as adequate firms with which to compare the
     market-opening performance of incumbents. The Applicants'
     suggestion that competitive LECs can be used as suitable benchmarks
     for the large incumbent LECs,[^368] defies the logic, structure,
     and reality of the 1996 Act.[^369] As discussed above, a primary
     motivation behind benchmarking is to increase the level of
     information regarding the incumbents' networks for competitors
     seeking access to those facilities, as well as for regulators.
     Moreover, competitive LECs are pursuing numerous strategies using a
     variety of wireline and wireless technologies, and their limited
     facilities are far from comparable to the millions of local lines
     controlled by the RBOCs and GTE.

162. Despite arguing that competitive LECs can serve as interconnection
     benchmarks by providing wholesale service to other competitive
     LECs,[^370] the Applicants provide no evidence demonstrating that
     competitive LECs actually are serving as wholesale suppliers in
     such a way as to generate useful comparisons for incumbent
     performance. Moreover, even if some competitive LECs decide to act
     as wholesalers, their incentives are likely to differ considerably
     from those of the incumbents. These new entrants' strategies are
     directed at expanding their reach and filling their vacant
     capacity, whereas incumbent LECs are likely to focus first on
     protecting their customer base from erosion by competitors.
     Competitive LECs cannot provide useful benchmarking information for
     the detection of incumbents' subtle forms of resistance to
     market-opening measures.

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

#### Inadequacy of Parity Requirements

164. We are also not persuaded by the Applicants' argument that
     maintaining a large number of major incumbent LECs as benchmarks is
     no longer necessary because, the relevant benchmarks during the
     transition to competitive local markets are parity comparisons
     focusing on how an incumbent LEC treats competitive LECs vis-à-vis
     itself.[^371] According to the Applicants, "the key inquiry is not
     whether the BOC is treating competitors as well as another BOC, but
     whether the BOC is treating competitors as well as it treats
     itself."[^372]

165. We certainly agree with the notion that an incumbent LEC's
     treatment of its retail operations or its affiliates as compared
     with its treatment of competitors can provide useful benchmarks for
     regulators and competitors. In certain contexts, such as detecting
     discriminatory behavior in interconnection, provisioning, and
     maintenance, parity comparisons provide a useful, and minimally
     intrusive, way to obtain information regarding an incumbent's
     performance.[^373] As Sprint observes, however, implementation of a
     parity rule itself may require traditional benchmarking between
     major incumbent LECs[^374] \-- *e.g.,* in setting mutually
     acceptable performance standards to determine if an incumbent LEC
     has complied sufficiently with the parity requirement.

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

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

#### Sufficiency of Remaining Benchmarks

168. We find that the merger would result in dangerously few major
     incumbent LEC benchmarks. As BlueStar, DSLNET, KMC and MGC note in
     their joint comments, after this merger, "there will be three giant
     carriers controlling 90% or more of the nation's access
     lines."[^375]

169. With technical feasibility concerns, in particular, the loss of one
     source of observation could in fact eliminate the single
     observation that would have proven a particular arrangement
     feasible.[^376] This is especially true in making assessments
     regarding advanced services, where the major incumbent LEC
     benchmark firms have taken different strategies or are in different
     stages in terms of their own deployment or cooperation with others.
     Thus, reducing the number of potential benchmark firms increases
     the chance that regulators and competitors will lose the ability to
     observe the decisive benchmark.

170. Although we do not view the instant merger's reduction of the
     number of major incumbent LECs (the RBOCs and GTE) from five to
     four to be a presumptive trigger of benchmarking harms, we
     cautioned in the *SBC/Ameritech and Bell Atlantic/NYNEX Orders,*
     that these harms increase disproportionately with each additional
     decline in the number of major incumbent LECs.[^377] As explained
     above, along with further restricting diversity, each successive
     reduction in benchmark firms exponentially increases the risk that
     the remaining firms could successfully coordinate behavior,
     implicitly or explicitly, to reduce the effectiveness of
     comparative practices analyses.[^378] As the number of benchmarks
     decrease, the greater the likelihood the Commission must use
     increasingly intrusive and burdensome regulation to oversee the
     transition to competitive local markets. As such, each successive
     pair of major incumbent LEC applicants have a greater burden than
     the previous incumbent LEC applicants to demonstrate their merger
     serves the public interest. For example, a merger that reduced the
     number of major incumbent LECs from four to three would so severely
     diminish the Commission's ability to benchmark that it is difficult
     to imagine that any potential public interest benefit could
     outweigh such a harm.

### Conclusion

171. We conclude that, by further reducing the number of
     separately-owned large incumbent LECs, the proposed merger of Bell
     Atlantic and GTE would significantly harm the ability of regulators
     and competitors to rely on comparative practices analyses to carry
     out their obligations under the Communications Act. The Commission
     warned in the *Bell Atlantic/NYNEX Order,* and reiterated in the
     *SBC/Ameritech Order* that "future applicants bear an additional
     burden in establishing that a proposed merger will, on balance, be
     pro-competitive and therefore serve the public interest,
     convenience and necessity."[^379] Bell Atlantic and GTE have not
     overcome that burden.[^380]

172. In particular, the proposed merger of Bell Atlantic and GTE poses a
     significant potential harm to the public interest by: (1) removing
     a source of potential diversity from independent major incumbent
     LECs during the transition to competition; (2) creating an
     incentive for the combined firm to coordinate behavior at the
     operating company level, thereby reducing other potential sources
     of innovation; and (3) increasing the incentive and opportunity for
     collusion and concealment of information among the few remaining
     major incumbent LECs.

## Increased Discrimination

### Overview

173. In the preceding section, we explained why this merger would
     seriously weaken oversight of the Applicants' behavior toward
     competitors, thus frustrating the Commission's ability to achieve
     two of the key public interest goals of the Telecommunications Act:
     increased competition and reduced regulation. In this section, we
     conclude that incumbent LECs, such as Bell Atlantic and GTE, have
     the incentive and ability to discriminate against competitors in
     the provision of advanced services,[^381] interexchange services,
     and circuit-switched local exchange services,[^382] and that such
     incentive and ability will increase as a result of the merger. This
     increased incentive and ability to discriminate potentially creates
     a public interest harm because it may adversely affect national
     competitors\' provision of services, and may force consumers to pay
     more for retail services, with reduced quality and choice.

174. We believe the merger may have particularly harmful, discriminatory
     effects on competition in the provision of new types of advanced
     services.[^383] Advanced services technologies and markets are
     still emerging and developing. To maintain the growth of this
     nascent industry, we must continue to ensure competition in the
     provision of advanced services. Therefore, we scrutinize carefully
     the possibility of an increase in incentive and ability to
     discriminate against competitive providers of such services.[^384]
     The information gleaned from this scrutiny informs the Commission,
     furthers its' efforts to encourage innovation and investment in
     advanced services,[^385] and comports with the Commission\'s
     obligations under section 706 to \"encourage the deployment on a
     reasonable and timely basis of advanced telecommunications
     capability to all Americans.\"[^386]

175. As in the SBC-Ameritech merger proceeding, we are concerned with
     the effects of discrimination on competition in the provision of
     interexchange services and local exchange services.[^387]
     Specifically, we conclude that the combined entity likely will
     discriminate to a greater extent against termination of
     interexchange calls by competing providers in the combined region,
     as well as against competitive LECs seeking to provide local
     exchange services in the combined region.[^388] With respect to
     local exchange competition, we believe that the likelihood of
     increased harmful discrimination is particularly acute with respect
     to competitive providers of local exchange services to mass market
     customers (smaller businesses and residential customers).[^389]

176. Incumbent LECs in general have both the incentive and ability to
     discriminate against competitors in incumbent LECs' retail markets.
     This incentive exists in all retail markets in which they
     participate. Incumbent LECs' ability to discriminate against retail
     rivals stems from their monopoly control over key inputs that
     rivals need in order to offer retail services.

177. In many cases, discriminatory conduct by an incumbent LEC in its
     region affects competitors in areas both inside and outside the
     incumbent\'s region. The resulting effects on competitors,
     externalities or \"spillover\" effects,[^390] can directly or
     indirectly harm customers, whose business the incumbent LEC is
     seeking to gain. Spillover effects directly harm customers when the
     incumbent LEC's discrimination in one region negatively affects a
     customer's communications between that region and another
     region.[^391] Spillover effects indirectly harm customers when an
     incumbent LEC's discrimination in one region increases a national
     rival's general costs, thereby indirectly impairing the ability of
     this rival to provide service to customers in other regions.[^392]
     Regardless of the nature of the spillover effects, the intended
     result is to reduce the ability of competitors to acquire and/or
     keep customers.[^393]

178. Because after the merger the larger combined entity would realize
     more of the gains from such external effects, the marginal benefit
     and corresponding incentive to discriminate in each area would
     increase.[^394] As a result, the level of discrimination engaged in
     by the combined entity in each region within the combined territory
     would be greater than the sum of the level of discrimination
     engaged in by the two individual companies in their own, separate
     regions, absent the merger.[^395] Specifically, the combined entity
     will be better able to discriminate against competitors by
     coordinating its formerly separate local exchange operations and
     controlling both ends of a higher percentage of calls, which is
     relevant to the provision of interexchange services.[^396] As
     described above, regulators will have greater difficulty monitoring
     and detecting this misconduct because of the reduction in the
     number of benchmarks.[^397] Therefore, the combined company not
     only will have more incentive to discriminate against rivals, but
     also will have a heightened ability to inhibit competitors\'
     provision of services within the combined region compared with the
     ability of each company currently to discriminate within its
     region.[^398] We explain below why the combined entity is likely to
     increase the level of discrimination that rivals must overcome to
     provide retail advanced services, interexchange services, and local
     exchange services.

### Analysis

#### Advanced Services

179. Although the Commission issues rules to prevent discrimination, it
     is impossible for the Commission to foresee every possible type of
     discrimination, especially with evolving technologies.[^399] Within
     the past year, the Commission has adopted rules, most notably the
     *UNE Remand Order*, and the *Line Sharing Order*, that should
     enhance competition by reducing the ability of an incumbent LEC to
     discriminate in the provision of advanced services.[^400] It is too
     early for the Commission to discern the impact of these rules.
     Moreover, the advanced services market is still a nascent industry.
     Accordingly, we find that despite certain changes in the regulatory
     landscape, the increased discrimination theory we enunciated in the
     *SBC/Ameritech Order* still holds true today.[^401]

##### Background

180. One of the fundamental goals of the 1996 Act is to promote
     innovation and investment by all participants in the
     telecommunications marketplace, in order to stimulate competition
     for all services, including advanced services.[^402] Today, both
     incumbent LECs and new entrants are developing and deploying
     innovative new technologies to meet the ever-increasing demand for
     high-speed, high-capacity advanced services. For the advanced
     services market to develop in a robust fashion, it is critical that
     the marketplace for these services be conducive to investment,
     innovation, and meeting the needs of consumers.[^403] Moreover, we
     are required by section 706 to be particularly vigilant that a
     merger between two incumbent LECs such as Bell Atlantic and GTE
     will not harm the development of competition for such advanced
     services.[^404]

##### Incentive and Ability to Discriminate

181. We find that incumbent LECs such as Bell Atlantic and GTE have
     ample ability and incentive to discriminate against advanced
     services providers, and that the increase in the incentive and
     ability to discriminate may frustrate substantially the realization
     of the 1996 Act's and the Commission's goals to encourage the
     deployment of advanced services. Specifically, we find that the
     combined entity will have an increased incentive and ability to
     discriminate against competitors providing retail services that
     rely on new technology, particularly advanced services like Sprint
     ION.[^405] Because incumbent LECs either currently do, or in the
     future will, compete with other providers of advanced services,
     they have an incentive to discriminate against companies that
     depend on the incumbents' for evolving types of interconnection and
     access arrangements necessary to provide new services to
     consumers.[^406] They also have the incentive to limit or control
     the development of new services, to the extent new services compete
     with their current offerings.[^407] In addition, competitors often
     are totally dependent on incumbent LECs for last mile wireline
     access to end users.[^408]

182. We note that in some cases, the incumbent's control over the loop
     may give it the ability to tailor the loop to any collocated or
     attached electronics, thereby forcing competitors to provide
     service identical to the incumbent's.[^409] Specifically, by
     choosing electronics that meet the incumbent's market need, without
     regard to that of its competitors, the incumbent may stifle
     competitors' ability to innovate.[^410] Discrimination against
     competitors wishing to innovate and deploy technology different
     than that deployed by the incumbent LEC often is not easily
     detected by regulators.[^411]

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

183. We find that the instant merger, like the SBC/Ameritech merger,
     increases the ability and incentive of the merged entity to
     discriminate against the providers of advanced services.[^412] We
     agree with Sprint that there are spillover effects to
     discrimination against national providers of advanced services, and
     that, post-merger, the combined entity would internalize external
     effects to some extent, thus increasing its incentive to act in one
     area in a manner that produces these effects in another area.[^413]
     Economies of scale and scope, and network effects imply that when
     incumbent LECs weaken a competitive service in one region, this
     weakens it in other regions as well.[^414] For services with
     "multi-market dependence," discrimination in one market will have a
     ripple effect in other markets.[^415] We are specifically concerned
     that the merger's large footprint will create more incentives for
     the merged entity to discriminate against competitors whose
     networks become more attractive with more customers.[^416]

184. After the merger, the combined company will be able internalize
     these external effects of discriminatory conduct in one area in the
     combined region on another area in that region.[^417] By
     capitalizing on its monopoly control over loops, for instance, the
     combined entity can discriminate against an advanced services
     provider entering an area in the combined region.[^418] This will
     reduce the customer base and revenues of the advanced services
     provider, thereby reducing its ability to enter another
     region.[^419] Because of the possibility of internalizing such
     spillover effects, the incentive for the combined entity to
     discriminate against competitors providing retail advanced services
     in particular areas within the combined region will be greater than
     the sum of the incentives for the companies operating alone.[^420]

185. As we stated in the SBC/Ameritech proceeding, we are particularly
     concerned about discrimination in the advanced services market,
     given the Commission's obligations under section 706 to "encourage
     the deployment on a reasonable and timely basis of advanced
     telecommunications capability to all Americans."[^421] In the
     advanced services market, there is a continuing shift from a
     circuit switched to a packet switched environment, combined with
     the emergence of data LECs such as Rhythms and Covad, that are
     using advanced technologies to provide innovative new
     services.[^422] Any discrimination against these competitors will
     likely cause a significant setback to current and future efforts to
     encourage competition and innovation.[^423]

#### Long Distance Services

186. In this section, we examine potential effects of the merger on the
     provision of interexchange services. Commenters allege that
     discrimination may take two forms: price and non-price. We examine
     these cases separately and conclude that the merged firm's
     increased incentive and ability to engage in non-price
     discrimination will harm competition in the provision of
     interexchange services, and, therefore, consumers of such services.
     With respect to price discrimination, specifically discrimination
     through a price squeeze, we conclude that there are adequate
     safeguards in place to guard against such conduct.

##### Non-Price Discrimination

187. Bell Atlantic has satisfied the requirements of Section 271 in New
     York, and is offering long distance services to its customers
     there.[^424] GTE has been in the long distance market since 1996.
     As Bell Atlantic is authorized to enter the long distance market in
     other states in its region, the merged entity will increasingly
     view interexchange carriers as retail competitors, not only as
     access customers.[^425] This will give the merged firm incentives
     to deny, delay, or degrade access service to interexchange carrier
     competitors.[^426] Because the merged entity will control more than
     one-third of all customers lines nationwide,[^427] we must examine
     carefully the claim that the merged firm will gain an increased
     ability to harm its interexchange rivals.

###### Incentive and Ability to Discriminate

188. For the reasons discussed below, we conclude that the merged entity
     has the incentive and ability to discriminate against competing
     interexchange carriers.[^428] Specifically, given their monopoly
     control over exchange access services, each Applicant currently has
     the ability to discriminate against rivals providing interexchange
     services, in favor of its own interexchange operations, by denying,
     degrading, or delaying access on the originating and terminating
     ends.[^429] We focus our discussion on discrimination with respect
     to the potential for terminating access, because we find that the
     merged entity's incentive to engage in this type of discrimination
     will increase significantly as a result of the merger.

189. As we found in the *SBC/Ameritech Order,* recent developments in
     local networks have enhanced incumbents' ability to discriminate
     operationally and technically in favor of their long distance
     affiliates, in particular with respect to larger business
     customers.[^430] The specific developments in the local network
     that have enhanced incumbents' ability to discriminate against
     rival interexchange providers that need different and generally
     more complex forms of network interconnection are: (1) the
     deployment of common channel signaling systems;[^431] (2) the
     development of advanced intelligent networks (AIN), or software
     driven networks; and (3) further developments in multi-media
     applications (such as applications involving combinations of voice,
     data, image, and video traffic).[^432] Incumbents may discriminate
     against interexchange carriers by, among other things: (1) refusing
     to provide interconnection at critical points in their intelligent
     network based on alleged harm to the network or refusing to convey
     certain types of control messages across the AIN; or (2) "slow
     rolling" their competitors who make requests for interconnection or
     technical information.[^433]

190. We conclude that the ability for Bell Atlantic and GTE to
     discriminate will be greatest for customized or advanced
     interexchange access services for which detection of discrimination
     is most difficult.[^434] Greater network complexity, a paucity of
     operational experience and objective performance benchmarks, and
     the possibility of new types of discrimination, increase the
     difficulty of detecting discrimination. In such a situation, past
     experience with the interconnection of plain vanilla, or POTS
     service, becomes increasingly less useful as a regulatory tool for
     preventing, detecting, and remedying discrimination.[^435]

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

191. We agree with Sprint that, as a result of the merger, the combined
     entity will have a greater incentive to discriminate in providing
     termination of in-region calls than either individual company would
     have absent the merger.[^436] After the merger, the combined entity
     can realize the benefits of discrimination against competing
     carriers on in-region calls on the terminating end, by making it
     more likely that a customer on the originating end would choose the
     combined entity for interexchange services.[^437] End users will be
     less likely to choose a competing carrier at the originating end
     whose service does not appear as good as the incumbent's service
     that is free from terminating problems.

192. We therefore agree with parties arguing that, with respect to
     interexchange calls, the merged firm will have an increased
     incentive to discriminate in terminating the calls of competing
     interexchange carriers, stemming from the fact that benefits will
     flow from controlling both ends of a higher percentage of
     interexchange calls.[^438] According to Sprint, the combined Bell
     Atlantic/GTE entity would terminate 43 percent of minutes that the
     combined entity controls on the originating end, a 20 percent
     increase from the 36 percent weighted average of minutes controlled
     cumulatively by the companies.[^439] Applicants assert that this
     increase "is no greater an increase than in the SBC/\[Pacific\]
     Telesis merger, where the Commission found that an increase of
     'only six to seven percentage points' did not pose any
     anticompetitive risk."[^440] As we stated in the *SBC/Ameritech
     Order*, the Commission reached a different conclusion in the
     *SBC/Pacific Telesis Order,* where it stated that there was no
     anticompetitive risk from the increase in the percentage of minutes
     for which the combined entity would control both the originating
     and terminating end.[^441] Here, the harm would be significant
     because of the substantial number of customers that will be
     affected by the discrimination made possible by the increase in the
     percentage of interLATA traffic originating and terminating in Bell
     Atlantic's and GTE's regions.[^442] We therefore agree with MCI
     WorldCom that, because interexchange carriers would be more
     dependent on a single entity for exchange access than they would
     absent the merger, hard-to-detect methods of non-price
     discrimination would be even more crippling to competing long
     distance companies.[^443]

193. We further agree with MCI WorldCom that the ability to engage in
     less detectable and more significant non-price discrimination would
     be greatly enhanced by the merger.[^444] For the same reasons
     discussed above with respect to advanced services, we conclude
     that, as a result of the merger, the ability to discriminate
     against rivals in the termination of interexchange calls will be
     enhanced.

194. We recognize that the Commission concluded in the *Bell
     Atlantic/NYNEX Order* that given existing safeguards, the merger
     between Bell Atlantic and NYNEX would not result in an increased
     incentive and ability to engage in non-price discrimination against
     long distance competitors.[^445] We note, however, that in the
     *Bell Atlantic/NYNEX Order*, the Commission did not specifically
     address the issue of discrimination on the terminating end of long
     distance calls, an issue that is significant here. We find that the
     larger scale of the instant merger as compared to that merger,
     however, increases the risks of non-price discrimination.[^446]

195. This merger, like the SBC/Ameritech merger before it, continues a
     trend of coalescing large incumbent LECs, and reversing the breakup
     of the Bell System. The old Bell system, with its large footprint,
     made it difficult for rivals to obtain access to necessary inputs,
     thus prompting its ultimate breakup.[^447] This merger brings GTE
     into the old Bell footprint for the first time, and will result in
     a large footprint that would take another big step toward
     recreating the Bell System, whose discrimination against
     interexchange carriers led to divestiture in the first place.[^448]

##### Price Discrimination (Price Squeeze) 

196. In addition to non-price discrimination, opponents of the proposed
     merger have raised arguments about a particular form of strategic
     pricing involving the Applicants\' leveraging monopoly control over
     bottleneck local loop facilities to inhibit competition from long
     distance rivals. For example, MCI WorldCom argues that once the
     combined entity begins selling in-region long distance service
     through an interexchange affiliate, it will take advantage of the
     \"high\" prices for interstate exchange access services (above cost
     prices), over which it has monopoly power (albeit constrained by
     regulation), by offering \"low\" prices for retail long distance
     services in competition with the other long distance carriers,
     thereby setting up a price squeeze.[^449] Because interstate
     exchange access services are a necessary input for long distance
     services, opponents argue that the relationship between the
     combined entity\'s \"high\" exchange access prices and its
     affiliate\'s \"low\" prices for long distance services forces
     competing long distance carriers either to lose money or to lose
     customers even if they are more efficient than the combined
     entity\'s long distance affiliate at providing long distance
     services.[^450] For the reasons discussed below, we conclude that
     price squeeze tactics are likely to fail under the circumstances
     presented here.

197. We conclude that because Bell Atlantic and GTE, either currently,
     or, in the future will, compete with interexchange carriers for the
     provision of interexchange services, the merged entity has the
     incentive to discriminate against these carriers through a price
     squeeze.[^451] We also conclude that the combined entity will have
     a greater incentive to discriminate against the termination of
     calls through a price squeeze than either individual company would
     have absent the merger.[^452]

198. We find, however, that, given the existing regulatory safeguards,
     the merged entity does not have significant ability to act on this
     incentive.[^453] Although we do not wish to rely on regulatory
     safeguards to prevent potential public interest harms, we note here
     that certain safeguards mitigate against harms in this
     circumstance. In the *Access Charge Reform Order*, the Commission
     addressed the contention that an incumbent\'s interexchange
     affiliate could implement a price squeeze once the incumbent began
     offering in-region, interexchange toll services, and concluded
     that, although an incumbent LEC\'s control of exchange and exchange
     access facilities may give it the incentive and ability to engage
     in a price squeeze, the Commission has in place adequate safeguards
     against such conduct.[^454] The Commission determined in that order
     that the existence of price caps reduces the ability to raise
     prices on access.[^455] We also note that, because it is relatively
     easy to compare an incumbent LEC's access charges with its own
     retail prices, price discrimination is relatively easy for the
     Commission and others to detect, and therefore, is unlikely to
     occur.[^456] Moreover, important non-regulatory safeguards exist.
     For example, as the Commission noted in the *AT&T/TCI Order*, the
     presence of extensive sunk facilities in both the local and
     interexchange markets suggests that the merged firm would be unable
     to successfully raise prices if any competitors were driven out of
     the market by the price squeeze.[^457] Thus, because existing
     regulatory and non-regulatory safeguards greatly reduce the ability
     of incumbent LECs, to engage in a price squeeze, we conclude that
     there is no substantial probable public interest harm resulting
     from the increased incentive that Bell Atlantic and GTE may have to
     discriminate against the termination of calls through a price
     squeeze as a result of the merger.

#### Circuit-Switched Local Exchange Services

199. For the reasons discussed below, we conclude that the merger will
     increase the combined entity's incentive and ability to
     discriminate against competitive LECs seeking to provide local
     exchange services in the combined region. We believe that this
     increased discrimination particularly will be aimed at, and harmful
     to, competitive providers of local exchange services to mass market
     customers (smaller businesses and residential customers).[^458]

200. We also note that the local exchange market is just that, a *local*
     market. For the most part, companies competing with the incumbent
     LEC in the provision of retail local exchange service compete on a
     local basis, and focus on a particular area or region.[^459] For
     other competitive LECs, however, competing for local exchange
     service transcends local areas and takes a more national
     scope.[^460] For such nationally competitive LECs, reputation,
     scale and scope, and technology are significant for their national
     strategy; a company's reputation in one region may affect its
     reputation in another region, and experience it gains with a new
     technology in one region may help it in another region.[^461] It is
     this group of local exchange service competitors with a national
     scope, with which we are especially concerned.[^462]

##### Incentive and Ability to Discriminate

201. Because incumbent LECs compete with competitive LECs for the
     provision of retail local exchange services, incumbent LECs have
     the incentive to discriminate against competitive LECs that depend
     on the incumbents' inputs (such as interconnection and UNEs) to
     compete.[^463] We find that a discriminatory interconnection policy
     will be profitable for an incumbent LEC insofar as its revenue
     gains in the provision of retail local exchange services exceed
     whatever revenues it forgoes from wholesale interconnection with
     rivals.[^464]

202. Incumbent LECs\' control over access to interconnection and other
     essential inputs gives them the ability to discriminate against
     rivals providing local exchange services. According to Sprint,
     incumbent LECs can discriminate against rival local carriers either
     by raising the price of interconnection charged to rivals (price
     discrimination) or by impairing their access to interconnection and
     other essential inputs.[^465] We agree with Sprint that, because
     interconnection prices are subject to regulatory oversight, an
     incumbent's ability successfully to engage in price discrimination
     against competitive LECs seeking to enter its region is
     significantly weaker than its ability successfully to engage in
     non-price discrimination.[^466] As evidence of incumbents' ability
     to engage in non-price discrimination against rival competitive
     LECs, MCI WorldCom asserts, for example, that Bell Atlantic has
     failed to comply with conditions imposed by the Commission in
     connection with the BA/NYNEX merger;[^467] and that Bell Atlantic
     and GTE have: (1) failed to meet their obligations under section
     251 to provide unbundled access to xDSL-capable loops and
     collocation on reasonable and nondiscriminatory terms;[^468]
     and (2) generally been "effective and obdurate" foes of local
     competition.[^469]

203. Discrimination against competitive providers of local exchange
     services is more likely to occur in conjunction with services to
     mass market customers as opposed to larger business customers,
     because competitors serving larger business customers generally
     possess more experience dealing with incumbents for provision of
     such services.[^470] Moreover, competitive providers to business
     customers are better able to absorb the costs imposed by non-price
     discrimination, because they have a greater profit margin than
     providers to mass market customers.[^471] In addition, because
     competitive LECs have little experience in successful provision of
     local exchange services to mass market customers, there exist few
     examples of incumbent LECs' best practices in provisioning inputs
     for competitive LECs to use for serving mass market customers that
     could be used as benchmarks to detect discriminatory and
     unreasonable behavior.[^472]

204. It is important to recognize, however, that to serve both
     mass-market customers and larger businesses, competing local
     exchange carriers need access to inputs necessary to terminate
     local calls in the incumbent's network.[^473] Just as we determined
     that incumbents may deny or delay access to such inputs for
     competitors' provision of interexchange services, they may also do
     so for competitors' provision of local exchange services to all
     types of customers.[^474] This type of discrimination is subtle and
     not readily detectable.[^475]

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

205. As we found in the context of retail advanced services and
     interexchange services, there are external effects to
     discrimination in the provision of retail local exchange services
     on a multi-region basis. The merged entity, with a larger local
     footprint, would realize more of the gains from such external
     effects, thus increasing its incentive to act in a discriminatory
     manner in one area, to produce these effects in another.[^476] For
     national competitive LECs, such as large interexchange carriers,
     that plan to offer local service on a large scale in numerous major
     regions, entry into various areas likely will entail common
     research, product development, and marketing costs that must be
     covered by the sum of the competitive LEC\'s area-specific
     profits.[^477] For such national carriers, the discrimination
     practiced in one region may impair the competitor's national or
     multi-regional plans, by increasing the competitor's costs and
     rendering it unable to compete as effectively or comprehensively as
     it would absent the discrimination.[^478] Therefore, actions that
     decrease the profitability of the competitive LEC in one area may
     make it forgo entry into another area, or make it a less effective
     competitor in another area.[^479]

206. Bell Atlantic and GTE contend that the current competitiveness in
     the wireless telecommunications market, indicates that incumbent
     LECs have neither the ability nor the incentive to discriminate
     against rivals that rely on the incumbent LECs in order to
     provision these services.[^480] We disagree.[^481] An incumbent
     that weakens a competitive carrier's chance of providing
     competitive local exchange service in one region weakens that
     carrier's chances of doing so in other areas as well, due to
     economies of scale and scope.[^482] The merged entity will be able
     to internalize the external effects of discriminatory conduct.
     Because of the possibility of internalizing such spillover effects,
     the incentive for the combined entity to discriminate against
     competitors providing retail local exchange services in particular
     areas within the combined region will be greater than the incentive
     for each company acting as a single entity.[^483]

207. Many of the conditions proposed by Bell Atlantic and GTE, and
     adopted today, address the concerns created by the public interest
     harms that are concomitant with this merger. For example, the
     conditions regarding performance measures, OSS reform, and
     collocation should constrain substantially the merged entity's
     ability to engage in discrimination against rival local exchange
     providers. The nexus between the aforementioned conditions and
     harms mitigates the damage caused by the merger and bolsters the
     competitive landscape in the merged entity's region.

#### Conclusion

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

# Analysis of public interest benefits

## Background

209. In addition to assessing the probable public interest harms of the
     proposed merger, we also must consider whether the merger is likely
     to generate redeeming public interest benefits.[^484] In doing so,
     we ask whether the merged entity is likely to pursue business
     strategies resulting in demonstrable and verifiable benefits to
     consumers that could not be pursued but for the merger. Public
     interest benefits also include any cost saving efficiencies arising
     from the merger if such efficiencies are achievable only as a
     result of the merger, are sufficiently likely and verifiable, and
     are not deemed the result of anti-competitive reductions in output
     or increases in price.[^485] Finally, merger specific benefits may
     also include beneficial conditions proffered by the Applicants or
     other parties or imposed by the Commission.

210. As detailed above, we conclude in this Order that the proposed
     merger of Bell Atlantic and GTE is likely to result in substantial
     harms to the public interest. In considering whether the overall
     effect of the merger is nevertheless to advance the public
     interest, we employ a balancing process that weighs probable public
     interest harms against probable public interest benefits.
     Applicants can therefore carry their burden of demonstrating that
     the proposed transaction is in the public interest under the
     Communications Act only if the transaction on balance will enhance
     and promote the public interest. As the harms to the public
     interest become greater and more certain, the degree and certainty
     of the public interest benefits must also increase commensurately
     in order for us to find that the transaction on balance serves the
     public interest.[^486] This sliding scale approach requires that
     where, as here, potential harms are indeed both substantial and
     likely, the Applicants' demonstration of asserted benefits also
     must reveal a higher degree of magnitude and likelihood than we
     would otherwise demand.

211. Applicants assert that the proposed merger will provide public
     interest benefits that are sufficient to satisfy our public
     interest balancing test.[^487] To satisfy their burden, the
     Applicants must demonstrate that their merger is a reasonably
     necessary means to enable them to achieve the asserted benefits,
     *i.e.*, that the benefits are specific to the merger.[^488] Should
     the Applicants be able to pursue the strategies identified as
     resulting in public interest benefits without merging, consumers
     could achieve the claimed benefits without suffering the harms of
     the merger. A mere recitation by the Applicants that they will
     provide some benefit only if their license transfer is approved
     therefore is insufficient to show that a particular benefit is
     merger specific.[^489] Rather, the Applicants must point to
     specific evidence that the benefit is dependent on the
     merger.[^490]

212. The Applicants' initial and supplemental application claim several
     public interest benefits of the merger. First, Applicants assert
     that the merger will enable the combined company to attack the
     local markets of other incumbent LECs on a widespread and effective
     basis and that that the merger will add an important new competitor
     to the top tier of national providers that can offer consumers a
     full bundle of telecommunication services in all major markets.
     Second, Bell Atlantic and GTE maintain that the merger will enhance
     the competitiveness of GTE's Internet backbone and data services,
     and by doing so will promote competition in those markets. Third,
     the Applicants claim that the merger will increase competition in
     the long distance market by speeding the deployment of a national
     long distance network to compete with the "Big Three" facilities
     based providers. Finally, the Applicants argue that the merger will
     combine the companies' complementary wireless assets to enable to
     new company to offer a broader range of services more efficiently
     to customers. We discuss each of the asserted benefits in turn,
     concluding that the Applicants have provided insufficient evidence
     to support their claims and, therefore, have not demonstrated that
     the overall effect of the proposed merger will be to enhance the
     public interest.

213. We conclude that, without considering the conditions proposed by
     the Applicants, Bell Atlantic and GTE have not carried their burden
     of demonstrating that the proposed merger will create verifiable
     merger-specific public interest benefits that offset the merger's
     likely public interest harms. More specifically, we conclude that
     to the extent that Applicants have provided sufficient evidence to
     support the asserted public interest benefits, the resultant
     benefits are modest. Accordingly, we conclude that, in combination,
     the asserted potential public interest benefits are insufficient to
     offset the merger's potential public interest harms. As described
     further below, however, the addition of the stringent and
     enforceable merger conditions proposed by the Applicants alters the
     public interest balance and causes us to conclude that the proposed
     merger is in the public interest and may be approved.

## Internet Backbone Services

214. We first conclude that the Applicants have not met their burden of
     demonstrating that the proposed merger will produce a public
     interest benefit by promoting competition in the provision of
     Internet backbone services.[^491] First, as the Applicants'
     themselves point out, the ultimate recombination of GTE's Internet
     data business with Bell Atlantic's local customers is entirely
     speculative.[^492] On one hand, Applicants argue that there is a
     genuine and substantial possibility that they will not exercise
     their option to reacquire Genuity,[^493] while at the same time
     they claim that the ultimate recombination of the merged firm with
     Genuity will result in a significant benefit to the Internet and
     data services market.[^494] We agree with AT&T that the Applicants'
     cannot have it both ways.[^495] Indeed, Applicants themselves
     recognize that their strategy of bundling long distance data
     services with local services is dependent upon obtaining section
     271 authority in Bell Atlantic's region.[^496] The uncertainty
     regarding section 271 approvals makes the claimed benefits
     speculative at best and, therefore, difficult to evaluate.[^497]
     Accordingly, we conclude that the dependency of the Applicants'
     recombination strategy upon section 271 approvals is a substantial
     constraint upon the implementation and success of such a plan, and,
     therefore the claimed benefit is neither likely nor credible.[^498]

215. Second, we reject the Applicants' assertion that the ultimate
     recombination of Genuity and the merged firm will produce a public
     interest benefit as a result of increased competition in the
     Internet backbone market. As an initial matter, we conclude that
     the Applicants have not demonstrated any merger-specific benefits
     to the market for Internet backbone services. Although we agree
     with the Applicants that the Internet backbone market is highly
     concentrated,[^499] we nonetheless conclude that the Bell Atlantic
     and GTE have presented insufficient evidence regarding how their
     proposed merger would alleviate such concentration and benefit
     consumers of long-haul data services. Rather, Applicants simply
     assert that Genuity will be a critical competitor in a market
     controlled by the "Big Three" long distance providers.[^500]
     Although this may be the case, there is no indication in the record
     that the merger of Bell Atlantic and GTE will produce a public
     interest benefit by deconcentrating or otherwise altering the
     market, assuming that the merged firm ultimately recombines with
     Genuity. Indeed, all the merger could hope to accomplish would be
     to strengthen an existing competitor in an already concentrated
     market; it would not add a new competitor to that market.

216. Moreover, we reject the argument that a portion of the alleged
     benefits to the Internet backbone market will be realized during
     the period that Genuity remains an independent company.[^501]
     Although Applicants contend that the merged entity will offer
     Internet services in New York and in the states outside of Bell
     Atlantic's region and enter into joint marketing agreements with
     Genuity in those areas,[^502] Applicants have made no showing that
     such activities would produce any benefit to consumers or to the
     public interest. Nor have Applicants demonstrated why such asserted
     benefits would increase as the merged entity receives additional
     authority under section 271.[^503] We conclude that absent Bell
     Atlantic's full compliance with section 271, any pro-competitive
     benefits that might arise from combining Bell Atlantic's in-region
     local customers with GTE's long distance voice and data customers
     would be negligible.[^504] Further, we are unpersuaded by
     Applicants' attempt to distinguish its combination from that of SBC
     and Ameritech because Bell Atlantic has been granted section 271
     authority in New York.[^505] Rather, we conclude that section 271
     relief in one of thirteen states, although representing a
     significant percentage of access lines, is not likely to produce
     the level of competitive activity in the Internet backbone market
     necessary to achieve the asserted potential public interest
     benefit.

217. We do agree, however, that the merger of Bell Atlantic and GTE will
     produce the public interest benefit of increasing competition in
     Bell Atlantic's local markets by providing the merged company with
     a strengthened incentive to satisfy section 271.[^506] The merged
     entity has strong incentives to make reacquire Genuity's Internet
     backbone so that it can provide bundled services to its large
     business customers with a national presence.[^507] In order to do
     so, however, the merged firm would require authorization from the
     Commission to provide interLATA under section 271. Accordingly, the
     merged firm will have an increased incentive to pursue and receive
     section 271 authority in Bell Atlantic's in-region states. As a
     result, we conclude that the merged entity will pursue a course of
     action that will have the result of increasing competition and
     benefiting consumers in the markets for local telecommunications
     services in those states.[^508]

## Local Exchange and Bundled Services

218. With regard to the Applicants' contention that the proposed merger
     will promote greater competition in the market for local exchange
     services, we conclude that the merger is not necessary to obtain
     potential public interest benefits. Although we find that the
     merger may permit the Applicants to reach out-of-region local
     markets more rapidly than they could on their own, this potential
     benefit is extremely modest. Similarly, with respect to the
     Applicants' claimed benefits to the market for bundled
     telecommunications services, we conclude that, because it is
     dependent upon section 271 authority, the Applicants' strategy of
     offering Bell Atlantic's large business customers a complete bundle
     of local, long distance, and data services is too speculative to
     offer substantial public interest benefits.

219. In their initial and supplemental applications, the Applicants
     commit that within eighteen months of the merger\'s approval, they
     will provide a complete bundle of services---including advanced
     data and voice, Internet, long distance, and local services---to
     large business customers in twenty-one cities spanning the
     territories of every other BOC.[^509] This expansion would be
     accomplished by providing nationwide bundled services to the
     out-of-region offices and affiliates of Bell Atlantic's "anchor
     customers."[^510]

### Entry into Out-of-Region Local Exchange Markets

220. We conclude that, whatever benefits might arise from the
     Applicants' proposed out-of-region strategy, they cannot be used to
     justify the merger because the merger is not a sufficiently
     necessary condition to pursuing out-of-region entry into local and
     bundled telecommunications markets. We find that each of the
     Applicants has both the ability and incentive to implement an
     out-of-region strategy on its own. The Applicants do not need to
     merge to become successful out-of-region competitive LECs, nor does
     their merger increase the likelihood that either or both will seek
     to implement an out-of-region strategy. We find the only
     merger-specific benefit to be the speed with which the Applicants
     can reach their goal of entering twenty-one markets outside of
     their traditional regions.

221. We conclude that the out-of-region local and bundled services plans
     contemplated by the Applicants could be obtained by either of the
     companies acting individually. Accordingly, any benefits accruing
     from those plans cannot be attributed to the merger. We concluded
     above that the merger causes a public interest harm by eliminating
     GTE as among the most significant potential participants in the
     mass market for local exchange and exchange access services in Bell
     Atlantic's region. Additionally, we found that both GTE and Bell
     Atlantic are most significant market participants in out-of-region
     larger business markets.[^511] Accordingly, as out-of-region
     competitors we consider Bell Atlantic and GTE to be unusually
     qualified. We are thus unpersuaded that neither could implement the
     out-of-region expansion without completing the proposed
     merger.[^512]

222. Although the Applicants claim that the proposed merger will make it
     possible for the combined company to enter a large number of new
     local markets by allowing it to building upon Bell Atlantic's
     existing account relationships with large businesses,[^513] we find
     that each of the Applicants is fully capable of undertaking a
     strategy of the size and scope of their stated out-of-region plan.
     Many competitive LECs that lack the size, resources, and assets of
     either Bell Atlantic or GTE are presently pursuing significant
     entry plans in multiple markets. Indeed, the evidence of prior
     out-of-region activity by GTE suggests that it already has
     exhibited the ability to expand absent this merger. As Applicants
     themselves recognize, GTE has an established and operational
     competitive LEC with approximately 60,000 customers outside its
     local service territory, including seventeen of the twenty-one
     markets the merged firm has targeted for out-of-region
     expansion.[^514] Indeed, GTE's 1999 Annual reports touts its
     competitive LEC as being one of the largest in the nation.[^515]
     Similarly, Bell Atlantic has an equity investment of more than
     \$700 million in Metromedia Fiber Network, an entity from which
     Bell Atlantic will purchase dark fiber in several out-of-region
     cities.[^516] Such a transaction indicates both an ability and an
     intent on Bell Atlantic's part to expand out-of-region on its own.

223. Moreover, we conclude that the Applicants have failed to
     demonstrate that Bell Atlantic's Fortune 500 customers based in the
     northeastern United States are necessary to a successful launch of
     an out-of-region strategy. Applicants claim that they require a
     larger customer base because their out-of-region plans involves a
     facilities-based entry strategy that requires a broad base of
     customer relationships to support the large capital investments
     necessary to deploy new switches and networks and that neither firm
     by itself could support such investments without.[^517] Although we
     recognize that spreading costs across a broader number of customers
     would reduce the cost per customer of geographic expansion, we
     question the Applicants' assertion that neither company
     individually has a sufficiently broad and large customer base to
     venture out-of-region.[^518] Moreover, Bell Atlantic and GTE do not
     propose to bring these claimed benefits to mass market consumers of
     local and bundled services. Accordingly, the asserted benefit would
     be confined to larger business markets, further demonstrating the
     limited and modest nature of the Applicants' claimed benefit.

224. We also reject the argument that Bell Atlantic cannot reach its
     large business customers alone because it lacks the facilities,
     platform capability, and marketing and distribution channels
     required to reach far beyond its concentrated franchise.[^519]
     According to the Applicants, the merged entity will be able to
     utilize Bell Atlantic's existing relationship with Bell Atlantic's
     large business customers to sell through to their subsidiaries or
     affiliates in out of region locations.[^520] Although combining
     with GTE may well enhance Bell Atlantic's ability to expand
     out-of-region, the Applicants have failed to demonstrate that
     either firm lacks the ability to do so alone and, therefore, that
     the merger is necessary to accomplish such an expansion.

225. We find that in the context of the Applicants' strategy to expand
     into markets for local and bundled telecommunications services out
     of region, the single primary benefit of the merger is speed. By
     combining GTE's more geographically disperse presence with Bell
     Atlantic's customer base, Applicants can likely achieve their goal
     of establishing a presence in the twenty-one targeted markets
     somewhat faster by completing the proposed transaction than by
     rolling out competitive services in these markets on their
     own.[^521] As a result, those markets will receive the benefits of
     competition more rapidly as a result of the merger than without. We
     find this limited benefit, even when considered in combination with
     the remaining benefits claimed by the Applicants, is modest.

### Provision of Nationwide Bundled Services 

226. We similarly conclude that Bell Atlantic and GTE have made an
     insufficient showing that substantial potential public interest
     benefits will result from the merged firm entry into the nationwide
     bundled services market. Moreover, any benefits that might accrue
     from the merged firm's entry into out-of-region bundled services
     markets are dependent upon securing section 271 authority in Bell
     Atlantic's local markets and, therefore, remain speculative in
     nature.

227. The Applicants' out-of-region strategy is premised upon combining
     the local, long distance, Internet, and wireless businesses of Bell
     Atlantic and GTE.[^522] As such, this strategy requires the
     Applicants to obtain authority to provide long distance services
     within Bell Atlantic's region. Without section 271 approval to
     offer long distance voice and data services, the Applicants would
     suffer from the same product constraints that prevent them today
     from competing for all of the voice and data business of their
     customers. Indeed, according to the Applicants' own reasoning, if
     the merged firm is not able to provide bundled interLATA services
     to Bell Atlantic\'s base of large business customers, it will also
     be unable to follow these customers into any of the twenty-one
     cities targeted for out-of-region expansion.[^523] We conclude,
     therefore, that for the Applicants' out-of-region strategy to be
     implemented successfully, the Applicants' own evidence indicates
     that they must possess and offer a full suite of services, which is
     dependent not on the merger, but on the Applicants gaining section
     271 approval in-region.

228. The Applicants themselves recognize that their strategy of offering
     bundled services nationwide is dependent upon gaining section 271
     authority in Bell Atlantic's region. With respect to out-of-region
     expansion, the Applicants have stated that the merged firm "may not
     be able to implement fully its plan to offer out-of-franchise
     service in twenty-one cities without 271 approval, because that
     plan relies in part on the combined company\'s ability to provide
     bundled services to large business customers without regard to
     geographic boundaries."[^524] The Applicants similarly recognized
     that if the merged firm were to lack the ability to provide long
     distance, Internet, and data services on a national basis, it would
     be more difficult to market effectively to its customers.[^525] As
     the Applicants stated, Bell Atlantic/GTE "would be unable to serve
     residential customers out-of-franchise because residential target
     markets were selected based on long-distance affinities with cities
     in the Northeast.\"[^526]

229. Although, as we conclude above, the merged firm will have the
     incentive to pursue section 271 authority more quickly than would
     Bell Atlantic on its own, the timing of section 271 approval in the
     entirety of Bell Atlantic's region remains uncertain. As a result,
     it is difficult to evaluate the extent of the Applicants' claimed
     benefits from attempting to compete out-of-region because those
     benefits are speculative at best.[^527] Although we expect that the
     Applicants will move ahead aggressively to meet their out-of-region
     deployment schedule, it is impossible to predict obstacles they may
     encounter in obtaining section 271 authority. Any delays to section
     271 approvals will affect implementation of the merged firm's
     bundled services strategy, thereby resulting in delayed benefits to
     telecommunications markets and consumers. We therefore conclude
     that the dependency of the bundled services plan upon section 271
     approvals is a substantial constraint to both the full
     implementation and success of the Applicants' plans.

230. In addition, we conclude that the extent of the benefits of the
     merged firm's entry into the nationwide market for voice and data
     products, even assuming swift section 271 authorization, are
     modest. Applicants argue that out-of-region expansion will promote
     competition in the national market for bundled services by creating
     a fourth national provider with the reach and mix of services
     necessary to compete effectively against the "Big Three"
     interexchange providers. The Applicants, therefore, maintain that
     the addition of another entrant, the merged Bell Atlantic/GTE,
     would bring more competition to customers seeking end-to-end voice
     and data solutions, both locally and nationally.

231. Although we conclude that the addition of another entrant to these
     new markets should benefit the competitive landscape, we question
     the extent of the benefit. The Applicants provide insufficient
     evidence that their entry in the larger business market for bundled
     and local services would produce any benefit to the market or to
     consumers. Accordingly, we conclude that any benefits accruing from
     the merged firm's out-of-region local and bundled strategy would be
     extremely limited in both magnitude and probability.

## Long Distance Services

232. We similarly conclude that the Applicants have not demonstrated
     with any specificity how their merger is likely to produce public
     interest benefits in the long distance market. Bell Atlantic and
     GTE claim that their merger will permit them to use long distance
     capacity to carry their combined volumes on GTE's nationwide
     network and offer bundles of services to businesses with offices in
     both New York and Los Angeles, Seattle, Dallas, Tampa, or other GTE
     areas.[^528] According to the Applicants, the merger will create an
     effective competitor in the market for long distance services and
     speed the deployment of a fourth national facilities-based long
     distance network to compete with the "Big Three" long distance
     providers.[^529]

233. The Applicants, however, have provided no specific evidence
     demonstrating either that these claimed benefits are likely to
     result from the proposed merger or that the merger is at all
     necessary to achieve the claimed benefits.[^530] With respect to
     the likelihood of the claimed benefits, the Applicants have
     presented no facts indicating that the merged firm's addition to
     the long distance market would result in any potential public
     interest benefit. As we made clear in the *SBC/Ameritech Order*, a
     mere recitation by the Applicants that some benefit will accrue
     only if their merger is consummated is insufficient to demonstrate
     that an asserted benefit is likely or merger specific.[^531]
     Although we do believe that the ability of the merged firm to
     provide nationwide long distance services to Bell Atlantic's
     largest New York business customers could result in potential
     public interest benefits in the long distance market, we are unable
     to evaluate the magnitude of the asserted benefits because of the
     lack of facts and evidence supporting the Applicants' claims.[^532]
     Because the merged firm would be permitted to utilize Bell
     Atlantic's customer base to offer nationwide services only to
     customers in New York, however, we suspect that such benefits would
     be modest.

234. In addition, the Applicants have failed to demonstrate that their
     merger is necessary to achieve the asserted benefits in the long
     distance market, and, therefore, we conclude that the claimed
     benefits are not merger-specific. Bell Atlantic, for instance, is
     capable and has the incentive on its own to provide long distance
     services to business customers with offices both in New York and
     Los Angeles and any other city. Indeed, Bell Atlantic recently
     announced plans to offer long distance services to customers in
     thirty-three states outside of its region,[^533] and there is no
     indication in the record that the proposed merger is necessary for
     implementation of such plans. Similarly, GTE already boasts a
     nationwide long distance network,[^534] and, in view of the lack of
     section 271 authority in the majority of Bell Atlantic's region, we
     do not believe, nor have the Applicants demonstrated, that GTE's
     merger with Bell Atlantic is a necessary precursor to GTE's ability
     to compete in the national long distance market.[^535] Accordingly,
     we conclude that the proposed merger is not necessary to achieve
     the modest potential benefits in the long distance market that have
     been asserted by the Applicants.

## Wireless Services

235. With respect to wireless communications services, we conclude that
     the proposed merger will likely generate benefits for consumers in
     these markets. These benefits will result primarily from
     significant additional progress that the combined firm's wireless
     business will achieve toward its goal of establishing a nationwide
     footprint. By lowering the cost of offering nationwide service
     plans, the larger footprint will enable it to compete with other
     nationwide wireless competitors more effectively, making possible
     more attractive rates and better network coverage.

236. In their applications, Bell Atlantic and GTE claim that the
     proposed merger will provide substantial benefits by creating a
     stronger and more efficient wireless competitor with coverage that
     would better enable it to compete with other nationwide
     competitors.[^536] The Applicants contend that this transaction
     enhances the overall benefits created by the recent merger of the
     U.S. wireless assets of Vodafone and Bell Atlantic.[^537] The
     combination of the three businesses will create a wireless entity
     with licenses capable of serving more than 90 percent of the U.S.
     population and 49 of the top 50 wireless markets. According to the
     Applicants, the combined company would have a footprint capable of
     serving 232 million people.[^538] Hence, this merger would advance
     the Applicants' competitive position vis-à-vis the service
     offerings of Sprint PCS, AT&T, Nextel, and VoiceStream. Nextel and
     Sprint PCS each have nationwide coverage capabilities reaching over
     275 million people through their respective license holdings, AT&T
     can serve 253 million consumers with its licenses, and VoiceStream
     has the potential to provide service to 193 million customers given
     its current license footprint.[^539]

237. We observe initially that the recently completed merger of the U.S.
     wireless assets of Bell Atlantic and Vodafone has already created a
     carrier with a substantial wireless footprint capable of offering
     service to 209 million potential customers, thereby achieving
     considerable pro-competitive market effects.[^540] Consequently,
     any claims regarding the public interest benefits arising from Bell
     Atlantic's merger with GTE must be evaluated carefully in light of
     the recent Vodafone transaction. The Applicants state that GTE will
     contribute "important wireless properties" in seventeen
     cities,[^541] enabling the new entity to serve 232 million people,
     or about 23 million more than Bell Atlantic/Vodafone can serve at
     present. We conclude that these former GTE consumers in particular
     will now be afforded access to the range of services that the Bell
     Atlantic/Vodafone joint venture currently offers.

238. Accordingly, we conclude that the combination of Bell
     Atlantic/Vodafone and GTE will result in certain public interest
     benefits arising from an expanded footprint. However, these
     benefits will not be sufficiently large to alter our overall
     conclusion that the proposed merger, absent conditions, would
     result in substantial harms to the public interest.

## Efficiencies

239. Based upon the evidence in the record, we conclude that the
     Applicants have not demonstrated that the efficiencies and cost
     savings that they contend will result from the merger are
     merger-specific or will mitigate the competitive harms discussed
     above. Bell Atlantic and GTE claim that their merger will result in
     a variety of efficiencies in the form of revenue enhancements and
     cost savings. In their initial application, Bell Atlantic and GTE
     claim that three years from the merger's closing, the merged entity
     will achieve \$2 billion in annual expense savings and \$0.5
     billion of annual capital expenditure savings.[^542] The Applicants
     claim an additional \$2 billion in revenue enhancements from
     creating and deploying "innovative data and other services,"
     improving the value and speeding the deployment of long distance
     services, and spreading best practices to more efficient market
     existing services.[^543]

240. The Commission has in the past made clear that merger-generated
     efficiencies can offset unilateral effects to the extent that they
     enhance the merged firm's ability and incentive to compete and,
     therefore, result in lower prices, improved quality, and enhanced
     or new products.[^544] Claimed efficiencies, however, must be
     merger-specific, and, therefore, efficiencies that could be
     achieved through means less harmful to the public interest than the
     proposed merger cannot be considered true benefits of the
     merger.[^545] In addition, efficiencies resulting in reductions in
     marginal costs---as opposed to fixed or overhead costs---are more
     likely to offset competitive harms by counteracting the merged
     firm's incentive to elevate price.[^546]

241. Although we recognize that the merger of Bell Atlantic and GTE
     would accelerate the realization of the Applicants' claimed
     efficiencies, we conclude that only a portion of these efficiencies
     are merger-specific. Elimination of duplicative or redundant
     administrative functions and the reduction of future equipment
     purchases, for instance, are direct consequences of the
     merger.[^547] The same is true with respect to some types of best
     practices, such as when superior methods of provisioning and
     maintenance operations are transferred between companies or when
     economies of scale are achieved as a result of the merger.[^548]
     Although these cost-savings may be merger-specific, they may
     nonetheless be the result of decreases in output or reductions in
     product differentiation.[^549] In the *Bell Atlantic/NYNEX* and
     *SBC/Ameritech Orders*, for instance, the Commission concluded that
     the elimination of parallel research and development efforts would
     eliminate a form of non-price competition in which firms attempt to
     differentiate products in either function or quality.[^550] As was
     the case with those transactions, both Bell Atlantic and GTE engage
     in research and development, and the merger's consolidation of
     functions could result in a reduction in competitive
     differentiation.[^551]

242. Similarly, Applicants have not demonstrated, or even stated, that
     these cost savings would be passed through to consumers in the form
     of lower prices or new or improved services.[^552] As we recognized
     in the *SBC/Ameritech Order*, the absence of explicit pass-throughs
     committed to by the Applicants renders it difficult to evaluate the
     extent to which actual cost savings would benefit the public
     interest.[^553] Additionally, Bell Atlantic and GTE provide little
     detail regarding their claimed efficiencies. Although the
     Applicants have indicated the various sources of the claimed
     savings, the record nonetheless lacks sufficient evidence to
     support those claimed cost savings. As a result, we find it
     difficult to evaluate the Applicants' claims and find them
     unpersuasive.

243. Bell Atlantic and GTE also claim that the combination of their
     wireless properties will result in overall cost savings totaling
     \$1.9 billion, net of integration expenses, measured on a present
     value basis.[^554] It is not clear from parties' submissions in the
     record what share of these cost savings will likely be passed on to
     consumers in the form of lower prices.[^555] However, there has
     been significant new entry in the wireless telephony markets over
     the past few years, and average prices have declined
     substantially,[^556] suggesting that a significant proportion of
     these cost savings may be passed on to wireless consumers as the
     Applicants compete for business. For example, we would expect that
     after the merger, some Bell Atlantic/Vodafone customers will
     experience reduced charges when placing or receiving calls while
     traveling in GTE's former territory. The Applicants' estimate of
     prospective cost savings corresponds solely to the addition of GTE
     properties, and is independent of a separate estimate for cost
     savings associated with the Vodafone transaction.[^557]

244. We are similarly unconvinced with respect to the Applicants'
     claimed revenue enhancements. During the course of the next three
     years, Bell Atlantic and GTE claim to realize \$2 billion in
     additional annual sales in the following areas: vertical services,
     long distance acceleration, large business, and data and web
     hosting.[^558] We conclude that these claimed revenue synergies are
     extremely speculative and difficult to verify. Although the
     Applicants' have indicated the amount of additional revenues they
     expect to derive from each claimed business line, they have
     provided no supporting evidence to persuade us as to their
     likelihood and verifiability. Accordingly, although we recognize
     that some portion of the Applicants' cost savings and revenue
     enhancements will result from the merger, we conclude that the
     Applicants' claimed efficiencies are insufficient to alter our
     overall conclusion that this merger does not provide significant
     and merger-specific public interest benefits.

## Conclusion 

245. We conclude that the merger brings few tangible merger-specific
     public interest benefits to the product markets discussed above.
     Considered in combination, the Applicants' claimed public interest
     benefits and efficiencies are insufficient to outweigh the
     significant public interest harms set forth above. Accordingly, we
     conclude that, absent the conditions proposed by the Applicants,
     this merger would cause significant potential interest harms that
     would not be outweighed by the combined weight of the modest
     benefits that the transaction may achieve.

# CONDITIONS

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

247. As noted above, on January 27, 2000, the Applicants supplemented
     their initial Application to include, *inter alia*, a package of
     voluntary commitments that they submit are likely to augment the
     benefits of their proposed merger through promoting the widespread
     deployment of local advanced services, spurring local competition,
     and helping to ensure that consumers receive high quality and low
     cost telecommunications services.[^559] After receiving extensive
     public comment on their proposed conditions, Bell Atlantic and GTE
     modified their commitments on April 14, 2000, and in subsequent
     filings.[^560] We believe that the Applicants' package of
     conditions, with the modifications by this Commission, alters the
     public interest balance of the proposed merger by mitigating
     substantially the potential public interest harms while providing
     additional public interest benefit. Accordingly, with the full
     panoply of conditions that we adopt in this Order, and assuming the
     Applicants' ongoing compliance with these conditions, we find that
     the Applicants have demonstrated that the proposed transfer of
     licenses and lines from GTE to Bell Atlantic will serve the public
     interest, convenience and necessity.

## Adopted Conditions

248. The package of conditions that the Applicants present to bolster
     the benefits of their proposed merger is patterned closely after
     the set of conditions that we adopted less than a year ago in the
     *SBC/Ameritech Order*.[^561] Of the 30 separate sections of the
     *SBC/Ameritech conditions*, Bell Atlantic and GTE propose to retain
     26.[^562] As we did in reviewing the proposed merger of SBC and
     Ameritech, here we analyze the effect of the conditions on the
     public interest balance of the proposed merger, including the
     prospects for mitigating the potential public interest harms that
     we identify above.

249. In the paragraphs below, we summarize the conditions and describe
     changes thereto made a result of commenters' suggestions. We also
     note where changes were not made, despite commenters' concerns.
     Subsequently, we describe the benefits of the conditions. We
     explain why we adopt the group of conditions as modified in their
     entirety and approve the merger subject to those conditions.
     Finally, we discuss why we agree with the Applicants that
     additional commitments beyond those proffered by the Applicants are
     not warranted.

250. We adopt, with some modification, the proffered commitments of Bell
     Atlantic and GTE as express conditions of our approval of the
     transfer of licenses and lines from GTE to Bell Atlantic.[^563] For
     the reasons set forth below, we conclude that, assuming the
     Applicants' ongoing compliance with these conditions, Bell Atlantic
     and GTE have demonstrated that their proposed transaction, on
     balance, will serve the public interest, convenience and necessity.

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

252. Even though some of the conditions may relate to other requirements
     that Bell Atlantic and GTE are or will be subject to under the Act
     or our rules, the conditions that we adopt in this merger
     proceeding are not intended to prejudge, or override, Commission
     action in other proceedings. The Commission may, for example, adopt
     additional requirements in other more general proceedings that
     affect matters addressed by these conditions. In that case, because
     the conditions are intended to be a floor and not a ceiling,[^564]
     the merged firm would be subject to the general requirements as
     well as these conditions. We emphasize that the merged firm must
     comply with any applicable Commission orders or rules in addition
     to the requirements of these conditions.[^565]

253. Nor are the conditions that we adopt today intended to be
     considered as an interpretation of sections of the Communications
     Act, especially sections 251, 252, 271 and 272, or the Commission's
     rules, or any other federal statute including the antitrust
     laws.[^566] The conditions are designed to address potential public
     interest harms specific to the merger of the Applicants, not the
     general obligations of incumbent LECs or the criteria for BOC entry
     into the interLATA services market. For example, the
     Carrier-to-Carrier Performance Plan is not meant to substitute for
     any enforcement mechanisms that the Commission may adopt in the
     section 271 context (*i.e.*, anti-backsliding measures), nor
     substitute for state performance measure plans. All of the
     conditions that we adopt today are merger-specific and not
     determinative of the obligations imposed by the Act or our rules on
     Bell Atlantic, GTE or any other telecommunications carrier. In
     particular, we note that our adoption of Bell Atlantic/GTE's
     proposed conditions does not signify that, by complying with these
     conditions, Bell Atlantic/GTE will satisfy its nondiscrimination
     obligations under the Act or Commission rules.

254. The conditions are also not intended to limit the authority of
     state commissions to impose or enforce requirements that go beyond
     those adopted in this Order.[^567] Because these conditions serve
     as a baseline, the Applicants must abide by any applicable state
     rules, even if those rules address matters that are included within
     these conditions, unless the merged entity would violate one of
     these conditions by following the state rule. We do not preclude
     states from imposing additional rules, regulations, programs or
     policies that are not inconsistent with these conditions. As
     discussed below, however, to the extent that a requirement in these
     conditions duplicates a requirement imposed by a state pursuant to
     its review of the proposed merger, parties can elect to receive the
     benefit under either these conditions or the identical state
     conditions.

255. The conditions we adopt today will remain effective and enforceable
     for 36 months, unless otherwise specified in the relevant
     condition. Accordingly, for conditions that take effect a certain
     period of time after the merger closing, Bell Atlantic/GTE's
     obligations under those conditions would extend from their
     effective date for a full 36-month period of benefit, which would
     fall later than 36 months after the merger closing.

256. We expect that Bell Atlantic/GTE will implement each of these
     conditions in full, in good faith and in a reasonable manner to
     ensure that all telecommunications carriers and the public are able
     to obtain the full benefits of these conditions. If Bell
     Atlantic/GTE does not fulfill its obligation to perform each of the
     conditions, pursuant to our public interest mandate under the
     Communications Act we must take action to ensure that the merger
     remains beneficial to the public. We intend to utilize every
     available enforcement mechanism, including, if necessary,
     revocation of the merged firm's section 214 authority,[^568] to
     ensure compliance with these conditions. To this end, should the
     merged entity systematically fail to meet its obligations, we can
     and will revoke relevant licenses, or require the divestiture of
     Bell Atlantic/GTE into the current Bell Atlantic and GTE
     companies.[^569] Although such action would clearly be a last
     resort, it is one that would have to be taken if there is no other
     means for ensuring that the merger, on balance, benefits the
     public.

257. As the Commission previously has stated in the context of approving
     mergers between major incumbent LECs, our approval of this
     Application subject to conditions should not be considered as an
     indication that future applicants always will be able to rely on
     similar public interest commitments to offset potential public
     interest harms.[^570] Each case will present different facts and
     circumstances. Though the *SBC/Ameritech Conditions* provided a
     framework for the conditions that we adopt here, as we discuss
     above, our review of the merits of the commitments that Bell
     Atlantic and GTE proffer is limited to the context of the potential
     harms and benefits that are particular to this proposed merger.

258. The Commission also previously has expressed concern regarding
     consolidation among the major incumbent LECs, and how such
     consolidation could gravely impair our implementation of Congress's
     directive to open all telecommunications markets to
     competition.[^571] Indeed, we conclude above that a merger between
     Bell Atlantic and GTE presents serious potential for public
     interest harms arising out of the loss of a significant benchmark,
     greater incentive and ability for the companies to discriminate
     against competitors as a merged entity, and the loss of a
     prospective competitor in each other's markets.[^572] In the
     *SBC/Ameritech Order*, we held that "\[t\]he instant transaction,
     approved with a stringent set of conditions, removes yet another
     independent major incumbent LEC, thereby further escalating the
     burden on any future major incumbent LEC merger applicants" in
     establishing that a proposed merger will, on balance, be
     pro-competitive and therefore serve the public interest,
     convenience and necessity.[^573] Likewise, the burden on any major
     incumbent LEC merger applicants subsequent to today will be even
     greater.

259. With respect to the burdens on the applicants for the instant
     merger, though GTE is not a BOC, we are mindful that it is a major
     incumbent LEC.[^574] Compounding the loss of a key benchmark
     through merging with Bell Atlantic, another major incumbent LEC, is
     the fact that as a non-BOC, GTE is not subject to section 271.
     Thus, GTE does not have the same incentive as a BOC of gaining
     authorization to offer in-region, interLATA voice and data services
     in exchange for its demonstration that the local telecommunications
     market in the particular state is open to competition. Furthermore,
     several commenters express concern regarding the actual performance
     of GTE, in particular, in numerous areas of the realm of opening
     telecommunications markets to competition.[^575] Accordingly, some
     of these commenters argue that conditions to the instant merger
     should be especially strong with respect to the operation of the
     merged entity in GTE legacy service areas.[^576] In this regard, we
     have looked to the Applicants to offer commitments that would
     compel or reflect greater results on the part of GTE in opening its
     markets to competition.[^577] Without the bolstering of these
     commitments particularly with respect to GTE, we would be
     hard-pressed to find that the Applicants meet their
     already-escalated burden of establishing that the benefits of the
     merger will outweigh the harms.

### Promoting Equitable and Efficient Advanced Services Deployment

260. *Separate Affiliate for Advanced Services*. Under this condition,
     Bell Atlantic and GTE will create, prior to closing the merger, one
     or more separate affiliates to provide all advanced services in the
     combined Bell Atlantic/GTE[^578] region on a phased-in basis. The
     structural and non-structural safeguards we adopt today will make
     engaging in anticompetitive misconduct more difficult.[^579] In
     addition, the separate affiliate condition will counterbalance Bell
     Atlantic/GTE's increased incentive to degrade services and
     facilities furnished to competitors by making such behavior readily
     apparent to the Commission and the public.[^580] We therefore
     expect that strict compliance with the separate affiliate condition
     will mitigate the substantial risk of discrimination faced by Bell
     Atlantic/GTE's competitors after the merger.

261. Establishing an advanced services separate affiliate will provide a
     structural mechanism to ensure that competing providers of advanced
     services receive effective, nondiscriminatory access to the
     facilities and services of the merged firm's incumbent LECs that
     are necessary to provide advanced services. Because the merged
     firm's own separate affiliate will use the same processes as
     competitors, wait in line for collocation space, buy the same
     inputs used to provide advanced services, and pay an equivalent
     price for facilities and services, the condition should ensure a
     level playing field between Bell Atlantic/GTE and its advanced
     services competitors.[^581] In this regard, the competitive
     safeguards will provide Bell Atlantic/GTE's competitors substantial
     benefits. For example, to the extent a Bell Atlantic/GTE incumbent
     LEC allows its separate affiliate to collocate packet switches,
     routers, or other equipment, the nondiscrimination safeguards
     compel the incumbent LEC to allow unaffiliated carriers to
     collocate similar equipment on nondiscriminatory rates, terms, and
     conditions. Similarly, if a Bell Atlantic/GTE incumbent LEC works
     with its separate affiliate to develop new systems, products, or
     company-wide standards, it must cooperate with unaffiliated
     carriers in the same way.[^582]

262. We expect that Bell Atlantic/GTE's competitors will benefit from
     the incumbent's incentive to assist its affiliate because the
     nondiscrimination safeguards and the rigorous audit requirements
     will ensure that they receive the same treatment as the separate
     affiliate. Because Bell Atlantic/GTE's Advanced Services Affiliate
     will have to order line sharing arrangements like any other
     advanced services provider, competitive LECs can expect Bell
     Atlantic/GTE's incumbent LECs to develop improvements and import
     best practices to make this ordering process as simple as possible.
     Given this expectation, we anticipate that this condition will
     greatly accelerate competition in the advanced services market by
     lowering the costs and risks of entry and reducing uncertainty,
     while prodding all carriers, including the Applicants, to hasten
     deployment.[^583] Consumers will ultimately benefit from this
     deregulated approach.

263. The separate advanced services affiliate will be distinct from Bell
     Atlantic/GTE's in-region telephone companies and operate largely in
     accordance with the structural, transactional, and
     nondiscrimination requirements of sections 272(b), (c), (e), and
     (g).[^584] The condition specifies certain activities that will be
     permitted between the Bell Atlantic/GTE incumbent LEC and the
     separate affiliate, some of which differ from section 272's
     requirements.[^585] Specifically, the Bell Atlantic/GTE incumbent
     LEC and its advanced services affiliate may jointly market the
     other's services and perform certain customer care services.[^586]
     In addition, the incumbent may perform certain operation,
     installation, and maintenance (OI&M) functions,[^587] pursuant to a
     tariff, written affiliate agreement,[^588] or approved
     interconnection agreement, and provide billing and collection
     services,[^589] pursuant to a written agreement, for its separate
     affiliate on a nondiscriminatory basis. The incumbent LEC may also
     transfer to the separate affiliate specified advanced services
     equipment[^590] on an exclusive basis during a limited grace
     period. Starting 90 days after the merger closing, all new advanced
     services equipment must be purchased and owned by the separate
     affiliate.[^591] The affiliate may also use the Bell Atlantic/GTE
     incumbent LEC's name, trademarks or service marks on an exclusive
     basis, and employees of the separate affiliate may be located in
     the same buildings and on the same floors as the incumbent LEC's
     employees.[^592] Moreover, although Bell Atlantic/GTE will comply
     with the Commission's section 272 accounting safeguards,[^593] it
     will be permitted to deviate from these only to the extent that it
     will not have to comply with the Commission's transaction
     disclosure requirements under section 272(b)(5) with respect to
     transactions conducted pursuant to interconnection agreements
     between a Bell Atlantic/GTE incumbent LEC and its advanced services
     affiliate. To ensure that all transactions between the advanced
     services affiliate and the incumbent are conducted on an
     arms-length basis, Bell Atlantic/GTE's compliance with this
     separate affiliate condition will be subject to an annual audit.

264. After a limited transition period, the responsibility to provide
     advanced services in the Bell Atlantic/GTE service area will rest
     with the separate affiliate, and the activities that it and the
     incumbent may undertake are specifically set forth in the
     conditions.[^594] Once the separate affiliate is operating in
     accordance with the "Steady-State Provisioning" requirements, it
     will be operating just like any other unaffiliated provider of
     advanced services. To ease the transition to providing all advanced
     services through a separate affiliate, the conditions permit a Bell
     Atlantic/GTE incumbent LEC to perform certain activities on behalf
     of its affiliate on an exclusive basis during the transition
     period. Specifically, for a limited period, a Bell Atlantic/GTE
     incumbent LEC may provide limited "network planning, engineering,
     design or assignment"[^595] services associated with advanced
     services to its affiliate, and receive and isolate troubles
     affecting an advanced services customer on behalf of the affiliate.
     We emphasize that the transition period is extremely limited with
     clear deadlines, and the services that a Bell Atlantic/GTE
     incumbent LEC may perform for its separate affiliate are a narrow
     set of services that may not subsume the main function of the
     affiliate. We recognize that the transition period differs from the
     one adopted in the *SBC/Ameritech Order* in that Bell Atlantic/GTE
     could receive up to 60 additional days.[^596] We find, however,
     that if the transition is not managed properly, existing advanced
     services customers could experience uncalled-for disruption of
     service. We note, nevertheless, that competitors will benefit
     immediately from the separate affiliate conditions because of the
     "functional equivalent" requirements, which ensure that Bell
     Atlantic/GTE will start to operate in a manner functionally
     equivalent to a fully operational separate affiliate immediately
     after merger closing.[^597]

265. Bell Atlantic/GTE's obligation to provide all advanced services
     through a separate affiliate will sunset after either: (a) the
     later of 42 months after the merger's closing, or 36 months after
     the incumbent ceases to process trouble reports for the affiliate
     on an exclusive basis; (b) the date on which Congress has enacted
     legislation that specifically prohibits the Commission from
     requiring an incumbent LEC to establish a separate advanced
     services affiliate and the Commission has modified its rules and
     regulations in a manner that would materially alter the structure
     or interaction between the incumbent and affiliate from that set
     forth in the conditions;[^598] or (c) nine months after a final,
     non-appealable judicial decision determines that the separate
     advanced services affiliate is deemed a successor or assign of the
     incumbent, unless that decision is based substantially on conduct
     by or between a Bell Atlantic/GTE incumbent and its affiliate that
     was not expressly permitted by these conditions.

266. If, after one of these three sunset events occurs, Bell
     Atlantic/GTE decides to no longer provide advanced services through
     a separate affiliate in a particular state, then Bell Atlantic/GTE
     will continue certain other obligations until 48 months after the
     merger closing date. In that case, Bell Atlantic/GTE must, for
     example, provide all advanced services through a separate office or
     division that will continue using the same OSS interfaces,
     processes and procedures that are made available to unaffiliated
     entities (including using the Electronic Data Interchange (EDI)
     interface for processing a substantial majority of pre-order
     inquiries and orders).[^599] In addition, Bell Atlantic/GTE will
     continue the surrogate line-sharing and advanced services OSS
     discounts, and its incumbent LECs will continue to provide
     unaffiliated carriers with the same OI&M services that its retail
     operations use, as well as those OI&M services that previously were
     made available under the conditions.

267. As in the *SBC/Ameritech Order*, we find, on the basis of the
     conditions as written, that the affiliate structure creates a
     rebuttable presumption that a Bell Atlantic/GTE advanced services
     affiliate will not be a "successor or assign" of an incumbent LEC
     under section 251(h)(1) or a BOC under section 3(4)(B) of the
     Act.[^600] At the same time, however, we note that if a Bell
     Atlantic/GTE incumbent LEC and its advanced services affiliate
     behave in a manner inconsistent with the intent of the conditions
     or engage in activities beyond those expressly permitted in the
     conditions, the company bears the risk that the affiliate will be
     deemed a successor or assign of the incumbent LEC and, therefore,
     subject to incumbent LEC regulation under section 251(c).
     Accordingly, if a Bell Atlantic/GTE advanced services affiliate is
     found to be a successor or assign[^601] based on activities that
     are expressly permitted in these conditions, then, nine months
     after such a finding becomes final and non-appealable, Bell
     Atlantic/GTE will no longer be obligated under the conditions to
     provide all advanced services through a separate affiliate,
     although it may choose to do so, but will continue to bear certain
     obligations.[^602] If, however, the separate advanced services
     affiliate is deemed to be a successor or assign based substantially
     on conduct by or between a Bell Atlantic/GTE incumbent and its
     affiliate that was not expressly permitted by these conditions,
     then Bell Atlantic/GTE shall continue providing advanced services
     through the affiliate, operating as a successor or assign, for the
     full duration of the condition.[^603]

268. We reject AT&T's argument that the separate advanced services
     affiliate created under these conditions necessarily will be a
     "successor or assign" of Bell Atlantic/GTE incumbent LECs and
     thereby subject to incumbent LEC regulation under section
     251(c).[^604] In the *SBC/Ameritech Order*, we addressed these same
     issues as raised by the commenters there relative to the separate
     advanced services affiliate conditions that we applied to the
     combined SBC/Ameritech entity. Significantly, we note the separate
     affiliate conditions in the instant merger and those that we
     adopted in the SBC/Ameritech merger are identical in all relevant
     respects.[^605] Thus, our analysis in rejecting the assertion that
     the SBC/Ameritech separate advanced services affiliate is a
     successor or assign of an SBC/Ameritech incumbent LEC applies
     equally here. We hereby incorporate that analysis by reference.
     [^606]

269. We find that, as a general matter, incumbent LECs have no market
     power in the advanced services market independent of their
     bottleneck control of those facilities, such as local loops, that
     are necessary to provide such services.[^607] As described above,
     however, we find that, as a result of the merger, the combined
     entity will have an increased incentive and ability to discriminate
     against other providers of advanced services.[^608] In view of this
     finding, we conclude that the merged entity has the ability to
     leverage its control over existing bottleneck facilities to gain
     market power in the advanced services market.

270. We find that by requiring the merged entity to provide advanced
     services through a separate affiliate, there is less likelihood
     that it will use its local market power to gain a competitive
     advantage in the advanced services market. Specifically, we believe
     that the merged entity's incentive to engage in such discrimination
     will be significantly curtailed by the possibility of detection.
     For example, the affiliate transaction rules and other
     transactional safeguards will ensure that all interaction between
     the incumbent LEC and separate affiliate is conducted on an
     arms-length basis and that any cross-subsidization is apparent.
     Similarly, to the extent the merged entity attempts to provide
     competitors inferior services or facilities than those which it
     furnishes to its affiliate, such discrimination would be detected
     by the reporting and performance requirements we adopt today.

271. The separate affiliate, because it does not control any bottleneck
     facilities,[^609] does not have the potential to leverage existing
     market power from one market into another. Specifically, the
     separate advanced services affiliate is operating on a
     level-playing field with all other advanced services competitors,
     of which there are many. As a new entrant in a nascent market, it
     lacks both the incentive and ability to discriminate against its
     competitors. It lacks the incentive and ability because, unlike the
     incumbent, it does not control any of the bottleneck inputs that
     are necessary for the provision of advanced services. Accordingly,
     we find it reasonable to conclude that the separate affiliate will
     not occupy a market position comparable to that of the incumbent
     LEC in the provision of advanced services and, therefore, should
     not be considered a successor or assign of the incumbent LEC.

272. By requiring Bell Atlantic/GTE to provide all of its advanced
     services through a separate affiliate, we are not permitting the
     incumbent to avoid any of its statutory obligations. For example,
     the incumbent is still subject to all of the obligations of section
     251(c) for the services and facilities that the incumbent actually
     provides. The Eighth Circuit has stated, however, that section
     251(c) does not require an incumbent to offer a particular service
     or a particular type of network element to competitors in the first
     instance, if the incumbent is not providing that service or element
     in connection with its own operations.[^610] Thus, although under
     the separate affiliate condition the incumbent will no longer be
     providing advanced services subject to the discounted resale
     obligation of section 251(c)(4), that is [not]{.underline} because
     the incumbent is being relieved of the requirements of section
     251(c)(4), but because the incumbent will no longer be offering
     advanced services on a retail basis.[^611] Moreover, as discussed
     above, because the separate advanced service affiliate does not
     raise the competitive concerns regarding the leveraging of market
     power with respect to advanced services that would exist if the
     incumbent continued to provide those advanced services on an
     integrated basis, the affiliate does not simply step into the shoes
     of the incumbent in providing such services so as to become a
     \"successor or assign\" of the incumbent. Rather, just as a BOC
     affiliate under section 272 would offer long-distance services (as
     a non-incumbent) free of the obligations of section 251(c)(4), the
     advanced services affiliate should be allowed to offer advanced
     services free of such obligations.

273. *Surrogate Line Sharing Discount*. By separating a line into a
     voice portion and an advanced services portion and carrying both
     voice and advanced services traffic simultaneously, line sharing
     enables each service to be provided by a different carrier.
     Conditions that we adopted in the *SBC/Ameritech Order* permitted
     SBC/Ameritech to provide line sharing exclusively to its advanced
     services affiliate on an interim basis, subject to SBC/Ameritech
     offering other carriers a second loop at a substantial discount in
     order to ensure that competitors received a benefit comparable to
     this "interim line sharing."[^612] Subsequent to our adoption of
     the *SBC/Ameritech Order*, however, we adopted a further order in
     our advanced services proceeding, in which we required all
     incumbent LECs to provide nondiscriminatory unbundled access to the
     high frequency portion of the local loop, thus promoting line
     sharing between different carriers.[^613] Because incumbent LECs
     were expected to provide the high frequency portion of the loop UNE
     to competitors by June 6, 2000,[^614] exclusive line sharing
     between an incumbent LEC and its affiliate is no longer
     permissible.[^615]

274. Thus, these provisions shall apply to the merged entity only if our
     line sharing rules are overturned by a final and non-appealable
     judicial decision.[^616] In this manner, the conditions require
     Bell Atlantic/GTE to offer unaffiliated carriers the economic
     equivalent of line sharing if our line sharing rules are rendered
     ineffective. This "safety net" presents the benefit of putting
     unaffiliated advanced services providers on comparable economic
     footing with the merged firm's separate advanced services
     affiliate, and allowing these carriers to obtain reduced loop costs
     that otherwise would not be available to them if our line sharing
     rules are overturned. [^617]

275. In the event our line sharing rules are overturned by a final and
     non-appealable judicial decision and Bell Atlantic/GTE and its
     separate advanced services affiliate engage in exclusive line
     sharing, the merged firm will charge unaffiliated providers of
     advanced services surrogate charges for an additional unbundled
     loop, provided that the loop is used solely for the provision of
     advanced services (conforming to an industry-standard spectral
     mask) to a customer that is receiving voice-grade service, either
     on a retail or wholesale basis, from a Bell Atlantic/GTE incumbent
     LEC.[^618] The "surrogate line-sharing charges," which Bell
     Atlantic/GTE also would charge to its separate advanced services
     affiliate for line sharing, represent a 50-percent discount from
     the monthly recurring charge and the nonrecurring line or service
     connection charge.

276. In light of the ripening of incumbent LECs' line sharing
     obligations, we disagree with commenters that suggest that the
     applicability of this discount be expanded beyond instances of
     exclusive line sharing.[^619] In addition, we reject Covad's
     request to tie expanded surrogate line sharing discounts to a line
     sharing provisioning benchmark.[^620] We find that the line sharing
     provisioning performance measurement to be proposed by Bell
     Atlantic/GTE, which will be backed by payment-based
     incentives,[^621] is sufficient to ensure nondiscriminatory
     provisioning of line sharing.

277. *Loop Conditioning Charges and Cost Studies*. This condition is
     designed to ensure that Bell Atlantic/GTE will not erect a barrier
     to the competitive deployment of advanced services by charging
     excessive rates for loop conditioning. Within 180 days of the
     merger's closing, Bell Atlantic/GTE will file with state
     commissions cost studies and proposed rates for conditioning loops
     used in the provision of advanced services, prepared in accordance
     with the methodology contained in the Commission's pricing rules
     for UNEs.[^622] Pending approval of state-specific rates, Bell
     Atlantic/GTE will immediately make available to carriers loop
     conditioning rates (provided that they are greater than zero)
     contained in any effective interconnection agreement to which a
     Bell Atlantic/GTE incumbent LEC is a party, subject to true-up. In
     addition, subject to true-up, Bell Atlantic/GTE will impose no loop
     conditioning charges on loops less than 12,000 theoretical feet
     during this period. Moreover, advanced services providers will have
     a choice in the amount and extent of conditioning on any particular
     loop.

278. *Nondiscriminatory Rollout of xDSL Services*. As a means of
     ensuring that the merged firm's rollout of advanced services
     reaches some of the least competitive market segments and is more
     widely available to low-income consumers,[^623] Bell Atlantic and
     GTE will target their deployment of xDSL services to include
     low-income groups in rural and urban areas. Specifically, for each
     Bell Atlantic/GTE in-region state, Bell Atlantic/GTE will ensure
     that at least 10 percent of the rural wire centers where it, or its
     separate advanced services affiliate, deploys xDSL service will be
     low-income rural wire centers, meaning those wire centers with the
     greatest number of low-income households. Similarly, at least 10
     percent of the urban wire centers where the merged firm or its
     separate advanced services affiliate deploys xDSL service in each
     in-region state will be low-income urban wire centers. These
     requirements will become enforceable for any given state 180 days
     after the merger closes and after Bell Atlantic/GTE and/or its
     advanced services affiliate has deployed xDSL service in that state
     in at least 20 urban wire centers (to activate the urban
     requirement) or 20 rural wire centers (to activate the rural
     requirement). After the respective effective date, Bell
     Atlantic/GTE will provide nondiscriminatory deployment of xDSL
     services for at least 36 months thereafter.[^624] Bell Atlantic/GTE
     will consult with the appropriate state commission, within 90 days
     of the merger's closing, to classify all Bell Atlantic/GTE wire
     centers in that state as urban or rural.[^625] Furthermore, to
     assist in monitoring the merged firm's equitable deployment of
     xDSL, Bell Atlantic/GTE will file publicly a quarterly report with
     the Commission describing the status of its xDSL deployment,
     including the identity and location of each urban and rural wire
     center where it has deployed xDSL. We believe that the public
     interest benefits of this condition speak loudly and clearly for
     themselves, and the commenters resoundingly support it.[^626]

### Ensuring Open Local Markets

279. *Carrier-to-Carrier Performance Plan*. As a means of ensuring that
     Bell Atlantic/GTE's service to telecommunications carriers will not
     deteriorate as a result of the merger and the larger firm's
     increased incentive and ability to discriminate, and to stimulate
     the merged entity to adopt "best practices" that clearly favor
     public rather than private interests,[^627] Bell Atlantic/GTE will
     file publicly performance measurement data for each of its
     in-region states with this Commission, and make such data available
     over the Internet, on a monthly basis. The data will reflect Bell
     Atlantic/GTE incumbent LECs' performance of their obligations
     toward telecommunications carriers in 18 different measurement
     categories.[^628] These categories cover key aspects of
     pre-ordering, ordering, provisioning, maintenance and repair, and
     billing associated with UNEs, interconnection, and resold services.
     Many of the 18 measurement categories are divided into numerous
     disaggregated sub-measurements, thereby tracking Bell
     Atlantic/GTE's performance for different functions and different
     types of service. Furthermore, the list of measurements reported by
     Bell Atlantic/GTE under this condition is not static. This list is
     subject to addition or deletion, and the measurements themselves
     are subject to modification, by the Chief of the Common Carrier
     Bureau, through a joint semi-annual review with Bell
     Atlantic/GTE.[^629]

280. Under this condition, Bell Atlantic/GTE will either achieve the
     stated performance goal for the agreed-upon measures in each state
     or, if Bell Atlantic/GTE fails to provide service that meets the
     stated performance goal, make a voluntary incentive payment to the
     U.S. Treasury in an amount varying according to the level and
     significance of discrimination detected. These voluntary incentive
     payments are subject to monthly state-specific caps that total,
     across all states, as much as \$259 million in the first year,
     \$389 million in the second year, and \$516 million in the third
     year (*i.e.,* a total of up to \$1.164 billion over three years),
     with a credit for amounts paid to states and competitive LECs under
     state-imposed performance monitoring plans or under liquidated
     damages provisions of interconnection agreements.[^630] Bell
     Atlantic/GTE's potential liability may be reduced by up to \$125
     million in the third year if Bell Atlantic/GTE completes and
     deploys its OSS interface and business rule changes before their
     target date, depending upon the change and how early it is
     completed.

281. The specific performance measures that Bell Atlantic/GTE will
     implement in the Bell Atlantic legacy service areas are based upon
     performance measures developed in a New York collaborative process
     involving Bell Atlantic's application for in-region, interLATA
     relief. The performance measures that Bell Atlantic/GTE will
     implement in the GTE legacy service areas are based primarily upon
     performance measures applicable to GTE that were developed in a
     collaborative process in California.[^631] Rather than develop a
     new set of measures for this merger proceeding, we find that
     relying upon these performance measures and corresponding business
     rules, which may be modified over time, will achieve the goals of
     the Performance Plan and conserve time and resources.[^632] We
     emphasize that use of such measures in this merger review
     proceeding is not meant to affect, supplant, or supersede any
     existing or future state performance plan.[^633]

282. These limited performance measures are intended to offset or
     prevent some of the merger's potential harmful effects; they are
     not designed or intended as anti-backsliding measures for purposes
     of section 271.[^634] Indeed, to the extent that GTE legacy service
     areas are not subject to the market opening requirements of section
     271 in order for GTE to provide in-region, interLATA services
     originating from those areas, these performance measures constitute
     a significant benefit of these conditions where states have not
     implemented performance plans with respect to GTE.[^635] The
     present performance plan must be viewed in the context of the
     entire set of proposed safeguards that comprise the overall merger
     conditions package. In this regard, we expect -- and we encourage
     -- each state to adopt rigorous and extensive performance
     monitoring programs in connection with section 271 proceedings.
     Under these conditions, therefore, Bell Atlantic/GTE's obligations
     under the plan in a given Bell Atlantic legacy state will terminate
     upon the company's authorization to provide in-region, interLATA
     service in that state.[^636] In a similar vein, these obligations
     may cease to be effective in any Bell Atlantic/GTE state as
     determined by the Common Carrier Bureau Chief where the state
     commission has adopted a comprehensive performance plan applicable
     to Bell Atlantic/GTE.[^637] The condition will expire otherwise 36
     months after the payment obligation arises in the state.[^638]

283. We reject the suggestion of a number of commenters that we impose
     the complete list of measurements adopted by the New York
     commission and California commission.[^639] We also decline to
     adopt other specific performance measurements advocated by certain
     parties,[^640] or to make specific changes in the proposal, such as
     altering the benchmarks or statistical methodology.[^641] We
     reiterate that the Performance Plan constitutes the Applicants'
     voluntary proposal for monitoring and remedying the specific
     potential public interest harms identified in the instant merger,
     including the potential for increased discrimination by the larger
     merged entity and the loss of another major incumbent LEC
     benchmark. The adoption of these measures in the present merger
     context does not signify that these performance measures would be
     sufficient in the context of a section 271 application. In
     contrast, performance plans that are being developed by state
     commissions in the context of section 271 proceedings serve a
     different purpose, and may be designed to cover more facets of
     local competition and to prevent a BOC from backsliding on section
     271 obligations.[^642] The Performance Plan that we adopt today
     serves a more limited purpose, and hence has a more limited scope.
     Moreover, we note that, to account for necessary revisions or
     updates, the plan includes a semi-annual review of the plan's
     measurements by the Chief of the Common Carrier Bureau and Bell
     Atlantic/GTE. Significantly, the Performance Plan is only one
     component of a broad package of voluntary merger safeguards
     proposed by the Applicants. Measures that are sufficient as part of
     a comprehensive package of safeguards in the present merger context
     may not be adequate in the section 271 context.

284. Similarly, we decline to require region-wide uniformity across
     measurements between different states, as suggested by several
     commenters.[^643] We find that the plan is sufficient, for merger
     purposes, to reduce the larger entity's increased incentive for
     discrimination by giving its individual operating companies
     incentives to treat competitors as they would Bell Atlantic's or
     GTE's own retail operations. Other merger commitments, such as the
     most-favored nation conditions, address uniformity and the spread
     of best practices across the merged firm's service region.

285. *Uniform Enhanced OSS (Including Advanced Services OSS)*.
     Effective, nondiscriminatory access to OSS is critical for
     achieving the 1996 Act's local competition objectives. The
     commitments in this condition are intended to facilitate local
     services competition (including advanced services competition) in
     the merged entity's combined service area by providing entrants
     additional and more economical options for accessing the merged
     entity's OSS on a non-discriminatory basis as compared to its
     retail operations, and by encouraging constructive participation by
     local entrants in the development of the merged entity's systems
     used by those local entrants.[^644] This condition will thus guard
     against discriminatory treatment by the merged entity to its
     rivals, as well as reduce the costs and uncertainty of providing
     competing services.[^645]

286. Specifically, Bell Atlantic/GTE commits to establish uniform OSS
     interfaces and business rules within the former Bell Atlantic
     service areas and separately within the former GTE service areas.
     In addition, the merged entity will implement uniform transport and
     security protocols, uniform OSS functions and product ordering
     capabilities,[^646] and a uniform change management process across
     its combined service area. Although several commenters suggested we
     should require uniform interfaces and business rules across the
     entire combined region, as we did in the SBC/Ameritech proceeding,
     we find that such a condition is not appropriate under the facts of
     this proceeding. Unlike SBC and Ameritech, which were both Bell
     System companies, and therefore had relatively similar OSS, Bell
     Atlantic and GTE's systems "developed from significantly different
     sources and, as a result, . . . differ significantly \[from each
     other\]."[^647] Given these facts, the Applicants have asserted
     that to achieve uniformity through the combined region: (1) it
     likely will cost "hundreds of millions," if not "billions," of
     dollars; (2) it could take more than five years to achieve; and (3)
     "given the size of the work effort . . . and the unknowns about the
     true scope and scale of the project, there is no certainty that
     Bell Atlantic/GTE would be able to complete such a project."[^648]
     No commenter has provided any persuasive evidence rebutting the
     Applicants' claims.[^649] As such, we rely on the Applicants'
     assertions in concluding that it is, therefore, not appropriate to
     require complete uniformity in this proceeding because of the cost
     and uncertainty of establishing uniform OSS interfaces and business
     rules across the combined region.

287. In addition to the commitments described in the preceding paragraph
     and in response to the Comments, however, the Applicants have
     committed to implement uniform interfaces and business rules for at
     least 80 percent of the access lines for the combined Bell Atlantic
     and GTE service areas in Pennsylvania and Virginia within five
     years after the Merger Closing Date.[^650] Although this condition
     falls short of providing complete uniformity, we find that the
     Applicants' commitment to achieve uniform interface and business
     rules within Bell Atlantic's service areas and separately within
     GTE service areas, and commitment to convert systems to achieve
     such uniformity across most, if not all, of the Applicants'
     combined service areas in Pennsylvania and Virginia furthers the
     1996 Act's local competition objectives by providing competitors
     with "one-stop shopping" within large areas of the Applicants'
     region.

288. We find that Bell Atlantic/GTE has made other substantial
     commitments that, among other things, provide assurances competing
     carriers will have input into the development and deployment of the
     Applicants' OSS through collaboratives, disputes will be arbitrated
     by a neutral third-party, the Applicants' will make incentive
     payments for non-compliance, and competing carriers will have a
     role in the change management process. For example, prior to
     implementing its OSS commitments, the merged firm first will
     prepare a plan of record ("Plan") outlining the steps it proposes
     to take in unifying its OSS in the separate Bell Atlantic and GTE
     legacy service areas, or in the combined service areas (including
     Pennsylvania and Virginia), as applicable.[^651] Competitors shall
     have the opportunity to comment on the Plan and its scope,
     including the procedures for a collaborative process.[^652]
     Following submission of the Plan, the merged firm will collaborate
     with participating competitive LECs to reach agreement on the
     interfaces, enhancements, business rules, data format
     specifications, transport and security protocols, and OSS functions
     and product ordering capabilities to be implemented.[^653] The
     merged entity must ensure that it makes available to competing
     carriers all information necessary for them to fully evaluate the
     Plan (including, but not limited to, information about its back-end
     systems, OSS interfaces, business rules, data specifications, and
     hardware capabilities) and to participate productively in
     collaborative sessions. Failure to provide a sufficient Plan will
     be considered a violation of these commitments and this order, and
     may subject the merged entity to penalties, fines, or forfeitures
     pursuant to general Commission authority.

289. Bell Atlantic/GTE and the participating competing carriers shall
     seek to reach a written agreement resolving any issues raised by
     the Plan and the competing carriers' comments to the Plan. To the
     extent that Bell Atlantic/GTE and the competitors cannot reach
     agreement, or have disputes about the scope of the Plan, including
     the procedures governing the collaborative process, they may
     request resolution of such disputes by binding arbitration
     conducted by an independent third-party.[^654] We expect that the
     collaborative and arbitration processes will generally function in
     the same way as the processes specified in the conditions attached
     in the *SBC/Ameritech Order*. After completion of the
     collaboratives and any necessary arbitrations, Bell Atlantic/GTE
     will develop and deploy the agreed-upon or arbitrated OSS
     requirements, such as, but not limited to, interfaces,
     enhancements, and business rules, within specified periods of
     time.[^655] Once deployed, Bell Atlantic/GTE will maintain these
     OSS requirements for not less than 36 months.[^656]

290. The Applicants have also committed to arbitration of disputes
     concerning the implementation of the Applicants' commitments and
     payment for non-compliance. Bell Atlantic/GTE must substantially
     comply with the development and deployment requirements described
     in these commitments or will be subject to voluntary incentive
     payments to the U.S. Treasury of up to \$10,000 per business day
     per state per violation, or up to \$110,000 per day across all of
     its in-region states, for a missed target date.[^657] An arbitrator
     will determine if Bell Atlantic/GTE is in substantial compliance
     and the payment due.[^658] As payments will reach back to the date
     of the initial violation, Bell Atlantic/GTE has little incentive to
     delay arbitration.[^659] Subsequent to an arbitration finding that
     Bell Atlantic/GTE is not in compliance with the requirements of the
     condition, it may file a notice with the Chief of the Common
     Carrier Bureau that it has corrected the non-compliance and halt
     payments. If the arbitrator makes a written finding, and the Chief
     of the Common Carrier concurs in writing, that Bell Atlantic/GTE
     intentionally and willfully failed to comply with the relevant
     requirements, Bell Atlantic shall make additional payments of up to
     \$110,000, as determined by the arbitrator, for each business day
     of non-compliance. [^660]

291. The commitments will counterbalance other difficulties that
     competing carriers encounter interfacing with Bell Atlantic/GTE's
     OSS. For example, Bell Atlantic/GTE will adopt, subject to state
     approval where necessary, throughout its region the current Bell
     Atlantic change management process originally developed through
     collaboratives with competitive LECs as part of the section 271
     proceeding before the New York Public Service Commission.[^661]
     Under this condition, states may choose whether to approve Bell
     Atlantic/GTE's plan for uniform change management.[^662] Bell
     Atlantic/GTE will also offer \-- for a period of 30 months from the
     Merger Closing Date \-- to develop and deploy an electronic bonding
     interface (EBI) throughout its combined in-region service areas for
     maintenance and repair of resold local services and UNEs, including
     all enhancements that comport with industry standards.
     Specifically, the requesting carrier and Bell Atlantic/GTE must
     enter into a written contract wherein they agree to the nature of
     the EBI implementation and the requesting carrier agrees to pay
     Bell Atlantic/GTE for the costs of development of any enhancements
     *in advance of* industry standards.[^663] Disputes between a
     requesting carrier and Bell Atlantic/GTE relating to the
     development and deployment of the EBI shall be subject to the
     dispute resolution process for interfaces described in this
     condition.

292. This condition also provides incentive for Bell Atlantic/GTE to
     improve the systems and processes for pre-ordering and ordering of
     UNEs used to provide xDSL and other advanced services, and to
     compensate carriers for the difficulties associated with
     interfacing with divergent and unenhanced advanced services OSS.
     Bell Atlantic/GTE will offer telecommunications carriers a 25
     percent discount from the recurring and nonrecurring charges for
     unbundled loops used in the provision of advanced services
     until: (1) Bell Atlantic/GTE has developed and deployed, in the
     manner described above, the advanced services OSS interfaces,
     including any agreed-upon or arbitrated enhancements; *and* (2) the
     Bell Atlantic/GTE separate advanced services affiliate uses such
     interfaces for pre-ordering and ordering at least 75 percent of the
     facilities it uses to provide advanced services.[^664] This
     discount will have the added benefit of lowering unaffiliated
     carriers' costs of providing competing advanced services. Though
     Covad objects to these provisions to the extent that they do not
     mirror the advanced services OSS commitments that we adopted in the
     SBC/Ameritech proceeding,[^665] competitive LECs may seek, in the
     collaboratives, advanced services OSS enhancements in advance of
     industry standards and expedited milestones for the development and
     deployment of advanced services OSS and enhancements to it.

293. Finally, commenters also suggest that the Commission should require
     third-party testing of the OSS interfaces (including enhancements)
     to ensure that they are uniform, comply with applicable standards
     and guidelines, and are scalable and workable, meaning that they
     support seamless end-to-end interoperability for all five core OSS
     functions.[^666] Although we find that comprehensive third-party
     testing is useful in other contexts, such as section 271
     proceedings \-- in fact, we strongly encourage the use of
     independent third-party testing as a means of ascertaining whether
     a BOC is meeting section 271's requirements[^667] \-- we decline to
     require Bell Atlantic/GTE to submit its OSS interfaces to
     third-party testing as part of this merger proceeding. We find it
     sufficient that Bell Atlantic/GTE has committed to make voluntary
     incentive payments if it fails to deploy OSS upgrades in
     substantial compliance with the collaborative agreement. Moreover,
     we note that should Bell Atlantic/GTE fail to develop and deploy
     OSS interfaces consistent with the requirements of the conditions
     or any other conditions, it would be subject to an enforcement
     action at the Commission's discretion. We find that this potential
     liability should provide adequate incentive for the merged firm to
     develop and deploy OSS interfaces that fully comply with the
     collaborative agreement and are scalable and workable.[^668]

294. *Training in the Use of OSS for Qualifying Carriers*. As a means of
     reducing the barriers to new entry in its combined region, Bell
     Atlantic/GTE will provide special OSS assistance to any
     "qualifying" competitive LEC. As in the *SBC/Ameritech Conditions*,
     the Applicants initially proposed to define a "qualifying"
     competitive LEC as a competitive LEC having less than \$300 million
     in total annual telecommunications revenues.[^669] The Applicants
     subsequently expanded their proposal, however, to include in the
     definition of a "qualifying" competitive LEC: any competitive LEC
     that presently serves end users in Bell Atlantic service areas and
     not in GTE service areas, but that seeks to extend its services
     into GTE service areas; any competitive LEC that presently serves
     end users in GTE service areas and not in Bell Atlantic service
     areas, but that seeks to extend its services into Bell Atlantic
     service areas; and any competitive LEC that does not presently
     serve end users in the service areas of either legacy
     company.[^670] This revised definition of a "qualifying"
     competitive LEC, which expands the field of competitive LECs that
     are eligible to take advantage of such special OSS assistance,
     substantially enhances the benefit of this condition by further
     reducing barriers to new local competitive entry.

295. As for the nature of this OSS assistance, the merged firm will
     designate and make available for a minimum of 36 months at no
     additional cost one or more team(s) of OSS experts to assist these
     qualifying carriers with OSS issues. The condition also obligates
     Bell Atlantic/GTE to identify and develop training and procedures
     beneficial to such qualifying carriers. Disputes regarding whether
     a carrier qualifies under this condition will be resolved by the
     appropriate state commission. We reject BlueStar et al's and
     CoreComm's request that this OSS assistance begin 30 rather than 90
     days after the merger closing date. [^671] We find that there is no
     material difference between 30 and 90 days given the fact that this
     commitment will be adhered to for a full three years.

296. *Collocation, Unbundled Network Elements, and Line Sharing
     Compliance*. The Applicants have agreed to implement a number of
     measures to ensure that the companies provide collocation to
     telecommunications carriers in a lawful manner.[^672] Before the
     merger closing date, Bell Atlantic and GTE will file a tariff or
     offer to amend interconnection agreements in each Bell Atlantic/GTE
     state where Bell Atlantic and/or GTE have not done so already to
     demonstrate compliance with the Commission's collocation
     rules.[^673] In addition, prior to the merger closing date, an
     independent auditor, approved by the Chief of the Common Carrier
     Bureau, will conduct a review and determine whether each company is
     offering collocation terms and conditions, and has in place methods
     and procedures, that comply with the Commission's rules.[^674] The
     Applicants' original proposal provided that the attestation report
     emanating from this audit would be filed within 180 days after the
     merger closing. In response to protest from several commenters,
     however,[^675] the Applicants revised their proposal such that the
     attestation report will be filed within 10 days after the merger
     closing.[^676]

297. After the merger closing, an independent auditor will develop and
     implement a comprehensive audit of the merged company's compliance
     with the Commission's collocation requirements for four full months
     after the closing.[^677] The audit requirements provide for
     Commission review of the audit program, which we expect will
     enhance the thoroughness and quality of the audit. The independent
     auditor will present its final audit report to the Commission, and
     publicly file a copy with the Secretary, no later than 210 days
     after filing of the methods and procedures audit attestation
     report.[^678] If the auditor's report reveals problems with Bell
     Atlantic/GTE's collocation practices and policies, we fully expect
     that Bell Atlantic/GTE will implement immediately any necessary
     corrective action. After reviewing the auditor's findings, the
     Commission may, of course, decide to take additional action as
     deemed necessary and appropriate. As an additional incentive for
     the merged firm to provide efficient collocation, Bell Atlantic/GTE
     will waive the nonrecurring charges for physical, virtual, adjacent
     and cageless collocation arrangements if the firm misses the
     collocation due date by more than 60 days.[^679]

298. Also in response to public comment on their original
     proposal,[^680] the Applicants agreed to undergo an independent
     audit of their compliance with our UNE and line sharing
     rules.[^681] These UNE and line sharing compliance audit provisions
     take virtually the same form as the collocation audit
     conditions.[^682] One difference, however, is that unlike in the
     collocation compliance plan, there is no separate audit of Bell
     Atlantic and GTE's UNE and line sharing methods and procedures
     compliance.[^683] In addition, the independent auditor will present
     its final UNE and line sharing audit report to the Commission, and
     publicly file a copy with the Secretary, no later than 180 days
     after the merger closing date, unlike the approximately 220 days
     after merger closing afforded for submission of the final
     collocation audit report. Likewise with this audit, we fully expect
     Bell Atlantic/GTE to implement immediately any necessary corrective
     action in response to adverse findings by the auditor or we may
     take any necessary and appropriate action. This additional audit of
     Bell Atlantic/GTE's compliance with our UNE and line sharing rules
     will be particularly beneficial in assessing Bell Atlantic/GTE's
     adherence to these important procompetitive requirements.

299. We find that this condition will make it quicker and easier for the
     Commission and others to detect non-compliance with our
     collocation, UNE, and line sharing rules both prior to and
     following the merger.[^684] To the extent that the audits uncover
     one or more violations of our rules, the Commission's audit staff
     will refer the matter to the Commission's Enforcement Bureau. These
     audits thus will assist this Commission and state commissions[^685]
     in reducing barriers to competitive provisioning of local voice and
     advanced services.

300. *Most-Favored Nation Arrangements*. This condition, designed to
     facilitate market entry throughout Bell Atlantic/GTE's region as
     well as the spread of best practices (as that term is understood by
     Bell Atlantic/GTE's competitors), has two components. First, where
     it is feasible given technical limitations, Bell Atlantic/GTE will
     offer telecommunications carriers operating within its service area
     any interconnection arrangement[^686] or UNE that Bell
     Atlantic/GTE, as a competitive LEC outside of its incumbent service
     area, secures from the incumbent LEC after the merger closing
     date,[^687] and that was not previously made available by the
     incumbent.[^688] Bell Atlantic/GTE will make the interconnection
     arrangement or network element available on the same terms and
     conditions as the incumbent, with prices and performance measures
     determined on a state-specific basis.

301. Second, where it is feasible given technical limitations, Bell
     Atlantic/GTE will make available to any requesting
     telecommunications carrier in any of its in-region states any
     interconnection arrangement or UNE in any other of its in-region
     states, that was negotiated voluntarily subsequent to the merger
     closing date by a Bell Atlantic/GTE incumbent LEC, subject to
     state-specific pricing and performance measures. In addition, Bell
     Atlantic/GTE will make the interconnection arrangements or UNEs
     available on the same terms and conditions as those in the
     underlying agreement, provided that the interconnection
     arrangements or UNEs will not be available beyond the last date
     that they are available in the underlying agreement, and that the
     requesting carrier accepts all reasonably related terms and
     conditions as determined in part by the nature of the corresponding
     compromises between the parties to the underlying agreement.[^689]
     When a carrier selects an interconnection arrangement or network
     element for an in-region state in which no rate for a comparable
     arrangement or element has been established, Bell Atlantic/GTE will
     make the arrangement or element available at the rates in the
     originating state on an interim basis until the requisite rates are
     developed. Disputes regarding the availability of an
     interconnection arrangement or unbundled element will be resolved
     through negotiation between the parties or by the relevant state
     commission pursuant to section 252.

302. The Applicants revised their original proposal to allow that the
     most-favored nation commitments encompass in-region arbitrated
     agreements, provisions, and UNEs.[^690] Specifically, where a
     competing carrier seeks to adopt in an in-region Bell Atlantic/GTE
     service area any agreements, provisions or UNEs that resulted from
     an arbitration arising from the Bell Atlantic/GTE service area in
     another in-region state after the merger closing date,[^691] either
     Bell Atlantic/GTE or the competing carrier may submit the
     arbitrated agreements, provisions, or UNEs to immediate arbitration
     in the "importing" state without waiting for the statutory
     negotiation period of 135 days to expire,[^692] where the
     "importing" state consents to conducting arbitration immediately.

303. This approach towards arbitrated agreements, provisions, and UNEs
     presents several potential advantages. First, it should remove any
     disincentive to negotiate that the bulk of the commenters fear
     would be caused by most-favored nation commitments that are limited
     to interconnection arrangements and UNEs that are negotiated
     voluntarily. Second, it will expedite the ability of competing
     carriers to resolve contested issues in "importing" states.[^693]
     Third, it addresses the concern that we expressed in the
     *SBC/Ameritech Order* that expanding the condition to encompass
     arbitrated arrangements without qualification could interfere with
     the state arbitration process under sections 251 and 252 of the
     Communications Act.[^694] We emphasize that Bell Atlantic/GTE must
     act in good faith in determining whether to agree voluntarily to
     the importation of such arbitrated agreements, provisions, or UNEs
     and whether to submit such arbitrated agreements, provisions, or
     UNEs to immediate arbitration in the "importing" state(s).[^695]
     Thus, Bell Atlantic/GTE may be subject to penalties, fines or
     forfeitures pursuant to general Commission authority if it
     attempted, in bad faith, to block or delay adoption in a Bell
     Atlantic/GTE state of any UNE, whole interconnection agreement, or
     interconnection agreement provisions arbitrated in any other Bell
     Atlantic/GTE state after the merger closing date.

304. We reject assertions by NEXTLINK and NorthPoint that the
     most-favored nation provisions should cover performance measures
     and standards.[^696] Because performance measures are determined by
     states individually outside of the merger context, we agree with
     the Applicants that performance measures should not be subject to
     the most-favored nation provisions, both out-of-region and
     in-region. As the Applicants explain, many states have adopted
     performance measures "that are unique to the regulatory environment
     in that state, including the particular systems, processes and
     service provisioning systems already implemented in that state. The
     performance measures that are integral to these systems will simply
     have no applicability in states with different systems."[^697]

305. We also reject the argument of several commenters that any
     in-region interconnection arrangement or UNE, regardless of whether
     it was made available prior or subsequent to the merger closing,
     should be obtainable by requesting carriers in any other in-region
     service area.[^698] Similar to our finding in the *SBC/Ameritech
     Order*,[^699] we find it reasonable for this condition to be
     implemented across the merged firm's combined region on a
     going-forward basis only. In this way, Bell Atlantic/GTE will be on
     notice as to which systems and procedures could become uniform
     across its region. Moreover, under the conditions to this merger,
     any voluntarily negotiated, in-region interconnection arrangement
     or UNE will be made available to requesting carriers in any other
     in-region service area of the particular legacy company whose
     interconnection arrangement or UNE is being extended. Thus, for
     example, interconnection agreement provisions voluntarily
     negotiated by Bell Atlantic's incumbent LEC in New York prior to
     the merger closing date will be made available to a requesting
     carrier seeking to compete in the Bell Atlantic/GTE service area in
     Maryland, which is a legacy Bell Atlantic service area.

306. *Multi-State Interconnection and/or Resale Agreements*. Negotiating
     a separate interconnection agreement between the same parties in
     multiple states can impose substantial unnecessary costs and delays
     on competitors and provides incumbent LECs with an incentive to
     game the process.[^700] As we discuss above, this merger will
     increase the merged firm's incentive and ability to impose
     unnecessary negotiation costs on its competitors. To neutralize
     this incentive, in addition to promoting market entry and assisting
     telecommunications carriers that want to operate in more than one
     Bell Atlantic/GTE state, Bell Atlantic/GTE will offer requesting
     telecommunications carriers an interconnection and/or resale
     agreement covering multiple Bell Atlantic and/or GTE states,[^701]
     subject to technical feasibility, state-specific pricing, and the
     provisions in applicable collective bargaining agreements.[^702]
     Bell Atlantic/GTE will make a sample generic multi-state agreement
     available to any requesting carrier no later than 60 days after the
     merger closing. Carriers may elect that generic agreement for any
     number of Bell Atlantic/GTE states, or may negotiate a different
     multi-state agreement with Bell Atlantic/GTE. In addition, in
     conjunction with the in-region most-favored nation conditions
     described above, carriers that negotiate an interconnection
     agreement with a Bell Atlantic/GTE incumbent LEC in one state may
     require Bell Atlantic/GTE to sign the same agreement (exclusive of
     price) throughout the Bell Atlantic/GTE region.[^703] We decline to
     require that Bell Atlantic/GTE file in each of its in-region states
     generic terms, such as a statement of generally available terms
     (SGAT),[^704] that include all procompetitive offerings required by
     the conditions.[^705] We find that such a requirement is
     unnecessary to achieve the procompetitive benefit of this condition
     and would pose unnecessary costs on Bell Atlantic/GTE.[^706]

307. *Carrier-to-Carrier Promotions*. Among the conditions that we
     adopted in approving the merger between SBC and Ameritech were
     unbundled loop discounts and resale discounts designed specifically
     to encourage rapid development of local competition in residential
     and less dense areas.[^707] Although the Applicants' original
     conditions proposal did not provide for any such carrier-to-carrier
     promotional discounts, in response to commenters' protests,[^708]
     the Applicants have added these promotions to their package of
     conditions. We find that these promotions offset the loss of
     potential competition between Bell Atlantic and GTE for residential
     services in their regions and facilitate market entry by
     competitors.

308. Bell Atlantic/GTE will offer these promotions equally to all
     telecommunications carriers with which it has an existing
     interconnection and/or resale agreement in a Bell Atlantic/GTE
     state. Within 30 days after the merger closing, Bell Atlantic/GTE
     will provide each such telecommunications carrier a written offer
     to amend the carrier's interconnection agreement in that state to
     incorporate the promotions. The actual offering window for both
     promotions will begin 30 days after the merger closing date. For
     the unbundled loop discount, the offering window will run through
     the earliest of: (a) 24 months; (b) for the Bell Atlantic legacy
     service areas, the date on which Bell Atlantic/GTE is authorized to
     provide in-region, interLATA services in the relevant state; (c)
     for the GTE legacy service areas, the date on which competing
     carriers, in aggregate, offer service over their own facilities to
     at least 15 percent of incumbent LEC customer locations in the GTE
     legacy service areas in that state;[^709] or (d) the date on which
     Bell Atlantic/GTE has completed 50 percent of the out-of-territory
     competitive entry commitments in the conditions.[^710] For the
     resale discount, the offering window will run through the earlier
     of 36 months, or one month after the date on which the number of
     resold lines subject to the promotion in a state reaches the
     maximum allowable for the relevant state under the conditions.
     Notwithstanding these offering windows, the conditions specify the
     maximum number of lines per state for which Bell Atlantic/GTE must
     provide the promotions.[^711] Furthermore, each promotion will last
     36 months from the date that the promotional loop or resold service
     is installed and operational, or for the duration of the period
     during which the loop or resold service remains in service at the
     same location and for the same carrier, whichever is shorter.

309. *Carrier-to-Carrier Promotions*: *Unbundled Loop Discounts*. Bell
     Atlantic/GTE will offer a promotional discount on the monthly
     recurring charges[^712] for unbundled local loops used in the
     provision of residential local service and not used as part of a
     UNE platform or in any other combination with Bell Atlantic/GTE's
     local switching. The promotional discounts (as well as illustrative
     rates) are set forth in the conditions and are, on average within
     each state, 25 percent below the lowest applicable monthly
     recurring price established by the state commission. Bell
     Atlantic/GTE will make the promotional loop discount available
     equally to all telecommunications carriers that request the
     discount prior to expiration of the offering window or satisfaction
     of the line threshold limitation, and the promotion will last 36
     months for each loop requested in that period, or for the duration
     of the period during which the loop remains in service at the same
     location and for the same carrier, whichever is shorter.

310. *Carrier-to-Carrier Promotions*: *Resale Discounts*. As another
     means of encouraging residential competition in less dense areas,
     Bell Atlantic/GTE will offer a promotional resale discount on Bell
     Atlantic/GTE's retail telecommunications services, where such
     services are resold to residential customers. The promotional
     resale discount shall be 32 percent from retail rates for an
     initial period, and, for the remaining period of the promotion, a
     rate equal to 1.1 times the standard wholesale discount rate
     established for that service by the state commission (*i.e.*, a
     discount of ten percent more than the standard wholesale discount
     rate). Bell Atlantic/GTE will make the promotional resale discount
     available equally to all telecommunications carriers that request
     the discount prior to expiration of the offering window or
     satisfaction of the line threshold limitation, and the promotion
     will last 36 months from the date each resold service is installed
     and operational, or for the duration of the period during which the
     resold service remains in service at the same location and for the
     same carrier, whichever is shorter.

311. We decline to increase the resale discount.[^713] As we found in
     the *SBC/Ameritech Order*, the 32 percent discount should
     facilitate competitive entry in the residential market.[^714] We
     also do not find it necessary at this juncture to take any
     affirmative steps to "ensure that \[Bell Atlantic/GTE\] does not
     attempt to offset the loss in revenue resulting from . . . \[the\]
     residential resale discount by increasing other charges."[^715] Any
     potential for such attempts does not undermine the public benefit
     of this condition, and we expect that state commissions will catch
     and suppress any such attempts in the course of their review of
     Bell Atlantic/GTE's cost studies.

312. We reject commenters' suggestions that we eliminate the
     restrictions on the availability of the carrier-to-carrier
     promotions. For example, commenters seek removal of the limitation
     that competitors receiving the promotional unbundled loop discount
     can only use these loops for voice services,[^716] as well as the
     residential restriction and line limitation contained in both of
     the promotions.[^717] Our desire to promote residential competition
     is consistent with Congress's intent, through enacting the 1996
     Act, to spur facilities-based competition to serve residential
     customers.[^718] Moreover, we find that the promotions' limited
     duration and line limitations will motivate competing carriers to
     enter the residential market faster to secure the benefit of the
     promotions, thereby accelerating the availability of competitive
     offerings to residential consumers.[^719] Once a carrier secures
     the promotion, however, it is guaranteed the promotional terms for
     a full three-year period. Because our intent is for these
     promotions to ignite competition in the residential local exchange
     or exchange access markets in Bell Atlantic's and GTE's regions, we
     decline to expand this particular condition to cover loops used in
     the provision of advanced services.[^720] Indeed, we note that
     competitors that choose to use an unbundled loop to provide
     advanced services already receive a 25 percent discount elsewhere
     in the conditions, through the advanced services OSS
     discount.[^721]

313. We also reject AT&T's arguments that the carrier-to-carrier
     promotions are discriminatory and therefore unlawful.[^722] First,
     based on the manner in which Bell Atlantic/GTE will execute its
     obligations, we do not find that the residential and voice service
     restrictions transgress the Act or corresponding Commission
     rules.[^723] Specifically, Bell Atlantic/GTE will implement the
     promotions by voluntarily offering to amend its interconnection
     agreements with telecommunications carriers to incorporate the
     promotional terms.[^724] Moreover, Bell Atlantic/GTE will make this
     offer in a nondiscriminatory manner to all telecommunications
     carriers with which it has an interconnection and/or resale
     agreement in any Bell Atlantic/GTE state.

314. The 1996 Act and corresponding Commission rules give incumbent LECs
     and their competitors certain latitude to enter into customized
     contractual arrangements, subject to section 252(i)'s requirement
     that any negotiated arrangement must be made available to all
     interested carriers in the same state upon the same terms and
     conditions.[^725] Section 252(a)(1) provides that "an incumbent
     local exchange carrier may negotiate and enter into a binding
     agreement with the requesting telecommunications carrier or
     carriers without regard to the standards set forth in
     subsections (b) and (c) of section 251."[^726] Likewise, although
     section 252(e)(2)(B) requires a finding of compliance with section
     251 when state commissions review arbitrated agreements, there is
     no corresponding requirement with respect to negotiated
     agreements.[^727] We note, however, that as AT&T points out,
     pursuant to section 252(e)(2)(A)(i), a state commission may reject
     a negotiated agreement if it finds that the agreement
     "discriminates against a telecommunications carrier not a party to
     the agreement."[^728] Thus, the commission in each state in which
     Bell Atlantic/GTE will offer the promotions must make its own
     assessment of whether the promotions are discriminatory.

315. AT&T also contends[^729] that the line limitation on the number of
     discounted loops and resale offerings that will be made available
     to competitive LECs would violate the "pick and choose" rule of
     section 252(i), as well as the nondiscrimination requirements of
     section 251(c)(3) and 252(d)(1).[^730] We note that, under the
     specific terms of the merger conditions, these promotions are being
     offered to competitors in a nondiscriminatory fashion.
     Specifically, in each of its states, Bell Atlantic/GTE will offer
     the promotion simultaneously to all telecommunications carriers
     that have an existing interconnection and/or resale agreement with
     Bell Atlantic and/or GTE. This should ensure that all competitive
     LECs operating in Bell Atlantic/GTE's region will be afforded an
     equal opportunity to participate in the promotions. Moreover,
     carriers that begin operating in Bell Atlantic/GTE's region, or
     decide to participate in the promotions, after this initial offer
     period will have the opportunity to participate in the offerings,
     and Bell Atlantic/GTE will respond to inquiries by all carriers
     within 10 business days. Finally, Bell Atlantic/GTE will notify all
     carriers operating in the state when 50 percent and 80 percent of
     the maximum lines in that state are reached.

316. *Offering of UNEs*. In order to reduce uncertainty to competing
     carriers from litigation that may arise in response to our orders
     in the UNE Remand and Line Sharing proceedings, from now until the
     date on which the Commission's orders in those proceedings, and any
     subsequent proceedings, become final and non-appealable, Bell
     Atlantic and GTE will continue to make available to
     telecommunications carriers, in accordance with those orders, each
     UNE and combination of UNEs that is required under those orders,
     until the date of any final and non-appealable judicial decision
     that determines that Bell Atlantic/GTE is not required to provide
     the UNE or combination of UNEs in all or a portion of its operating
     territory. This condition only would have practical effect in the
     event that our rules adopted in the UNE Remand and Line Sharing
     proceedings are stayed or vacated. Compliance with this condition
     includes pricing these UNEs at cost-based rates in accordance with
     the forward looking cost methodology first articulated by the
     Commission in the *Local Competition Order*, until the date of any
     final and non-appealable judicial decision that determines that
     Bell Atlantic/GTE is not required to provide such UNEs at
     cost-based rates.

317. *Alternative Dispute Resolution Through Mediation*. As a means of
     streamlining and expediting resolution of carrier-to-carrier
     disputes, Bell Atlantic/GTE will offer telecommunications carriers,
     subject to the appropriate state commission's approval, an option
     of resolving interconnection agreement disputes through an
     alternative dispute resolution mediation process that may be
     state-supervised. This mediation process supplements, rather than
     supersedes, any other options at the carrier's disposal for
     addressing interconnection disputes with Bell Atlantic or GTE,
     including negotiated dispute resolution mechanisms. We note that no
     state or competitive LEC is required to adopt or participate in
     this process.[^731] Furthermore, nothing in this condition in any
     way limits the ability of carriers to pursue enforcement remedies,
     including informal mediation, at the Commission pursuant to section
     208.[^732]

318. *Access to Cabling in Multi-Unit Properties*. In order to provide
     information regarding possible options for additional competition
     in the provision of local service to multi-unit properties, Bell
     Atlantic/GTE will conduct a trial that will provide
     telecommunications carriers with access at a single point of
     interconnection to cabling owned or controlled by Bell Atlantic/GTE
     in multi-tenant residential and business properties.[^733] As a
     separate commitment, Bell Atlantic/GTE will design, install and
     provide all new cabling owned or controlled by Bell Atlantic/GTE in
     a manner so that it can be accessed by any telecommunications
     carrier at a single point of interconnection, located at the
     minimum point of entry.[^734] We decline to implement Covad's
     suggestion that Bell Atlantic/GTE implement a trial scheme
     identical to the one that we adopted in approving the merger
     between SBC and Ameritech.[^735] The Applicants represent that Bell
     Atlantic initiated a trial earlier this year in New York City
     allowing a competitive LEC to install cross-connects to house and
     riser cable, and that it has an existing tariffed service in New
     York and a tariff pending in Massachusetts that give competitive
     LECs access to such cabling.[^736] Moreover, as specified by the
     condition,[^737] Bell Atlantic/GTE will take the needed steps
     elsewhere to expand access at single points of interconnection to
     cabling owned or controlled by Bell Atlantic/GTE in multi-tenant
     residential and business properties.[^738] We believe that the
     Applicants' commitment to provide carriers with access to incumbent
     LEC owned or controlled cabling behind a single point of
     interconnection for multi-unit properties and campuses of garden
     apartment dwellings will further significantly competitors' access
     to cabling.[^739] We also note that, in addition to these
     conditions, Bell Atlantic/GTE must comply with the rules that we
     adopted in the *UNE Remand Order* regarding competitive LEC access
     to cabling at a single point of interconnection, located at the
     minimum point of entry.[^740]

### Fostering Out-of-Territory Competition

319. *Out-of-Territory Competitive Entry*. As a condition of this
     merger, between the merger closing date and the end of the 36th
     month thereafter, the combined firm will spend at least \$500
     million to provide competitive local service and associated
     services outside of the Bell Atlantic and GTE legacy service areas.
     Specifically, "competitive local service" is defined to include
     traditional local telecommunications services that compete with
     like services offered by incumbent LECs, provision of advanced
     services to the mass market, and resale. Additional expenditures
     that otherwise may count towards fulfillment of the out-of-region
     commitment include those devoted towards provision of "other
     telecommunications services" or information services that are
     offered jointly with competitive local service, as well as
     investments in, or contributions to, ventures that provide
     competitive local service activity in out-of-region markets. Bell
     Atlantic/GTE must devote at least 50 percent of the out-of-region
     expenditure commitment to facilities-based competitive service, and
     it may allot the remaining portion to acquire customers for
     competitive local service in those out-of-region markets.
     Notwithstanding the expenditures, the merged firm will be deemed to
     have satisfied the out-of-region commitment if it provides service,
     during the 36-month period described above, over at least 250,000
     customer lines that are used to provide competitive local service
     in out-of-region markets.[^741]

320. Bell Atlantic/GTE will be subject to voluntary payments to the U.S.
     Treasury in the amount of 150 percent of any shortfall in its
     out-of-region expenditure. Similarly, the merged entity will pay
     150 percent of any amount by which it falls short of devoting \$250
     million to facilities-based service, though this payment for
     inadequate facilities-based service expenditures will be offset by
     half of the amount of any payment for a general shortfall in its
     out-of-region expenditure. Bell Atlantic/GTE would therefore be
     obligated to pay \$750 million for missing all of its out-of-region
     entry requirements. In addition, the Applicants have committed to
     annual benchmarks under which they must, pursuant to this
     condition, spend \$100 million or provide service over at least
     50,000 customer lines between the merger closing date and the end
     of the first year thereafter, and spend \$300 million or provide
     service over at least 150,000 customer lines by the end of the
     second year. Furthermore, the Applicants have undertaken to devote
     at least 20 percent of their expenditures or customer lines
     specifically towards providing competitive local service to
     residential customers or towards providing advanced services. These
     benchmarks likewise are backed by voluntary payments in the amount
     of 150 percent of any shortfall, and these benchmark voluntary
     payments will offset any payments that the merged firm is obligated
     to make for not completing its out-of-region expenditure by the end
     of the 36 month period following the merger closing.

321. Notwithstanding the differences between the Applicants'
     out-of-region competition commitment and SBC/Ameritech's
     "National-Local Strategy" for out-of-territory competitive
     entry,[^742] we disagree with AT&T's characterization of the
     Applicants' commitment as a "sham."[^743] We believe that the
     Applicants' out-of-region competition commitment is sufficient to
     ensure that residential consumers and business customers outside of
     Bell Atlantic/GTE's territory will benefit from meaningful,
     facilities-based competitive service.[^744] We also anticipate that
     this condition will stimulate competitive entry into the Bell
     Atlantic/GTE region by the affected incumbent LECs. Moreover, the
     Applicants have proposed annual expenditure benchmarks that are
     backed by payments to the U.S. Treasury for failure to meet the
     benchmarks. Although the Indiana commission maintains that it will
     be difficult to ensure compliance with the expenditure
     requirements, [^745] we are confident that the annual audit of Bell
     Atlantic/GTE's compliance with all of the conditions should uncover
     any non-compliance with the out-of-region expenditure
     commitment.[^746]

322. In addition, we agree with the Applicants that we need not
     implement the Indiana Commission's prescription that at least half
     of the out-of-region expenditure commitment should be used for
     "local" service.[^747] Assuming, as the Applicants do, that by
     "local" the Indiana Commission means traditional voice services, we
     do not perceive the need to impose such a restriction.[^748]
     Indeed, section 706 of the 1996 Act mandates that the Commission
     encourage widespread deployment of advanced services
     nationwide,[^749] and the Applicants include advanced services
     among the services that the merged firm may deploy in attempting to
     satisfy the out-of-region competition commitment.

323. Similarly, we disagree with AT&T's contention that the "technology
     neutral" aspect of the out-of-region commitment undermines its
     benefit.[^750] As the Applicants explain, given the rapid pace of
     technological change, they expressly fashioned the commitment to be
     technology neutral in order to allow devotion of resources to
     evolving technologies.[^751] Indeed, imposing additional
     restrictions could severely limit the Applicants' ability to
     undertake innovative business strategies or ventures with other
     firms. Finally, AT&T's concern that the Applicants may satisfy this
     commitment wholly by "implementing their existing pre-merger plans
     to offer out-of-region wireless services" is defeated by our
     clarification that commercial mobile radio services may not count
     towards satisfaction of the commitment.[^752]

### Improving Residential Phone Service

324. *Pricing of InterLATA Services*. As a direct benefit to consumers,
     particularly low-income consumers and low-volume long distance
     callers, this condition provides that Bell Atlantic/GTE will not
     charge residential customers a minimum monthly or minimum flat rate
     charge for long distance service for a period of not less than
     three years.[^753] This requirement should not only benefit those
     customers that make few long distance calls, but also should help
     to ensure that long distance services continue to be available to
     all consumers at competitive prices.[^754]

325. *Enhanced Lifeline Plans*. Designed specifically to ensure that the
     benefits of the merger extend to low-income residential customers
     throughout all of Bell Atlantic's and GTE's regions, this condition
     requires the merged firm to offer each of its in-region states a
     plan to provide discounts on basic local service for eligible
     customers.[^755] Bell Atlantic/GTE will offer a low-income Lifeline
     universal service plan modeled after the Ohio Universal Service
     Assistance (USA) Lifeline plan that Ameritech and Ohio community
     groups negotiated in 1994 and later revised to adjust to the 1996
     Act. It also will incorporate elements from the December 1998 Ohio
     Commission Order addressing the Ohio USA plan.[^756] Specifically,
     Bell Atlantic/GTE will offer to provide a discount equal to the
     price of basic residential measured rate service, excluding local
     usage, in each state, up to a maximum discount of \$10.20 per month
     (including all federal, state and company contributions).

326. This condition not only applies to the subscriber eligibility,
     discounts and eligible services features of the Ohio USA Lifeline
     plan, but it also includes certain other commitments. Under the
     condition, Bell Atlantic/GTE will permit a Lifeline customer with
     past-due bills for local service to restore local service after
     payment of no more than \$25 and an agreement to repay the balance
     of local charges in six equal monthly payments. Lifeline customers
     also will not be required to pay a deposit for toll service if they
     elect toll restriction service. Bell Atlantic/GTE will allow
     prospective Lifeline customers to verify their eligibility on a
     written form, and Bell Atlantic/GTE will give those forms to state
     agencies that administer qualifying programs so that the agencies
     can distribute the forms to their clients.[^757] Bell Atlantic/GTE
     also will negotiate with state agencies administering qualifying
     programs to procure an on-line verification process. Easing the
     financial burden for prospective Lifeline customers, Bell
     Atlantic/GTE will provide both a toll-free telephone number for
     prospective customers to inquire about or subscribe to the program
     and a toll-free fax line for customers to send program
     documentation, and new customers will not be required to pay a
     deposit to obtain local service. Bell Atlantic/GTE will publicize
     the program in each state with an annual promotional budget that is
     proportional to the annual promotional budget in Ohio. In addition
     to including Lifeline information on customer service center voice
     response units where technically possible and appropriate, Bell
     Atlantic/GTE also will automatically upgrade current Lifeline
     customers to the new program where it is evident that doing so will
     unambiguously improve the customer's situation. For each state that
     accepts Bell Atlantic/GTE's offer, the merged firm will maintain
     the plan for a period of not less than 36 months.[^758]

327. We reject the request of the State Advocates that we expand
     subscriber eligibility criteria to include all households with
     income below 150 percent of the federal poverty level, and that we
     remove restrictions on the purchase of optional services.[^759] As
     the Applicants respond, states will continue to have the right to
     establish eligibility requirements for lifeline service as well as
     determine whether lifeline customers are eligible to subscribe to
     optional services.[^760] As for the subscriber eligibility
     requirements themselves, our rules establish eligibility criteria
     for states that have not established their own, and the eligibility
     criteria in our rules fall within the criteria in the Ohio USA
     Lifeline plan.[^761] Furthermore, we believe that the eligibility
     criteria alternative presented by the State Advocates will be
     difficult to verify. We find that the Applicants' commitment to
     offer states an enhanced Lifeline plan will provide substantial
     direct benefits to low-income residential consumers, and thus, we
     see no need to add further requirements to the condition.[^762]

328. *Additional Service Quality Reporting*. As a safeguard against
     potential deterioration in Bell Atlantic's or GTE's quality of
     service as a result of the merger, and to promote affirmative
     service quality improvements, this condition requires Bell
     Atlantic/GTE to report additional benchmark and service-quality
     information.[^763] First, Bell Atlantic/GTE will report, on a
     quarterly basis, the quality of service that it provides to
     customers. Specifically, Bell Atlantic/GTE will develop and file
     with this Commission, and post on a Bell Atlantic/GTE website or
     provide to the relevant state commissions, quarterly state-by-state
     service quality reports in accordance with the National Association
     of Regulatory Utility Commissioners (NARUC) Technology Policy
     Subgroup's November 1998 "Service Quality White Paper."[^764]
     Through this reporting program, Bell Atlantic/GTE will make
     publicly available in a timely manner key information about its
     service quality, including installation and repair performance,
     switch and transmission facility outages, consumer complaints, and
     answer time performance.[^765] We anticipate that, by providing
     consumers and states with information about Bell Atlantic/GTE's
     service quality, this condition will, at a minimum, deter any
     potential service quality degradation and motivate the merged firm
     to improve its service quality where possible.[^766]

329. Bell Atlantic/GTE will also file reports showing the service
     quality provided to interexchange carriers, which will include data
     regarding the installation and maintenance of switched, high speed
     special, and special access services.[^767] By receiving such
     information on a quarterly basis, the Commission and others can
     take appropriate action in the event such reports show service
     quality degradation.[^768] Bell Atlantic/GTE also will continue
     reporting ARMIS data on an operating-company basis in order to
     preserve the number of observable points of operating-company
     behavior for benchmarking purposes.[^769]

330. In addition, as described above, we require the merged entity to
     report, on a disaggregated, company-specific basis[^770][^771]
     certain measurements, all but one of which it currently provides as
     part of the Commission's ARMIS requirements[^772][^773] With
     respect to its provision of high-speed special access and regular
     special access services, we require Bell Atlantic/GTE, or any
     applicable affiliate[^774][^775] to report: the percent of
     commitments met; the average interval (in days); the average delay
     days due to lack of facilities[^776][^777] the average interval to
     repair service (in hours) and the trouble report rate. These
     measurements should be reported on a monthly basis and made
     available to the independent auditor[^778][^779] It is our
     expectation that this condition will ensure that any attempt by the
     merged entity to discriminate in favor of Genuity in the provision
     of these special access services will be readily detectable.

331. *NRIC Participation*. Through this condition, we expect that Bell
     Atlantic/GTE will demonstrate and further its commitment to
     maintain reliable, high-quality networks and services, as well as
     to promote the deployment of advanced services. The Applicants will
     continue their participation in the Network Reliability and
     Interoperability Council (NRIC), a committee organized to make
     recommendations to the Commission on how to ensure "optimal
     reliability, interoperability and interconnectivity of, and
     accessibility to, the public telecommunications networks," and also
     to advise the Commission on spectrum compatibility standards and
     spectrum management practices for the deployment of advanced
     services technologies."[^780] Bell Atlantic/GTE's continued
     participation will provide assurance that the merged firm will
     review the causes of network outages and advise on spectrum
     compatibility standards and spectrum management practices in a
     timely manner, and adopt industry best practices designed to
     promote reliable, high quality services.

### Ensuring Compliance with and Enforcement of these Conditions

332. The Commission is firmly committed to enforcing the Communications
     Act and the public interest standard that forms its foundation.
     Attaching conditions to a merger without an efficient and judicious
     enforcement program would impair the Commission's ability to
     protect the public interest.[^781] The conditions therefore
     establish compliance and enforcement mechanisms that not only will
     provide Bell Atlantic/GTE with a strong incentive to comply with
     each of its requirements, but also will facilitate the Commission's
     oversight of the Applicants' obligations under these conditions. As
     a general matter, the conditions place the responsibility of taking
     active steps to ensure compliance on Bell Atlantic/GTE by: (1)
     establishing a self-executing compliance mechanism; (2) requiring
     an independent audit of the Applicants' compliance with the
     conditions; and (3) providing self-executing remedies for failure
     to perform an obligation.

333. *Compliance Program*. For the benefits of the conditions to
     outweigh the potential public interest harms of the merger, Bell
     Atlantic/GTE must take aggressive steps to implement every aspect
     of these conditions and to comply with both the letter and the
     spirit of its obligations. In our view, the benefits of these
     conditions depend entirely upon the Applicants' compliance. Because
     the conditions that we adopt today are spelled out in detail with
     their satisfaction measured by objective criteria, and because
     failing to comply with the conditions could expose Bell
     Atlantic/GTE to a material loss of revenue, we believe that Bell
     Atlantic/GTE has a strong incentive to implement an aggressive and
     effective compliance program.[^782]

334. As part of the conditions, Bell Atlantic and GTE will establish a
     corporate compliance program to identify all applicable compliance
     requirements, establish and maintain the internal controls needed
     to ensure compliance, evaluate the merged firm's compliance on an
     on-going basis, and take any corrective actions necessary to ensure
     full and timely compliance.[^783] Bell Atlantic/GTE will appoint a
     "Compliance Officer" with sufficient rank and experience to
     supervise its corporate operations and to ensure that the business
     units carry out their responsibilities under the conditions.[^784]
     This Compliance Officer will prepare and publicly file with the
     Commission an initial compliance plan and an annual compliance
     report addressing the corporation's compliance with the conditions
     and the sufficiency of the corporation's internal controls for
     ensuring continued compliance.[^785]

335. We expect that Bell Atlantic and GTE will put into place a
     reasonably designed, implemented, and self-enforced compliance
     program that will detect potential noncompliance in time for Bell
     Atlantic/GTE to notify the Commission and take corrective action
     before such noncompliance impairs the benefits of these conditions.
     To provide additional assurances to the public regarding Bell
     Atlantic/GTE's compliance, however, the Commission plans to conduct
     targeted audits of various aspects of the Applicants' compliance
     programs.[^786] Only a strong corporate compliance program, in
     conjunction with the independent audit and other enforcement
     mechanisms, will enable consumers to realize the full benefit of
     the conditions.

336. *Independent Auditor*. Because the public interest benefit of these
     conditions depends entirely upon Bell Atlantic/GTE's compliance,
     the conditions also establish an independent oversight program.
     Bell Atlantic and GTE will retain an independent auditor to conduct
     an annual audit to provide a thorough and systematic evaluation of
     Bell Atlantic/GTE's compliance with the conditions and the
     sufficiency of Bell Atlantic/GTE's internal controls.[^787] We have
     ample experience using independent audits to supplement our usual
     investigative authority,[^788] and have extensive experience with
     this method for ensuring compliance with our rules. Independent
     audits, combined with targeted on-site audits conducted by
     Commission staff and thorough reviews of the auditor's working
     papers, have proven largely successful in ensuring compliance with
     the Commission's rules.[^789]

337. Although the independent audit will provide a systematic means of
     evaluating Bell Atlantic/GTE's compliance, we are aware of inherent
     limitations in the audit process.[^790] Most notably, an
     independent audit does not guarantee discovery of noncompliance or
     illegal acts.[^791] Accordingly, an auditor's report that fails to
     note any exceptions does not preclude potential enforcement
     action.[^792]

338. Acting pursuant to its delegated authority, the Common Carrier
     Bureau will approve the independent auditor and oversee the conduct
     of the independent audit, which will include reviewing the scope
     and quality of the auditor's work.[^793] The independent auditor's
     final report, which will be publicly available, will contain
     sufficient detail for the Commission and the public to understand
     the extent of the auditor's testing and evaluation procedures. In
     addition, the findings in the auditor's report, or the review of
     the auditor's working papers, could form the basis of enforcement
     actions.[^794] Bell Atlantic/GTE and the independent auditor also
     will meet for a post-audit conference to assess the conduct of the
     audit and the need for any modifications to the audit program.
     Based on these requirements, we find that the conditions provide
     for effective Commission oversight of the audit process and a
     mechanism for revising the audit programs and procedures based on
     our experience over time.[^795]

339. In addition to examining compliance with the market-opening
     conditions described in this section, the Applicants' proposal also
     calls for the independent auditor to examine their Internet
     spin-off proposal. In particular, the auditor will examine Bell
     Atlantic/GTE's implementation of the Internet spin-off proposal, as
     well as their post-merger dealings with the spin-off entity,
     Genuity.[^796] In this way, the Applicants' proposal ensures that
     the Commission and the public receive reasonable assurances that
     the spin-off will occur in strict accordance with the terms
     specified herein, and that the merged entity will not engage in any
     post-merger misconduct that could undermine our conclusions in this
     order.

340. The independent auditor will conduct its examination in accordance
     with the standards of the American Institute of Certified Public
     Accountants ("AICPA").[^797] Specifically, the independent auditor
     will conduct a "compliance attestation,"[^798] which requires
     issuing a report that "expresses a conclusion about the reliability
     of a written assertion that is the responsibility of another
     party."[^799] For most conditions, the independent auditor will
     conduct this examination using the "examination engagement"[^800]
     method to evaluate Bell Atlantic/GTE's compliance, and to issue a
     "positive opinion" (with exceptions noted) in its final report. The
     conditions, however, require the more thorough "agreed-upon
     procedures" engagement[^801] to evaluate Bell Atlantic/GTE's
     compliance with the separate advanced services affiliate
     requirements. In this way, the conditions emulate the Federal-State
     joint audit required by section 272(d).[^802]

341. The independent audit requirement establishes an efficient and
     cost-effective mechanism for providing reasonable assurances of
     Bell Atlantic/GTE's compliance with its obligations under the
     conditions.[^803] Bell Atlantic/GTE is required to inform the
     auditor of its progress at meeting the specific deadlines and
     requirements set forth in the conditions, which will enable the
     independent auditor to detect potential noncompliance in a timely
     manner. Pursuant to its obligations as the designated auditor, the
     independent auditor will notify the Commission immediately of the
     problem areas and any corrective action undertaken.[^804] By
     requiring Bell Atlantic and GTE to pay for the audit, the
     conditions place the costs of compliance on the Applicants instead
     of their competitors or taxpayers. We note that, pursuant to our
     regulatory fee schedule, Bell Atlantic/GTE will reimburse the U.S.
     Treasury for any review and audit work performed by the Commission
     staff.[^805]

342. We recognize that the state commissions have valuable insight into
     on-going issues and problems in the telecommunications
     industry,[^806] and we stress that the Commission will work closely
     with the state commissions regarding Bell Atlantic/GTE's compliance
     with these conditions. Pursuant to long-standing delegated
     authority, we expect the Common Carrier Bureau to cooperate with
     state commissions by coordinating compliance and enforcement
     activities and sharing information gathered in the course of
     audits.[^807] Moreover, we note that, under the conditions, Bell
     Atlantic/GTE will ensure that the independent auditor provides
     access to its working papers to state commissions, thereby ensuring
     that state commissions can perform their own reviews of the audit
     work concerning the conditions.

343. *Voluntary Payment Obligations*. For many of the conditions, the
     Applicants proposed a voluntary incentive payment structure, which
     could expose Bell Atlantic/GTE to significant financial liability,
     if the merged firm fails to satisfy an obligation in a timely
     manner. For example, as described above, under its out-of-region
     competition commitment, Bell Atlantic/GTE will make voluntary
     incentive payments, valued at a maximum of \$750 million, for
     missing the targets specified in the condition. In addition, Bell
     Atlantic/GTE will incur similar voluntary payment obligations for
     failing to provide service to competitive LECs that meets the
     standards of the Carrier-to-Carrier Performance Plan (up to a total
     of \$1.64 billion over three years, with an offset for early OSS
     deployment), and for failing to meet the deployment schedule for
     its OSS enhancements (up to a total of \$20 million). We expect
     that the size and scope of these potential voluntary payments will
     provide a strong incentive for Bell Atlantic/GTE to ensure that it
     fully complies with both the letter and the spirit of the
     conditions.[^808] The conditions recognize that Bell Atlantic/GTE
     is strictly liable for making any and all payments arising out of
     its nonperformance.[^809] Moreover, failing either to satisfy the
     underlying obligation or to make timely voluntary payments will
     subject the Applicants to potential liability in the same way Bell
     Atlantic/GTE would be liable for violating any other Commission
     order, rule, or regulation.

344. We expect that Bell Atlantic/GTE will take all necessary measures,
     such as amending tariffs and interconnection agreements, to give
     the conditions their full legal effect in a timely manner. Although
     we note that the Commission may grant an extension of time for a
     requirement under the conditions, Bell Atlantic/GTE bears a heavy
     burden of demonstrating good cause.[^810] We expect that this heavy
     burden of persuasion, coupled with the compliance mechanisms and
     significant financial exposure, will ensure that the public enjoys
     the full benefits of these conditions in a timely manner. We also
     expect that the self-executing remedial measures, such as Bell
     Atlantic/GTE's voluntary incentive payment obligations, will limit
     any delay arising from extensive litigation arising from potential
     violations.

345. *Other Mechanisms*. We emphasize that the enforcement and
     compliance programs established in these conditions in no way
     supersede or replace the Commission's enforcement and investigative
     powers, but merely supplement our usual processes. The Commission
     may, at its discretion and subject to its normal procedures, take
     additional enforcement action against Bell Atlantic/GTE for failing
     to comply with any provision of this Order, including extending the
     sunset provisions, imposing fines and forfeitures,[^811] issuing
     cease-and-desist orders, modifying the conditions,[^812] awarding
     damages,[^813] or requiring appropriate remedial action. In
     addition, members of the public may pursue a claim in accordance
     with either section 207 or section 208 of the Act.[^814] We do not
     expect that any enforcement penalties or compliance mechanisms will
     become merely an acceptable cost of doing business, and we note
     that the conditions require all such costs to be excluded from Bell
     Atlantic/GTE's rates. In this way, the enforcement plan rightly
     ensures that consumers will not be forced to bear the costs of Bell
     Atlantic/GTE's mistakes.

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

347. *Effect of The Conditions*. As discussed above, these conditions
     are intended to be a floor and not a ceiling.[^815] The Applicants
     must abide by state rules, even though the rules may touch on
     identical subjects, unless the merged entity would violate one of
     these conditions by following the state rule. The conditions are
     also not intended to limit the authority or jurisdiction of state
     commissions to impose or enforce additional requirements stemming
     from a state's review of the proposed merger.[^816] To the extent
     that a requirement in these conditions duplicates a requirement
     imposed by a state such that these conditions and state conditions
     grant parties similar rights against Bell Atlantic/GTE, the
     affected parties must elect either to receive the benefit under
     either these conditions or state law. For example, Bell
     Atlantic/GTE will not be required to provide two promotional loop
     discounts simultaneously for the same loop. If, on the other hand,
     Bell Atlantic/GTE fails to meet a stated performance standard under
     the Carrier-to-Carrier Performance Plan for a measurement that is
     replicated in a state performance plan, Bell Atlantic/GTE would
     face repercussion under both plans.

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

## Benefits of Conditions

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

### Mitigating Harm from Loss of Potential Competition

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

351. We find that, while not substituting fully for the loss of direct
     competition between Bell Atlantic and GTE, the conditions we adopt
     will significantly mitigate any potential public interest harms.
     After the merger, these conditions require the merged firm to open
     its markets to others while at the same time entering markets
     outside of its region. Specifically, the conditions require the
     merged Bell Atlantic/GTE to spend at least \$500 million and/or
     provide service over at least 250,000 lines as a competitive LEC,
     offering voice and/or advanced services, in out-of-region markets
     starting at the merger's closing at completing the commitment
     within 36 months thereafter. These conditions are punctuated by
     annual milestones during the commitment period, under which Bell
     Atlantic/GTE must achieve at least 20 percent of each milestone
     through providing service to residential customers or providing
     advanced services. Furthermore, the Applicants have agreed to
     voluntary incentive payments totaling 150 percent of any shortfall
     in their expenditures under these conditions. Thus, the merged firm
     will face notable economic repercussion if it fails to achieve a
     certain level of entry into out-of-region residential and/or
     advanced services markets according to a specified implementation
     schedule. These benefits to some extent counterbalance the loss of
     direct competition between Bell Atlantic and GTE, particularly if
     the outcome of Bell Atlantic/GTE's implementation of the conditions
     is faster retaliation within its home region by the incumbent LECs
     whose home territories the merged firm invades.[^817]

352. Further, by reducing the risk and costs associated with entry into
     Bell Atlantic and GTE territories, particularly with respect to
     residential and advanced services markets, other conditions
     stimulate entry into these markets, thereby offsetting the loss of
     potential competition between the Applicants resulting from the
     merger. Several conditions lower the entry barriers in the Bell
     Atlantic and GTE regions, especially for residential competition.
     For example, we anticipate that the carrier-to-carrier promotions
     for residential service will spur other entities to enter these
     markets and establish a presence in residential markets that can be
     sustained after expiration of the promotional discounts.[^818] In
     addition, Bell Atlantic/GTE's most-favored nation obligations,
     which cover certain arrangements that the company obtains as a
     competitive LEC outside its region as well as arrangements imported
     from other in-region states, and its agreement to enter into
     multi-state interconnection agreements should assist competitors in
     entering new markets within the Bell Atlantic/GTE region.
     Similarly, the Carrier-to-Carrier Performance Plan will provide
     competing carriers with additional protections by strengthening
     Bell Atlantic/GTE's incentive to provide quality of service at
     least equivalent to the merged firm's retail operations or a
     benchmark standard. These conditions and others make competition in
     Bell Atlantic/GTE's region more likely, thereby offsetting in part
     the competitive threat that each Applicant posed to the other.

### Mitigating Harm from Loss of Benchmarks

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

354. We anticipate that several conditions will require the merged firm
     to spread best practices throughout its region, viewed as a whole
     or as two distinct parts based on legacy Bell Atlantic and GTE
     service areas. Significantly, "best practices," as we use the
     phrase here, will be identified in full or in part by the
     Applicants' customers and regulators, not by Bell Atlantic and GTE.
     In this regard, by affording competitive LECs input into Bell
     Atlantic and GTE's ultimate OSS commitments under these conditions,
     the OSS collaborative process should lead to an agreement that
     represents best practices.[^819] Specifically, the stipulation in
     the conditions that Bell Atlantic/GTE and competitive LECs will
     seek to reach agreement on issues raised in collaboratives, and
     that competitive LECs can request a collaborative process where
     none is specified in the Plan of Record, offers assurance that the
     merged firm ultimately will take into account practices of certain
     operating companies that other carriers have found useful or
     beneficial in establishing the substance and implementation of OSS.
     In addition, the Applicants' commitment to rely on OSS industry
     standards for application-to-application interfaces, data
     formatting specifications, and transport and security protocols
     entails extending best practices, as determined by industry
     consensus standards groups, throughout the Bell Atlantic/GTE
     region.

355. The conditions requiring Bell Atlantic/GTE to continue
     participation in the NRIC similarly will encourage best practices
     based on industry concordance. The NRIC, whose composition
     represents a balancing of industry interests,[^820] issues periodic
     reports concerning the reliability of public telecommunications
     network services, and regularly compiles detailed lists of industry
     best practices designed to reduce the number and scope of network
     outages. Through its continued participation in the NRIC, we fully
     expect Bell Atlantic/GTE to study and, to every extent possible,
     implement the industry best practices for network reliability. In
     this way, we anticipate that Bell Atlantic/GTE will be able to, at
     a minimum, maintain a high state of reliability after the merger
     and take aggressive steps to address network reliability in those
     areas where the company may need improvement.

356. Other examples of conditions that we anticipate will require the
     merged entity to spread best practices include the uniform OSS
     change management process, most-favored nation provisions, and
     Lifeline plan. Bell Atlantic/GTE will adopt in each of its states
     the current Bell Atlantic change management process originally
     developed through collaboratives with competitive LECs in New York.
     As we note above, competitive LECs favor implementation of this
     change management process, and they may seek to improve it even
     further through the collaborative process.[^821] Both the
     out-of-region and in-region most-favored nation requirements are
     designed explicitly to assure carriers some ability to obtain
     beneficial arrangements, whether specifically requested by Bell
     Atlantic/GTE as an out-of-region competitor or simply offered by
     the firm in an in-region state, throughout the merged firm's
     service area. And the merged firm will offer to each of its
     in-region states a Lifeline plan based on features of the Ameritech
     Ohio plan.

357. Aside from the spread of best practices, the conditions also help
     ameliorate any potential loss of observable information to
     regulators and competitors. In particular, the Carrier-to-Carrier
     Performance Plan will generate valuable information for regulators
     and competitors for use in implementing and enforcing the
     Communications Act. The Performance Plan is even more beneficial
     with respect to measuring the performance of the GTE legacy
     companies because, as a non-BOC, GTE is not subject to a
     performance plan arising typically from the process of seeking
     authority to provide in-region, interLATA services under section
     271.[^822] Moreover, the GTE-specific performance plan in
     California notwithstanding, GTE may not otherwise be subject to
     performance plans at the state level. The merged firm will also
     continue to report ARMIS data separately for each of its operating
     companies, and will now report such data on a quarterly basis. The
     requirement that the Applicants develop and file state-by-state
     service quality reports in accordance with the recommendations of
     the NARUC Technology Policy Subgroup will facilitate comparative
     practices analysis by providing additional data for this Commission
     and state commissions in carrying out their statutory
     responsibilities and in detecting potential violations of the
     Communications Act. The Applicants also are obligated under the
     conditions to provide quarterly state-specific service quality
     reports regarding the quality of services provided to interexchange
     carriers, and to file a statement of the cost savings associated
     with the merger.

358. In addition to spreading best practices and helping to redeem
     potentially lost, valuable, observable information, some conditions
     will help to offset the potential loss of future diversity and
     experimentation resulting from the merger. For example, through
     their out-of-region competitive entry commitment, Bell Atlantic and
     GTE could deploy, and experiment in the provision of, different
     forms of advanced services.[^823] Or, Bell Atlantic/GTE could put
     into service in out-of-region markets some of the \$550 million in
     dark fiber that Bell Atlantic has committed to lease from
     Metromedia Fiber Network, Inc., in which Bell Atlantic also has a
     substantial equity investment.[^824] Though the Applicants,
     notwithstanding the aforementioned examples of what they could do,
     do not specify precisely how they will fulfill their out-of-region
     competitive entry commitment, this lack of precision is due to
     their wanting, as a merged firm, "to be able to invest in the
     newest technologies available to compete in the local market and
     provide innovative services and options to its new
     customers."[^825]

### Mitigating Harm from Potential Increased Discrimination

359. We find that several commitments will alleviate the concern that
     the merged firm will use its combined size and market power to
     discriminate more effectively against its rivals in its in-region
     markets for local services as well as advanced services. The
     conditions that we adopt today are carefully targeted at the types
     of discrimination the merger was otherwise most likely to engender.
     Moreover, they substantially reduce entry barriers to the merged
     entity's region.

360. The combined entity's incentive to discriminate, stemming from its
     larger geographic footprint, is especially likely, if left
     unchecked, to translate into an ability to discriminate against the
     provision of advanced services.[^826] The requirements that the
     merged firm provide such services through a separate affiliate, and
     comply with reporting and performance obligations, decreases the
     ability of Bell Atlantic/GTE to discriminate successfully, and
     thereby neutralizes some of Bell Atlantic/GTE's increased incentive
     to discriminate with respect to advanced services. Significantly,
     the merged entity will have to treat rival providers of advanced
     services the same way that it treats its own separate advanced
     services affiliate.

361. We expect that some conditions, most notably the line sharing,
     collocation and UNE compliance audits, also should lead to
     reduction of the costs and uncertainty of providing advanced
     services in Bell Atlantic/GTE's region, and thereby remedy to a
     certain extent any effects of increased discrimination for national
     competitive LEC entrants. Similarly, the Applicants' commitments to
     establish uniform advanced services and other OSS interfaces
     between their service areas in Pennsylvania and Virginia also
     should reduce somewhat the costs and other barriers that local or
     advanced services competitors face in entering within these states.

362. The Carrier-to-Carrier Performance Plan also partially alleviates
     the Applicants' increased incentive and ability to discriminate
     against rivals following the merger. By requiring the merged firm
     to report results of 18 performance measures, and achieve the
     agreed-upon standard or voluntarily make incentive payments, the
     plan provides heightened incentive for the company not to
     discriminate in ways that would be detected through the measures.
     Competing carriers operating in or contemplating entry into Bell
     Atlantic/GTE territory will have an increased measure of confidence
     that the company will not engage in discrimination that would be
     detected through such measures. Moreover, if the results reveal
     unequal treatment, the voluntary payment scheme will create a
     direct economic incentive for Bell Atlantic/GTE to cure performance
     problems quickly.[^827]

363. The Carrier-to-Carrier Performance Plan is designed specifically to
     permit monitoring for discriminatory conduct in Bell Atlantic/GTE's
     provision of elements and services utilized in providing advanced
     services. For instance, the line sharing provisioning measurement
     or sub-measurement that Bell Atlantic/GTE is required to propose
     and implement after the merger closing date[^828] is designed
     specifically to address the needs of advanced services providers.
     For many of the other measures, data will be reported distinctly
     for DSL loops. The availability of this information will assist
     entities that are contemplating providing advanced services in the
     Bell Atlantic/GTE region, as well as helping carriers already
     operating in the region to monitor and address any potential
     increased discrimination.

364. As explained above, with Bell Atlantic's new access to customer
     accounts in GTE's region (*e.g.*, New York business customers with
     branch offices in Los Angeles), and vice-versa, the merged firm
     gains an advantage in servicing multi-location business customers.
     Allowing competitors to import most-favored nation arrangements
     across Bell Atlantic/GTE's in-region states helps to safeguard
     against this increased potential for discrimination while reducing
     the merged firm's advantage of servicing multi-location
     customers.[^829] Furthermore, the Applicants have bolstered the
     strength of the most-favored nation commitments themselves by
     permitting carriers to opt into arbitrated as well as voluntarily
     negotiated agreements.

365. The enforcement mechanisms contained in these conditions also will
     aid in the detection of discriminatory behavior by Bell
     Atlantic/GTE. In particular, the conditions require the more
     thorough type of audit, an agreed-upon procedures engagement, for
     the separate advanced services affiliate provisions. Like the
     section 272(d) audit, the independent auditor will conduct a
     systematic and thorough examination into Bell Atlantic/GTE's
     compliance with the structural, transactional, nondiscrimination
     and other requirements of the separate advanced services affiliate.
     By pushing the due date of the independent auditor's separate
     affiliate compliance report to four months earlier than the due
     date committed to by SBC/Ameritech,[^830] the audit provisions in
     Bell Atlantic/GTE's conditions yield a greater benefit in that they
     expedite the availability to regulators and competitors of precious
     information for detection of discriminatory behavior.

### Additional Benefits from Conditions

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

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

368. We also find it significant that the conditions in general will
     last for a 36-month period. As addressed in the conditions, the
     duration of each commitment is tied to the initiation of the
     benefit of the condition. In other words, each of the conditions is
     designed to provide 36 months of benefit once its embedded
     obligations take effect. So, for instance, Bell Atlantic/GTE must
     provide unaffiliated carriers in its service areas with access to
     the OSS interfaces set forth in the conditions and agreed-upon
     enhancements for at least 36 months after such interfaces and
     enhancements are deployed. In the fast-changing world of
     telecommunications industries, these commitments, in our judgment,
     will last for a sufficient period to have real impact, but not so
     long as to threaten imposing obsolete responses to future issues.

369. *Fostering Out-of-Territory Competitive Entry*. GTE already has an
     established and operational competitive LEC with approximately
     60,000 local customers outside its local service territory, and has
     invested significant sums in OSS and other assets needed to compete
     outside its traditional local service areas.[^831] While these
     conditions thus do not alter the basic fact that the parties do not
     need to merge in order to form out-of-region competitive LECs, the
     conditions do, however, reinforce the likelihood and increase the
     magnitude of a post-merger out-of-region entry strategy. These
     certainly enhance the public interest.

370. *Lower Entry Barriers for Residential Competition*. In broad terms,
     we anticipate that the conditions will prove beneficial in
     jumpstarting residential competition by lowering entry barriers for
     residential competition. For instance, the carrier-to-carrier
     promotions are designed specifically to induce more entry into
     residential markets quickly. Other conditions, such as those
     regarding collocation and UNE compliance, Carrier-to-Carrier
     Performance Plan, most-favored nation arrangements, and multi-state
     interconnection agreements will, in our judgment, greatly reduce
     the costs of entry over the long run. In addition, the commitment
     to reform the process of cabling new multi-tenant dwellings and
     business properties will increase access to customers by
     competitors not otherwise relying on the incumbent's wireline
     network.

371. *Accelerating Advanced Services Deployment.* Several conditions are
     aimed at increasing the availability of and broadening choices for
     advanced services for all Americans. The extensive commitments
     regarding advanced services all help to attain a single overriding
     goal: to encourage entry into the provision of advanced services by
     numerous firms, as well as the Applicants, while protecting against
     the risk that Bell Atlantic/GTE might cripple these services in
     their infancy by discriminating against rival advanced services
     providers. The provisions for expediting cost proceedings and
     immediately making available rates, conditions, and terms for
     conditioning xDSL loops, for a separate affiliate for the
     Applicants' provision of advanced services, including advanced
     services unbundled loop discounts for competitors tied to threshold
     use by the separate affiliate of certain advanced services OSS
     interfaces, for a line sharing compliance plan, and for a surrogate
     line-sharing discount in the event our line sharing rules are
     overturned in a final, non-appealable judicial decision will reduce
     the costs, including the risks, of entering these markets. In
     addition, the out-of-region competitive entry milestones
     established by the Applicants include a commitment to devote at
     least 20 percent of the expenditures or deployed customer lines
     towards providing advanced services or residential competitive
     local service.

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

## Other Requested Conditions or Modifications to Proffered Conditions

373. *Access to Advanced Services Loop Information*. In approving the
     merger between SBC and Ameritech, we adopted conditions designed to
     promote rapid deployment of advanced services by ensuring that
     carriers have nondiscriminatory access to certain specified
     information for loop qualification purposes, in order to make
     informed decisions about whether and how they can provide advanced
     services to a customer at a given location.[^832] Certain
     commenters request that we adopt the same requirements with respect
     to Bell Atlantic/GTE.[^833] We agree with the Applicants, however,
     that such conditions are unnecessary in the instant merger because,
     subsequent to our adoption of the SBC/Ameritech merger, we
     addressed this issue in the *UNE Remand Order* and imposed
     appropriate requirements.[^834]

374. *Restructuring of OSS Charges*. Other conditions that we adopted in
     approving the merger between SBC and Ameritech included
     requirements that the merged firm recover electronic OSS costs on a
     strict usage basis rather than through a flat monthly fee, thereby
     eliminating any flat-rate, up-front charge for the right to use the
     company's standard electronic interfaces for accessing OSS. We
     explained that such conditions were necessary to that merger
     because SBC charged a flat monthly fee for access to electronic
     OSS, and commenting parties feared that SBC would spread this
     practice to Ameritech's region following the merger.[^835] BlueStar
     et al. and NALA request that such conditions likewise be applied to
     Bell Atlantic/GTE.[^836] Because those factual circumstances are
     not present in the instant merger, however, we find that such
     conditions are not warranted here.

375. *UNE Platform*. We adopted, in approving the merger between SBC and
     Ameritech, carrier-to-carrier promotions pursuant to which
     SBC/Ameritech would offer end-to-end combinations of all network
     elements required to be unbundled as of January 24, 1999 (including
     the UNE platform) to competitive LECs providing residential local
     service.[^837] Some commenters maintain that the conditions to the
     instant merger likewise should include these UNE platform
     conditions.[^838] We agree with the Applicants, however, that we
     need not attach to Bell Atlantic/GTE conditions relating to UNE
     platform promotions, because the *UNE Remand Order*, which we
     adopted subsequent to our approval of the SBC/Ameritech merger,
     confirms that incumbent LECs are required to make the UNE platform
     available to competitive LECs.[^839] Moreover, we decline to adopt,
     in the context of this merger, other requirements that commenters
     seek for us to impose on Bell Atlantic/GTE relating to provision of
     the UNE platform.[^840] We note that the comprehensive UNE
     compliance audit that the Applicants have agreed to undergo as a
     condition to the instant merger should reveal any noncompliance
     with the Commission's unbundling requirements.

# Mobile Communications Services

376. We find that the proposed merger will be pro-competitive in its
     effects on wireless communications markets. In particular, this
     merger will promote competition in markets for mobile voice
     telephone services by extending the reach of a major nationwide
     service provider in a business in which national coverage is
     becoming more vital to compete effectively.[^841] The wireless
     service areas of the merging parties are largely
     complementary,[^842] and the companies employ compatible
     technologies. Upon consummation of this merger, Verizon Wireless
     (consisting of the U.S. wireless properties of Bell Atlantic, GTE,
     and Vodafone) will have a licensed footprint potentially serving
     232 million people and 96 of the 100 largest U.S. cities. The new
     entity will have more than 24 million cellular and broadband PCS
     and four million paging customers.[^843]

377. Moreover, combining these wireless businesses will likely produce
     cost savings and operating efficiencies by reducing the Applicants'
     collective dependence on costly roaming agreements. The combination
     should also produce system-wide efficiencies through common network
     engineering, management, purchasing, and administrative functions,
     leading to earlier and broader deployment of advanced wireless
     services.[^844]

## Licenses and Service Offerings

378. On April 3, 2000, pursuant to Commission approval,[^845] Bell
     Atlantic combined its domestic cellular and other wireless
     businesses with most of the U.S. wireless and paging operations of
     Vodafone. The combined entity, doing business as Verizon Wireless,
     operates cellular and broadband PCS systems in 48 states and the
     District of Columbia capable of serving 194 million people. Verizon
     Wireless also provides one-way and two-way paging services in
     numerous states and holds interests in fixed point-to-point
     microwave, business radio, and wireless communications service
     (WCS) licenses.[^846]

379. GTE operates cellular and broadband PCS systems in 18 states,
     covering approximately 74 million potential subscribers.[^847] GTE
     also holds interests in licenses for other wireless services,
     including paging, fixed point-to-point microwave, business radio,
     experimental, rural radio, air-to-ground, and telephone maintenance
     radio service.[^848] Applications to transfer control of the
     entities holding these licenses from GTE to Bell Atlantic were
     filed with the Commission on October 2, 1998 and March 1, 8, and 9,
     2000.[^849]

## Analysis of Potential Competitive Harms

### Overlapping Ownership Interests

380. While the wireless interests held by Verizon Wireless and GTE are
     to a large degree complementary, their respective properties
     overlap in numerous areas. Absent divestiture, many of these
     overlaps would violate certain Commission rules and raise the
     possibility of competitive harms in mobile voice telephony, in
     particular.[^850] In 19 markets, absent divestitures, Verizon
     Wireless and GTE together would hold a financial interest in both
     channel blocks in overlapping cellular service areas, implicating
     the Commission's cellular cross-ownership rule in those markets in
     which both parties' ownership interests exceed five percent.[^851]
     These strictly cellular overlaps are concentrated in California,
     Ohio, South Carolina, and a fourth group spanning several
     southwestern states.

381. In 77 other markets, Verizon Wireless and GTE currently hold
     interests in cellular and PCS licenses covering the same areas,
     potentially implicating the Commission's CMRS spectrum aggregation
     rule.[^852] A first collection of these overlaps involves cellular
     properties held by GTE and PCS properties formerly operated by
     PrimeCo Personal Communications, L.P (PrimeCo).[^853] These
     overlaps principally involve properties in Florida, Texas,
     Virginia, and the greater metropolitan Chicago area, as well as one
     in Alabama. Another collection of overlaps involves GTE's PCS
     properties and cellular businesses formerly operated by Vodafone
     centered in Ohio and Washington state. Several additional overlaps
     arise out of Vodafone's recent acquisition of certain CommNet
     Cellular businesses in Idaho and Montana.[^854]

382. As discussed in detail below, the parties have committed to
     eliminate all existing overlaps of cellular and/or PCS properties
     to comply with the Commission's cellular cross-ownership and
     spectrum aggregation rules as well as the terms of a court-ordered
     Consent Decree between the parties and the U.S. Department of
     Justice ("DOJ").[^855]

### Revised Consent Decree

383. On December 6, 1999, the DOJ filed with the United States District
     Court for the District of Columbia a Revised Consent Decree
     negotiated with Bell Atlantic, Vodafone, and GTE that requires the
     divestiture of overlapping wireless businesses in 96 markets in 15
     states.[^856] On April 18, 2000, the court approved the Revised
     Consent Decree, which replaces an earlier divestiture agreement
     reached in May 1999 among DOJ, Bell Atlantic, and GTE. The Revised
     Consent Decree requires the divestiture of one wireless business in
     any market in which the companies' licenses overlap, even in cases
     in which the Commission's rules are not implicated.[^857]

384. The Revised Consent Decree is intended to ensure that the creation
     of the proposed national wireless network will not increase
     concentration in any geographic market, and establishes a schedule
     by which required divestitures are to be consummated. Where
     overlaps involve strictly cellular properties, businesses
     (including licenses and facilities) are to be divested prior to or
     concurrently with consummation of the merger.[^858] In other cases
     involving PCS/cellular overlaps, businesses are to be divested
     prior to or concurrently with consummation of the merger, or by
     June 30, 2000, whichever is later.[^859] In either case, the
     Revised Consent Decree requires Applicants to divest not just
     spectrum but facilities sufficient "to ensure that the divested
     wireless businesses remain viable, ongoing businesses."[^860] Under
     the terms of the Revised Consent Decree, the Applicants may
     request, and DOJ in its sole discretion may grant, limited
     additional time to complete divestiture transactions involving the
     PCS/cellular overlap properties.[^861] Therefore, it is
     contemplated under the Revised Consent Decree (without reference to
     the requirements of our rules) that some PCS/cellular overlap
     divestitures may be completed after consummation of the merger,
     perhaps not until 60 days following such consummation.

### Compliance with CMRS Ownership Rules

385. *Cellular Cross-Ownership Rule*. Our rules prohibit an entity from
     holding attributable interests in both cellular licenses in any
     cellular service area (or portions thereof).[^862] Under the terms
     of the Revised Consent Decree, Bell Atlantic, Vodafone, and GTE
     have committed to eliminate the 19 cellular-cellular overlaps that
     would be created by this merger prior to, or concurrently with,
     consummation of the merger transactions.[^863] Fulfillment of these
     commitments would achieve compliance with our cellular
     cross-ownership rule, with the caveat that, under that rule, the
     divestitures of these cellular properties must be consummated
     *before* the Bell Atlantic -- GTE merger may be consummated. [^864]

386. To resolve the cellular-cellular overlaps, the parties have sold,
     or have agreed to sell, properties in 13 cellular markets to
     ALLTEL. On April 1 and May 15, 2000, Bell Atlantic and Vodafone
     consummated the assignment of six cellular properties to
     ALLTEL.[^865] On June 12, 2000, we granted applications to assign
     an additional seven cellular properties to ALLTEL.[^866] Finally,
     Applicants have filed applications to transfer into a divestiture
     trust the remaining six cellular licenses.[^867] We condition grant
     of the underlying applications to transfer control of licenses from
     GTE to Bell Atlantic on the consummation of the divestitures of
     these remaining thirteen cellular properties prior to the
     consummation of the merger. Further, pursuant to our rules, we
     delegate to the Wireless Telecommunications Bureau the authority to
     review the divestiture trust agreement for compliance with our
     rules.[^868]

387. *CMRS Spectrum Aggregation Rule*. Under our CMRS spectrum
     aggregation rule, a single entity is generally permitted to hold an
     attributable interest in up to 45 MHz of CMRS spectrum in urban
     areas; in rural areas, an entity is generally permitted to hold up
     to 55 MHz of spectrum.[^869] The PCS licenses involved in the
     overlaps that are created by the proposed merger generally provide
     for authority over 30 MHz of PCS spectrum,[^870] while the cellular
     properties encompass 25 MHz of spectrum. Further, in most of these
     cases involving PCS-cellular overlaps, the Applicants' interests in
     these overlapping properties are attributable under our spectrum
     aggregation rule.[^871] Therefore, in the majority of these cases,
     absent divestitures, the merged entity would have attributable
     interests in licenses totaling 55 MHz of CMRS spectrum, which in
     most of the cases involved here would exceed our spectrum
     aggregation limits.

388. Under the terms of the Revised Consent Decree, Bell Atlantic,
     Vodafone, and GTE have committed to divest one wireless license and
     its associated business in each market in which an overlap would
     occur, without regard to the size or nature of the current
     interests.[^872] In addition, where our spectrum aggregation rule
     would permit the parties to keep a 25 MHz cellular license and 20
     MHz of PCS spectrum in the same market, the Revised Consent Decree
     only permits the merged entity to keep 10 MHz of the PCS spectrum
     if it retains the cellular license.[^873]

389. The parties intend to divest these properties directly to third
     parties, but have also requested authority to assign or transfer
     control of properties to the divestiture trust in the event that
     agreements with third-party buyers cannot be completed in time to
     file applications with us before consummating the underlying merger
     applications.[^874] We condition grant of the underlying
     applications to transfer control of licenses from GTE to Bell
     Atlantic on compliance with our spectrum aggregation rule. The
     Commission will separately rule on the parties' applications to
     divest wireless properties.[^875]

### Other Competitive Issues

#### Triton PCS and Sprint

390. Triton PCS, Inc. (Triton) claims that Bell Atlantic Mobile Services
     has behaved anticompetitively with respect to Triton by filing a
     "groundless" lawsuit against Triton.[^876] Bell Atlantic states
     that it filed suit against Triton to protect against disclosure of
     confidential competitive information by former high-level Bell
     Atlantic Mobile employees that Triton hired.[^877] This action is
     currently pending in the New Jersey Superior Court.[^878] We find
     that this is a civil dispute not relevant to our analysis under
     section 310(d) authority and best resolved in a state court of
     competent jurisdiction.[^879]

391. Triton and Sprint Communications Company (Sprint) both complain
     that Bell Atlantic has engaged in anticompetitive roaming
     negotiations.[^880] We are currently considering in a separate
     docket whether any action is necessary with respect to automatic
     roaming agreements between PCS and cellular carriers.[^881]
     Accordingly, we decline to consider that issue in this proceeding.

#### Commonwealth of the Northern Mariana Islands

392. The Commonwealth of the Northern Mariana Islands asserts that Bell
     Atlantic affiliates have opposed the application of "rate
     integration" policy to CMRS carriers, and proposes that the
     Commission require Bell Atlantic/GTE to maintain rate integration
     across all subsidiaries and services, including wireless
     services.[^882] In a separate proceeding, we are currently
     considering whether to forbear from, or reconsider, rate
     integration for CMRS carriers.[^883] Therefore, we decline to
     consider this issue in this proceeding.

## Conclusion

393. Based upon our review under section 310(d) of the Act, we determine
     that the proposed transfers of control from GTE to Bell Atlantic
     will not likely result in harm to competition in any relevant
     wireless market. We also determine that these transfers will likely
     result in public interest benefits. We therefore conclude that, on
     balance, Applicants have demonstrated that these transfers serve
     the public interest, convenience, and necessity. Accordingly, we
     grant the Applications, subject to the conditions set forth herein.

# International Issues

## General

394. Consistent with our conclusion above that the proposed merger will
     not impact in any significant way the market for domestic long
     distance services, and under the same reasoning, we conclude that
     the proposed merger will not impact in any significant way the
     market for international long distance services.

395. Our conclusion that the proposed merger will not impact in any
     significant way the market for international long distance services
     is further supported by the absence of any evidence in the record
     to demonstrate that the proposed merger would affect competition
     adversely in any input market that is essential for the provision
     of international services, including the market for international
     transport services.[^884]

396. For purposes of determining whether the merger would affect
     competition adversely in any input market that is essential for the
     provision of international services, we focus our analysis on
     submarine cable facilities.[^885] Bell Atlantic currently does not
     own any submarine cable capacity in the Pacific Region or between
     the U.S. and the Caribbean and/or South America.[^886] Therefore,
     Bell Atlantic's merger with GTE will not increase market
     concentration in those regions, regardless of the number of cable
     facilities GTE owns in those regions.[^887] In the Atlantic region,
     Bell Atlantic currently owns a *de minimis* amount of total
     available cable capacity, and we project it will continue to own a
     *de minimis* amount of total available cable capacity in the
     Atlantic region through 2001.[^888] GTE's current and projected
     (through 2001) ownership of cable capacity in the Atlantic region
     is also *de minimis*. [^889] Therefore, upon consummation of the
     proposed merger, the merged entity's combined current and projected
     share in the Atlantic region is *de minimis*, and the merger will
     not increase significantly market power concentration in that
     region.

397. Only one party filed comments related to the effect of the proposed
     merger on the U.S. international services market. TRICOM USA, Inc.
     (TRICOM), a U.S. carrier licensed to provide local exchange
     service, long distance service, and international services,
     complains that "the combined facilities of the merged company would
     give it the potential to serve as a bottleneck to and from those
     overseas points where GTE and Bell Atlantic control the dominant
     carrier."[^890] According to TRICOM, therefore, the merged company
     "would not only control facilities on the domestic end in the
     largest metropolitan areas of the United States, but also on the
     foreign and territorial end, particularly the Dominican Republic,
     Venezuela, and Puerto Rico in this Hemisphere."[^891] TRICOM asks
     the Commission to require both GTE and Bell Atlantic to "make
     affirmative showings that each of their overseas affiliates or
     subsidiaries do not presently control and have no potential to
     control bottleneck facilities by virtue of the merger or
     otherwise."[^892]

398. Both GTE and Bell Atlantic have provided the Commission with all
     the information required under our rules, namely Sections 63.11 and
     63.18(e), regarding investments in or by foreign carriers.[^893]
     Our rules recognize that U.S. carriers may have investments in or
     by foreign carriers, or may themselves be foreign carriers, and we
     have adopted a regulatory framework to address concerns about
     anticompetitive behavior by U.S. carriers and their foreign carrier
     affiliates. Indeed, in terms of control of bottleneck facilities on
     the foreign ends, TRICOM is most concerned about the Dominican
     Republic and Venezuela. As discussed in detail below in the foreign
     carrier affiliation section, currently we regulate GTE as a
     "dominant" international carrier both on the U.S.-Dominican
     Republic route and on the U.S.-Venezuela route.[^894] Not only will
     approval of the merger not disturb these classifications, but, as
     discussed below in approving the international license transfers
     that are part of the merger, we amend Bell Atlantic\'s
     authorizations to provide service on those routes to regulate them
     as dominant, where appropriate under our rules.[^895]

399. TRICOM also requests that we require GTE and Bell Atlantic to
     demonstrate that all overseas affiliates or subsidiaries are now
     treating, and will continue to treat, all nonaffiliated U.S.
     carriers in a nondiscriminatory manner.[^896] Section 63.14 of the
     Commission\'s rules, to which every U.S. international carrier is
     subject, specifically addresses TRICOM\'s concerns. That section
     prohibits any U.S. international carrier from agreeing to accept
     from any foreign carrier that possesses market power on a
     particular route special concessions of specified types.[^897] With
     respect to TRICOM\'s concerns about the merged entity\'s control of
     bottleneck facilities on the U.S. end of international
     routes,[^898] as discussed above, we already have concluded that,
     on balance, any potential anticompetitive effects of the proposed
     merger in the domestic local exchange and exchange access markets
     would be outweighed by the accompanying benefits of the conditions
     we impose on the merger. Moreover, the Commission previously has
     addressed the proper regulatory treatment of incumbent local
     exchange carrier provision of U.S. international services.[^899]

## Foreign Affiliation

400. In considering the effects of the proposed merger in U.S.
     international services markets, we consider whether: (1) as a
     result of its acquisition by Bell Atlantic, GTE (and its operating
     subsidiaries)[^900] would become affiliated with a foreign carrier
     that has market power on the foreign end of a U.S. international
     route that GTE is authorized to serve; and (2) as a result of its
     acquisition of GTE, Bell Atlantic (and its international carrier
     subsidiaries)[^901] would become affiliated with a foreign carrier
     that has market power on the foreign end of a U.S. international
     route that Bell Atlantic is authorized to serve. [^902]

401. Both Bell Atlantic and GTE have ownership interests in carriers
     that operate on the foreign end of U.S. international routes that
     create "affiliations" within the meaning of section 63.09 of the
     Commission's rules.[^903] Subsidiaries of Bell Atlantic are
     authorized under section 214 of the Act[^904] to provide
     out-of-region U.S. international service terminating at all
     international points.[^905] Subsidiaries of Bell Atlantic also are
     authorized to provide in-region international service originating
     in New York and terminating at all international points except
     Gibraltar.[^906] Subsidiaries of GTE are authorized under section
     214 of the Act to provide U.S. international service originating
     from points in the United States and terminating at various
     international points.[^907] We note that, upon consummation of the
     proposed merger, except for services originating in the State of
     New York, section 271 of the Act will prohibit any of Bell
     Atlantic\'s or GTE\'s international carrier subsidiaries from
     providing international services originating in any Bell Atlantic
     \"in-region State,\" as that term is defined in section 271(i) of
     the Act.[^908] With the exception of New York, Bell Atlantic has
     not yet obtained permission to provide long distance services
     within any of the in-region States it currently serves. Therefore,
     upon consummation of the merger, in order to comply with section
     271, GTE and its subsidiaries must cease originating international
     long distance traffic in Bell Atlantic\'s current in-region States
     other than New York. By this Order, we modify GTE's international
     section 214 authorizations to exclude the provision of
     international service originating in Bell Atlantic's in-region
     states other than New York.[^909]

### Standards

402. We welcome foreign participation in the U.S. market for
     telecommunications services. In the *Foreign Participation Order*,
     the Commission adopted an open entry policy for carriers from World
     Trade Organization (WTO) members. As part of this policy, the
     Commission adopted an open entry standard for applicants that
     request authority to serve a WTO member in which the applicants
     have a foreign carrier affiliate. Previously, the Commission had
     applied an \"effective competitive opportunities" (ECO) test to
     certain applicants that sought to provide service on routes where
     an affiliated foreign carrier possessed market power.[^910] In the
     *Foreign Participation Order*, the Commission eliminated the ECO
     test in favor of a rebuttable presumption that requests for
     international section 214 authority from applicants affiliated with
     foreign carriers in WTO members do not pose concerns that would
     justify denial of the application on competition grounds.[^911] The
     Commission retained the ECO test for certain applicants that seek
     to serve non-WTO countries in which the applicant has an
     affiliation with a foreign carrier possessing market power in such
     countries.[^912]

403. In the *Foreign Participation Order*, however, the Commission
     observed that the exercise of foreign market power in the U.S.
     market could harm U.S. consumers through increases in prices,
     decreases in quality, or a reduction in alternatives in end-user
     markets.[^913] Generally, this risk occurs when a U.S. carrier is
     affiliated with a foreign carrier that has sufficient market power
     on the foreign end of a route to affect competition adversely in
     the U.S. market.[^914]

404. *Entry Standard*. In a merger analysis, to determine whether the
     public interest is served by permitting the merged entity to
     provide U.S. international service on each affiliated route, we
     apply the entry standard adopted in the *Foreign Participation
     Order*. The Commission also considers other public interest factors
     that may weigh in favor of, or against, granting an international
     section 214 application, including national security, law
     enforcement, foreign policy and trade concerns.[^915]

405. *Regulatory Status*. If we determine that the public interest would
     be served by permitting the merged entity to provide U.S.
     international service on its affiliated routes, we next decide the
     terms under which the merged entity will provide service on these
     routes. Specifically, we examine whether it is necessary to impose
     the Commission\'s international dominant carrier safeguards on the
     merged entity's international operating subsidiaries in their
     provision of service on the affiliated routes.[^916] The standard
     for determining the regulatory status of the merged entity on
     affiliated routes also is governed by the *Foreign Participation
     Order*. Under rules adopted in that order, the Commission regulates
     U.S. international carriers as dominant on routes where an
     affiliated foreign carrier has sufficient market power on the
     foreign end to affect competition adversely in the U.S.
     market.[^917] A U.S. carrier presumptively is classified as
     nondominant on an affiliated route if the carrier demonstrates that
     the foreign affiliate lacks 50 percent market share in the
     international transport and local access markets on the foreign end
     of the route.[^918]

### Specific Affiliations

406. We consider first Bell Atlantic's foreign carrier affiliations and
     the issues raised by those affiliations in this transfer
     proceeding. We then consider GTE's foreign carrier affiliations and
     issues raised by those affiliations. On April 11, 2000, Bell
     Atlantic's and GTE's international carrier subsidiaries notified
     the Commission, pursuant to sections 63.11(a)(1) and (a)(2) of the
     Commission's rules, that they will become affiliated with foreign
     carriers upon consummation of the pending merger between Bell
     Atlantic and GTE.[^919] The Foreign Carrier Notification included a
     description of the foreign affiliations of both Bell Atlantic's and
     GTE's international carrier subsidiaries.

#### Bell Atlantic Foreign Carrier Affiliations

407. As a result of the merger, GTE's international carrier subsidiaries
     will become affiliated with all of Bell Atlantic's foreign carrier
     affiliates. Bell Atlantic's foreign carrier affiliates operate in
     Mexico (Iusacell) and Gibraltar (Gibraltar NYNEX Communications,
     Ltd).[^920] GTE's international carrier subsidiaries currently are
     authorized to provide resold and facilities-based international
     telecommunications services to Gibraltar and Mexico (among other
     countries).[^921] Applicants request that we authorize a transfer
     of control of GTE's international section 214 authorizations to
     Bell Atlantic.[^922] Thus, approval of the merger Application would
     permit Bell Atlantic-controlled GTE subsidiaries to serve these
     affiliated routes.

408. This Application raises for our consideration the issue of whether
     the public interest would be served by permitting Bell Atlantic to
     provide U.S. international service between the United States and
     Gibraltar and Mexico through its acquisition of control of GTE's
     international section 214 authorizations. If we approve the
     proposed transfer of control of GTE's authorizations to Bell
     Atlantic, we also must inquire whether Bell Atlantic's affiliates
     in Gibraltar or Mexico have sufficient market power to warrant
     classifying the combined entity\'s U.S. international carrier
     subsidiaries as \"dominant\" U.S. international carriers on either
     of these routes. For the reasons discussed below, we conclude that
     the public interest would be served by transferring control of
     GTE's international section 214 authorizations to Bell Atlantic,
     subject to classification of the merged entity's subsidiaries as
     dominant international carriers in their provision of service on
     the U.S.-Gibraltar route.

##### Entry Standard

409. *Mexico*. Mexico is a member of the WTO. Accordingly, we find that
     Bell Atlantic is entitled to a presumption that its affiliation
     with Iusacell does not raise competition concerns that would
     warrant denial of its request to serve the U.S.-Mexico route
     through its acquisition of control of GTE's international section
     214 certificates.

410. *Gibraltar*. Regarding Gibraltar's status with respect to the WTO,
     we note that an opinion provided to us by the U.S. Department of
     State concludes that the 1994 Marrakesh Agreement Establishing the
     World Trade Organization applies to Gibraltar.[^923] We also note
     that the United Kingdom maintains a different view, specifically,
     that the territorial application of the WTO Convention does not
     extend to the United Kingdom\'s overseas territories.[^924] We
     defer to the opinion provided to us by the U.S. Department of State
     and therefore treat Gibraltar as a WTO Member for purposes of
     applying the proper entry standard to this transfer of control
     application.[^925] Accordingly, we find that Bell Atlantic is
     entitled to a presumption that its foreign carrier affiliation with
     Gibraltar-NYNEX does not raise competition concerns that would
     warrant denial of its request to serve the U.S.-Gibraltar route
     through its acquisition of control of GTE's international section
     214 certificates.

##### Regulatory Status

411. We next examine whether it is necessary to impose our international
     dominant carrier safeguards on the merged entity's international
     carrier subsidiaries in their provision of service on these
     affiliated routes.

412. *Mexico*. Applicants request continued classification as
     nondominant on the U.S.-Mexico route, asserting that the Commission
     previously has determined under section 63.10(a)(3) of its rules
     that Bell Atlantic's foreign affiliate in Mexico, Iusacell, lacks
     sufficient market power in Mexico to affect competition adversely
     in the U.S. market.[^926] Applicants certify further that GTE has
     does not have any ownership interest in a foreign carrier in
     Mexico, and the GTE international carriers will not be affiliated
     with any foreign carrier in Mexico other than Iusacell. Thus, they
     argue, the merger will not result in any increase in Iusacell's
     market power in Mexico or give Iusacell any greater ability to
     affect competition in the U.S. market than Iusacell currently
     has.[^927] As Applicants point out, we previously have found that
     Iusacell does not control bottleneck services or facilities in
     Mexico, and therefore lacks the ability to discriminate against
     unaffiliated U.S. international carriers terminating traffic in
     Mexico.[^928] We therefore found Bell Atlantic Communications, Inc.
     (BACI), one of Bell Atlantic's international carrier subsidiaries,
     to be nondominant on the U.S.-Mexico route.[^929] We find no basis
     to conclude that the merger will result in an increase in
     Iusacell's market power. We therefore conclude that, after the
     merger with GTE, Bell Atlantic subsidiaries are entitled to
     continued classification as nondominant on the U.S.-Mexico route.

413. *Gibraltar*. BACI is classified as a dominant international carrier
     on the U.S.-Gibraltar route due to its affiliation with Gibraltar
     NYNEX Communications Ltd. (GNCL), the only carrier authorized to
     provide domestic wireline telecommunications services in
     Gibraltar.[^930] Applicants assert that dominant carrier regulation
     does not apply to BACI at this time, however, because BACI serves
     Gibraltar solely through resale of unaffiliated U.S. carrier
     international switched services.[^931] Section 63.10 of the
     Commission\'s rules specifically establishes a presumption of
     nondominance for carriers, in their provision of switched services
     on affiliated routes where they provide such services solely
     through the resale of an unaffiliated U.S. facilities-based
     carrier\'s international switched services.[^932] Although BACI is
     dominant on the U.S.-Gibraltar route, it has not needed to, and
     need not in the future, comply with the Commission's dominant
     carrier safeguards in its provision of switched services solely
     through the resale of an unaffiliated U.S. facilities-based
     carrier\'s international switched services.

414. GTE subsidiaries, like Bell Atlantic subsidiaries, are authorized
     to provide multiple types of service (including, but not limited
     to, facilities-based, resale of private line, and resale of
     switched services of unaffiliated facilities-based U.S.-authorized
     carriers). Upon consummation of the merger with Bell Atlantic,
     GTE's international carrier subsidiaries will be treated the same
     as Bell Atlantic's international carrier subsidiaries currently are
     treated with respect to service to Gibraltar. Therefore, upon
     consummation of the merger, GTE's international carrier
     subsidiaries will be classified as dominant on the U.S.-Gibraltar
     route. As with BACI, however, when they are only reselling the
     switched services of unaffiliated facilities-based U.S.-authorized
     carriers, they will not be subject to the Commission's
     international dominant carrier safeguards on the U.S.-Gibraltar
     route. Because several of GTE's international authorizations that
     include service to Gibraltar are not limited to the resale of
     switched services, we must amend, effective upon consummation of
     the proposed merger with Bell Atlantic, those authorizations of the
     GTE international carrier subsidiaries that include service to
     Gibraltar and are not limited to the resale of switched services to
     classify them as dominant on the U.S.-Gibraltar route.[^933] These
     modifications of authorizations will require that these
     subsidiaries of the merged entity comply with appropriate dominant
     carrier safeguards if the GTE international carrier subsidiaries
     elect to provide services on the U.S.-Gibraltar route other than by
     the resale of the switched services of an unaffiliated
     facilities-based U.S.-authorized carrier.

#### GTE Foreign Carrier Affiliations

415. GTE has investment interests in several foreign carriers that rise
     to the level of an affiliation under section 63.09 of the
     Commission's rules.[^934] GTE identifies the following foreign
     carriers (or holding companies of such carriers) with which it has
     such investment interests: (1) BCT. TELUS Communications, Inc.
     (Canada/British Columbia and Alberta); (2) Quebec-Telephone
     (Canada/Quebec); (3) Compañia Dominicana de Teléfonos, C. por A.
     (CODETEL) (Dominican Republic); (4) Compañia Anónima Nacional
     Teléfonos de Venezuela (CANTV) (Venezuela);[^935] (5) CTI Compañia
     de Teléfonos del Interior S.A. and CTI Norte Compañia de Teléfonos
     del Interior S.A. (collectively "CTI") (Argentina); and (6) GTE Far
     East (Services) Limited (\"GTEFE\") (Japan).[^936] As a result of
     the proposed merger, Bell Atlantic would acquire indirectly GTE's
     ownership interests in the above-named foreign carriers. Applicants
     state that two of Bell Atlantic's subsidiaries, BACI and NYNEX-LD,
     currently are authorized to provide resold and facilities-based
     international telecommunications services originating in New York
     and outside of the Bell Atlantic in-region states to each of these
     countries (among others).[^937]

##### Entry Standard

416. Applying the entry standard in the *Foreign Participation Order*,
     we conclude that the public interest would continue to be served by
     Bell Atlantic's provision of service, through all of its authorized
     subsidiaries, on U.S. international routes to all of the countries
     in which GTE has investment interests in foreign carriers that rise
     to the level of an affiliation (as noted above, Argentina, Canada,
     Japan, the Dominican Republic, and Venezuela). Each of these
     countries is a member of the WTO, and we find no other public
     interest factors that would warrant a different conclusion.

417. *Argentina*. Applicants request continued classification as
     nondominant on the U.S.-Argentina route.[^938] They argue that all
     of their international carrier subsidiaries are entitled to a
     presumption of nondominance under Rule 63.10(a)(3) because GTE's
     foreign carrier affiliate, CTI, is a cellular carrier and a new
     entrant in the international services market and, indeed, has not
     yet begun to provide international long distance service.
     Applicants, assert, therefore, that CTI lacks international
     transport and local access market power in Argentina.[^939] We find
     that Applicants have submitted sufficient information to
     demonstrate that, upon consummation of the proposed merger, each of
     Bell Atlantic's international carrier subsidiaries will warrant
     continued regulation as nondominant carriers on the U.S.-Argentina
     route. As we have previously found in our 1998 Biennial Regulatory
     Review of international common carrier regulations, foreign
     carriers that have only mobile wireless (and no wireline)
     facilities are unlikely to raise market power concerns.[^940]
     Moreover, there is no evidence in the record that suggests that
     CTI, as a new entrant in Argentina's international long distance
     market, possesses market power.

418. *Canada*. Applicants request continued classification as
     nondominant on the U.S.-Canada route.[^941] Applicants note that
     the Commission previously has found GTE subsidiaries nondominant on
     this route.[^942] They note that Bell Atlantic's international
     carrier subsidiaries currently are authorized to operate on the
     U.S.-Canada route as nondominant carriers for the provision of
     resold and facilities-based services originating in New York and
     outside of the other in-region states served by Bell Atlantic's
     local operating telephone companies.[^943] Applicants also assert
     that, other than the interests in BCT.TELUS Communications, Inc.,
     and Quebec-Telephone that Bell Atlantic will acquire in the merger,
     Bell Atlantic has no ownership interest in a foreign carrier in
     Canada, and Bell Atlantic's international carrier subsidiaries have
     no affiliation with any foreign carrier in Canada.[^944] According
     to Applicants, therefore, the merger will not result in any
     increase in the foreign affiliates' market power in Canada or give
     them any greater ability to affect competition in the U.S. market
     than they currently have.[^945] The International Bureau, in a 1996
     order, classified a GTE subsidiary, GTE Hawaii, as nondominant on
     the U.S.-Canada route.[^946] We find no basis in the record in this
     proceeding not to extend this nondominant treatment to the merged
     entity\'s international carrier subsidiaries. We conclude,
     therefore, that, upon consummation of the proposed merger, the
     merged entity\'s international carrier subsidiaries will be
     classified as nondominant on the U.S.-Canada route. As with any
     finding of nondominance on a particular route, this finding is
     without prejudice to future Commission action.

419. *Japan*. Applicants request continued classification as nondominant
     on the U.S.-Japan route.[^947] According to Applicants, all of the
     international carrier subsidiaries are entitled to a presumption of
     nondominance under section 63.10(a)(3) of the Commission's rules
     because GTE's foreign affiliate in Japan, GTEFE, is a start-up
     company that currently operates as a reseller and lacks market
     power in Japan.[^948] As we have previously found in our 1998
     Biennial Regulatory Review of international common carrier
     regulations, foreign carriers that have only resale facilities are
     unlikely to raise market power concerns.[^949] On this basis, we
     find that Applicants have provided sufficient information to
     demonstrate that GTEFE lacks market power in Japan and that the
     merged entity's international carrier subsidiaries warrant
     nondominant treatment on the U.S.-Japan route.

420. *Dominican Republic and Venezuela*. Applicants acknowledge that
     CODETEL, a foreign carrier affiliate of GTE's in the Dominican
     Republic, and CANTV, a foreign carrier affiliate of GTE's in
     Venezuela, have been found to have market power in their respective
     countries.[^950] Applicants assert, however, that Bell Atlantic's
     international carrier subsidiaries are entitled to a continued
     presumption of nondominance on the U.S.-Dominican Republic and
     U.S.-Venezuela routes under section 63.10(a)(4) of the Commission's
     rules because they provide switched service solely through the
     resale of the international switched services of unaffiliated U.S.
     carriers.[^951] Applicants assert that the GTE carriers have
     accepted dominant regulation on the U.S.-Dominican Republic route
     for facilities-based service, because GTE's foreign affiliate,
     CODETEL, has been found to have market power in the Dominican
     Republic.[^952] Applicants assert that the GTE carriers have
     accepted dominant regulation on the U.S.-Venezuela route for
     facilities-based service because GTE's foreign affiliate, CANTV,
     has been found to have market power in Venezuela.[^953]

421. In the *GTE Venezuela/Dominican Republic Order*, the International
     Bureau's Telecommunications Division determined that a GTE
     subsidiary, GTE Telecom, would be subject to the Commission's
     international dominant carrier regulations for the provision of
     facilities-based services and resold, non-interconnected private
     line services to the Dominican Republic and Venezuela.[^954] In so
     determining, the Telecommunications Division noted that GTE Telecom
     had limited its request for nondominant status to its resale of
     switched services.[^955] The Telecommunications Division noted,
     however, that the presumption of nondominance for switched resale
     in section 63.10(a)(4) of the Commission's rules does not apply
     where a resale carrier also provides switched services on the
     affiliated route as a facilities-based carrier.[^956] The
     Telecommunications Division stated, therefore, that GTE Telecom
     would be subject to dominant carrier regulation in its provision of
     switched service to the Dominican Republic and Venezuela upon
     initiation of facilities-based services to each country.[^957]

422. Bell Atlantic subsidiaries are authorized to provide multiple types
     of service (including, but not limited to, facilities-based, resale
     of private line, and resale of switched services of unaffiliated
     facilities-based U.S.-authorized carriers). Upon consummation of
     the merger with GTE, Bell Atlantic's international carrier
     subsidiaries will be treated the same as GTE's international
     carrier subsidiaries currently are treated with respect to service
     to the Dominican Republic and Venezuela. Therefore, upon
     consummation of the merger, Bell Atlantic's international carrier
     subsidiaries will be classified as dominant on the U.S.-Dominican
     Republic and U.S.-Venezuela routes. However, when they are only
     reselling the switched services of unaffiliated facilities-based
     U.S.-authorized carriers, Bell Atlantic subsidiaries, like GTE
     subsidiaries, will not be subject to the Commission's international
     dominant carrier safeguards on the these routes.[^958] Because
     several of Bell Atlantic's authorizations that include service to
     the Dominican Republic and Venezuela are not limited to the resale
     of switched services, we must, as we are doing with respect to
     several of GTE's authorizations to serve Gibraltar, amend,
     effective upon consummation of the proposed merger, several of the
     authorizations of the Bell Atlantic international carrier
     subsidiaries or affiliates that include service to the Dominican
     Republic and Venezuela to make them dominant on those routes.[^959]
     These modifications of authorizations will require that
     subsidiaries or affiliates of the merged entity comply with
     appropriate dominant carrier safeguards if these carriers elect to
     provide services on the U.S.-Dominican Republic and U.S.-Venezuela
     routes other than by the resale of the switched services of an
     unaffiliated facilities-based U.S.-authorized carrier.

### Cable Landing Licenses

423. As part of the merger application, Applicants request authority to
     transfer control of several submarine cable landing licenses held
     by GTE's international carrier subsidiaries.[^960]

424. Prior to the *Foreign Participation Order*, the Commission had
     evaluated cable landing license applications filed by foreign
     carriers or their affiliates under the analysis set forth in its
     ECO test.[^961] In the *Foreign Participation Order*, the
     Commission concluded that it would no longer require applicants
     with market power in WTO members (or applicants affiliated with
     such carriers) to demonstrate that the foreign markets offer
     effective competitive opportunities to obtain section 214 authority
     to serve those countries, or a cable landing license to land or
     operate a cable in those countries.[^962] The Commission determined
     that it would analyze foreign affiliation in the context of an
     application for a cable landing license in the same manner it
     evaluated section 214 authorizations.[^963] To that end, the
     Commission concluded that, where the applicant is a foreign
     carrier, or affiliated with a foreign carrier, that has market
     power in a WTO member where the cable lands, the application is
     evaluated under a strong presumption that it should be
     granted.[^964]

425. In the *Foreign Participation Order*, the Commission found that,
     because of the implementation of the WTO Basic Telecom Agreement,
     foreign carriers from WTO members would rarely be able to harm
     competition in the U.S. market by acting anticompetitively. The
     Commission further noted that, "\[e\]ven if a particular
     application presents unusual risks to competition, most potential
     problems can be addressed by imposing conditions on the
     license,\"[^965] and discussed examples of the kinds of conditions
     the Commission has imposed on cable landing licenses. For example,
     the International Bureau has imposed recordkeeping requirements on
     a licensee where it was deemed necessary to address anticompetitive
     concerns specific to one proposed submarine cable system.[^966] The
     Commission also stated that, when considering an application to
     land and operate a submarine cable that will connect to a non-WTO
     member, it would consider whether the applicant is, or is
     affiliated with, a carrier that has market power in a market where
     the cable lands, and if so, would consider whether that destination
     market offers effective competitive opportunities for U.S.
     companies to land or operate a submarine cable in that
     country.[^967] The Commission stated that it would also continue to
     consider, in addition to the *de jure* and *de facto* ECO criteria,
     other factors consistent with the Commission\'s discretion under
     the Cable Landing License Act that may weigh in favor of or against
     grant of a license.[^968]

426. In seeking authority to transfer control of a cable landing
     license, a carrier must comply with criteria similar to what is
     required of a carrier seeking section 214 authorization.
     Specifically, pursuant to sections 1.767 and 63.18 of the
     Commission's rules, the carrier must certify whether it is
     affiliated with a foreign carrier and provide information as to
     whether the foreign carrier has market power in a country where the
     cable lands. We find that the proposed merger will not result in
     Bell Atlantic's acquiring an affiliation with a foreign carrier
     (*i.e.*, a GTE foreign carrier) that has market power on the
     foreign end of a submarine cable for which Bell Atlantic holds a
     license. We also observe that the proposed merger will not result
     in GTE's acquiring an affiliation with a foreign carrier (*i.e.*, a
     Bell Atlantic foreign carrier) that has market power on the foreign
     end of a submarine cable for which GTE holds a license.
     Accordingly, we conclude that the transfer of control of the
     submarine cable landing licenses from GTE to Bell Atlantic is
     consistent with our rules and with the Cable Landing License
     Act.[^969]

# OTHER ISSUES

## Service Quality Issues

427. A number of commenters raise concerns regarding potential service
     quality problems resulting from the merger.[^970] These parties
     generally argue that service quality data and anecdotal evidence
     regarding Bell Atlantic's and GTE's performance demonstrate that
     mergers among large incumbent LECs adversely affect the public
     interest by hampering the delivery of service to consumers. The
     Applicants respond by asserting that these allegations are beyond
     the scope of this proceeding and submitting facts in an attempt to
     rebut commenters' claims.[^971]

428. We reject claims that we should prohibit these license transfers
     because of speculation that service quality in the merged company's
     service areas will deteriorate as a result of the merger. We
     conclude that the commitments proffered by Bell Atlantic and GTE in
     supplementing their application sufficiently mitigate the service
     quality concerns raised in the record. These voluntary commitments
     include several measures designed to prevent potential service
     quality degradation after the merger.[^972] Moreover, we anticipate
     that the quarterly reporting requirements contained in the merger
     conditions will provide the Commission, state public service
     commissions, and the public with key service quality data in a
     timely manner. We expect that these conditions will assist the
     states in promoting a high quality telecommunications service by
     and assist this Commission in detecting any potential post-merger
     degradation in service quality.

## Character Issues 

429. Among the factors that the Commission considers in its public
     interest inquiry is whether the applicant for a license has the
     requisite \"citizenship, character, financial, technical, and other
     qualifications.\"[^973] The Commission has previously determined
     that, in deciding character issues, it will consider certain forms
     of adjudicated, non-FCC related misconduct that includes: (1)
     felony convictions; (2) fraudulent misrepresentations to
     governmental units; and (3) violations of antitrust or other laws
     protecting competition.[^974] With respect to FCC-related conduct,
     the Commission has stated that it would treat any violation of any
     provision of the Act, or of the Commission\'s rules or polices, as
     predictive of an applicant\'s future truthfulness and reliability
     and, thus, as having a bearing on an applicant\'s character
     qualifications.[^975] In prior incumbent LEC merger orders, the
     Commission has used the Commission\'s character policy in the
     broadcast area as guidance in resolving similar questions in
     license transfer proceedings.[^976]

430. A number of commenters maintain that Bell Atlantic has a history of
     resisting competition in its existing monopoly markets. Commenters
     argue, for instance, that Bell Atlantic does not offer services
     throughout its region that would block directory assistance calls
     and toll calls on resold lines,[^977] does not compensate
     competitive carriers for the termination of traffic bound for
     Internet service providers,[^978] fails to provide
     nondiscriminatory access to OSS,[^979] and fails to provide xDSL
     services to customers that choose to subscribe to another carrier's
     local voice service.[^980] Additionally, AT&T argues that Bell
     Atlantic has failed to comply with the conditions imposed by the
     Commission on the Bell Atlantic/NYNEX merger.[^981]

431. Similarly, the record in this proceeding contains allegations by
     commenters that GTE has been extremely slow to implement the local
     competition provisions of the 1996 Act and has delayed competitive
     entry into its service areas.[^982] For example, many competitive
     LECs maintain that GTE does not provide collocation as provided in
     the Act and the Commission's rules.[^983] In addition, commenters'
     make claims relating to the availability of unbundled network
     elements,[^984] OSS issues,[^985] delivery of unbundled
     loops,[^986] implementation of line sharing,[^987] resale,
     interconnection,[^988] reciprocal compensation,[^989] number
     portability,[^990] advanced services,[^991] universal
     service,[^992] and billing.[^993] Additionally, SCC Communications
     claims that both Bell Atlantic and GTE currently violate their
     statutory obligations under Section 222(g), which requires
     incumbent LECs to provide subscriber list information to providers
     of emergency services and emergency support services.[^994]

432. We conclude that none of the foregoing allegations provides a basis
     for finding that Applicants lack the fitness to acquire licenses
     and authorizations currently held by GTE. The Applicants respond to
     each of these allegations by citing facts rebutting commenters'
     claims or by arguing that many of the allegations concern matters
     that are currently being addressed by this Commission or a state
     regulatory agency in other proceedings. Allegations concerning, for
     instance, certain obligations with respect to advanced services,
     collocation, and the Bell Atlantic/NYNEX conditions relate to
     matters addressed in separate Commission proceedings.[^995] In this
     regard, the Commission has previously stated that typically it will
     not consider in merger proceedings \"matters that are the subject
     of other proceedings before the Commission because the public
     interest would be better served by addressing the matter in the
     broader proceeding of general applicability."[^996] Alternatively,
     some of these allegations are best addressed in enforcement
     proceedings brought by aggrieved parties under section 208 of the
     Act. Accordingly, we do not consider such issues in determining
     whether the proposed transfers are in the public interest.

433. Thus, we decline to consider these allegations as part of our
     analysis of Bell Atlantic's fitness to acquire licenses and
     authorizations currently held by GTE. In reaching this conclusion,
     we emphasize that we are in no way condoning actions by an
     incumbent LEC that have the potential to impede the 1996 Act\'s
     goal of facilitating competition in all telecommunications markets.
     Indeed, as noted above, without the Applicants' voluntary
     commitments aimed at opening its local markets to competition, the
     public interest benefits of the proposed merger would not outweigh
     the significant public interest harms. We believe that the
     Applicants' commitments on issues such as collocation, OSS
     enhancements, shared transport, and offering of UNEs, and
     performance measurements should facilitate the development of
     competition in the combined Bell Atlantic/GTE region.[^997]

## Requests for Evidentiary Hearing

434. We deny commenters' requests that the Commission designate the
     proposed merger, or specific issues raised by the merger, for a
     trial-type evidentiary hearing before an administrative law judge
     to determine whether approval of the transfer of control request
     resulting from the proposed merger would serve the public
     interest.[^998] Under the Communications Act, the Commission is
     required to hold an evidentiary hearing on transfer of control
     applications in certain circumstances.[^999] Parties challenging an
     application to transfer control by means of a petition to deny
     under section 309(d) must satisfy a two-step test.[^1000] First,
     the petition to deny must set forth 'specific allegations of fact
     sufficient to show that . . . a grant of the application would be
     prima facie inconsistent with \[the public interest\];'.[^1001]
     Second, the petition must present a 'substantial and material
     question of fact.'[^1002] If the Commission concludes that the
     protesting party has met both prongs of the test, or if it cannot,
     for any reason, find that grant of the application would be
     consistent with the public interest, the Commission must formally
     designate the application for a hearing in accordance with section
     309(e).[^1003]

435. To satisfy the first prong of the test, a petitioning party must
     set forth allegations, supported by affidavit, that constitute
     "specific evidentiary facts, not ultimate conclusionary facts or
     mere general allegations . . .."[^1004] The Commission determines
     whether a petitioner has met this threshold inquiry in a manner
     similar to a trial judge's consideration of a motion for directed
     verdict: "if all the supporting facts alleged in the affidavits
     were true, could a reasonable fact finder conclude that the
     ultimate fact in dispute had been established."[^1005] If the
     Commission determines that a petitioner has satisfied the threshold
     standard of alleging a *prima facie* inconsistency with the public
     interest, it must then proceed to the second phase of the inquiry
     and determine whether, "on the basis of the application, the
     pleadings filed, or other matters which \[the Commission\] may
     officially notice," the petitioner has presented a "substantial and
     material question of fact."[^1006] If the Commission concludes that
     the "totality of the evidence arouses a sufficient doubt" as to
     whether grant of the application would serve the public interest,
     the Commission must designate the application for hearing pursuant
     to section 309(e).[^1007]

436. In evaluating whether a petitioner has satisfied the two-part test
     established in section 309(d),[^1008] the D.C. Circuit has
     indicated that where petitioners assert only "legal and economic
     conclusions concerning market structure, competitive effect, and
     the public interest," such assertions "manifestly do not" require a
     live hearing.[^1009] Moreover, in deferring to the Commission's
     determination not to hold an evidentiary hearing in *United
     States v. FCC*, the Court stated that "to allow others to force the
     Commission to conduct further evidentiary inquiry would be to arm
     interested parties with a potent instrument for delay."[^1010] In
     that case, the D.C. Circuit deferred to the Commission's conclusion
     that the potential benefits of such a hearing would be outweighed
     by the delay and its attendant costs.[^1011]

437. As an initial matter, we note that some parties seeking an
     evidentiary hearing in this merger proceeding did not satisfy the
     procedural requirements of section 309(d)(1).[^1012] First, several
     commenters included their requests for evidentiary hearings in
     general comments regarding the Application, not in a petition to
     deny, as section 309(d)(1) requires.[^1013] Additionally, in many
     instances commenters failed to support any of their allegations
     with affidavits. Finally, and most importantly, the issues raised
     by commenters do not reflect disputes over material facts, but
     rather focus on issues concerning the competitive impact of the
     merger and the public interest. These types of issues "manifestly
     do not" require a live hearing.[^1014]

438. We conclude that none of the requests for evidentiary hearing has
     raised a substantial and material question of fact that would
     require an evidentiary hearing.[^1015] The parties dispute the
     overall competitive impact of the merger and the ultimate public
     interest determination which, according to the D.C. Circuit, are
     claims that "manifestly do not" require a hearing.[^1016]
     Accordingly, we find that no party has satisfied the two-step test
     set forth in section 309(d),[^1017] either procedurally or
     substantively. We disagree with RCN, for instance, that there is a
     material issue of fact as to whether Bell Atlantic is implementing
     policies and positions that do not comply with section 251 of the
     Act. As discussed above, we conclude that such allegations should
     be properly raised before in an enforcement proceeding and are not
     a basis for denying the Applicants' proposed transfers. In
     addition, the voluminous record before us in this proceeding,
     including the numerous comments and *ex parte* filings we have
     received and the public forums we have conducted, has provided
     sufficient evidence to conclude no substantial and material
     question of fact has been raised and that grant of the Applicants'
     applications, as supplemented with the conditions imposed in this
     Order, serves the public interest, convenience and
     necessity.[^1018]

# ORDERING CLAUSES

439. Accordingly, having reviewed the applications and the record in
     this matter, IT IS ORDERED, pursuant to Sections 4(i) and (j),
     214(a), 214(c), 309, and 310(d) of the Communications Act of 1934,
     as amended, 47 U.S.C. §§ 154(i), 154(j), 214(a), 214(c), 309,
     310(d), and the Cable Landing License Act, 47 U.S.C. §§ 34-39, that
     the applications filed by GTE Corporation and Bell Atlantic
     Corporation in the above-captioned proceeding ARE GRANTED subject
     to the conditions stated below.

440. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a),
     214(c), 309, and 310(d) of the Communications Act of 1934, as
     amended, 47 U.S.C. §§ 154(i), 154(j), 214(a), 214(c), 309, 310(d),
     and the Cable Landing License Act, 47 U.S.C. §§ 34-39, that the
     above grant shall include authority for Bell Atlantic to acquire
     control of:

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

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

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

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```
441. IT IS FURTHER ORDERED that Bell Atlantic/GTE must complete the
     Genuity initial public offering (IPO) as described herein prior to
     the transfer of licenses and lines. Bell Atlantic/GTE shall make
     certification to the Commission that such IPO was completed prior
     to merger closing.

442. IT IS FURTHER ORDERED that the Applicants must cease providing the
     interLATA services described in the Letter from Alan F.
     Ciamporcero, Vice President, Regulatory Affairs, GTE Service
     Corporation, to Magalie R. Salas, Secretary, Federal Communications
     Commission, CC Docket No. 98-184 (filed Apr. 17, 2000), attached
     hereto as Appendix E, and the private-line resale services of GTE
     Telecom, described in the Letter from Alan F. Ciamporcero, Vice
     President, Regulatory Affairs, GTE Service Corporation, to
     Magalie R. Salas, Secretary, Federal Communications Commission, CC
     Docket No. 98-184 (filed Apr. 28, 2000), attached hereto as
     Appendix F, within Bell Atlantic's in-region states other than New
     York and shall certify to the Commission that such cessation of
     service was completed prior to merger closing.

443. IT IS FURTHER ORDERED that as a condition of this grant Bell
     Atlantic and GTE shall comply with the conditions set forth in
     Appendices B and D of this Order.

444. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and (j), 309,
     and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.
     §§154(i), 154(j), 309, 310(d), the Petition to Condition Grant
     filed by the Commonwealth of Northern Mariana Islands on November
     23, 1998, IS DENIED.

445. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and (j), 309,
     and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.
     §§154(i), 154(j), 309, 310(d), the Comments of United States
     Cellular Corporation and Notice of Intention to Participate filed
     on November 23, 1998, with respect to a waiver of CMRS Spectrum Cap
     Rule, IS DENIED.

446. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and (j), 309,
     and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.
     §§154(i), 154(j), 309, 310(d), the applications of Bell Atlantic
     and GTE to transfer control of wireless licenses referenced herein
     and related thereto ARE GRANTED, subject to the condition that the
     parties comply with 47 C.F.R. § 22.942.

447. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and (j), 309,
     and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.
     §§154(i), 154(j), 309, 310(d), the applications of Bell Atlantic
     and GTE to transfer control of wireless licenses referenced herein
     and related thereto ARE GRANTED, subject to the condition that the
     parties come into compliance with 47 C.F.R. § 20.6 either within 60
     days after merger closing, or within 180 days following release of
     this Order, whichever date is earlier.

448. IT IS FURTHER ORDERED that, as part of our approval of the merger,
     we approve the transfer of control to Bell Atlantic of all
     international section 214 authorizations (including pending
     applications) and all cable landing licenses (including pending
     applications), except those that will be transferred to Genuity as
     specified below, and subject to the modifications described below,
     which currently are held by the following international carrier
     subsidiaries of GTE: GTE Communications Corporation, GTE Hawaiian
     Tel International Incorporated, GTE Pacifica Incorporated, GTE
     Wireless Incorporated, GTE Airfone Incorporated, GTE Railfone
     Incorporated, Codetel International Communications Incorporated,
     GTE Telecommunication Services Incorporated, TELUS Communications
     (B.C.) Inc., and Celulares Telefónica.

449. IT IS FURTHER ORDERED that all the international section 214
     authorizations of the GTE international carrier subsidiaries that
     will be transferred to Bell Atlantic as part of GTE\'s merger with
     Bell Atlantic are hereby modified, merger closing, to exclude the
     provision of international service originating in Bell Atlantic\'s
     in-region states other than New York.

450. IT IS FURTHER ORDERED that the following international section 214
     authorizations granted to subsidiaries of GTE are amended to apply
     dominant carrier regulation, as specified in section 63.10 of the
     rules, to their provision of the authorized services on the
     U.S.-Gibraltar route effective upon consummation of GTE\'s merger
     with Bell Atlantic: GTE Communications Corporation, File No.
     ITC-214-19991104-00684; Codetel International Communications
     Incorporated, File No. ITC-214-19990303-00103; Celulares
     Telefónica, Inc., File No. ITC-T/C-19980902-00605; GTE Hawaiian Tel
     International Incorporated, File Nos. ITC-96-645 and ITC-97-078;
     GTE Pacifica Incorporated, File No. ITC-97-779-AL; and TELUS
     Communications (B.C.), Inc., File No. ITC-T/C-19990114-00023.

451. IT IS FURTHER ORDERED that the following international section 214
     authorizations granted to subsidiaries and affiliates of Bell
     Atlantic are amended to apply dominant carrier regulation, as
     specified in section 63.10 of the rules, to their provision of the
     authorized services on the U.S.-Dominican Republic and
     U.S.-Venezuela routes effective upon consummation of GTE\'s merger
     with Bell Atlantic: Cellco Partnership, File Nos. ITC-96-246 and
     ITC-96-579; NYNEX Long Distance Company, File Nos. ITC-96-520,
     ITC-214-19971223-99813 (old File No. ITC-98-002), and
     ITC-214-19971223-99811 (old File No. ITC-98-003); and Bell Atlantic
     Communications, Inc., File Nos. ITC-96-451, ITC-214-19971223-99813
     (old File No. ITC-98-002), and ITC-214-19971223-99811 (old File No.
     ITC-98-003).

452. IT IS FURTHER ORDERED that, as part of our approval of the merger,
     we approve the transfer of control to Genuity of the following
     international section 214 authorizations and cable landing licenses
     held by various GTE international operating subsidiaries, subject
     to the modifications described below: (1) File No.
     ITC-214-19990708-00391 (global facilities-based and resale
     authorization held by GTE Telecom Incorporated); (2) File No.
     SCL-98-003/SCL-98-003A (submarine cable landing license for
     AMERICAS-II Cable to be held by GTE Telecom Incorporated after a
     pro forma assignment from GTE Communications Corp.); (3) File No.
     SCL-LIC-19990303-00004 (submarine cable landing license for TAT-14
     Cable from GTE Intelligent Network Services); (4) File No.
     SCL-LIC-19981117-00025 (submarine cable landing license for
     Japan-U.S. Cable from GTE Intelligent Network Services); and (5)
     ITC-98-342/ ITC-98-342A (international section 214 authorization,
     associated with the AMERICAS-II Cable landing license, to be held
     by GTE Telecom Incorporated after a pro forma assignment from GTE
     Communications Corp.).

453. IT IS FURTHER ORDERED that the international section 214
     authorizations for which we here approve a transfer of control to
     Genuity, File Nos. ITC-214-19990708-00391 and ITC-98-342/
     ITC-98-342A, are modified, effective upon completion of the
     transfer to Genuity, to classify GTE Telecom Incorporated as a
     nondominant international carrier on the U.S.-Dominican Republic
     and U.S.-Venezuela routes.

454. IT IS FURTHER ORDERED that pursuant to section 212 of the
     Communications Act, all of Bell Atlantic's and GTE's post-merger
     carrier subsidiaries will be "commonly owned carriers" as that term
     is defined in the Commission's rules.

455. IT IS FURTHER ORDERED that all motions to accept late-filed
     comments filed in CC Docket No. 98-184 ARE GRANTED.

456. IT IS FURTHER ORDERED that all petitions to deny the applications
     of Bell Atlantic and GTE for transfer of control and all requests
     to hold an evidentiary hearing ARE DENIED for the reasons stated
     herein.

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

> FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

Appendix A

List of Commenters

APPENDIX A: LIST OF COMMENTERS, CC DOCKET NO. 98-184

BELL ATLANTIC/GTE OCTOBER 2, 1998 APPLICATION FOR

TRANSFER OF CONTROL

Petitions/Comments (filed November 23, 1998):

1.  AT&T

2.  Alliance for Public Technology (APT)

3.  Bear Stearns & Co., Inc.

4.  CTC Communications Corp. (CTC)

5.  Cablevision LightPath, Inc. (Cablevision)

6.  Communications Workers of America (CWA)

7.  Competitive Enterprise Institute (CPI)

8.  Consumers Union and the Consumer Federation of America

9.  CoreComm Ltd. (CoreComm)

10. EMC Corp.(EMC)

11. Focal Communications Corporation (FOCAL)

12. Freedom ring Communications, LLC d/b/a BayRing Communications
    (BayRing)

13. GST Telecom Inc. (GST)

14. Hyperion Telecommunications, Inc. (Hyperion)

15. Indiana Utility Regulatory Commission (IURC)

16. Keep America Connected

17. KMC Telecom (KMC)

18. Level 3

19. MCI WorldCom, Inc. (MCI WorldCom)

20. National Consumers League

21. Pactec Communications (Pactec)

22. Pilgrim Telephone (Pilgrim)

23. Public Utility Commission of Texas (PUC of Texas)

24. RCN Telecom Services, Inc. (RCN)

25. Rainbow/Push Coalition

26. Sprint

27. Supra Telecommunications & Information Systems (Supra)

28. Telecommunications Resellers Association (TRA)

29. The Commonwealth of Northern Mariana Islands

30. The Consumer Groups

31. Tricom USA (Tricom)

32. Triton, PCS, Inc. (Triton)

33. United States Cellular Corporation

34. WorldPath Internet Services (WorldPath)

35. XChange, L.L.C. (XChange)

Oppositions/Reply Comments (filed December 23, 1998):

1.  Bell Atlantic Corporation and GTE Corporation (Bell Atlantic/GTE)

2.  Campaign for Telecommunications Access

3.  Commonwealth of the Northern Mariana Islands

4.  Competition Policy Institute (CPI)

5.  Consumer Groups

6.  CTC Communications, Corp (CTC)

7.  Hyperion Telecommunications, Inc. (Hyperion)

8.  Keep America Connected, et, al.

9.  MCI WolrdCom, Inc. (MCI WorldCom)

10. National Hispanic Council on Aging, et, al.

11. Progress & Freedom Foundation

12. Public Utilities Commission of Ohio (PUC of Ohio)

13. RCN Telecom Services, Inc (RCN)

14. Tricom USA, Inc. (Tricom)

BELL ATLANTIC/GTE

January 27, 2000 SUPPLEMENTAL FILING

Petitions/Comments on Internet Backbone Proposal (filed February 15,
2000):

1.  Arvanitas, Peggy

2.  Association For Local Telecommunications Services (ALTS)

3.  AT&T

4.  Communications Workers of America (CWA)

5.  Competitive Telecommunications Associations (Comptel)

6.  Covad Communications Company (Covad)

7.  Lowenhaupt, Thomas, Vice Chair, Community Board 3Q

8.  NEXTLINK Communications, Inc. (NEXTLINK)

9.  Progress & Freedom Foundation

10. Telecommunications Resellers Association (TRA)

Oppositions/Reply Comments on Internet Backbone Proposal

(filed February 22, 2000):

1.  Bell Atlantic/GTE

2.  Cable & Wireless

3.  Competition Policy Institute (CPI)

4.  Pimmitt Run Research, Inc.

Petitions/Comments on All Other Issues (filed March 1, 2000):

1.  Advanced Telecom Group, Inc. (Advanced Telecom)

2.  Allegiance Telecom, Inc. (Allegiance)

3.  Alliance for Public Technology (APT)

4.  American Telemedicine Association

5.  AT&T Corp.

6.  BlueStar Communications, Inc, DSL.net Inc., KMC Telecom, Inc., and
    MGC Communications, Inc. (BlueStar et al.)

7.  Commonwealth of Northern Mariana Islands

8.  Communications Careers for Latinos

9.  Communications Workers of America (CWA)

10. Competitive Telecommunications Association (CompTel)

11. CoreComm, Inc. (CoreComm)

12. Covad Communications Company (COVAD)

13. Focal Communications (FOCAL)

14. Indiana Utility Regulatory Commission (IURC)

15. Labor Council For Latino American Advancement (LCLAA)

16. MCI WorldCom

17. National ALEC Association/Prepaid Communications Association

(National ALEC)

18. National Puerto Rican Coalition, The Cuban American National
    Council, MANA, The American G.I. Forum, The Hispanic Association of
    Colleges and Universities, ASPIRA Association, The League of United
    Latin American Citizens, and The National Association of Hispanic
    Publications (National Puerto Rican Coalition et al.)

19. NorthPoint Communications, Inc. (NorthPoint)

20. Office of Consumer Advocate, Pennsylvania

21. RCN Telecom Services (RCN)

22. Texas Office of Public Utility Counsel (Texas OPC)

23. United States Hispanic Chamber of Commerce

24. World Institute on Disability

25. Z-Tel Communications (Z-Tel)

Oppositions/Reply Comments on All Other Issues (filed March 16, 2000):

1.  Bell Atlantic/GTE

2.  NEXTLINK Communications, Inc. (NEXTLINK)

3.  Telecommunications Advocacy Project (TAP)

Comments on Applicant's Further Submissions (filed May 5, 2000):

1.  Allegiance Telecom, Inc., Bluestar Communications, Inc., CoreComm,
    Inc., DSLNET, Inc.,MGC Communications, Inc., d/b/a MPower
    Communications Corporation

2.  Association For Local Telephone Services (ALTS)

3.  AT&T

4.  Cavalier Telephone, LLC. (Cavalier)

5.  Competition Policy Institute (CPI)

6.  COVAD Communications Company (COVAD)

7.  Fred Goldstein

8.  Information Technology Association of America (ITAA)

9.  NorthPoint Communications (NorthPoint)

10. SCC Communications Corp. (SCC)

11. WorldCom

Reply Comments on Applicant's Further Submissions (filed May 9, 2000):

1.  Alexis Rosen

2.  BA/GTE (correction, filed May 10, 2000)

**Appendix B**

**Genuity Conditions**

APPENDIX B

**[Conditions for Establishment of Genuity as a Separate
Corporation]{.smallcaps}**

458. Bell Atlantic and GTE must implement the spin-off of Genuity to a
     separate public corporation in accordance with the following
     structure:

# IPO of Genuity

459. Genuity's existing nationwide data business will be established as
     a separate corporation that will be publicly owned and controlled.
     Before merging with Bell Atlantic, GTE will exchange its common
     stock of Genuity for shares of a new class of common stock, the
     Class B common stock, and Genuity will sell 90.5% of its equity to
     public shareholders through an initial public offering ("IPO").
     Following these transactions, the Class B stock will carry 9.5% of
     the voting rights and the right to receive 9.5% of any dividends or
     other distributions in Genuity, subject to the conversion rights
     and investor safeguards described below, and Genuity's Class A
     common stock, initially representing 90.5% of the equity in the
     company, will be owned by the public. The merger of Bell Atlantic
     and GTE (creating "NewCo") will not close until the IPO is
     completed.

# Conversion Rights

460. The extent of NewCo's rights to convert its Class B stock into a
     greater equity interest is as described below. NewCo will have five
     years from the closing of the merger (subject to any extension
     specifically contained herein or granted by the Commission at its
     discretion as specified in Section 2.D below) to satisfy the
     conditions associated with its conversion rights and to exercise
     those conversion rights.

## No Conversion Right Above 10% Equity Interest If Threshold Not Met

461. Unless and until NewCo eliminates, as to at least 50% of Bell
     Atlantic in-region lines,[^1019] section 271 restrictions
     applicable to its operation of Genuity's business, NewCo will only
     have the right to convert its Class B stock into Class A stock
     representing a 10% equity interest in Genuity. Accordingly, if
     NewCo fails to meet the 50% threshold within the conversion period,
     NewCo will never have any right to convert its stock into more than
     a 10% interest, and the public shareholders' ownership of at least
     90% of the company will be permanent. Likewise, if NewCo transfers
     its Class B shares to a third party before reaching the 50% section
     271 threshold, that third party will never be able to convert those
     shares into more than a 10% interest in Genuity.

## Conversion Right Above 10% Equity Interest Once Threshold Is Met

462. Once NewCo has met the 50% section 271 threshold, its Class B
     shares become capable of converting into stock that will represent
     approximately 80% of the outstanding shares of Genuity following
     conversion, assuming no additional Class A shares are issued before
     conversion. Even after meeting this threshold, however, NewCo
     itself cannot exercise its conversion rights so as to own and
     control Genuity unless and until NewCo has eliminated all section
     271 restrictions applicable to NewCo's operation of Genuity's
     business.

463. Once NewCo has eliminated such restrictions as to 95% of Bell
     Atlantic in-region lines, NewCo may require Genuity to reconfigure
     its operations in one or more Bell Atlantic in-region states where
     NewCo has not eliminated such restrictions in order to bring those
     operations into compliance with section 271 and allow NewCo to
     exercise its option and own and operate Genuity, *provided that*
     (i) NewCo gives the Commission at least 90 days advance notice of
     its intent to exercise its option and submits to the Chief of the
     Common Carrier Bureau a plan for the reconfiguration of Genuity's
     operations in the relevant state or states, (ii) the
     reconfiguration of Genuity's operations does not result in the loss
     to Genuity of more than 3% of its annual revenue, and (iii) NewCo
     reimburses Genuity for the cost of such reconfiguration (as
     provided for in an agreement between NewCo and Genuity).

464. NewCo's post-conversion interest will be lower than 80% if Genuity,
     as is anticipated, issues additional shares of Class A stock before
     NewCo exercises its conversion rights. Upon exercise of its
     conversion rights, NewCo's Class B shares shall be converted into
     the appropriate number of Class C shares. Each share of Class C
     stock will be identical to a share of Class A stock except that it
     will carry five votes; these enhanced voting rights will likely
     preserve NewCo's ability to obtain voting control of Genuity
     post-conversion in the event Genuity has issued substantial amounts
     of new Class A shares. If NewCo transfers its Class B shares to
     another party, that party may only convert them into Class A stock.

465. Subject to the limitation on sales proceeds below, NewCo will have
     the right at any time after it has met the 50% section 271
     threshold to dispose of all or part of its Class B shares, or to
     exercise its conversion rights as part of a transaction by which it
     immediately disposes of all or part of its interest in Genuity so
     that its post-conversion interest in Genuity does not exceed a 10%
     equity interest. If NewCo seeks to sell all or part of its interest
     in the Class B shares after it has met the 50% section 271
     threshold (but before it has eliminated applicable section 271
     restrictions as to 95% of Bell Atlantic in-region lines), it shall
     offer to sell such shares to Genuity at a price equal to the lesser
     of the following: (a) the amount it would be able to retain under
     section 2(c) below, or (b) the fair market value of the shares (as
     determined by a nationally recognized independent investment banker
     selected jointly by Genuity and NewCo). The purchase price may be
     payable in the form of a marketable debt instrument which will not
     be subordinate and will have a fair market value equal to its face
     value. Such debt instrument shall bear interest at a commercially
     reasonable rate, comparable to rates under similar instruments held
     by companies with debt ratings comparable to Genuity, with a
     commercially reasonable time for repayment. Genuity shall have 90
     days after the date it receives such an offer to agree to purchase
     NewCo\'s shares. If Genuity agrees to purchase NewCo\'s shares
     within the 90 day period, Genuity shall have 180 days after the
     date it receives the offer to make any financial or other
     arrangements and to complete the purchase. NewCo will grant any
     consent necessary under the investor safeguards described below in
     order to complete such a sale to Genuity. The Applicants shall make
     such changes to their S-1 and other filings as necessary to provide
     that Genuity's holding of a debt instrument as described in this
     paragraph shall be an exception to any limitation on the aggregate
     amount of debt that NewCo may hold in Genuity, as otherwise
     provided in these conditions. If, before NewCo's conversion period
     would otherwise expire, NewCo has offered to sell Class B shares to
     Genuity, the conversion period will be extended to allow for sale
     of the Class B shares to Genuity or to another party.

466. In the event Genuity chooses not to purchase NewCo\'s shares within
     the 90-day period after it receives such an offer (or if Genuity is
     unable to complete the purchase), then NewCo will transfer the
     shares to a disposition trustee selected in accordance with the
     Commission\'s rules for sale to a third party purchaser. Upon
     completion of the sale, the disposition trustee will remit to NewCo
     as soon as reasonably practicable the proceeds of such a sale
     subject to the limitation on sales proceeds in section 2(c). To the
     extent Class B shares are purchased by someone who is not subject
     to applicable section 271 restrictions, that purchaser would be
     free to convert those Class B shares immediately into Class A
     shares.

467. After NewCo has eliminated applicable section 271 restrictions as
     to 100% of Bell Atlantic in-region lines and simultaneous with its
     conversion of the shares of Class B common stock, NewCo would, at
     its election, either make a payment to Genuity for distribution to
     the holders of Class A common stock or adjust the conversion ratio,
     in either event so that the holders of Genuity's Class A common
     stock receive a portion of the appreciation on the Class B common
     stock (and accompanying conversion rights). That portion would be
     determined as follows. First, NewCo's total appreciation would be
     determined; that would be an amount equal to the value of NewCo's
     Class B common stock on an as-converted basis (determined by a
     nationally recognized independent investment banker in proportion
     to the appreciation in the publicly traded Class A common stock but
     adjusting that appreciation so that it did not reflect anticipation
     of the payment or conversion change contemplated by this paragraph)
     less the initial value of NewCo's Class B stock (based on the
     original IPO price). Second, the appreciation attributable to a 10%
     interest in Genuity would be subtracted from NewCo's total
     appreciation (since NewCo could have owned that without regard to
     section 271 restrictions). Third, as of each anniversary of the
     closing of the IPO, a percentage will be determined equal to 25
     percent[^1020] times a fraction, the numerator of which is the
     number of Bell Atlantic in-region lines as to which applicable
     section 271 restrictions have not been eliminated and the
     denominator of which is the number of Bell Atlantic in-region
     lines.[^1021] Fourth, those annual fractions will be averaged. And
     fifth, the product of that average fraction times NewCo's
     appreciation (less the ten percent subtracted in step two) will
     either be paid in cash to Genuity, in which case it will be tax
     adjusted (to reflect the fact that NewCo would have to pay taxes if
     it sold Genuity stock or other assets to raise the cash), or
     translated into a number of shares of Genuity stock and forgone by
     NewCo in the conversion, in either event giving the appropriate
     amount of value to the public shareholders.

## Limitation on Sales Proceeds

468. If NewCo sells all of its stock before it has eliminated applicable
     section 271 restrictions as to 95% of Bell Atlantic in-region
     lines, NewCo will not have a right to retain sale proceeds that
     exceed (i) the value of a 10% equity interest in Genuity
     (determined based on the sale proceeds), plus (ii) the amount NewCo
     would have if it had taken the amount of its initial investment in
     Genuity above a 10% interest (based on the IPO offering price for
     the Class A shares) and invested it at the time of closing in the
     S&P 500 Index. If, during such period, NewCo sells all of its stock
     except an amount convertible into a 10% equity interest in Genuity,
     NewCo will have a right to retain only the amount described in
     clause (ii) above.[^1022] In each of these cases, NewCo would pay
     an amount equal to sale proceeds in excess of those proceeds it can
     retain under the preceding two sentences, adjusted to reflect taxes
     due on that excess amount, or would pay such lesser amount as the
     Commission in its discretion may determine, into the general fund
     of the U.S. Treasury. Once NewCo has eliminated applicable section
     271 restrictions as to at least 95% of Bell Atlantic's in-region
     lines, NewCo may sell its stock and retain the sales proceeds,
     except that NewCo (or the purchaser) shall make either the
     conversion payment or the conversion adjustment that would be
     required under the last paragraph of Section 2.B.

## Extension of Five-Year Conversion Period

469. If, by the end of five years, NewCo has eliminated applicable
     section 271 restrictions as to all but 10% of Bell Atlantic
     in-region lines (or as to all but one state, irrespective of the
     percentage of Bell Atlantic in-region lines accounted for by that
     state, plus additional states accounting for up to 5% of Bell
     Atlantic in-region lines), NewCo may file a petition with the
     Commission requesting one additional year in which to eliminate the
     remaining restrictions and exercise its conversion rights. The
     Commission shall have discretion whether to approve such a
     petition. If, by the end of the conversion period, litigation is
     pending over whether NewCo has eliminated such restrictions as to
     certain lines, and if a court determines after the end of the
     conversion period that NewCo has eliminated such restrictions as to
     those lines, then for purposes of these provisions NewCo shall be
     deemed to have eliminated those restrictions within the conversion
     period and shall be permitted a reasonable time to exercise or
     dispose of its conversion rights.

470. The Commission shall have discretion to toll or extend the running
     of the conversion period to account for intervening events that
     delay elimination of section 271 restrictions.

471. If, by the end of the conversion period, NewCo has eliminated
     applicable section 271 restrictions as to 100% of Bell Atlantic
     in-region lines, then NewCo shall be able to exercise its
     conversion rights at a time determined by Newco (whether inside or
     outside the conversion period). Once Bell Atlantic/GTE has
     eliminated applicable section 271 restrictions as to 100% of Bell
     Atlantic in-region lines, it will comply with section 272 to the
     same extent that section 272 would apply if Bell Atlantic/GTE
     exercised its conversion rights, notwithstanding any delay in
     actual conversion of its shares of Class B stock.

## Compliance with Legal Order

472. If, before NewCo satisfies the 50% section 271 threshold, a court
     or agency rules that NewCo's interest in Genuity results in a
     violation of section 271, NewCo's Class B shares shall be
     immediately convertible to the same extent as described above in
     section 2.B. In such event, NewCo shall be given a reasonable time
     extending beyond the date that such ruling becomes final and
     non-appealable in which to dispose of its Class B shares to the
     extent they are convertible into more than a 10% interest (or to
     convert those shares as part of a disposition), and may sell its
     shares to a third party subject to the limitation on sales proceeds
     described above.

# Independence of Genuity

473. Until NewCo eliminates the applicable section 271 restrictions and
     exercises its option to take ownership of Genuity, Genuity will be
     independent of NewCo. Genuity will have an independent board of
     directors that is periodically elected by the voting shareholders
     consistent with the requirements of applicable corporation laws.
     Before the IPO, Genuity will elect six directors, including the CEO
     of Genuity, one director elected by a class vote of the Class B
     shares, and four independent directors who have no prior
     relationship with GTE or Bell Atlantic. Within 90 days following
     the IPO, the four independent directors will select seven
     additional directors who have no prior relationship with GTE or
     Bell Atlantic, which will bring the total board membership to 13
     directors, a majority of whom will have been selected after the
     IPO. In addition, as soon as practicable, but in any event within
     nine months following the IPO, all directors except the Class B
     director will stand for election by the public shareholders, and
     each year thereafter four such directors will stand for election.
     The Class B director will abstain from any vote before there are at
     least ten directors on the board and will at no time serve as
     chairman of the board. Exhibit B to the April 28, 2000 *ex parte*
     submission of William P. Barr describes more fully how the board of
     Genuity will be constituted and elected.

474. The board and officers of Genuity will owe fiduciary duties to the
     public shareholders. Incentive compensation for Genuity managers
     will be tied to the performance of Genuity and the value of
     Genuity's publicly traded stock, not to the financial performance
     or stock value of NewCo. The initial source of financing for
     Genuity will be the proceeds from the IPO of Class A stock. Any
     additional funding required by Genuity during the period before
     NewCo converts its Class B stock would be raised from the public
     markets, possibly by issuing additional Class A shares, by issuing
     debt to the public, or by arm's-length commercial loans. During
     such period, if NewCo were to choose to make loans to Genuity,
     NewCo could provide no more than 25% of the aggregate debt
     financing that Genuity is permitted to incur.

# Investor Safeguards

475. NewCo's interests as a minority investor and potential future
     majority shareholder of Genuity will be protected by certain
     reasonable investor safeguards, which are described in Attachment 1
     to these Conditions. NewCo's rights under these safeguards will
     remain in effect only until NewCo converts its Class B shares (or
     until NewCo no longer has a possibility of converting into more
     than a 10% interest). These include the right to approve certain
     fundamental business changes that adversely impact the value of
     NewCo's minority investment and conversion rights, including a
     change in control of Genuity or the sale of a significant portion
     of its assets.

476. Genuity's business includes Internet backbone and related IP
     services. Genuity does not provide traditional switched voice
     long-distance service, and Genuity's business plan does not
     contemplate the acquisition of a traditional voice long-distance
     service provider. NewCo agrees not to consent, pursuant to any
     applicable investor safeguard rights, to Genuity's acquisition of a
     traditional voice long-distance provider unless the Commission has
     first reviewed and approved such acquisition.

# Commercial Contracts Between NewCo and Genuity

477. Consistent with the fact that Genuity and NewCo will each be
     independent public corporations whose directors and officers will
     owe duties of care and loyalty to their respective shareholders,
     all commercial interactions between NewCo and Genuity will be
     pursuant to commercially reasonable contracts. (*See* "Commercial
     Contracts Between NewCo and DataCo," submitted for the record on
     April 3, 2000, and revised agreements submitted on June 9, 2000.)

478. Because a significant portion of Genuity's business will be outside
     the Bell Atlantic region or in in-region states where Bell Atlantic
     has eliminated applicable interLATA restrictions, NewCo may enter
     into a marketing agreement with Genuity for the period before NewCo
     exercises its conversion rights. (*See* "Purchase, Resale and
     Marketing Agreement," submitted as part of the "Commercial
     Contracts Between NewCo and DataCo.") Both GTE and Bell Atlantic
     are legally free to enter into this kind of commercial relationship
     today with a similarly situated company. Pursuant to this
     agreement, NewCo will market Genuity's services (or the two
     companies will market their services jointly) as and where
     permitted by law. For example, in New York, where Bell Atlantic has
     already received section 271 approval, NewCo and Genuity will
     jointly market Genuity's Internet connectivity services. The
     agreement provides that NewCo will not provide or jointly market
     any interLATA Genuity service in any state where NewCo does not
     have interLATA authority. The agreement is non-exclusive; either
     company may purchase from or sell to others.

479. NewCo and Genuity will also enter into certain additional
     commercial contracts, including contracts for transitional
     administrative support services to help ensure Genuity's
     stand-alone viability following the Genuity IPO. These transitional
     support contracts will have a term of one year or less and will be
     terminable at any time by Genuity without penalty. In addition,
     these transitional services contracts will not be renewed by the
     parties. The list of transitional services, with the timeframe for
     each service within which Genuity will transition from NewCo, is
     attached to these Conditions as Attachment 2. NewCo will not have
     any role in hiring or firing Genuity employees, and Genuity will
     not rely upon any network monitoring from NewCo after October 31,
     2000.

# Independent Auditor

480. NewCo will hire an independent auditor, acceptable to the Chief of
     the Common Carrier Bureau, to monitor NewCo's ongoing compliance
     with the terms of these conditions.

APPENDIX C: Summary of Confidential Information

**\[NOT TO BE RELEASED WITH PUBLIC VERSION\]**

This Appendix summarizes documents produced by the Applicants in
connection with each Applicant's plans to compete in local exchange and
exchange access markets outside its service areas and, in particular,
within each other's service areas.

## Applicants' Plans to Compete Outside Their Traditional Service Areas

### GTE's Out of Region Plans

### Bell Atlantic's Out of Region Plans

**SEPARATE STATEMENT OF COMMISSIONER SUSAN NESS**

*Re: Applications of GTE Corporation, Transferor, and Bell Atlantic
Corporation, Transferee, for Consent to Transfer Control of Domestic and
International Sections 214 and 310 Authorizations and Application to
Transfer Control of a Submarine Cable Landing License (CC Docket No.
98-184)*

The Commission today approves the merger of two of the largest incumbent
telephone companies. I believe that on balance the transaction, as
finally structured, is consistent with the public interest. I write
separately to underscore the importance that I place on ensuring that
the transaction complies with both the letter and spirit of section 271
of the Communications Act. That provision lies at the very heart of
Congress' efforts to promote competition and deregulation throughout all
telecommunications markets.

While this transaction presents a close call, I believe that the
modified proposal that we approve today satisfies the section 271 test.
In particular, the merged entity is not allowed to profit from in-region
long distance services prior to achieving section 271 approval. This
will give the company the incentive to open its local markets as
expeditiously as possible. Today's decision emphasizes that Bell
companies may participate in the long distance market in their states,
but only after they have fulfilled their statutory market-opening
responsibilities.

**STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT‑ROTH**

**CONCURRING IN PART AND DISSENTING IN PART**

*Re: GTE Corporation and Bell Atlantic Corporation, Application for
Consent to Transfer Control of Domestic and International Sections 214
and 310 Authorizations and Application to Transfer Control of a
Submarine Cable Landing License*, Memorandum Opinion and Order, CC
Docket No. 98-184.

I concur in the Commission's decision to approve Bell Atlantic's and
GTE's application to transfer control of certain lines and licenses in
connection with the parties' planned merger transaction. I agree that
the parties have demonstrated that they will be in compliance with
section 271 of the Telecommunications Act of 1996 when this transaction
is complete and that Genuity will not be an "affiliate" of the merged
company within the meaning of 47 U.S.C. § 153(1).

As I have said before, however, I do not endorse the quasi-antitrust
analysis that this Commission has used to determine whether a license
transfer is in the "public interest," and I do not join in those
portions of this Order that follow this approach. Nor do I support those
conditions that are essentially carbon copies of the conditions that the
Commission imposed on the SBC/Ameritech transaction. I summarize below
my objections to these conditions. I refer to the reader to my statement
in the *SBC/Ameritech Order* for a more complete discussion of my
concerns. *See* Statement of Commissioner Furchtgott-Roth, Concurring in
Part & Dissenting in Part, *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
98-141 (rel. Oct. 6, 1999).

*First*, and most importantly, the Commission's "public interest"
interest test is not grounded in the law. The Commission applies very
different levels of review to license transfer applications that arise
under identical statutory provisions, and it has never articulated a
standard for distinguishing among those applications that receive
extensive analysis and those that do not. Nor does the Commission have
established procedures for processing license transfer applications.
And, once it decides to subject a license transfer application to
extensive review, it applies a framework that is so malleable the
Commission can justify any conclusion it wishes. As a result, applicants
lack advance notice regarding the extent to which this Commission will
scrutinize their applications, the process by which their applications
will be handled, and the substantive standard that will be applied
should the Commission closely scrutinize their applications.

Not only is the Commission's free-wheeling approach to its review of
license transfer applications arbitrary and inconsistent with fair
notice requirements, but also it may well be at odds with the
constitutional nondelegation doctrine. The Court of Appeals for the
District of Columbia Circuit has held that where an agency fails to
articulate "intelligible principles" to guide its implementation of a
statutory provision, as the Commission has here, it has effected an
unconstitutional delegation of legislative power. *See* *American
Trucking Ass'ns, Inc. v. EPA*, 175 F.3d 1027 (D.C. Cir. 1999), *cert.
granted sub nom.*, *Browner v. American Trucking Associations, Inc.*,
120 S.Ct. 2003 (2000).

*Second*, even assuming the Commission had the authority to impose
conditions on a license transfer application based on the "public
interest" test, the legality of the conditions imposed in this Order is
dubious. Indeed, some of the conditions are directly at odds with
specific sections of the statute. For example, as with the SBC/Ameritech
transaction, the parties have agreed to offer promotions to certain
competing local exchange carriers. But many competing LECs will be
unable to obtain these promotional deals, in violation of section
251(c)(3)'s and 251(c)(4)(B)'s nondiscrimination requirements. In
addition, the carrier-to-carrier promotion condition violates section
251(i)'s pick-and-choose provision, since some carriers will not be able
to access BA/GTE's facilities on the "same terms and conditions" as
other carriers. *Cf*. *American Tel. and Tel. Co. v. Central Office
Tel., Inc.*, 524 U.S. 214 ("\[T\]he policy of non-discriminatory rates
is violated when similarly situated customers pay different rates for
the same services. It is that non-discriminatory policy which lies at
the heart of the Communications Act.") (internal quotation marks
omitted).

In addition, the enforcement conditions set forth in this order
undermine the ability of state commissions to administer section 251's
market-opening provisions. Section 252 specifically confers upon state
commissions the authority to oversee negotiation, arbitration, and
approval of interconnection agreements. This Commission takes over this
function only when a state commission fails to act to carry out its
section 252 responsibilities. *See* 47 U.S.C. §252(e)(5). Contrary to
this statutory scheme, this order interjects this Commission into many
aspects of the section 252 process.

For these reasons, as well as for those set out in my statement in the
*SBC/Ameritech Order*, I concur only in the Commission's decision to
approve these license transfer applications and in the analysis it
applies to assess BA/GTE's compliance with section 271 (Part V of this
order).

**STATEMENT OF COMMISSIONER MICHAEL K. POWELL,**

**CONCURRING IN PART AND DISSENTING IN PART**

*Re: Applications of GTE Corp., Transferor, and Bell Atlantic
Corporation, Transferee, for Consent to Transfer Control of Domestic and
International Sections 214 and 310 Authorizations and Application to
Transfer Control of a Submarine Cable Landing License, CC Docket No.
98-184,* *Memorandum Opinion and Order*

Just over eight months ago, I wrote separately and at length to
criticize sharply the form and content of the Commission's analysis of
another merger of major incumbent local exchange carriers (LECs), namely
SBC's acquisition of Ameritech.[^1023] Among other shortcomings, this
analysis allowed the applicants' "voluntary" conditions to compensate
for largely unrelated alleged public interest harms. Because the
majority persists in its reliance on this faulty analysis in evaluating
Bell Atlantic's proposed acquisition of GTE, I must respectfully dissent
from some aspects of this *Order* and only concur as to other
aspects.[^1024] Specifically, although I again concur in the conclusion
that there are public harms that might well result from this combination
that are not entirely offset by the applicants' asserted benefits, I am
unsatisfied that any one of these harms bears the weight assigned to it
in this *Order*. Thus, I believe fewer conditions, tailored to address
the specifically identified harms, would have been the correct result.

This *Order* suffers from the same flawed analytical framework as in the
*SBC/Ameritech Order.* In that order, I expressed extreme discomfort
with a merger review standard that places harms on one side of a public
interest "scale" and then examines whether those harms are outweighed by
beneficial conditions placed on the opposite side of that scale,
regardless whether the compensating conditions actually *rectify* the
harms. I explained that this approach results in a number of pernicious
effects.[^1025] Sadly, these effects are not significantly avoided in
this *Order.*

For example, in the *SBC/Ameritech Order,* I lamented that the
majority's faulty merger review framework would make it easier for
regulators to visit identified harms upon the public in exchange for
unrelated benefits. This problem evidences itself again in this *Order.*
Despite the fact that the majority concludes that the merger will result
in harms they characterize as significant, such as precluded
competition, increased discrimination, and loss of major incumbent LEC
benchmarks, the *Order* allows these purportedly significant harms to
occur largely unmitigated by the proposed conditions. This leads me to
question whether the majority truly believes that the harms are
significant, or whether they believe, as do I, that the described harms
are too speculative and thus may be exaggerated.[^1026]

My skepticism surrounding the alleged harms of major LEC mergers is
exacerbated in this proceeding because these harms should be, at least
according to the majority's reasoning, more significant in this merger
than in the SBC/Ameritech proceeding. For example, according to the
majority's theory, the bigger the merged LEC is, the more incentive and
ability to discriminate it will have. As such, it follows that there
must be greater risk of potential harm associated with this merger than
with respect to the SBC/Ameritech merger, which yielded a smaller merged
entity than the one we sanction in this *Order*. Similarly, the
majority's benchmarking rationale postulates that it will become
increasingly difficult for regulators to find useful major LEC
benchmarks as the number of these LECs declines. It follows, then, that
the further consolidation among major LECs that the Bell Atlantic/GTE
merger represents must involve greater risk of harm than that associated
with the previously approved SBC/Ameritech merger. If I were convinced
that the risk of these harms was as significant as the majority's
analysis suggests, and that no conditions could correct them, I would be
very hesitant to subject the public to these harms and would instead
disapprove the merger, rather than try to offset it with commitments
that are wholly unrelated to the harms.

Unfortunately, none of the shortcomings I address here or in my previous
statement on these issues will ever be addressed unless the Commission
begins to reform the majority's "balancing approach" to merger review
that we apply again here, or seriously question the aforementioned
specious theories of potential harm. At most, these theories evidence
our reluctance to confront directly what appears to be an unstated
distaste for horizontal mergers in this area.[^1027] Until then, I must,
with respect to both the majority's unworkable analytical framework, and
as to their assessment of potential harms, respectfully dissent from
application of this reasoning in our merger review.

**SEPARATE STATEMENT OF GLORIA TRISTANI**

*Re: In re Application of GTE Corp., Transferor, and Bell Atlantic
Corporation, Transferee, for Consent to Transfer Control of Domestic and
International Section 214 and 310 Authorizations and Application to
Transfer Control of a Submarine Cable Landing License. CC Docket No.
98-184.*

I vote to approve this merger in express reliance on the Parties'
commitment to transfer the Internet and related assets of Genuity to an
independently owned corporation in a manner that will not give Bell
Atlantic/GTE either control over, or a prohibited ownership stake in,
Genuity. Having determined that the contingent interest that Bell
Atlantic/GTE will retain in Genuity will be consistent with Section 271
of the Telecommunications Act of 1996, I find the transaction to be in
the public interest only because of the extensive market-opening and
other commitments to which Bell Atlantic and GTE have agreed.

With this merger, two companies -- Bell Atlantic/GTE and SBC \-- will
control a staggering 69 percent of the nation's access lines. Bell
Atlantic/GTE alone will control nearly forty percent of those lines,
approximately 69 million local exchange access lines. The combined
company will have the incentive and, absent conditions, the ability to
deny, degrade, or delay competitive LEC access to a large number of
consumers. Moreover, by reducing the number of major incumbent LECs to
four, the merger will eliminate an independent source of observation and
impair regulators' ability to use comparative practices analyses to
facilitate implementation of the Communications Act.

The conditions to which GTE and Bell Atlantic have voluntarily agreed
should, however, substantially mitigate the potential public interest
harms of the proposed merger and result in an overall public benefit. In
particular, the conditions related to advanced services should increase
residential and rural broadband deployment. Along with other
commitments, a properly-implemented separate affiliate for the provision
of advanced services and provisions for expediting cost proceedings will
provide competitors an increased ability to compete on fair and
equitable terms. The commitment that at least 10% of the urban wire
centers and 10% of the rural wire centers where Bell Atlantic/GTE
provides xDSL will be low-income wire centers addresses redlining
concerns. Finally, I note with approval the modifications to various
conditions, as originally adopted in the context of the SBC/Ameritech
merger, that the Parties crafted in response to concerns raised by
commenters.

As with the SBC/Ameritech merger, I could not support the proposed
transaction absent reporting requirements that will ensure the new
company's accountability. These requirements will help the Commission to
monitor GTE/Bell Atlantic's performance on critical measures of its
market-opening performance and advanced services deployment. In
particular, requiring Bell Atlantic/GTE to report certain service
quality data on a disaggregated, company-specific basis should increase
the Commission's ability to deter and detect any discrimination by the
combined company in Genuity's favor. Moreover, extensive audit
requirements related to the combined companies' compliance with our
collocation, UNE, and line sharing rules should prove useful in
assessing Bell Atlantic/GTE's adherence to important procompetitive
requirements.

By voting to approve the transaction based on the proffered conditions,
I am accepting the companies' assurances that they will act in good
faith to fully implement all their commitments in a reasonable and
timely manner. Only then will the public and competing carriers realize
the potential public interest benefits of this transaction.

[^1]: Throughout this Order, we refer to Bell Atlantic and GTE as "the
    Applicants" or "Bell Atlantic and GTE." We refer to the post-merger
    combined Bell Atlantic/GTE as "the merged entity," "the merged
    firm," or "the merged company."

[^2]: 47 U.S.C. §§ 214(a), 310(d). Our review is also conducted pursuant
    to the Cable Landing License Act, 47 U.S.C. §§ 34-39 (*Cable Landing
    License Act*).

[^3]: *See* Application of GTE Corporation and Bell Atlantic Corporation
    for Transfer of Control (filed Oct. 2, 1998) (Bell Atlantic/GTE Oct.
    2, 1998 Application); Supplemental Filing of Bell Atlantic and GTE
    (filed Jan. 27, 2000) (Bell Atlantic/GTE Jan. 27, 2000 Supplemental
    Filing).

[^4]: *See* 47 U.S.C. §§ 214(a), 310(d). *See also* *Application of
    Ameritech Corporation and SBC Communications Inc. for Transfer of
    Control of Corporations Holding Commission Licenses and Lines
    Pursuant to Section 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, 14736-38, paras. 1, 46-48 (1999) (*SBC/Ameritech Order*);
    *Application of WorldCom, Inc. and MCI Communications Corporation
    for Transfer of Control of MCI Communications Corporation to
    WorldCom, Inc.*, CC Docket No. 97-211, Memorandum Opinion and Order,
    13 FCC Rcd 18025, 18026-27, 18030-32 at paras. 1, 8-10 (1998)
    (*WorldCom/MCI Order*); *Applications of NYNEX Corporation
    Transferor, and Bell Atlantic Corporation Transferee, For Consent to
    Transfer Control of NYNEX Corporation and Its Subsidiaries*, File
    No. NSD-L-96-10, Memorandum Opinion and Order, 12 FCC Rcd 19985,
    19987, 20000-04 at paras. 2, 29-32 (1997) (*Bell Atlantic/NYNEX
    Order*).

[^5]: *See* Proposed Conditions for Bell Atlantic/GTE Merger (filed Jan.
    27, 2000) (Bell Atlantic/GTE Jan. 27, 2000 Proposed Conditions).

[^6]: Section 271 prohibits Bell Operating Companies (BOCs) such as Bell
    Atlantic from providing interLATA services within their territories
    until such time as they have demonstrated compliance with section
    271. 47 U.S.C. § 271. Section 271 was added to the Communications
    Act by the Telecommunications Act of 1996, Pub. L. No. 104-104, 110
    Stat. 56 (1996 Act), *codified at* 47 U.S.C. §§ 151 *et seq.* All
    citations to the 1996 Act will be in accordance with its
    codification in Title 47 of the United States Code.

[^7]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing.

[^8]: Because of its size, the Commission has consistently referred to
    GTE as a "first-tier" incumbent LEC and thus included it in the
    small group of carriers, along with the RBOCs, that have substantial
    market power. *See SBC/SNET Order*, 13 FCC Rcd at 21302, para. 21
    (*citing Policy and Rules Concerning Rates for Dominant Carriers*,
    CC Docket No. 87-313, Second Report and Order, 5 FCC Rcd 6786,
    6818-20 (1990)).

[^9]: Letter from Pat Koch, Bell Atlantic, to Julie Patterson, Federal
    Communications Commission, filed May 22, 2000 (Bell Atlantic/GTE May
    22, 2000 *Ex Parte* Letter).

[^10]: *Id.*

[^11]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing, Exhibit B,
    Attach. 3, Joint Declaration of Marion C. Jordan and Jerry Holland
    at para. 10 (Bell Atlantic/GTE Joint Jordan/Holland Decl.).

[^12]: GTE 1999 Annual Report at 2.

[^13]: Bell Atlantic/GTE Joint Jordan/Holland Decl. at para. 10.

[^14]: Bell Atlantic Oct. 2, 1998 Application at 3. GTE is also engaged
    in ventures unrelated to the communications industry, including
    financing, insurance, leasing, and other related activities. *Id.*

[^15]: Bell Atlantic/GTE Oct. 2, 1998 Application, Exhibit A,
    Declaration of John T. Curran at para. 1 (Bell Atlantic/GTE Curran
    Decl.).

[^16]: *Id*.

[^17]: Bell Atlantic's region includes Maine, New Hampshire, Vermont,
    Massachusetts, Rhode Island, New York, New Jersey, Pennsylvania,
    Delaware, Maryland, West Virginia, Virginia, parts of Connecticut,
    and the District of Columbia. *See* Bell Atlantic/GTE Oct. 2, 1998
    Application, Exhibit A, Tab 1.

[^18]: *See* Bell Atlantic 1999 Annual Report at 6.

[^19]: *See generally Bell Atlantic/NYNEX Order*, 12 RCC Rcd 19985.

[^20]: Bell Atlantic 1999 Annual Report at 6.

[^21]: *Id*.

[^22]: *Id.*

[^23]: Bell Atlantic/GTE Oct. 2, 1998 Application at 4. Bell Atlantic is
    also engaged in financing, systems integration services, customer
    premises equipment distribution, and telecommunications consulting.
    *Id.*

[^24]: *See Vodafone AirTouch, Plc and Bell Atlantic Corporation*, File
    Nos. 0000032969 et al., Memorandum Opinion and Order, DA 00-721
    (WTB/IB rel. Mar. 30, 2000) (*Vodafone/Bell Atlantic Order*); *FCC
    Bureaus Approve Bell Atlantic/Vodafone and VoiceStream/Aeriel
    License Transfers and Assignments---Two New National Wireless
    Competitors to be Created*, Press Release (rel. Mar. 30, 2000).

[^25]: *Id.*

[^26]: Bell Atlantic/GTE Oct. 2, 1998 Application at 2.

[^27]: *Id.* at 3.

[^28]: *Id.*

[^29]: *See Trends in Telephone Service*, Federal Communications
    Commission (March 2000) at 20-3, Table 20.21; *see supra* paras. 6,
    10.

[^30]: Bell Atlantic 1999 Annual Report at 6; GTE 1999 Annual Report at
    2.

[^31]: *See United States of America v. Bell Atlantic Corp.*,
    99CV-01119, Motion for Entry of Final Judgment (Apr. 20, 2000).

[^32]: *United States of America v. Bell Atlantic Corp.*, 99CV-01119,
    Motion for Leave to File Supplemental Complaint (Dec. 6, 1999).

[^33]: *Id.*

[^34]: *Id.*

[^35]: *United States of America v. Bell Atlantic Corp.*, 99CV-01119,
    Motion for Entry of Final Judgment (Apr. 20, 2000).

[^36]: *Id.*

[^37]: "Bell Atlantic-GTE Clear Last State Merger Hurdle with Cal.,"
    Washington Telecom Newswire (Mar. 2, 2000).

[^38]: *Id.*

[^39]: *See* *id.*

[^40]: *GTE Corporation and Bell Atlantic Corporation Seek FCC Consent
    for a Proposed Transfer of Control and Commission Seeks Comment on
    Proposed Protective Order filed by GTE and Bell Atlantic*, CC Docket
    No. 98-184, Public Notice, DA 98-2035 (rel. Oct. 8, 1998) (Oct. 8,
    1998 Public Notice).

[^41]: The parties that filed formal pleadings in this proceeding are
    listed in Appendix A.

[^42]: *See* "Commission to Hold En Bancs Regarding Telecom Mergers,"
    Public Notice, DA 98-2045 (Oct. 9, 1998); "Commission to Hold En
    Bancs Regarding Telecom Mergers," Public Notice, DA 98-2415 (rel.
    Dec. 2, 1998) (Dec. 2, 1998 Public Notice); "Chief Economist Names
    Participants on Economic Round Table Regarding Telecom Mergers,"
    Public Notice, DA 99-119 (rel. Jan. 25, 1999) (Jan. 25, 1999 Public
    Notice).

[^43]: *See* Letter from Jennifer L. Hoh, Legal Department, Bell
    Atlantic, to Magalie Roman Salas, Secretary, Federal Communications
    Commission, CC Docket No. 98-184 (Feb. 24, 1999) (Bell Atlantic/GTE
    Feb. 24, 1999 *Ex Parte* Letter).

[^44]: *Id.*

[^45]: *See* Letter from Steven G. Bradbury, Counsel, GTE, and Michael
    E. Glover, Counsel, Bell Atlantic, to Thomas Krattenmaker, Federal
    Communications Commission, CC Docket 98-184 (filed Apr. 8, 1999)
    (Bell Atlantic/GTE Apr. 8, 1999 *Ex Parte* Letter).

[^46]: *See* Letter from Steven G. Bradbury, Counsel for GTE, and Edward
    D. Young, III, Counsel for Bell Atlantic, to Katherine Brown,
    Federal Communications Commission, CC Docket No. 98-184 (filed Apr.
    14, 1999) (Bell Atlantic/GTE Apr. 14, 1999 *Ex Parte* Letter).

[^47]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing; Bell
    Atlantic/GTE Jan. 27, 2000 Proposed Conditions. *See also Commission
    Seeks Comments on Supplemental Filing Submitted by Bell Atlantic
    Corporation and GTE Corporation*, CC Docket No. 98-184, Public
    Notice (rel. Jan. 31, 2000) (Jan. 31, 2000 Public Notice). The
    parties filing comments and reply comments are listed in Appendix A.

[^48]: *See* Letter from Steven G. Bradbury, Counsel to GTE, to Magalie
    Roman Salas, Secretary, Federal Communications Commission, CC Docket
    No. 98-184 (filed Apr. 3, 2000) (Bell Atlantic/GTE Apr. 3, 2000 *Ex
    Parte* Letter).

[^49]: *See* Letter from Michael E. Glover, Associate General Counsel,
    Bell Atlantic, to Magalie Roman Salas, Secretary, Federal
    Communications Commission, CC Docket No. 98-184 (filed Apr. 14,
    2000) (Bell Atlantic/GTE Apr. 14, 2000 *Ex Parte* Letter).

[^50]: Letter from William P. Barr, Executive Vice President and General
    Counsel, GTE, to Magalie Roman Salas, Secretary, Federal
    Communications Commission, CC Docket No. 98-184 (filed Apr. 28,
    2000) (Bell Atlantic/GTE Apr. 28, 2000 *Ex Parte* Letter).

[^51]: Letter from Pat Koch, Bell Atlantic, to Magalie Roman Salas,
    Secretary, Federal Communications Commission, CC Docket No. 98-184
    (filed May 19, 2000) (Bell Atlantic/GTE May 19, 2000 *Ex Parte*
    Letter).

[^52]: Letter from Michael E. Glover, Associate General Counsel, Bell
    Atlantic, to Magalie Roman Salas, Secretary, Federal Communications
    Commission, CC Docket No. 98-184 (filed June 7, 2000) (Bell
    Atlantic/GTE Glover June 7, 2000 *Ex Parte* Letter); Letter from
    Suzanne Yelen, Counsel for GTE, to Magalie Roman Salas, Secretary,
    Federal Communications Commission, CC Docket No. 98-184 (filed June
    7, 2000) (Bell Atlantic/GTE Yelen June 7, 2000 *Ex Parte* Letter).

[^53]: Letter from Michael E. Glover, Associate General Counsel, Bell
    Atlantic, to Magalie Roman Salas, Secretary, Federal Communications
    Commission, CC Docket No. 98-184 (filed June 14, 2000) (Bell
    Atlantic/GTE Glover June 14, 2000 *Ex Parte* Letter).

[^54]: *Commission Seeks Comment on Additional Filings Submitted by Bell
    Atlantic Corporation and GTE Corporation*, Public Notice, CC Docket
    No. 98-184, DA 00-959 (rel. Apr. 28, 2000) (Apr. 28, 2000 Public
    Notice).

[^55]: 47 U.S.C. §§ 214(a), 303(r), 310(d). *See WorldCom/MCI Order*, 13
    FCC Rcd at 18030, para. 8; *Bell Atlantic/NYNEX Order*, 12 FCC Rcd
    at 20000, para. 29.

[^56]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18031-32, para. 10.

[^57]: *See* *Qwest Communications International Inc. and US WEST, Inc.,
    Applications for Transfer of Control of Domestic and International
    Sections 214 and 310 Authorizations and Application to Transfer
    Control of a Submarine Cable Landing License*, CC Docket No. 99-272,
    FCC 00-91, para. 9 (rel. Mar. 10, 2000) (*Qwest/US WEST Order*).

[^58]: 47 U.S.C. § 214(a).

[^59]: 47 U.S.C. § 214(a). *See* *Implementation of Section 402(b)(2)(A)
    of the Telecommunications Act of 1996; Petition for Forbearance of
    the Independent Telephone and Telecommunications Alliance*, CC
    Docket No. 97-11; AAD File No. 98-43, Report and Order in CC Docket
    No. 97-11 and Second Memorandum Opinion and Order in AAD File No.
    98-43, FCC 99-104 (rel. June 30, 1999) (continuing to require
    Commission approval for transfers of control, even though blanket
    section 214 entry certification and streamlined section 214 exit
    certification have been granted for domestic carriers).

[^60]: 47 U.S.C. § 310(d).

[^61]: *Id.*

[^62]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20063, para. 157.

[^63]: *Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Authorizations from Tele-Communications, Inc.,
    Transferor, to AT&T Corp., Transferee*, CS Docket No. 98-178,
    Memorandum Opinion and Order, 14 FCC Rcd at 3160, 3169-70, para. 15
    (1999) (*AT&T/TCI Order*). *See also* *WorldCom/MCI Order*, 13 FCC
    Rcd at 18031, para. 10 n.33 (citing 47 U.S.C. § 309(e) (burdens of
    proceeding and proof rest with the applicant)); *American Telephone
    and Telegraph Co. and MCI Communications Corporation Petitions for
    the Waiver of the International Settlements Policy*, File No.
    USP-89-(N)-086, Memorandum Opinion and Order, 5 FCC Rcd 4618, 4621,
    para. 19 (1990) (applicant seeking a waiver of an existing rate
    bears the burden of proof to establish that the public interest
    would be better served by the grant rather than the denial of the
    waiver request); *LeFlore Broadcasting Co., Inc.*, Docket No. 20026,
    Initial Decision, 66 FCC 2d 734, 736-37, paras. 2-3 (1975) (on the
    ultimate issue of whether the applicants have the requisite
    qualifications and whether a grant of the application would serve
    the public interest, as on all issues, the burden of proof is on the
    licensees).

[^64]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14737, para. 48.

[^65]: Although the Commission's analysis of competitive effects is
    informed by antitrust principles and judicial standards of evidence,
    it is not governed by them, which permits the Commission to arrive
    at a different assessment of likely competitive benefits or harms
    than antitrust agencies adduce based on antitrust law. *See FCC v.
    RCA Communications*, 346 U.S. 86, 96-97 (1953) ("To restrict the
    Commission's action to cases in which tangible evidence appropriate
    for judicial determination is available would disregard a major
    reason for the creation of administrative agencies, better equipped
    as they are for weighing intangibles by specialization, by insight
    gained through experience, and by more flexible procedure."). *See
    also SBC/Ameritech Order*, 14 FCC Rcd at 14738, para. 49, n.121;
    *WorldCom/MCI Order*, 13 FCC Rcd at 18034, para. 13 (*citing RCA
    Communications*, 346 U.S. at 94; *United States v. FCC*, 652 F.2d
    72, 81-82 (D.C. Cir. 1980) (*en banc*) (The Commission\'s
    \"determination about the proper role of competitive forces in an
    industry must therefore be based, not exclusively on the letter of
    the antitrust laws, but also on the \'special considerations\' of
    the particular industry.\"); *Teleprompter-Group W*, 87 FCC 2d 531
    (1981), *aff\'d on recon*., 89 FCC 2d 417 (1982) (Commission
    independently reviewed the competitive effects of a proposed
    merger); *Equipment Distributors\' Coalition, Inc. v. FCC*, 824 F.2d
    1197, 1201 (D.C. Cir. 1987); *Northeast Utilities Service Co. v.
    FERC*, 993 F.2d 937, 947-48 (1st Cir. 1993) (public interest
    standard does not require agencies \"to analyze proposed mergers
    under the same standards that the Department of Justice . . . must
    apply.\").

[^66]: *See* 15 U.S.C. § 18.

[^67]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14738, para. 49;
    *WorldCom/MCI Order*, 13 FCC Rcd at 18032-33, para. 12; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 19987, para. 2.

[^68]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19987, para. 2.

[^69]: *See* 47 C.F.R. § 1.110. *See also WorldCom/MCI Order*, 13 FCC
    Rcd at 18031-32, para. 10; *Bell Atlantic/NYNEX Order*, 12 FCC Rcd
    at 20001-2, para. 30.

[^70]: 47 U.S.C. § 214(c). *See* *WorldCom/MCI Order*, 13 FCC Rcd at
    18032, para. 10 n.35 (*citing* *MCI Communications Corp*, File No.
    I-S-P-93-013, Declaratory Ruling and Order, 9 FCC Rcd 3960, 3968,
    para. 39 (1994); *Sprint Corp.*, File No. I-S-P-95-002, Declaratory
    Ruling and Order, 11 FCC Rcd 1850, 1867-72, paras. 100-33 (1996);
    *GTE Corp.*, File No. W-P-C-2486, Memorandum Opinion and Order, 72
    FCC 2d 111, 135, para. 76 (1979)); *Bell Atlantic/NYNEX Order*, 12
    FCC Rcd at 20002, para. 30 n.59 (*citing* *Atlantic Tele-Network,
    Inc. v. FCC*, 59 F.3d 1384, 1389-90 (D.C. Cir. 1995); *GTE Service
    Corp. v. FCC*, 782 F.2d 263, 268 (D.C. Cir. 1986); *Western Union
    Tel. Co. v. FCC*, 541 F.2d 346, 355 (3^rd^ Cir. 1976), *cert.
    denied*, 429 U.S. 1092 (1977)).

[^71]: 47 U.S.C. § 303(r). *See, e.g., WorldCom/MCI Order*, 13 FCC Rcd
    at 18032, para. 10 n.36 (*citing FCC v. Nat\'l Citizens Comm. for
    Broadcasting*, 436 U.S. 775 (1978) (*Nat\'l Citizens)*
    (broadcast-newspaper cross-ownership rules properly adopted pursuant
    to section 303(r))*; U.S. v. Southwestern Cable Co.*, 392 U.S. 157,
    178 (1968) (section 303(r) powers permit Commission to order cable
    company not to carry broadcast signal beyond station\'s primary
    market); *United Video, Inc. v. FCC*, 890 F.2d 1173, 1182-83 (D.C.
    Cir. 1989) (syndicated exclusivity rules adopted pursuant to section
    303(r) powers).

[^72]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18034-35, para. 14. In
    addition to its public interest authority under the Communications
    Act, the Commission shares concurrent antitrust jurisdiction with
    DOJ under the Clayton Act to review mergers between common carriers.
    15 U.S.C. §§ 18, 21(a). In this case, because our public interest
    authority under the Communications Act is sufficient to address both
    the competitive issues raised by the proposed merger and its likely
    effect on the public interest, we decline to exercise our Clayton
    Act authority for the proposed transaction. *See* *SBC/Ameritech
    Order*, 14 FCC Rcd at 14740, para. 53; *WorldCom/MCI Order*, 13 FCC
    Rcd at 18032, para. 12; *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at
    20005, para. 33. *See also United States v. FCC*, 652 F.2d 72, 88
    (D.C. Cir. 1980) (en banc).

[^73]: *See AT&T/TCI Order*, 14 FCC Rcd at 3170, para. 16.

[^74]: *See* 47 U.S.C. § 271(a). *See* *also* 47 U.S.C. § 271(c)
    (setting forth the requirements for a BOC to seek authority to
    provide in-region, interLATA services).

[^75]: *See* 47 U.S.C. § 153(4) (defining "Bell operating company").

[^76]: *See Application by Bell Atlantic New York for Authorization
    under Section 271 of the Communications Act to Provide In-Region,
    InterLATA Service in the State of New York*, CC Docket No. 99-295,
    Memorandum Opinion and Order, 15 FCC Rcd 3953 (1999).

[^77]: *See* Letter from Alan F. Ciamporcero, Vice President Regulatory
    Affairs, GTE, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-184 (filed Apr. 17, 2000) (describing the interLATA services
    provided by various GTE subsidiaries that the companies will cease
    providing before merger close), attached hereto as Appendix E.

[^78]: In February 2000, GTE notified its residential voice long
    distance customers in Bell Atlantic's section 271-restricted states
    that they could select another long distance provider, and, in late
    March, started transferring the customers. *See* Bell Atlantic/GTE
    Feb. 22, 2000 Reply at 3 n.2. *See also* *Implementation of the
    Subscriber Carrier Selection Changes Provisions of the
    Telecommunications Act of 1996, Sprint Communications Company, L.P.,
    Petition for Waiver*, CC Docket No. 94-129, Order, DA 00-620 (rel.
    Mar. 17, 2000); *Implementation of the Subscriber Carrier Selection
    Changes Provisions of the Telecommunications Act of 1996, GTE
    Service Corp., Petition for Waiver*, CC Docket No. 94-129, Order, DA
    00-1113 (rel. May 19, 2000).

[^79]: *See* Letter from Alan F. Ciamporcero, Vice President Regulatory
    Affairs, GTE, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-184 (filed Apr. 28, 2000), attached hereto as Appendix F.

[^80]: *See* Letter from Steven G. Bradbury, Kirkland & Ellis, Counsel
    for GTE, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-184 (filed Mar. 9, 2000) (Bell Atlantic/GTE Mar. 9, 2000 *Ex
    Parte* Letter) at 2; Letter from Patricia E. Koch, Assistant Vice
    President Federal Regulatory, Bell Atlantic, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-184 (filed June 9, 2000) (Form S-1
    Registration Statement, Amendment No. 3), at 1-2 (describing
    services provided by Genuity).

[^81]: *See* Appendix B (Conditions for Establishment of Genuity as a
    Separate Corporation; hereinafter Genuity Conditions). The
    Applicants submitted their spin-off proposal on January 27, 2000 and
    modified various aspects in *ex parte* submissions to the Commission
    on April 3, 2000, April 28, 2000, June 7, 2000, and June 14, 2000.
    *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing; Bell
    Atlantic/GTE Apr. 3, 2000 *Ex Parte* Letter; Bell Atlantic/GTE Apr.
    28, 2000 *Ex Parte* Letter; Bell Atlantic/GTE June 7, 2000 Glover
    *Ex Parte* Letter; Bell Atlantic/GTE June 14, 2000 *Ex Parte*
    Letter.

[^82]: The assets transferred to Genuity would include all of GTE's
    Internet backbone and related data business, including the
    nationwide Global Network Infrastructure (GNI), the BBN Planet
    backbone and related backbone operations, GTE Internetworking's
    Internet connectivity services for business customers and national
    modem and frame relay networks, its Web hosting and Internet
    security services, and various other interLATA data transport
    services and operations. GTE's dial-up ISP service (GTE.net) and the
    research and development operations of BBN Technologies would remain
    in the merged Bell Atlantic/GTE and not be transferred to Genuity.
    Bell Atlantic/GTE Feb. 22, 2000 Reply at 3 n.2. The Applicants
    maintain that BBN Technologies performs research, development and
    consulting services, primarily for government and commercial
    customers, and that it was not a part of GTE Internetworking's
    reported financial results from 1999. Bell Atlantic/GTE Mar. 9, 2000
    *Ex Parte* Letter at 2-3.

[^83]: Bell Atlantic/GTE June 7, 2000 Glover *Ex Parte* Ex. A at 1.

[^84]: *Id*.

[^85]: *Id*. "Bell Atlantic in-region lines" refers to the sum of the
    number of total billable access lines reported in 1999 ARMIS Report
    43-04 for the Bell Atlantic operating company in each of Bell
    Atlantic's in-region states. *Id*. at n.1.

[^86]: The post-conversion interest would be lower than 80 percent if
    Genuity were to issue additional Class A shares prior to any
    conversion. *Id.*, Ex. A at 4.

[^87]: *See* *id*.

[^88]: *Id*.

[^89]: *Id*.

[^90]: *Id*. at 2.

[^91]: The merged firm will elect to pay the relevant portion of any
    in-region appreciation by making a payment to Genuity for
    distribution to the Class A shareholders or by adjusting the
    conversion ratio to reduce by a corresponding amount the number of
    shares that the merged firm receives upon conversion. *Id.*

[^92]: This would involve first determining Bell Atlantic/GTE's total
    appreciation, or the gain in value of the Class B shares from the
    IPO price on an as-converted basis, which would be calculated by a
    nationally-recognized investment banking firm (which has no prior
    association with the merged firm) based on the appreciation of the
    Class A stock adjusted, if necessary, to exclude any change in value
    attributable to the anticipated payment to Class A shareholders.
    Next, the appreciation attributable to a 10-percent interest would
    be subtracted from that total appreciation. Then, for each
    anniversary of the IPO, the percentage of Bell Atlantic in-region
    lines still subject to section 271 restrictions will be divided by
    the total number of Bell Atlantic in-region lines, and then
    multiplied by 25 percent to account for the portion of Genuity's
    domestic business operating in Bell Atlantic's region. These annual
    fractions will be averaged and multiplied by the total appreciation,
    less 10 percent, with the result adjusted for taxes (as if the
    merged firm had sold the Genuity stock initially). *Id*., Ex. A at
    3. Although AT&T and the Competition Policy Institute suggest that
    basing the 25-percent multiplier on the percentage of in-region
    access lines is flawed, and that a better approach would be to use a
    multiplier equal to the ratio of Genuity's revenues derived from the
    Bell Atlantic region as compared with Genuity's national revenues,
    we note that the 25-percent figure closely approximates the actual
    percentage of Genuity's 1999 revenues attributable to the Bell
    Atlantic states other than New York. *See* Letter from Peter D.
    Keisler, Sidley & Austin, Counsel for AT&T, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-184 at 1-3 (filed June 9, 2000)
    (AT&T June 9, 2000 *Ex Parte* Letter); Letter from Ronald J. Binz,
    President, Competition Policy Institute, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-184 at 2 (filed June 12, 2000).
    *But see* Letter from Steven G. Bradbury, Kirkland & Ellis, Counsel
    for GTE, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-184 (filed Apr. 12, 2000) (containing confidential revenue
    materials). Accordingly, we find that the 25-percent multiplier is a
    reasonable approximation of the portion of Genuity's business that
    would be attributable to the Bell Atlantic section 271-restricted
    states.

[^93]: The merged firm may also exercise its conversion rights as part
    of a transaction by which it immediately disposes of all or a
    portion of its interest in Genuity so that its post-conversion
    interest in Genuity does not exceed 10 percent, subject to the
    limitations described below, which include offering the remainder
    first to Genuity and retaining limited sales proceeds. Bell
    Atlantic/GTE June 7, 2000 Glover *Ex Parte* Letter Ex. A at 3.

[^94]: Specifically, if the merged firm sells the Class B shares before
    it has met the 95-percent threshold, it will not have the right to
    retain sale proceeds that exceed (i) sale proceeds attributable to a
    10-percent interest in Genuity, plus (ii) an amount equal to what
    the merged firm would have had if it had invested in the Standard &
    Poor's 500 Index its initial investment in Genuity above a
    10-percent interest (based on the IPO price). Similarly, if it sells
    all its stock except an amount convertible into a 10-percent
    interest, it can retain only the amount described in clause (ii)
    above. In either case, Bell Atlantic/GTE would pay the remainder of
    its sales proceeds to the U.S. Treasury. *Id*., Ex. A at 4. Although
    the Applicants' submissions refer to after-tax sales proceeds, we
    agree with AT&T that using after-tax proceeds would result in a
    windfall to the merged firm. *See* AT&T June 9, 2000 *Ex Parte*
    Letter at 5. Because the Applicants reserved the right to retain S&P
    500-based appreciation in the pre-tax value of their initial
    investment in Genuity above a 10-percent interest, and thus do not
    account for tax effects from the disposition of Genuity at the front
    end of the calculation, we believe it is reasonable to adjust the
    cap at the back end "to reflect the fact that GTE would have had to
    pay taxes when it 'sold' Genuity and would have had less money to
    invest." Bell Atlantic/GTE June 7, 2000 Glover *Ex Parte* Letter Ex.
    A at 5. *See also* Letter from Michael E. Glover, Associate General
    Counsel, Bell Atlantic, to Magalie Roman Salas, Secretary, FCC, CC
    Docket No. 98-184 (filed June 14, 2000) (clarifying that the amount
    the merged firm could retain is calculated without regard to tax
    consequences but that the payment to the U.S. Treasury would be
    calculated on a tax-adjusted basis to reflect the fact that the
    portion of sales proceeds above the cap may be subject to taxes).
    Therefore, as reflected in Appendix B, we clarify that the
    Applicants are not entitled to retain pre-tax sales proceeds that
    exceed the specified amount. We further clarify, however, that to
    the extent that the Applicants must remit sales proceeds in excess
    of the cap, that remission will be adjusted to reflect taxes due on
    any such excess amount.

[^95]: The Applicants clarified that their proposal would not prevent
    Genuity from purchasing the merged firm's shares (either directly
    from Bell Atlantic/GTE or from the disposition trustee) at a lesser
    mutually-agreeable price in the event that the value of the shares
    were less than the specified amount. *See* Letter from Michael E.
    Glover, Associate General Counsel, Bell Atlantic, to Magalie Roman
    Salas, Secretary, FCC, CC Docket No. 98-184 (filed June 8, 2000),
    at 1. As reflected in Appendix B, we clarify the proposal even
    further to explicitly provide that Genuity has the right to purchase
    the shares directly from the merged firm upon its initial offer
    (prior to involvement of a disposition trustee) at the fair market
    value, if lower than the specified amount.

[^96]: Bell Atlantic/GTE June 7, 2000 Glover *Ex Parte* Letter at 1.
    Genuity will have 90 days after the date it receives an offer to
    agree to purchase the merged firm's shares. If Genuity intends to
    purchase the shares, the merged firm will grant any consents
    necessary under its investor safeguards, and Genuity will have 180
    days after the date it received the offer to make any applicable
    financial or other arrangements. Although the Applicants do not make
    representations concerning the interest rate or term of the debt
    instrument, we clarify in Appendix B that the applicable interest
    rate and term must be commercially reasonable, or comparable to
    rates and terms under similar instruments held by companies with
    debt ratings comparable to Genuity. If necessary, the conversion
    period will be extended to allow for the sale to Genuity or another
    party.

[^97]: *Id.*, Ex. A at 2-3. To the extent Class B shares are purchased
    by a person who is not subject to section 271 restrictions, the
    purchaser would be free to convert the Class B shares into Class A
    shares immediately.

[^98]: As reflected in Appendix B, we clarify that if the merged entity
    has achieved approvals representing 90 percent of Bell Atlantic
    in-region access lines (or 95 percent but-for one state), the
    Commission has discretion whether to grant the merged firm an
    additional year in which to obtain the remaining section 271
    approvals. Although the Applicants' proposal also enables the
    Commission to toll or extend the conversion period to account for
    intervening events that delay elimination of section 271
    restrictions, we foresee no circumstances under which the Commission
    would extend the conversion period in such a manner.

[^99]: Bell Atlantic/GTE June 7, 2000 Glover *Ex Parte* Letter Ex. A at
    5.

[^100]: *Id*.

[^101]: Bell Atlantic/GTE Apr. 28, 2000 *Ex Parte* Letter Ex. A at 1.

[^102]: *Id.*, Ex. B at 1.

[^103]: Bell Atlantic/GTE June 7, 2000 Glover *Ex Parte* Letter Ex. A at
    5.

[^104]: *Id*.

[^105]: *See* Appendix B (Genuity Conditions) at Att. 1 (Investor
    Safeguards). We note that the merged firm's right to receive shares
    of up to 80 percent if it owns shares of at least 70 percent extends
    for one year following conversion.

[^106]: A vote of the Class B shareholders is required for: (a) merger,
    consolidation, sale of all or substantially all assets or similar
    transactions; (b) bankruptcy or liquidation; (c) authorization of
    additional stock; (d) amendments to charter or certain by-law
    provisions that affect the rights of the Class B shareholders; (e) a
    material change in the nature or scope of Genuity's business; and
    (f) any action that would make it unlawful for the merged firm to
    exercise its conversion right. Bell Atlantic/GTE Apr. 28, 2000 *Ex
    Parte* Letter Ex. C at 1. *See* Appendix B (Genuity Conditions) at
    Att. 1 (Investor Safeguards).

[^107]: Bell Atlantic/GTE's consent is required for: (a) agreements or
    arrangements that (i) bind or purport to bind the merged firm or any
    of its affiliates or (ii) contain provisions that trigger a default,
    or provide for a material payment as a result of the merged firm's
    exercise of its conversion right; (b) declarations of extraordinary
    dividends or other extraordinary distributions; (c) issuance of
    shares, securities convertible into shares or share equivalents,
    with exceptions that include shares issued in connection with
    acquisitions so long as the aggregate number of shares does not
    exceed 30 percent of the shares outstanding immediately after the
    IPO, shares issued to fund operating needs of up to 5 percent, and
    shares issued or granted to employees in amounts specified in the
    registration statement; (d) an acquisition or series of related
    acquisitions that equal more than 20 percent of the fair market
    value of Genuity's assets or an acquisition or joint venture that is
    in excess of \$100 million and is not closely related to Genuity's
    business; (e) a disposition or series of dispositions that are in
    excess of 20 percent of the fair market value of Genuity's assets;
    and (f) incurrence of debt in excess of \$11 billion over a
    five-year period, with Genuity not incurring more than 35 percent of
    such debt in any year. Bell Atlantic/GTE Apr. 28, 2000 *Ex Parte*
    Letter Ex. C at 1. *See* Appendix B (Genuity Conditions) at Att. 1
    (Investor Safeguards).

[^108]: Bell Atlantic/GTE Apr. 28, 2000 *Ex Parte* Letter Ex. C at 1.

[^109]: Bell Atlantic/GTE June 7, 2000 Glover *Ex Parte* Letter Ex. A at
    6.

[^110]: *Id.,* Ex. A at 5.

[^111]: *Id*. This 25-percent limitation would not affect Genuity's
    ability to purchase Bell Atlantic/GTE's Genuity shares using a debt
    instrument in the event that the merged firm fails to obtain section
    271 approvals representing 95 percent of its access lines and seeks
    to dispose of its shares.

[^112]: *Id.,* Ex. A at 6.

[^113]: *Id.*, Ex. A at 6-7.

[^114]: *Id.*, Ex. A at 7.

[^115]: *Id.*, Ex. A at 6.

[^116]: *Id*.

[^117]: *Id.*, Ex. A at 7. As discussed in Section VIII, the merged
    firm's compliance with the spin-off proposal and the ongoing
    relationship between the companies following the spin-off will be
    included within the scope of the independent audit required by the
    merger conditions.

[^118]: Through section 271, Congress made the BOCs' authority to
    provide in-region, interLATA services contingent upon the BOC
    opening its local markets to competition by, for example, "providing
    access and interconnection" to local competitors. 47 U.S.C. § 271.

[^119]: 47 U.S.C. § 153(1).

[^120]: 47 U.S.C. § 153(1).

[^121]: All parties agree that Bell Atlantic/GTE's outright ownership of
    shares representing 9.5 percent of Genuity plainly constitutes an
    "equity interest" in Genuity. Parties disagree, however, on whether
    the potential right to convert those Class B shares upon
    satisfaction of certain conditions would itself fall within the
    meaning of "equity interest (or the equivalent thereof)," thereby
    potentially bringing Bell Atlantic/GTE's equity holdings above the
    10-percent statutory restriction.

[^122]: Bell Atlantic/GTE May 9, 2000 Reply at 13; Bell Atlantic/GTE
    Feb. 22, 2000 Reply at 4, Ex. A at para. 15 (Declaration of Ronald
    J. Gilson). *See also* Fletcher's Cylopedia § 5081 (defining
    "proprietary interests in a corporation" as generally including "(1)
    a right to exercise some control over the corporation's management,
    (2) a right, upon dissolution, to share in any residual proceeds
    from liquidation of the assets, and most important (3) a right to
    share in the corporation's residual earnings.").

[^123]: Bell Atlantic/GTE May 9, 2000 Reply at 13 (*citing* *Sutton v.
    United Air Lines*, 119 S. Ct. 2139, 2146 (1999) (holding that a
    statute defining "disability" in the "present indicative verb form"
    requires that a person "be presently -- not potentially or
    hypothetically -- substantially limited" in a major life activity)).

[^124]: *See, e.g.,* Bell Atlantic/GTE May 9, 2000 Reply at 21 (*citing
    In re Motels of America, Inc.*, 146 B.R. 542, 544 (Bankr. D. Del.
    1992) (under bankruptcy law, a holder of a share of stock stripped
    of voting rights and not freely transferable is not considered an
    "owne\[r\]" of "equity"). The Applicants also claim support from the
    Hart-Scott-Rodino reporting requirements, under which the mere
    acquisition of an option, warrant or similar convertible interest,
    in contrast to its later conversion or exercise, does not trigger
    merger review. Bell Atlantic/GTE May 9, 2000 Reply at 15 (*citing*
    16 C.F.R. § 802.31).

[^125]: *See* Bell Atlantic/GTE May 9, 2000 Reply at 14 (*citing Ball v.
    Overton Square, Inc.*, 731 S.W.2d 536, 540 (Tenn. Ct. App. 1987)
    ("\[A\]n option to purchase stock does not vest in the prospective
    purchaser an equitable title to, or any interest or right, in the
    stock."); *Association of Flight Attendants v. USAir, Inc.*, 24 F.3d
    1432, 1435 (D.C. Cir. 1994) ("USAir has no present equity interest
    in Shuttle, but it has an option to purchase a controlling interest
    in the company effective October 10, 1996."); *Powers v. British
    Vita, P.L.C.*, 969 F. Supp. 4, 5 (S.D. N.Y. 1997) ("Many cases hold
    that an option contract does not qualify as an equity interest.")).

[^126]: Fletcher's Cyclopedia § 5575. According to Fletcher's, "\[t\]he
    essence of an option is the right of the optionee to buy or not to
    buy at the optionee's election. The fact that the optionee is not
    bound to buy is the distinguishing feature of the contract." *Id*.

[^127]: AT&T May 5, 2000 Opposition at 18 (*citing* 15 U.S.C. § 78c; 17
    C.F.R. § 240.16a-4); *id*., Ex. A at para. 12 (Third Declaration of
    John C. Coffee); AT&T Mar. 10, 2000 *Ex Parte* Letter at 3-5
    (*citing* federal securities cases); *id*., Ex. A at paras. 15-17
    (Declaration of John C. Coffee).

[^128]: AT&T May 5, 2000 Opposition at 18 n.16 (*citing* 11 U.S.C. §
    101(16); *Allen v.Levy*, 226 B.R. 857, 865 (Bankr. N.D. Ill. 1998)
    ("The Bankruptcy Code defines 'equity security' as a 'share in a
    corporation' and includes the right to purchase shares within the
    definition"); *In re The Charter Company*, 44 B.R. 256 (Bankr. M.D.
    Fla. 1984)(holding that shares of convertible preferred stock are
    "equity securities" under the bankruptcy laws)). *But see* Bell
    Atlantic/GTE May 9, 2000 Reply at 20 (stating that "bankruptcy law
    treats *some* potential future interests -- such as options -- like
    equity for the purpose of prioritizing the holder's economic
    interest in the estate.").

[^129]: AT&T May 5, 2000 Opposition at 19 (*citing Entel v. Guilden*,
    223 F. Supp. 129, 132 (S.D.N.Y. 1963) ("\[W\]arrants are used . . .
    as a separate form of equity in corporations.")).

[^130]: AT&T claims that options are regarded as common stock
    equivalents under financial accounting standards. AT&T May 5, 2000
    Opposition at 9 (*citing* Financial Accounting Standards Board,
    Accounting Standard, Accounting Principles Board, Opinion No. 15)).
    *But see* Bell Atlantic/GTE May 9, 2000 Reply at 22-23 (contending
    that the FASB opinion cited by AT&T has been superseded by FASB
    Statement No. 128, under which options are not regarded as common
    stock equivalents if contingent upon some future event).

[^131]: American Law Institute, Principles of Corporate Governance §
    1.19 (1994).

[^132]: American Law Institute, Principles of Corporate Governance §
    1.20 (1994).

[^133]: Bell Atlantic/GTE May 9, 2000 Reply at 28-29 (explaining that
    equity "equivalents" would include devices that conferred the three
    participation rights through contract or other instruments that
    carry the distribution and liquidation rights of equity ownership
    absent voting, such as partnership interests, debt interests that
    confer the right to participate in earnings, and nonvoting preferred
    stock). *See also* Bell Atlantic/GTE Supplemental Filing at 35 n.21;
    Bell Atlantic/GTE Apr. 3, 2000 *Ex Parte* Letter Ex. E at para. 18
    (Second Supp. Decl. of Ronald J. Gilson).

[^134]: Letter from Peter D. Keisler, Sidley & Austin, Counsel for AT&T,
    to Magalie Roman Salas, Secretary, FCC, CC Docket No. 98-184 (filed
    Mar. 10, 2000), at 3 ("Two things are 'equivalent,' of course, if
    they are equal in value.").

[^135]: Black's Law Dictionary (7th ed. 1999).

[^136]: *Id.*

[^137]: Webster's multiple definitions of the term "equivalent" include
    "equal in value" as well as "corresponding or virtually identical
    esp. in effect or function." Webster's Third New International
    Dictionary, (1993). Similarly, the Oxford English Dictionary defines
    "equivalent" as "\[e\]qual in value," "\[t\]hat is virtually the
    same thing; identical in effect; tantamount," and "\[h\]aving the
    same relative position or function; corresponding." The Oxford
    English Dictionary (Vol. III 1969).

[^138]: 47 U.S.C. § 274(i)(4) (defining the term "control" as having
    "the meaning that it has in 17 C.F.R. 240.12b-2, the regulations
    promulgated by the Securities and Exchange Commission pursuant to
    the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or any
    successor provision to such section.").

[^139]: The Commission has never clearly delineated the status of a
    conditional conversion right under section 3(1). In 1997, the Cable
    Services Bureau was confronted with the question of whether a
    multichannel video programming distributor was affiliated with Bell
    Atlantic or NYNEX, each of whom held shares of convertible preferred
    stock and jointly held a warrant to purchase additional shares.
    *Time Warner Cable*, CUID Nos. NY0335 *et al.*, Memorandum Opinion
    and Order, 12 FCC Rcd. 23363 (CSB 1997). At that time, unlike the
    permanent rules that adopted a different affiliate definition, the
    Commission's interim rules regarding the LEC effective competition
    test of section 623 of the Act applied section 3(1)'s definition of
    affiliate. 47 U.S.C. § 543(l)(1)(D). *See* *Implementation of Cable
    Act Reform Provisions of the Telecommunications Act of 1996*, CS
    Docket No. 96-85, Order and Notice of Proposed Rulemaking, 11 FCC
    Rcd 5937, 5944 (1996). Without attempting to resolve the
    definitional issues arising under section 3(1), the Bureau concluded
    that the interests held by Bell Atlantic and NYNEX did not give rise
    to an affiliate relationship. Although the Applicants here attempt
    to rely upon that case as controlling precedent for their spin-off
    proposal, we find that *Time Warner* is limited to its unique facts
    and not useful for resolving the question presently before us. The
    Bureau expressly did not resolve the scope of "equity interest" or
    its "equivalent" under section 3(1), and, in fact, the Bureau's
    conclusion rested principally upon the intent of the parties,
    through a binding agreement, to dispose of their entire interest in
    the entity in question, something that the Applicants have not
    expressed an intent to do.

[^140]: Bell Atlantic/GTE Apr. 3, 2000 *Ex Parte* Letter at 8 (*citing*
    47 C.F.R. § 20.6(d)(5)).

[^141]: *Id.* (*citing* 47 C.F.R. § 101.1003(e)(5)).

[^142]: *Id.* (*citing BBC License Subsidiary*, File Nos. BALCT-941031KF
    *et al.*, Memorandum Opinion and Order, 10 FCC Rcd 10968, 10972,
    para. 20 n.12 (1995); *GWI PCS, Inc.*, File Nos. 00200CWL96,
    Memorandum Opinion and Order, 12 FCC Rcd 6441, 6445-46, para. 10
    (1997)).

[^143]: *Id.* (*citing* 47 C.F.R. § 73.3555, Note 2(b) & (f)).

[^144]: *Id.* (*citing* 47 C.F.R. § 76.501, Note 2(e)).

[^145]: AT&T May 5, 2000 Opposition at 20. *See also infra* Section
    V.B.1 (discussing "equity plus debt" attribution rules for
    broadcasting and cable)."

[^146]: 24 C.F.R. § 24.709(b)(7). *See also Washington's Christian
    Television Outreach, Inc.*, File Nos. BPCT-5042, Memorandum Opinion
    and Order, 94 F.C.C.2d 1360 (1983) (establishing a rebuttable
    presumption in the context of comparative broadcast hearings, where
    Commission staff sought to establish a fixed factual base for
    comparative purposes that viewed the applicant's structure in its
    most unfavorable light, the Commission would take cognizance of
    options that are adverse to the applicant's interests "in the
    absence of evidence that the options will not be exercised.").

[^147]: *See Natural Resources Defense Council, Inc. v. Browner*, 57
    F.3d 1122, 1125 (D.C. Cir. 1995) (*quoting Chevron USA Inc. v.
    Natural Resources Defense Council, Inc.*, 467 U.S. 837, 843 n.9
    (1984)).

[^148]: *See United States v. American Telephone and Telegraph Co.*, 552
    F. Supp. 131, 228 (D. D.C. 1982) (*Modification of Final Judgment*),
    at Section IV(A) (stating that "\[f\]or the purposes of this
    paragraph, the terms 'ownership' and 'owned' mean a direct or
    indirect equity interest (or the equivalent thereof) of more than
    fifty (50) percent of an entity.").

[^149]: H.R. Rep. No. 559(I), 103d Cong., 2d Sess. 130 (1994). *See
    also* H.R. Rep. 103-559 (II), 103d Cong., 2d Sess. 227 (1994)
    (same).

[^150]: In this regard, we note that the MFJ court drew a distinction
    between the acquisition of a conditional option and the acquisition
    of an "equity interest." The Court wrote in *Tel-Optik* that NYNEX
    "\[was\] not proposing, at this juncture, acquisition of an *equity
    interest* in Tel-Optik," but rather that NYNEX had paid for the
    right to acquire all of Tel-Optik's stock "if certain conditions are
    met." *See United States v. Western Electric Co.,* No. Civ. A.
    82-0192, 1986 WL 11238, at \*1 (D.D.C. Aug. 7, 1986) (*Tel-Optik*)
    (emphasis added and footnote omitted).

[^151]: *See 4*7 U.S.C. § 152 note.

[^152]: Because these attribution rules are not derived from section
    3(1)'s affiliate definition and are designed in part to identify
    persons with "influence" over the core operations of a licensee, we
    decline to adopt the bright line 33-percent threshold adopted
    therein. *See* *infra* Section V.B.1 (discussion of debt-equity
    rule).

[^153]: *See, e.g.,* 47 U.S.C. § 224 (imputation of costs of pole
    attachment rate); 47 U.S.C. § 251 (interconnection at least equal in
    quality to that provided by the LEC to itself or to any affiliate);
    47 U.S.C. § 260 (complaints alleging discrimination in telemessaging
    services); 47 U.S.C. § 275 (provision of alarm monitoring services
    by a BOC).

[^154]: In *Tel-Optik*, for example, the MFJ Court considered whether
    NYNEX's purchase of a conditional right to acquire 100 percent of
    the stock of an undersea cable company would constitute entry into a
    restricted line of business. *Tel-Optik*, 1986 WL 11238 at \*1. *See
    also United States v. Western Electric Co.*, 894 F.2d 430, 435 n.9
    (D.C. Cir. 1990) ("even the appellees concede that not all
    conditional-interest transactions make the target firm into an
    'affiliated enterprise' under Section II(D).").

[^155]: Under the established MFJ procedures, prior to acquiring a
    conditional interest in a prohibited entity, the BOC would need to
    secure approval from the Department of Justice by showing: "(1) that
    the investment is relatively minor; (2) that occurrence of the
    contingency is genuinely in question; and (3) that the Regional
    Holding Company clearly lacks the ability, the incentive, or both,
    to disadvantage the target company's competitors." *Western Electric
    Co.*, 894 F.2d at 435. Following its approval, the Department of
    Justice would then file the BOC's request and its approval with the
    court. As Judge Greene emphasized, however, the actual acquisition
    of an equity interest in the prohibited entity would require
    approval of the court under the waiver process outlined in section
    VIII(C) of the decree.

[^156]: AT&T Mar. 22, 2000 *Ex Parte* Letter at 3, 11. *See, e.g.*,
    *supra* n.153 (identifying statutory provisions using the term
    "affiliate"). We note that sections 273 and 274 of the Act contain
    section-specific definitions of the term "affiliate." 47 U.S.C. §§
    273, 274. In addition, Title VI of the Act contains a different
    definition of "affiliate" that pertains to cable communications. 47
    U.S.C. § 522(2).

[^157]: We further note that nothing on the record suggests that our
    analysis of the proposed spin-off would be inconsistent with our
    treatment of similar interests in the other contexts in which the
    term "affiliate" is used.

[^158]: Because the Commission examines the underlying economic reality
    and not simply the labels that Applicants attach to various
    interests, contrary to AT&T's suggestions, we would not likely find
    that a contingency premised upon the Cubs winning the World Series
    would present a legitimate conditional interest. AT&T May 5, 2000
    Opposition, Ex. A at 4 (Third Declaration of John C. Coffee, Jr.).
    *See Fox Television Stations, Inc.*, File No. BRCT-940201KZ, Second
    Memorandum Opinion and Order, 11 FCC Rcd 5714, 5719, at para. 14
    (1995) (*Fox II*) (emphasizing that the Commission examines the
    economic realities and substance of the transactions under review
    and not simply the labels that the parties attach to their corporate
    incidents).

[^159]: AT&T argued under an earlier version of the proposal that the
    conversion of the Class B shares would be certain to occur. *See*
    AT&T May 5, 2000 Comments, Ex. A at 3 (Third Declaration of John C.
    Coffee, Jr.).

[^160]: In the *Ameritech Michigan Order*, the Commission emphasized the
    complexity of the task before the BOC as follows:

    > Complying with the competitive checklist, ensuring that entry is
    > consistent with the public interest, and meeting the other
    > requirements of section 271 are realistic, necessary goals. That
    > is not to say, however, that they are easy to meet or achievable
    > overnight. Given the complexities of the task of opening these
    > local markets to true, sustainable competition, it is not
    > surprising that companies that are earnestly and in good faith
    > cooperating in opening their local markets to competition have not
    > yet completed the task.

    *Application of Ameritech Michigan Pursuant to Section 271 of the
    Communications Act of 1934, as amended, to Provide In-Region,
    InterLATA Services in Michigan*, CC Docket No. 97-137, Memorandum
    Opinion and Order, 12 FCC Rcd 20543, 20556 at para. 23 (1997)
    (*Ameritech Michigan Order*).

[^161]: *See Application by Bell Atlantic New York for Authorization
    under Section 271 of the Communications Act to Provide In-Region,
    InterLATA Service in the State of New York*, CC Docket No. 99-295,
    Memorandum Opinion and Order, 15 FCC Rcd 3953 (1999) (granting Bell
    Atlantic's application for section 271 authority in New York).

[^162]: *See Application of BellSouth Corporation, BellSouth
    Telecommunications, Inc., and BellSouth Long Distance, Inc., for
    Provision of In-Region, InterLATA Services in Louisiana*, CC Docket
    No. 98-121, Memorandum Opinion and Order, 13 FCC Rcd 20599 (1998)
    (*BellSouth Second Louisiana Order*) (denying application);
    *Application by BellSouth Corporation, et al., Pursuant to Section
    271 of the Communications Act of 1934, as amended, to Provide
    In-Region, InterLATA Services in Louisiana*, CC Docket No. 97-231,
    Memorandum Opinion and Order, 13 FCC Rcd. 6245 (1998) (denying
    application); *Application of BellSouth Corporation, et al. Pursuant
    to Section 271 of the Communications Act of 1934, as amended, to
    Provide In-Region, InterLATA Services in South Carolina*, CC Docket
    No. 97-208, Memorandum Opinion and Order, 13 FCC Rcd 539 (1997)
    (denying application); *Ameritech Michigan Order*, 12 FCC Rcd 20543
    (denying application); *Application by SBC Communications Inc.,
    Pursuant to Section 271 of the Communications Act of 1934, as
    amended, to Provide In-Region, InterLATA Services in Oklahoma*, CC
    Docket No. 97-121, Memorandum Opinion and Order, 12 FCC Rcd 8685
    (1997) (denying application).

[^163]: *See* AT&T May 5, 2000 Opposition at 10; Competition Policy
    Institute May 5, 2000 Comments at 5; NEXTLINK Feb. 16, 2000 Comments
    at 8, 9 (observing that the merged firm will not have to pay
    anything to convert the Class B shares).

[^164]: In *Richard R. Zaragoza*, for example, the Mass Media Bureau
    found that an up-front payment "does not change the fact that the
    option may not be exercised." *Richard R. Zaragoza*, File Nos.
    BRH-970207YA, BTCH-961029GI, Letter, 14 FCC Rcd 1732, 1737, para. 20
    (MMB 1998) (rejecting arguments that a pre-paid option with only a
    nominal payment required for exercise should be treated as
    "perfected").

[^165]: AT&T May 5, 2000 Opposition at 23-24; Competition Policy
    Institute May 5, 2000 Comments at 6 (arguing that, under an earlier
    version of the proposal, the conversion right would vest once Bell
    Atlantic/GTE satisfies the 50-percent access line threshold).

[^166]: *See Fox II*, 11 FCC Rcd at 5720 , para. 16; *NextWave Personal
    Communications*, File Nos. 00341CWL96 *et al.*, Memorandum Opinion
    and Order, 12 FCC Rcd. 2030, 2049, para. 43 (1997) (*NextWave*).

[^167]: *See supra* n.96.

[^168]: *NextWave*, 12 FCC Rcd at 2057-58, para. 59.

[^169]: The proposal therefore differs from the instruments at issue in
    *Fox I*, where the holders of the preferred stock, representing 76
    percent of voting rights, were entitled only to a fixed return on
    capital investment, whereas all other profits and losses of the
    company, as well as the right to nearly all of the assets upon sale
    or dissolution, flowed to the holder of the common stock, which
    represented 24 percent of the voting rights. *Fox Television
    Stations, Inc.*, File No. BRCT-940201KZ, Memorandum Opinion and
    Order, 10 FCC Rcd 8452, 8457-58, para. 13 (1995) (*Fox I*).

[^170]: *See* ALTS May 5, 2000 Comments at 9; AT&T May 5, 2000
    Opposition at 15-16, Ex. B (Declaration of Dr. Richard N. Clarke);
    AT&T Mar. 22, 2000 *Ex Parte* Letter at 1; Competition Policy
    Institute May 5, 2000 Comments at 4-5; ITAA May 5, 2000 Comments at
    7 (arguing that financial markets would value the merged firm's
    interest in Genuity at approximately 80 percent).

[^171]: *See* Letter from Patricia E. Koch, Assistant Vice President
    Federal Regulatory, Bell Atlantic, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-184 (filed May 18, 2000) (Bell
    Atlantic/GTE May 18, 2000 *Ex Parte* Letter) (Declaration of Mark E.
    Gaumond); Letter from Steven G. Bradbury, Kirkland & Ellis, Counsel
    for GTE, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-184 (filed Apr. 14, 2000) (Declaration of Frederic V. Salerno)
    (explaining the merged firm's planned accounting treatment of
    Genuity). The parties initially disagreed over the treatment of
    contingent interests as a matter of accounting practices, with AT&T
    arguing that such interests would be treated as equity. The
    Applicants countered, however, with an affidavit from an accounting
    firm, that this transaction would not be treated as equity for
    accounting purposes. Bell Atlantic/GTE May 18, 2000 *Ex Parte*
    Letter (Declaration of Mark E. Gaumond). In response, AT&T argued in
    effect that such accounting treatment should be irrelevant to our
    consideration under section 3(1). Letter from Peter D. Keisler,
    Sidley & Austin, Counsel for AT&T, to Magalie Roman Salas,
    Secretary, FCC, CC Docket No. 98-184 (filed May 30, 2000). *See
    also* Letter from Patricia E. Koch, Assistant Vice President Federal
    Regulatory, Bell Atlantic, to Magalie Roman Salas, Secretary, FCC,
    CC Docket No. 98-184 (filed June 1, 2000); Letter from Patricia E.
    Koch, Assistant Vice President Federal Regulatory, Bell Atlantic, to
    Magalie Roman Salas, Secretary, FCC, CC Docket No. 98-184 (filed
    June 14, 2000) (illustrating the accounting treatment of Bell
    Atlantic/GTE's interest in Genuity). We therefore rely on the
    Applicants' assertions that the conditional interest will not be
    treated as equity for accounting purposes, and find that such
    treatment is consistent with our findings in this Order.

[^172]: *See, e.g., AT&T Corp. v. Ameritech*, File No. E-98-41,
    Memorandum Opinion and Order, 13 FCC Rcd 21438, at para. 36 (1998)
    (*Qwest Teaming Order*); *Ameritech Michigan Order*, 12 FCC Rcd at
    20551-52, para. 15.

[^173]: *See, e.g., Qwest Teaming Order*, 13 FCC Rcd 21438, at para. 36;
    *Ameritech Michigan Order*, 12 FCC Rcd at 20553, para. 17.

[^174]: The purpose of the 1996 Act is to "provide for a
    pro-competitive, de-regulatory national policy framework designed to
    accelerate rapidly private sector deployment of advanced
    telecommunications and information technologies and services to all
    Americans by opening all telecommunications markets to competition."
    Joint Statement of Managers, S. Conf. Rep. No. 104-230, 104th Cong.,
    2d Sess. 1 (1996). *See also Ameritech Michigan Order*, 12 FCC Rcd
    at 20549-56, paras. 10-23 (describing the purposes of section 271).

[^175]: *See BellSouth Second Louisiana Order*, 13 FCC Rcd at 20602,
    para. 3; *Ameritech Michigan Order*, 12 FCC Rcd at 20551, para. 14.

[^176]: We note that under the Applicants' proposal, the Commission has
    discretion to grant an extra year in the event that the merged firm
    obtains 90 percent (or 95 percent but-for one state) of the
    requisite section 271 approvals.

[^177]: The requirement that Bell Atlantic/GTE ratably disgorge
    appreciation that is attributable to the period in time before
    section 271 authorization also undercuts AT&T's argument that the
    merged firm will obtain material benefits uniquely associated with
    the long distance market prior to the time that it is authorized to
    provide those services. *See* AT&T May 5, 2000 Opposition at 5. *See
    also Qwest Teaming Order*, 13 FCC Rcd 21438, at para. 37.

[^178]: *See* AT&T May 5, 2000 Opposition at 4-5 (contending that
    section 271 prohibits a BOC from obtaining greater-than-10 percent
    equity returns from the long distance market from the period before
    the effective date of the grant); ITAA May 5, 2000 Comments at 1-2,
    6-7 (alleging that Bell Atlantic/GTE would impermissibly obtain the
    benefit of Genuity's appreciation). *See also* Letter from Jonathan
    Jacob Nadler, Squire Sanders & Dempsey L.L.P., Counsel for
    Information Technology Association of America, to Magalie Roman
    Salas, Secretary, FCC, CC Docket No. 98-184 (filed June 1, 2000)
    (ITAA June 1, 2000 *Ex Parte* Letter), Att. at 3.

[^179]: We note that because section 3(1) allows for a BOC to hold a
    10-percent equity interest in a prohibited entity, some effect on a
    BOC's incentives is implicitly allowed under the statute.

[^180]: AT&T Feb. 15, 2000 Opposition at 29.

[^181]: Bell Atlantic/GTE Feb. 22, 2000 Reply at 28.

[^182]: AT&T Feb. 15, 2000 Opposition at 30. Specifically, AT&T alleges
    that the merged entity could provide better "throughput" to Genuity,
    meaning that it would transmit packets more quickly for Genuity than
    for its competitors.

[^183]: Bell Atlantic/GTE Feb. 22, 2000 Reply Tab B at 2 (Affidavit of
    Raymond F. Albers).

[^184]: The merged entity, therefore, will report on its provision of
    these services to all companies, including Internet service
    providers, Internet backbone providers and interexchange carriers.

[^185]: *See* 47 C.F.R. § 43.21(g); ARMIS 43-05 Service Quality Report,
    Table 1 (establishing reporting requirements for special access
    provided to interexchange carriers).

[^186]: For example, these reporting requirements attach to the separate
    advanced services affiliate if it begins to provision these special
    access circuits to Genuity.

[^187]: We note that average delay days due to lack of facilities is not
    currently reported through ARMIS. This measurement tracks average
    calendar days from due date to completion date on company missed
    orders due to lack of facilities.

[^188]: *See infra* Appendix D (Conditions) at para. 53. As provided in
    the Conditions, Bell Atlantic/GTE shall, in consultation with the
    Chief of the Common Carrier Bureau, modify these measurements and
    develop any applicable performance measurement business rules to the
    extent necessary. Any developed business rules, once approved by the
    Chief of the Common Carrier Bureau, will be made publicly available.

[^189]: *See infra* Appendix D (Conditions) at para. 56(f).

[^190]: *See* ITAA June 1, 2000 *Ex Parte* Letter Att. at 3 (alleging
    that the merged firm could discriminate in favor of Genuity in the
    provision of high-capacity point-to-point local circuits).

[^191]: *See id.* (alleging that the merged firm could provide
    preferential access to copper loops used in the provision of xDSL
    service).

[^192]: For subsequent section 271 applications, we expect that Bell
    Atlantic/GTE will submit disaggregated data showing its performance
    in processing orders and provisioning unbundled loops to Genuity as
    compared with its performance with respect to other carriers.

[^193]: We note that competitors have vigorously pursued allegations of
    discriminatory conduct in prior section 271 applications, and we
    have no reason to suspect that such vigor will diminish in the
    future.

[^194]: *See* ITAA June 1, 2000 *Ex Parte* Letter Att. at 3 (asserting
    that the merged firm could "steer" its large business customers to
    Genuity, and otherwise provide service "on favorable terms" to
    customers of its dial-up Internet access service that select Genuity
    as their Global Service Provider or to its unaffiliated ISP
    customers that hand-off traffic to Genuity).

[^195]: 47 U.S.C. § 208.

[^196]: Judge Greene recognized that, even if the BOC would have an
    ability to discriminate, this ability "will not render the
    conditional interest infirm if the incentive to act
    anticompetitively is absent." *Tel-Optik*, 1986 WL 11238 at \*3.
    Despite the "obvious economic incentive" of the BOC in that case to
    enhance the value of the target company's stock and the success of
    its operations, the line-of-business waiver process deterred the BOC
    from engaging in anticompetitive conduct. *Id.*

[^197]: 47 U.S.C. § 153(1).

[^198]: In this case, the merged entity has voting rights of only 9.5
    percent, which we find insufficient to evidence *de jure* control.
    *See, e.g., Lockheed Martin Corp.*, Memorandum, Order and
    Authorization, FCC 99-237, at para. 30 (rel. Sept. 15, 1999); *Fox
    I*, 10 FCC Rcd at 8513, para. 151 (noting that *de jure* control is
    typically evidenced by ownership of more than 50 percent of an
    entity's voting interests).

[^199]: *See, e.g., AT&T Corp. v. Ameritech Corp.*, File No. E-98-41,
    Memorandum Opinion and Order, 13 FCC Rcd 14508 (1998).

[^200]: *Stereo Broadcasters, Inc.*, 55 FCC2d 819, 821 (1975). *See
    also* *Applications of Roy M. Speer and Silver Management Company*,
    File Nos. BTCCT-950913KG *et al.,* Memorandum Opinion and Order, 11
    FCC Rcd 14147, 14157, para. 24 (1996) (*Roy M. Speer*) (stating that
    the determination of locus of control and influence necessarily
    depends upon the facts surrounding each case and the parties or
    persons involved).

[^201]: *See Lockheed Martin Corp*., at para. 30 ("Under Commission
    precedent, a *de facto* control determination involves the balancing
    of facts and is based on the 'totality of the circumstances.'").

[^202]: *Univision Holdings, Inc.*, File Nos. BTCCT-920508KG-KL *et
    al.*, Memorandum Opinion and Order, 7 FCC Rcd 6672, at para. 15
    (1992) (*quoting Benjamin L. Dubb*, 16 F.C.C. 274, 289 (1951)). *See
    also Fox I*, 10 FCC Rcd at 8414-15, paras. 154, 156.

[^203]: *See, e.g., id.*; *Airgate Wireless, L.L.C.*, File No.
    0000002035, Memorandum Opinion and Order, 14 FCC Rcd 11827, 11840,
    para. 26 (1999); *Fox I*, 10 FCC Rcd at 8515, para. 156; *Metromedia
    Inc.*, Memorandum Opinion and Order, 98 F.C.C.2d 300 (1984)
    (indicating that that the touchstone of control is the ability to
    determine a company's policies and conduct its affairs). In
    broadcast cases, for example, the Commission traditionally has
    relied upon six factors, established in *Intermountain Microwave*,
    to ascertain the locus of control: (1) who determines and carries
    out the policy decisions; (2) who is in charge of the payment of
    financing obligations, including operating expenses; (3) who
    controls daily operations; (4) who is in charge of employment,
    supervision, and dismissal of personnel; (5) does the licensee have
    unfettered use of all facilities and equipment; and (6) who receives
    the monies and profits from the operation of the facilities. *See
    Intermountain Microwave*, Order, 24 Rad. Reg. (P&F) 983, 984 (1963);
    *Airgate*, 14 FCC Rcd at 11840, para. 26.

[^204]: For example, in *WWOR-TC, Inc.*, the Commission reviewed two
    prior spin-off situations and concluded that:

    > these cases can be said to stand for two propositions. First, when
    > a company is spun off, Commission requirements can still be met
    > upon a review of all relevant facts, despite "carryover"
    > employees, common directors and even on-going business
    > relationships. Second, petitioners that wish to challenge such
    > spin-offs as inconsistent with our requirements must allege
    > specific facts to establish a substantial and material question as
    > to whether the required degree of segregation would not be
    > established or that the parties would not reasonably be expected
    > to conduct themselves as represented.

    *WWOR-TC, Inc.*, BTCTT-901127KE, Memorandum Opinion and Order, 6 FCC
    Rcd 193, 201, para. 16 (1990).

[^205]: *See WWOR-TV*, 6 FCC Rcd at 199, para. 13 (indicating that a
    limited degree of influence of domestic broadcast stations is
    implicit in section 310(b), which permits foreigners to hold up to
    25 percent of the stock of the parent of a licensee and to hold up
    to 25 percent of the seats on its board).

[^206]: Although Bell Atlantic/GTE's maximum voting percentage is
    limited to 9.5 percent, which will be diluted if Genuity issues
    additional shares, other entities may vote up to 20 percent of
    Genuity's shares at any time. Given the merged firm's limited right
    to vote and the other circumstances of the spin-off proposal, we
    reject arguments that the 20-percent voting restriction evidences
    control. *See* Competition Policy Institute May 5, 2000 Comments at
    8-9; CompTel Feb. 15, 2000 Comments at 4-5.

[^207]: *See* Competition Policy Institute May 5, 2000 Comments at 8;
    CompTel Feb. 15, 2000 Comments at 5-6; NEXTLINK Feb. 16, 2000
    Comments at 10-11 (contending that the investor safeguards, which
    were subsequently narrowed, restricted the public shareholders'
    discretion in making business decisions).

[^208]: *See, e.g., Lockheed Martin Corp.*, at para. 31; *NextWave*, 12
    FCC Rcd at 2042-43, para. 30 (explaining that minority or non-voting
    shareholders may be given a decision-making role in major corporate
    decisions that fundamentally affect their interests as shareholders,
    such as issuance of stock, expenditures that significantly affect
    market capitalization, incurrence of significant debt, sale of major
    corporate assets, and fundamental changes in corporate structure,
    without being deemed to be in *de facto* control).

[^209]: *See Lockheed Martin Corp.*, at para. 31.

[^210]: *See id*., at para. 39.

[^211]: *See BBC License Subsidiary L.P. and SF Green Bay License
    Subsidiary, Inc.*, File Nos. BALCT-941014LH, BALTT-941014LI,
    Memorandum Opinion and Order, 10 FCC Rcd 7926, 7933, para. 41 (1995)
    (*BBC License Order*). *See also* *Applications of Quincy D. Jones
    and Qwest Broadcasting L.L.C.*, File No. BTCCT-941214KG, Memorandum
    Opinion and Order, 11 FCC Rcd. 2481, 2487, para. 29 (1995)
    (clarifying that, whether the right arises "in the form of an
    investor voting right derived from its equity interest or in the
    form of a licensee obligation derived from its debtor status," the
    right to participate in extraordinary corporate actions is
    ordinarily non-attributable so long as narrowly circumscribed); *Roy
    M. Speer*, 11 FCC Rcd at 14158, para. 25 (finding that rights
    accorded to a nonvoting stockholder to approve certain fundamental
    matters were "permissible investor protections that neither
    substantially restrict \[the voting entity's\] discretion nor rise
    to the level of attributable influence.").

[^212]: In *Roy M. Speer*, for example, unanimous approval of both the
    entity with voting control and the non-voting stockholder were
    required for certain fundamental matters that included: (1) any
    transaction not in the ordinary course of business; (2) the
    acquisition or disposition of any assets or business with a value of
    10 percent or more of the company's market value; (3) the incurrence
    of any indebtedness with a value of 10 percent or more of the
    company's market value; (4) any material amendments to the
    certificate of incorporation or bylaws; (5) engaging in any line of
    business other than media, communications and entertainment; (6) the
    settlement of any litigation, arbitration or other proceeding other
    than in the ordinary course of business; and (7) any transaction
    between the company and the entity with voting control, other than
    those of a certain size or on an arm's length basis. *Roy M. Speer*,
    11 FCC Rcd at 14155, para. 18. *See also Lockheed Martin Corp.*, at
    n.90 (describing restrictions on Comsat's ability to engage in
    certain business activities without the consent of Lockheed Martin),
    at n.92 (describing standard minority protections approved by the
    Commission).

[^213]: *See WWOR-TV*, 6 FCC Rcd at 202 n. 19 (expressing no concern
    with a foreign-controlled entity's role in nominating the proposed
    board because, as a practical matter, the company was spun off as a
    means to eliminate the alien ownership problem); *id.* at 201-02,
    para. 18 (finding that control of the board would be in the hands of
    those who had not been officers, directors or employees of the
    foreign-controlled entity, and that after the proposed tender offer,
    six of the eight directors would have no connection to that entity).
    *See also Iacopi v. FCC*, 451 F.2d 1142, 1148 (9th Cir. 1971)
    (noting that after the spin-off of Viacom from CBS to comply with
    Commission rules, of the nine Viacom directors, six had not
    previously been directors, officers or employees of CBS while three
    others were former employees).

[^214]: *See, e.g., GWI PCS, Inc.*, 12 FCC Rcd at 6455, para. 34
    (finding entity did not have *de facto* control despite its ability
    to elect two of 13 members of the board of directors); WWOR*-TV,
    Inc.*, BTCCT-901127KE, Memorandum Opinion and Order, 6 FCC Rcd.
    6569, 6582, para. 14 (1991) (finding, for purposes of section
    310(b)(4)'s 25-percent foreign ownership restriction, that even
    assuming that the two directors who were senior officials at the
    foreign-controlled organization were representatives of the foreign
    entity, no violation would exist because they represented only 25
    percent of the Board).

[^215]: *See Columbia Pictures Industries, Inc.*, 30 FCC2d at 16;
    *WWOR-TV,* 6 FCC Rcd at 201-02, para. 18.

[^216]: *See Lockheed Martin Corp.*, at para. 37 (declining to speculate
    that directors would breach their fiduciary obligations "in the
    absence of sufficient particularized facts to overcome the
    presumption that all of the directors will fulfill their fiduciary
    obligations within an active and independent board of directors").

[^217]: *See WWOR-TV,* 6 FCC Rcd at 200, para. 14 (noting that in the
    CBS/Viacom spin-off, "\[m\]ost of Viacom's officers and employees
    would perform the same roles they had performed for CBS").

[^218]: *See Airgate*, 14 FCC Rcd at 11841, para. 27 (rejecting certain
    arrangements between a spunoff company and its former parent,
    including that the spunoff company was prohibited from deploying or
    investing in other technologies, and that the former parent company
    enjoyed a right to review bids submitted by other equipment vendors
    prior to submitting its own bid).

[^219]: *See* ALTS May 5, 2000 Comments at 4; AT&T May 5, 2000
    Opposition at 6, 27; AT&T Mar. 22, 2000 *Ex Parte* Letter at 4, 19;
    Competition Policy Institute May 5, 2000 Comments at 7;
    Telecommunications Resellers Assoc. Feb 15, 2000 Comments at 12-13.

[^220]: *See* *NextWave*, 12 FCC Rcd at 2038-39, para. 21 (finding that
    "the fact that some of NextWave's management have been associated
    with Qualcomm does not support a finding of affiliation.").

[^221]: *See Lockheed Martin Corp.*, at para. 40 (finding that the
    existence of second stage of merger agreements was not sufficiently
    influential to constitute an element of actual control).

[^222]: *See WWOR-TV,* 6 FCC Rcd at 203-04, paras. 20-21 (allowing
    transitional arm's-length administrative arrangements in a spin-off
    situation, including a program supplier contract, a trademark
    license agreement, leases of office space, and a limited interim
    services agreement, to avoid the highly-disruptive immediate
    severance of such relationships); *Airgate*, 14 FCC Rcd at 11842,
    para. 29 (finding no evidence that a former parent controlled a
    spunoff entity because it offered to provide accounting, financial
    management, tax, payroll, shareholder and public relations, legal,
    human resources, procurement, real estate management, and other
    administrative services to the spunoff entity).

[^223]: Bell Atlantic/GTE June 7, 2000 Glover *Ex Parte* Letter Att. 1.

[^224]: In view of the limited scope of the transitional and other
    contracts between the companies, we reject Covad's assertion that,
    under an earlier version of the contracts, there is little left for
    Genuity, "a shell of a corporation," to do. *See* Covad May 5, 2000
    Comments at 7. *See also* Cable & Wireless Feb. 22, 2000 Reply at
    4-5.

[^225]: *See* Covad May 5, 2000 Comments at 11.

[^226]: *See Qwest Teaming Order*, 13 FCC Rcd at 21438. In this regard,
    the contractual relationship between the merged firm and Genuity
    created through the joint marketing and transitional support
    services contracts is manifestly different from Ameritech's and US
    WEST's arrangements with Qwest that were found to violate section
    271 in the *Qwest Teaming Order*. *See Qwest Teaming Order*, 13 FCC
    Rcd at 21438.

[^227]: AT&T Mar. 22, 2000 *Ex Parte* at 2-3 (*citing* *Implementation
    of the Cable Television Consumer Protection and Competition Act of
    1992*, CS Docket No. 98-82, Report and Order, FCC 99-288 (rel. Oct.
    20, 1999) (*Cable Attribution Order*); and *Review of the
    Commission's Regulations Governing Attribution of Broadcast and
    Cable/MDS Interests*, MM Docket No. 94-150, Report and Order, 14 FCC
    Rcd. 12559, 12582, para. 47 (1999) (*Broadcast Attribution Order*)).

[^228]: *See* 47 C.F.R. § 73.3555 Note 2(j); 47 C.F.R. § 76.503 Note
    2(i).

[^229]: *Broadcast Attribution Order* at para. 47. Attribution is
    triggered under the broadcasting debt-equity-plus rule only when the
    requisite financial interest is coupled with one of two triggering
    relationships (major program supplier or same market media entity).

[^230]: *Cable Attribution Order* at para. 83.

[^231]: *Cable Attribution Order* at para. 129.

[^232]: These authorizations include: (1) File No.
    ITC-214-19990708-00391 (global facilities-based and resale
    authorization held by GTE Telecom Incorporated); (2) File No.
    SCL-98-003/SCL-98-003A (submarine cable landing license for
    AMERICAS-II Cable to be held by GTE Telecom Incorporated after a pro
    forma assignment from GTE Communications Corp.); (3) File No.
    SCL-LIC-19990303-00004 (submarine cable landing license for TAT-14
    Cable from GTE Intelligent Network Services); (4) File No.
    SCL-LIC-19981117-00025 (submarine cable landing license for
    Japan-U.S. Cable from GTE Intelligent Network Services); and (5)
    ITC-98-342/ ITC-98-342A (international section 214 authorization,
    associated with the AMERICAS-II Cable landing license, to be held by
    GTE Telecom Incorporated after a pro forma assignment from GTE
    Communications Corp.). Pursuant to the Cable Landing License Act,
    the Department of State, after coordinating with the National
    Telecommunications and Information Administration and the Department
    of Defense, approved the transfer of control to Genuity of the
    AMERICAS-II, TAT-14 and Japan-U.S. cable landing licenses held by
    GTE operating subsidiaries. *See* Letter from Geoffrey Chapman,
    United States Coordinator, Acting International Communications and
    Information Policy, United States Department of State, to Donald
    Abelson, Chief, International Bureau, Federal Communications
    Commission (filed May 23, 2000).

[^233]: *See* GTE Corporation, Transferor, Genuity, Inc., Transferee,
    Application for Transfer of Control (filed Apr. 28, 2000) (Domestic
    Section 214 Application), at 1.

[^234]: *See* Letter from Alan F. Ciamporcero, Vice President Regulatory
    Affairs, GTE, to Magalie Roman Salas, Secretary, FCC, CC Docket No.
    98-184 (filed Apr. 28, 2000), attached hereto as Appendix F.

[^235]: Domestic Section 214 Application at 5.

[^236]: *See* GTE Corporation, Transferor, Genuity, Inc., Transferee,
    Application for Transfer of Control of ITC-98-342/ ITC-98-342A
    (filed Apr. 28, 2000); GTE Corporation, Transferor, Genuity, Inc.,
    Transferee, Application for Transfer of Control of
    ITC-214-19990708-00391 (filed Apr. 28, 2000). Section 63.09(e) of
    the rules provides, in relevant part, that: \[t\]wo entities are
    *affiliated* with each other if one of them, or an entity that
    controls one of them, directly or indirectly owns more than 25
    percent of the capital stock of, or controls, the other one.\" 47
    C.F.R. § 63.09(e). Currently, all of GTE\'s international carrier
    subsidiaries, including GTE Telecom, are affiliated with foreign
    carriers that we have found to possess market power in the Dominican
    Republic and Venezuela. For this reason, we have classified these
    subsidiaries as dominant international carriers, as appropriate
    under section 63.10(a)(3) of the rules, for the provision of service
    between the United States and each of these countries. After the
    spin-off and upon consummation of the merger of GTE with Bell
    Atlantic, all of the *Bell Atlantic-controlled* international
    carriers will continue to be classified as dominant international
    carriers on the U.S.-Dominican Republic and U.S.-Venezuela routes,
    as appropriate under section 6.310(a)(3) of the rules. For a
    detailed discussion of our international dominant carrier rules as
    they relate to the merged entity, *see* *infra* Section X.

[^237]: Section 63.10(a)(1) of the rules provides that: "\[a\] U.S.
    carrier that has no affiliation with, and that itself is not, a
    foreign carrier in a particular country to which it provides service
    (i.e., a destination country) shall presumptively be considered
    non-dominant for the provision of international communications
    services on that route."

[^238]: Petition of GTE Service Corporation and GTE Consolidated
    Services, Inc. for Waiver of 47 C.F.R. § 32.27(c) (filed Apr. 25,
    2000) (*GTE Waiver Request*).

[^239]: GTE requests permission to continue providing services to
    Genuity while at the same time receiving favorable accounting
    treatment under our rules. *See GTE Waiver Request* at 2. To
    accomplish this, GTE Service Corporation and GTE Consolidated
    Services, Inc. must continue to receive classification as a
    "separate services affiliate," which is an affiliate that provides
    services solely to members of the corporate family. Under the
    accounting safeguards, incumbent LECs receive favorable accounting
    treatment in limited circumstances involving a "separate services
    affiliate." *See* *Implementation of the Telecommunications Act of
    1996: Accounting Safeguards Under the Telecommunications Act of
    1996*, CC Docket 96-150, Report and Order, 11 FCC Rcd 17539 (1996)
    (*Accounting Safeguards Order*). Specifically, this treatment allows
    incumbent LECs to value the cost of services provided by a separate
    services affiliate at fully distributed cost without estimating the
    fair market value of the services. To qualify for this favorable
    accounting treatment, however, the separate services affiliate must
    provide services solely to members of the corporate family. *See
    id*. Transactions with unaffiliated third parties raise the risk
    that ratepayers of regulated services will subsidize an incumbent
    LEC's competitive operations.

[^240]: The affiliate transactions rules prescribe the manner in which
    incumbent LECs record the costs of transactions between regulated
    and nonregulated affiliates on their books of account, and thereby
    help ensure that such transactions occur at arm\'s length. *See* 47
    C.F.R. § 32.27. *See Implementation of the Telecommunications Act of
    1996: Accounting Safeguards Under the Telecommunications Act of
    1996*, CC Docket 96-150, Second Order on Reconsideration, FCC 00-9
    (rel. Jan. 18, 2000).

[^241]: *See* 47 C.F.R. §§ 1.3, 32.18; *see also Aliant Communications
    Co. Petition for Waiver of Section 32.27 of the Commission\'s
    Rules*, Order on Reconsideration, 14 FCC Rcd 6231 (1999); *Puerto
    Rico Telephone Co. Petition for Waiver of Section 32.27 of the
    Commission's Rules*, Memorandum Opinion and Order, DA 99-2233 (rel.
    Nov. 5, 1999).

[^242]: *See* AT&T May 5, 2000 Opposition at 7 & n.4.

[^243]: For example, GTE Service Corp. could continue to provide such
    services to Genuity, but it would lose its status as a separate
    services affiliate.

[^244]: *SBC/Ameritech Order*, 14 FCC Rcd at 14744, para. 63. As we have
    noted previously, such a transitional market analysis is relevant to
    the examination of a merger under the Communications Act because of
    our statutory obligation to promote the development, and not merely
    prevent the lessening, of competition in telecommunications markets.
    *Id.*

[^245]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14744, para. 64;
    *WorldCom/MCI Order*, 13 FCC Rcd at 18038, para. 20.

[^246]: *See id.* (*citing United States v. Marine Bancorporation*, 418
    U.S. 602 (1974); ABA Section of Antitrust Law, Antitrust Law
    Developments (4th ed. 1997) at 346-50 (Antitrust Law Developments)).

[^247]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14744, para. 64. In
    addition, the transitional markets framework is well-tailored to the
    Commission\'s unique role as an expert agency and statutory
    obligation to promote competition and to open local markets.

[^248]: As we stated in the *AT&T/TCG Order,* when analyzing a merger in
    a market that is rapidly changing, the best way to assess the likely
    effect of the merger is to isolate the merger's effects from all
    other factors affecting the development of the relevant market over
    time. This is achieved by framing the analysis in a way that holds
    constant the effects of all changes in the market conditions other
    than those directly caused by the merger. To do this, we also
    identify as market participants those firms that have been
    effectively precluded from the market---that is, those firms that
    are most likely to enter (or are just beginning to enter) the market
    but have until recently been prevented or deterred from
    participating in the market by the barriers that the 1996 Act seeks
    to eradicate. We then identify the most significant participants
    based on an assessment of capabilities and incentives to compete
    effectively in the relevant market. *AT&T/TCG Order*, 13 FCC Rcd at
    15245-46, para. 17.

[^249]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14745, para. 65;
    *WorldCom/MCI Order*, 13 FCC Rcd at 18036-37, para. 18*; Bell
    Atlantic/NYNEX Order,* 12 FCC Rcd at 20008-10, paras. 37-38.

[^250]: Additionally, we note that our analysis of these competitive
    issues is necessarily truncated in this portion of the order.
    Because information concerning the Applicants' business plans is
    subject to a Protective Order, much of the evidence on which we rely
    is explained in Appendix C, to which access must be restricted.

[^251]: *See Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20016, para. 53;
    *see also SBC/Ameritech Order*, 14 FCC Rcd at 14746, para 67;
    *WorldCom/MCI Order*, 13 FCC Rcd at 18119, para. 164.

[^252]: In Sections IX and X, we address the proposed merger's impact
    upon the wireless and international markets. Additionally, although
    Bell Atlantic recently entered the long distance market in New York,
    it does not provide interexchange services in other states.
    Furthermore, as a result of a recent divestiture, GTE no longer
    serves long distance customers in either the larger business or mass
    markets within Bell Atlantic's region, with the exception of New
    York. Accordingly, we conclude that the proposed merger will not
    result in a loss of competition in the domestic market for long
    distance services. *See supra* Section V. As discussed below,
    however, we do find that a merged Bell Atlantic/GTE will have an
    increase ability and incentive to discriminate in the provision of
    exchange access service. *See infra* Section VI.D.

[^253]: We distinguish mass market consumers from larger business
    customers because the services offered to one group may not be
    adequate or feasible substitutes for services offered to the other
    group, and because firms need different assets and capabilities to
    target these two markets successfully. *See generally*
    *SBC/Ameritech Order,* 14 FCC Rcd 14746, para. 68 & n.146;
    *WorldCom/MCI,* 13 FCC Rcd at 18119*,* para. 164; *Bell
    Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20016*,* para. 53. As
    recognized in previous merger orders, mass market customers have a
    different decision-making process than do larger business customers.
    For example, residential and small businesses are served primarily
    through mass marketing techniques including regional advertising and
    telemarketing, while larger businesses tend to be served under
    individual contracts and marketed through direct sales contacts.
    *See SBC/Ameritech Order*, 14 FCC Rcd at 14746, para. 68.

[^254]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14746, para. 69;
    *WorldCom/MCI Order*, 13 FCC Rcd at 18120, para. 167. *See also*
    *AT&T/TCG Order,* 13 FCC Rcd at 15248, para. 21; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20017*,* para. 54.

[^255]: *WorldCom/MCI Order*, 13 FCC Rcd at 18120, para. 167.

[^256]: *See* *id.* at 18120, para. 168.

[^257]: The Commission previously has set forth the various capabilities
    it considers in identifying the most significant potential
    competitors in local exchange and exchange access markets. Those
    capabilities include whether the firm possesses the following: (1)
    the operational ability to provide local telephone service (*i.e*.,
    know how and operational infrastructure, including sales, marketing,
    customer service, billing, and network management); (2) the ability
    to quickly acquire a critical mass of customers; (3) brand name
    recognition, a reputation for providing high quality and reliable
    service, an existing customer base, or the financial resources to
    get these assets; and (4) some significant unique advantages, such
    as a cellular presence in the relevant market. *See Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20019, paras. 58-64; *see also*
    *SBC/Ameritech Order*, 14 FCC Rcd at 14748, para. 73; *WorldCom/MCI*
    Order, 13 FCC Rcd at 18047-48, 18051-56, 18122, paras. 36, 42-51,
    171.

[^258]: *See* *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20021-22, para.
    64. We also noted in the *Bell Atlantic/NYNEX Order* that if a
    firm's internal documents demonstrate serious consideration of
    entry, they may create an inference of a capability to effect the
    market without a detailed examination of the competitor's
    capabilities and incentives.

[^259]: Firms providing one service may choose to expand their offering
    to provide a whole range of products or expand to other geographic
    regions. For instance, as noted *supra*, in recent merger
    applications before the Commission, some merging parties have
    asserted that consumers are expressing demand for "one-stop
    shopping." *See* *WorldCom/MCI Order,* 13 FCC Rcd at 18037*,* para.
    19; *Bell Atlantic/NYNEX Order,* 12 FCC Rcd at 20015, para. 52.
    According to the Applicants, this demand stimulated in part their
    merger plans. We also examine the activities of competitors
    providing similar services; if a competitor branches into new
    relevant markets, we may determine that a firm could or would
    respond to such a competitive challenge by serving these other
    relevant markets as well.

[^260]: *See* *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd 20020, 20040-41,
    paras. 62, 106-08; s*ee also* AT&T Mar. 1, 2000 Opposition at 7-8.

[^261]: *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd 20040, para. 107; *see
    also* AT&T Mar. 1, 2000 Opposition at 7-8; National ALEC Assoc. Mar.
    1, 2000 Comments at 5.

[^262]: *See* Bluestar, et al. Mar. 1, 2000 Comments at 2; National ALEC
    Assoc. Mar. 1, 2000 Comments at 6; CompTel Mar. 1, 2000 Comments at
    4-5; MCI WorldCom Nov. 23, 1998 Comments at 22. *See also
    SBC/Ameritech Order*, 14 FCC Rcd at 14753-54, paras. 85-86
    (adjacency and cellular presence or both evidence that merging
    parties are significant market participants in each other's
    operating areas).

[^263]: *See* Appendix C (Summary of Confidential Information).

[^264]: *See id.*

[^265]: *See id.* In this regard, we find GTE's argument that it
    intended to utilize only one upgraded wireless switch for the
    provision of wireline services to be contradicted by its own
    internal documents. *See id.*

[^266]: As contiguous incumbent LECs in Pennsylvania and Virginia, Bell
    Atlantic and GTE also have the ability to use remote digital loop
    carriers to serve out-of-region end users. Such technology has a
    range of about 125 miles, which would permit it to be used in
    conjunction with the contiguous provider's switch in its nearby
    in-region territory. *See* AT&T Nov. 23, 1998 Opposition at 24.

[^267]: As discussed below, GTE launched a national advertising
    campaign, and the company's traditional advertising strategy has
    emphasized "national, strategic branding." *See* Sprint Nov. 23,
    1998 Petition at 19-20.

[^268]: *See* Appendix C (Summary of Confidential Information). *See
    also SBC/Ameritech Order*, 14 FCC Rcd at 14754, para. 85.

[^269]: *See* Appendix C (Summary of Confidential Information).

[^270]: *Id.*

[^271]: *See id.*

[^272]: *See id.*

[^273]: *See SBC/Ameritech Order*, 14 FCC Rcd 14750, para. 78.

[^274]: *See* Appendix C (Summary of Confidential Information).

[^275]: *See id.*

[^276]: *See* Appendix C (Summary of Confidential Information). We
    reject Applicants' argument that because GTE opted into an existing
    Bell Atlantic interconnection agreement in Virginia pursuant to
    section 252(i) of the Act, its plans were not concrete. *See* Bell
    Atlantic/GTE Dec. 23, 1998 Joint Reply. Adoption of a previously
    approved interconnection agreement in no way renders the subsequent
    agreement less meaningful. *See* Sprint Nov. 23, 1998 Petition at
    19.

[^277]: *See* *id*.

[^278]: Appendix C (Summary of Confidential Information).

[^279]: *See* Appendix C (Summary of Confidential Information); *See
    also* Sprint Nov. 23, 1998 Petition at 13-16.

[^280]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing, Attach. B,
    Tab 2, para. 3.

[^281]: *See* Bell Atlantic/GTE Dec. 23, 1998 Joint Reply, Attach. B at
    6.

[^282]: Appendix C (Summary of Confidential Information).

[^283]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply, Attach. B. at 5
    ("Consumers were not targeted out-of-franchise because acquisition
    costs were too high.")

[^284]: *See* Appendix C (Summary of Confidential Information).

[^285]: *Id.*

[^286]: *See* *id.*

[^287]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply, Attach. B at 5.

[^288]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14751, para. 81.

[^289]: *See* Appendix C (Summary of Confidential Information).

[^290]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply at 34.

[^291]: *See* Sprint Nov. 23, 1998 Petition at 19-20.

[^292]: *See* Appendix C (Summary of Confidential Information).

[^293]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14754, para. 87;
    *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20029, para. 82.

[^294]: *SBC/Ameritech Order*, 14 FCC Rcd at 14754, para. 87.

[^295]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14755, para. 88.

[^296]: *See* *WorldCom/MCI Order,* 13 FCC Rcd at 18123, para. 172;
    *AT&T/TCG Order,* 13 FCC Rcd at 15250, para. 26.

[^297]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14755, para. 89;
    *WorldCom/MCI* *Order*, 13 FCC Rcd at 18123, para. 172.

[^298]: *See* Appendix C (Summary of Confidential Information).

[^299]: *See* *id.*

[^300]: The list of market participants with the capabilities and
    incentives to provide local exchange services to larger business
    customers includes the largest interexchange carriers.

[^301]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14755-56, paras. 89-91;
    *See also WorldCom/MCI Order*, 13 FCC Rcd 18119, para. 164;
    *AT&T/TCG Order*, 13 FCC Rcd 15257, para. 38. AT&T/TCG, with its
    combination of AT&T's capital resources and existing base of
    business long distance customers along with TCG's local exchange
    facilities and existing base of business local exchange customers,
    is a significant competitor in the local market for larger business
    customers. Similarly, with its combination of MCI's business
    customer base and local facilities along with WorldCom's competitive
    LEC assets (including Brooks Fiber and MFS), MCI WorldCom is also a
    significant competitor in the larger business local exchange market.

[^302]: A significant difference between the mass market for local
    services and the larger business market for local services is that
    larger business customer purchases are not limited to a single local
    metropolitan geographic area; rather, they purchase simultaneously
    in numerous local markets.

[^303]: *See* *AT&T/TCG Order*, 13 FCC Rcd at 15257, para. 39; *Bell
    Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20016, para. 53.

[^304]: *See* *SBC/Ameritech Order,* 14 FCC Rcd at 14758, para. 95;
    *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20024, para. 70.

[^305]: In doing so, we recognize that the Department of Justice did not
    find any basis for a case of actual potential competition with
    regard to the proposed merger of Bell Atlantic and GTE. We note,
    however, that as discussed above, the public interest standard that
    governs the Commission's review is broader than the antitrust
    analysis undertaken by the Department. In particular, as described
    herein, we find that the merger may contravene the intent of the
    1996 Act by delaying the future development of competition or
    lessening its eventual impact.

[^306]: *See* Appendix C (Summary of Confidential Information).

[^307]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14760, para. 100; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20022, para. 65.

[^308]: *See* *WorldCom/MCI* *Order*, 13 FCC Rcd at 18074, para. 86;
    *Bell Atlantic/NYNEX* *Order*, 12 FCC Rcd at 20022, para. 65. We
    note, further, that this conclusion undermines the Applicants'
    argument that a potential public interest benefit would result
    post-merger from Applicants following their larger business
    customers out-of-region. Cite. A number of firms, including Bell
    Atlantic and GTE, are already providing or could provide local
    exchange and exchange access services to these customers.

[^309]: *SBC/Ameritech Order*, 14 FCC Rcd at 14760-61, para. 101.

[^310]: *Id.* at 14761, para. 101.

[^311]: *Id.* at 14761, para. 102; *AT&T/TCI Order*, 14 FCC Rcd at 3169,
    para. 14.

[^312]: *SBC/Ameritech Order*, 14 FCC Rcd at 14761, para. 102; *Bell
    Atlantic/NYNEX Order,* 12 FCC Rcd at 19994, para. 16; *SBC/SNET
    Order*, 13 FCC Rcd at 21292, para. 21.

[^313]: *SBC/Ameritech Order,* 14 FCC Rcd at 14762, para. 104. In the
    *Bell Atlantic/NYNEX Order,* the Commission stated that further
    reduction of the number of RBOCs is problematic because "the
    potential for coordinated behavior increases and the impact of
    individual company actions on our aggregate measures of the
    industry's performance grows." *Bell Atlantic/NYNEX Order* 12 FCC
    Rcd at 20062-63, para. 156.

[^314]: *SBC/Ameritech Order,* 14 FCC Rcd at 14761, para. 101.

[^315]: *Id.* at 14792, para. 179.

[^316]: *Id.* at 14795, para. 185.

[^317]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14761, para. 103; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 1994, para. 16; *SBC/SNET
    Order*, 13 FCC Rcd at 21292, para. 21; *SBC/PacTel Order,* 12 FCC
    Rcd at 2624, para. 32.

[^318]: *SBC/Ameritech Order,* 14 FCC Rcd at 14761-62, para. 103.

[^319]: *Id.* at 14762, para. 103.

[^320]: Bell Atlantic and GTE state that their merger "is a true merger
    of equals and not an outright acquisition." Bell Atlantic/GTE Jan.
    2000 Supplemental Filing at 25.

[^321]: *See also SBC/Ameritech Order,* 14 FCC Rcd at 14762, para. 104.

[^322]: *Id.* at 14762-63, para. 106.

[^323]: *Id.*

[^324]: *Id.*

[^325]: *Id.* at 14762-67, paras. 106-17

[^326]: As Sprint points out, without benchmarking, the Commission would
    have to employ far more intrusive measures, including document and
    *in personae* subpoenas, more after-the-fact complaint adjudication,
    or on-the record hearings. Sprint Nov. 23, 1998 Petition at 52-53.

[^327]: *See id.* at 53-54.

[^328]: *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20060-62, paras.
    152-54.

[^329]: *See id.* at 20062-63, para. 156.

[^330]: The Applicants contend that in many instances, a merger will
    have no effect on a best-practices benchmark. Bell Atlantic/GTE Dec.
    23, 1998 Joint Reply App. F, Declaration of Kenneth J. Arrow at
    para. 37 (Bell Atlantic/GTE Arrow Decl.). While the Applicants'
    contention has merit in theory, the argument breaks down when
    applying it to the present merger. The Bell Atlantic/GTE merger will
    reduce the number of major incumbent benchmarks from five to four,
    thus significantly reducing the sample size of observations
    available for benchmarking. The reduction in benchmarks also
    increases the ability for firms to either tacitly or explicitly
    engage in suboptimal behavior that would reduce the effectiveness of
    best practices benchmarking, and result in a less beneficial "best
    practice." *See, e.g.,* Nov. 23, 1998 Petition at 47-49; Letter from
    Michael Jones, Willkie Farr & Gallagher, Counsel to Sprint, to
    Magalie Roman Salas, Secretary, FCC (filed Apr. 12, 1999) (Sprint
    Apr. 12, 1999 *Ex Parte* Letter), Farrell & Mitchell Attachment at
    20.

[^331]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14768, para. 120 &
    n.236.

[^332]: *See* F. M. Scherer and D. Ross*, Industrial Market Structure
    and Economic Performance* 277-315 (3^rd^ Ed., 1990); A. Jacquemin
    and M. Slade, "Cartels, Collusion, and Horizontal Merger," published
    in R. Schmalensee and R.D. Willig, *Handbook of Industrial
    Organization*, Vol. 1 (1989).

[^333]: Applying these principles, the Commission has recognized that
    the markets for local exchange and exchange access services,
    traditional monopolies collectively dominated by major regional
    holding companies, are conducive to coordinated interaction. *See
    Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 20047, para. 122
    (concluding "that the risk of coordinated interaction is
    particularly high in the markets in which Bell Atlantic and NYNEX
    compete.").

[^334]: Because each successive reduction in the number of benchmarks
    will reduce the utility of comparative practices analyses, there
    will be some point at which further reduction in benchmark firms
    renders such comparisons ineffective. In the *Horizontal Merger
    Guidelines*, the Department of Justice and the Federal Trade
    Commission set a threshold of market concentration according to an
    1800 HHI, approximately the equivalent of six equally-sized firms.
    "Where the post-merger HHI exceeds 1800, it will be presumed that
    mergers producing an increase in the HHI of more than 100 points are
    likely to create or enhance market power or facilitate its
    exercise." In such a market, a merger that reduces the number of
    competing firms from six to five is therefore likely to be
    challenged as raising serious concern regarding unilateral and
    coordinated effects. A merger that reduces the number of competing
    firms from five to four raises even greater concerns. Analogously,
    using a market which consists not of competing firms but of
    benchmark firms, reducing the number of benchmark firms from five to
    four, is likely to raise grave concern with respect to coordinated
    efforts to defeat benchmarking, which are more likely to succeed
    here than in competitive markets where each firm faces potential
    gain from unilateral deviation. *Horizontal Merger Guidelines,*
    Department of Justice and Federal Trade Commission (1997);
    *SBC/Ameritech Order*, 14 FCC Rcd at 14769-70, n.240.

[^335]: Bell Atlantic/GTE Mar. 16, 2000 Joint Reply at 8. *But see* AT&T
    Mar. 1, 2000 Comments at 12 (refuting Applicants' claim that GTE is
    not similarly situated with the RBOCs, and that GTE's service area
    is predominantly rural by stating "\[s\]uch claims are unbelievable
    on their face. Indeed, it is apparent that even Applicants
    themselves do not believe this, for later in their filing they
    announce that this is a 'true merger of equals.").

[^336]: *See, e.g.,* *Comments Invited on GTE Southwest Incorporated's
    Application to Discontinue Local Exchange and Exchange Access
    Service for Certain Exchanges in New Mexico,* Public Notice, NSD
    File No. W-P-D-457 (rel. Mar. 24, 2000).

[^337]: Bell Atlantic/GTE Mar. 16, 2000 Joint Reply at 9; Bell
    Atlantic/GTE Dec. 23, 1998 Joint Reply at 40. *But see* CoreComm
    Mar. 1, 2000 Comments at 13 (citing Commission orders stating that
    the Commission has consistently relied upon GTE in establishing
    benchmark rates, terms and conditions).

[^338]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply at 39. *See also*
    Bell Atlantic/GTE Arrow Decl. at para. 6 (stating that the 1996 Act
    and the widespread deployment of facilities and services by
    competitive LECs, have reduced the importance of the traditional
    types of benchmarks relied on by the Commission and other regulatory
    bodies).

[^339]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14761-62, para. 103;
    *Bell Atlantic/NYNEX Order* at 19994, para. 16.

[^340]: *Trends in Telephone Service, March 2000,* Tables 20.2 & 20.3,
    Industry Analysis Division, Common Carrier Bureau, Federal
    Communications Commission. *See also* Sprint Apr. 12, 1999 *Ex
    Parte* Letter, Farrell & Mitchell Attachment, Table.

[^341]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply at 38.

[^342]: *SBC/Ameritech Order,* 14 FCC Rcd at 14781, para. 146.

[^343]: *See also id.* at 14781, para. 147 (stating that "\[t\]he record
    from prior RBOC mergers shows that, after both mergers, the
    acquiring firm quickly eliminated certain policies of the acquired
    company that were in conflict with those of the acquiring
    company."); AT&T Mar. 1, 2000 Comments at 15.

[^344]: *Trends in Telephone Service, March 2000,* Tables 20.1, 20.2 &
    20.3, Industry Analysis Division, Common Carrier Bureau, Federal
    Communications Commission; Bell Atlantic/GTE May 22, 2000 *Ex Parte*
    Letter; Bell Atlantic 1999 Annual Report at 6. *See also* Sprint
    Apr. 12, 1999 *Ex Parte* Letter, Farrell & Mitchell Attachment --
    Table 2; BlueStar, et al. Mar. 1, 2000 Comments at 2.

[^345]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14785, para. 156.

[^346]: *Id.*

[^347]: *Id.*

[^348]: *Id.* at 14785, para. 157.

[^349]: *Id.*

[^350]: *Id.*

[^351]: *See id.* at 14785, para. 158.

[^352]: *See id.*

[^353]: *See id*.

[^354]: *See id*.

[^355]: *See id.* at 14785-86, para. 158.

[^356]: *See id.* at 14786, para. 158.

[^357]: We note that in the context of this merger, the new entity may
    have new practices, policies and behaviors. While these practices,
    policies, and behaviors evolve, there is a further loss of
    benchmarking capability.

[^358]: *See* Bell Atlantic/GTE Arrow Decl. at paras. 6, 10, 14-19.

[^359]: *SBC/Ameritech Order,* 14 FCC Rcd at 14786, para. 161.

[^360]: *Id.*

[^361]: The Applicants repeatedly assert the notion that adequate
    alternative benchmarks can be found among independent LECs such as
    Sprint's operating subsidiaries, ALLTEL, Frontier and Cincinnati
    Bell. Bell Atlantic/GTE Arrow Decl. at para. 20. *See also
    SBC/Ameritech Order,* 14 FCC Rcd at 14787, para. 162 & n. 313.

[^362]: *See* 47 U.S.C. § 251(c) (requiring incumbent LECs to negotiate
    in good faith and provide, *e.g.*, interconnection, unbundled access
    to network elements, resale, and collocation).

[^363]: *See* 47 U.S.C. § 251(h).

[^364]: 47 U.S.C. § 251(b) (requiring all LECs to allow resale, number
    portability, dialing parity, access to rights of way, and reciprocal
    compensation).

[^365]: Under section 251(f), a rural incumbent LEC is exempt from the
    requirements of section 251(c) until (i) it has received a "bona
    fide request for interconnection, services, or network elements,"
    and (ii) the state commission determines that "such request is not
    unduly economically burdensome, is technically feasible, and is
    consistent with section 254" universal service provisions. 47 U.S.C.
    § 251(f). *See* *SBC/Ameritech Order,* 14 FCC Rcd at 14788, para.
    166 & n. 319.

[^366]: *SBC/SNET Order*, 13 FCC Rcd at 21302, para. 21 (*citing Policy
    and Rules Concerning Rates for Dominant Carriers*, CC Docket No.
    87-313, Second Report and Order, 5 FCC Rcd 6786, 6818-20 (1990); 47
    U.S.C. § 251(f)(2)).

[^367]: *SBC/Ameritech Order,* 14 FCC Rcd at 14788, para. 166.

[^368]: Bell Atlantic/GTE Arrow Decl. at para. 20.

[^369]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14789, para. 170.

[^370]: *See* Bell Atlantic/GTE Arrow Decl. at paras. 14-19.

[^371]: *Id.* at paras. 7-8.

[^372]: *Id.* at para. 8.

[^373]: *See, e.g.*, *SBC/Ameritech Order,* 14 FCC Rcd at 14791, para.
    175; *Local Competition Order*, 11 FCC Rcd at 15614, para. 224
    (Section 251(c)(2)(C) requires an incumbent LEC to provide
    interconnection between its network and that of a requesting carrier
    at a level of quality that is at least indistinguishable from that
    which the incumbent provides itself or any other party). *See
    Performance Measurements and Reporting Requirements for Operations
    Support Systems, Interconnection, and Operator Services and
    Directory Assistance*, Notice of Proposed Rulemaking, 13 FCC Rcd
    12817 (1998), at para. 14.

[^374]: .Apr. 12, 1999 *Ex Parte* Letter, Farrell and Mitchell
    Attachment, *Response to Some Criticisms of Benchmarking Analysis*,
    at 2-4.

[^375]: BlueStar, et al. Mar. 1, 2000 Comments at 2.

[^376]: *See* *SBC/Ameritech Order,* 14 FCC Rcd at 14793, para. 181.

[^377]: *Id.* at 14794, para. 183; *Bell Atlantic/NYNEX Order*, 12 FCC
    Rcd at 20062-63, para. 156.

[^378]: *See* CompTel Mar. 1, 2000 Comments at 7.

[^379]: *SBC/Ameritech Order,* 14 FCC Rcd at 14761, para. 102; *Bell
    Atlantic/NYNEX Order,* 12 FCC Rcd at 19994, 20061, paras. 16, 153.

[^380]: *See also SBC/Ameritech Order,* 14 FCC Rcd at 14761, para. 102.

[^381]: For purposes of this Order, we define the term \"advanced
    services\" as we did in the *Advanced Services Further Notice*, to
    mean "high speed, switched, broadband, wireline telecommunications
    capability that enables users to originate and receive high‑quality
    voice, data, graphics or video telecommunications using any
    technology." *Advanced Services Further Notice*, 14 FCC Rcd at 4762,
    n.2. The Commission there stated: "\[t\]he term 'broadband' is
    generally used to convey sufficient capacity \-- or 'bandwidth' \--
    to transport large amounts of information. As technology evolves,
    the concept of 'broadband' will evolve with it: we may consider
    today\'s 'broadband' services to be 'narrowband' services when
    tomorrow\'s technologies appear." *Id*. For a further description of
    xDSL technology, *see* *id*. at paras. 9-12.

[^382]: Throughout this section, "local exchange service," refers to
    circuit-switched local exchange service, otherwise known as Plain
    Old Telephone Service (POTS), rather than services, such as advanced
    services, based on digital subscriber line technology or
    packet-switched technology that may have a local component.

[^383]: *SBC/Ameritech Order,* 14 FCC Rcd at 14795, para. 187.

[^384]: *Id.* at 14796, para. 187.

[^385]: *Id.* at 14796, para. 187, n.348.

[^386]: *See* Pub.L. 104‑104, Title VII, § 706, Feb. 8, 1996, 110 Stat.
    153, reproduced in the notes under 47 U.S.C. § 157.

[^387]: *See* *SBC/Ameritech Order,* 14 FCC Rcd at 14796, para. 188.

[^388]: *Id.*

[^389]: *Id.*

[^390]: Externalities, or spillovers, arise when an action by one party
    imposes costs or benefits on another party or parties. *See* Robert
    S. Pindyck & Daniel L. Rubinfeld, *Microeconomics* (Prentice Hall,
    4th ed. 1998) at 648. A classic example of a negative externality is
    air pollution.

[^391]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14797-98, para. 192
    (for a more detailed discussion of spillover effect).

[^392]: *See id.* at 14797, para. 192.

[^393]: *Id.* at 14798, para. 192.

[^394]: *Id.* at 14798, para. 193.

[^395]: *Id.*

[^396]: *Id.* at 14798, para. 194.

[^397]: *Id.*

[^398]: *Id.* at 14798-99, para. 194.

[^399]: *Id.* at 14804, para. 206.

[^400]: *See In the Matter of Local Competition Provisions of the
    Telecommunications Act of 1996,* CC Docket No. 96-98, Third Report
    and Order and Fourth Further Notice of Proposed Rulemaking, FCC
    99-238 (rel. Nov. 5, 1999) (*Third Report and Order and Fourth
    FNPRM* or *UNE Remand Order)*; *Deployment of Wireline Services
    Offering Advanced Telecommunications Capability,* CC Docket Nos.
    98-147 and 96-98, *Third Report and Order and Fourth Report and
    Order,* FCC 99-355 (rel. Dec. 9,1999) (*Line Sharing Order*). The
    *UNE Remand Order* specifies which network elements must be
    unbundled by incumbent LECs. For example, the order unbundles
    subloops and packet switching in limited circumstances. The *Line
    Sharing Order* requires incumbent LECs to unbundle the high
    frequency portion of the loop in certain circumstances.

[^401]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14800-07, paras.
    197-211.

[^402]: *See* *Advanced Services Further Notice*, 14 FCC Rcd at 4762,
    para. 1 and n.2 (citing Joint Statement of Managers, S. Conf. Rep.
    No. 104-230, 104th Cong. 2d Sess. 1 (1996) (*Joint Explanatory
    Statement*)).

[^403]: *See Advanced Services Further Notice*, 14 FCC Rcd at 4762,
    para. 2.

[^404]: *See* Section 706 (a), 47 U.S.C. § 157 nt (a) (Stating that the
    Commission "shall encourage the deployment on a reasonable and
    timely basis of advanced telecommunications capability to all
    Americans (including, in particular, elementary and secondary
    schools and classrooms) by utilizing, in a manner consistent with
    the public interest, convenience, and necessity, price cap
    regulation, regulatory forbearance, measures that promote
    competition in the local telecommunications market, or other
    regulating methods that remove barriers to infrastructure
    investment.").

[^405]: Sprint Nov. 23, 1998 Petition at 34-36. Sprint's ION service
    integrates voice, internet, frame relay and other data traffic on
    one customer access facility and carries all of this traffic in
    asynchronous transfer mode (ATM) data format through the Sprint
    network. Sprint Brauer Aff. at 3. Sprint states that Sprint ION
    "will focus customers on the efficiency gained by integrating all
    services on one access facility, increased functionality provided to
    customers through increases in bandwidth, and innovations in
    customer control by providing the customer with easy-to-use service
    configuration functionality." *Id.* at 4.

[^406]: *SBC/Ameritech Order,* 14 FCC Rcd at 14802, para. 202.

[^407]: For example, Sprint is concerned not only by incumbent LECs'
    ability to discriminate against competitors or potential competitors
    by denying access to necessary inputs, but also by slow-rolling
    competitors in negotiations for such inputs. Sprint Nov. 23 Petition
    at 34-35. *See also SBC/Ameritech Order,* 14 FCC Rcd at 14802-05,
    paras. 202, 204 & n. 378.

[^408]: *SBC/Ameritech Order,* 14 FCC Rcd at 14802, para. 202. Sprint
    states that its ION service will reach customers through either a
    dedicated access line purchased by Sprint from an incumbent LEC (in
    most instances), through an xDSL loop and collocation space leased
    from an incumbent LEC or through resale. Sprint Brauer Aff. at 14

[^409]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14804, para. 205.

[^410]: *Id.*

[^411]: *Id.*

[^412]: *Id.* at 14805, para. 207.

[^413]: *See* Sprint Nov. 23, 1998 Petition at 29, 33-36.

[^414]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14805, para. 207, n.
    384.

[^415]: *Id.* at 14805, para. 207.

[^416]: *Id.*

[^417]: *Id.* at 14805, para. 208.

[^418]: *Id.*

[^419]: *Id.*

[^420]: *Id.* at 14806, para. 208. *See also id.* at 14806-07; paras.
    209-210 (for a more detailed discussion about the merged entity's
    increased incentive and ability to discriminate).

[^421]: *Id.* at 14806-07, para. 210.

[^422]: *Id.* at 14807, para. 210.

[^423]: *Id.*

[^424]: *See Bell Atlantic 271 Order*.

[^425]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14808, para. 214.

[^426]: *Id.*

[^427]: *Trends in Telephone Service, March 2000,* Tables 20.1, 20.2 &
    20.3, Industry Analysis Division, Common Carrier Bureau, Federal
    Communications Commission; Bell Atlantic/GTE May 22, 2000 *Ex Parte*
    Letter; Bell Atlantic 1999 Annual Report at 6. *See also* Letter
    from Michael Jones, Wilkie Farr & Gallagher, Counsel to Sprint, to
    Magalie Roman Salas, Secretary, FCC, (filed Apr. 12, 1999) (Sprint
    Apr. 12 *Ex Parte* Letter), Farrell & Mitchell attachment -- Table 2
    (citing Federal Communications Commission, *1997 Statistics of
    Communications Common Carriers,* Table 1.1); BlueStar, et al., Mar.
    1, 2000 Joint Comments at 2 ("The proposed merger would create a
    gargantuan ILEC controlling over one-third of the nation's access
    lines.").

[^428]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14808-09, para. 216. We
    note that GTE has not, in the context of this proceeding, been
    accused of any pattern of discrimination against rivals providing
    interexchange services. *But see* Sprint Brauer Aff. at 17-18
    (citing GTE's continued billing of its own retail interLATA toll to
    Sprint's California local end user subscribers). We find, however,
    that prior to the merger, GTE's incentive to engage in such behavior
    was minimal due to its insubstantial share of the long distance
    market, which dictated that any rewards GTE gleaned from such
    behavior would be slight. According to the *Trends in Telephone
    Service,* GTE has less than a 1% share of the long distance market.
    *Trends in Telephone Service, March 2000,* Table 11.2, Industry
    Analysis Division, Common Carrier Bureau, Federal Communications
    Commission.

[^429]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14809, para. 217. The
    incentive to discriminate exists because, for calls originating in
    region, an incumbent LEC will be able to benefit from discrimination
    by securing more customers on the originating side. An incumbent LEC
    has the incentive to discriminate against termination of a
    particular call only to the extent that the call originated in the
    same incumbent's region. If an incumbent LEC providing terminating
    access to an interexchange carrier denies or degrades that access,
    then the incumbent LEC competing with the interexchange carrier at
    the originating end may also benefit. *Id.* at 14809, para. 216.

[^430]: *Id.* at 14809, para. 218, n.399*.*

[^431]: These systems are referred to as "out of band" signaling
    networks, and they simultaneously carry signaling messages for
    multiple calls. In general, most LECs' signaling networks adhere to
    a Bellcore standard Signaling System 7 (SS7) protocol. SS7 networks
    use signaling links to transmit routing messages between switches,
    and between switches and call-related databases (such as the Line
    Information Database, Toll Free Calling Database, and Advanced
    Intelligent Network databases). These links enable a switch to send
    queries via the SS7 network to call-related databases, which return
    customer information or instructions for call routing to the switch.
    A typical SS7 network includes a signaling link that transmits
    signaling information in packets, from a local switch to a signaling
    transfer point (STP), which is a high-capacity packet switch. The
    STP switches packets onto other links according to the address
    information contained in the packet. These additional links extend
    to other switches, databases, and STPs in the incumbent LECs'
    networks. A switch routing a call to another switch will initiate a
    series of signaling messages via signaling links through a STP to
    establish a call path on the voice network between the switches.
    *See Local Competition Order*, 11 FCC Rcd at 15738-41, paras 479-83.

[^432]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14809-10, para. 219.

[^433]: *Id.* at 14810, para. 219.

[^434]: *See id.* at 14810, para. 220.

[^435]: *Id.*

[^436]: *See* Sprint Nov. 23, 1998 Petition at 33. An incentive to
    discriminate on the originating end is not a significant issue in
    this proceeding because there will always be an incentive for an
    incumbent offering interexchange services to discriminate against
    traffic originating in its region, and this merger will not create a
    greater incentive. *See SBC/Ameritech Order,* 14 FCC Rcd at 14812,
    n.419.

[^437]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14812, para. 225.

[^438]: *See* AT&T Mar. 1, 2000 Comments at 17, n.8; Sprint Nov. 23,
    1998 Petition at 31-36; *see also* MCI WorldCom Nov. 23, 1998
    Comments at 38.

[^439]: *See* Sprint Nov. 23, 1998 Petition at 33.

[^440]: *See* Bell Atlantic/GTE Oct. 2, 1998 Application at 46 (quoting
    *SBC/PacTel Order,* 12 FCC Rcd at 2647, paras. 46,53,57).

[^441]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14812-13, para. 226,
    n.423 (stating that "\[t\]he result in the *SBC/PacTel Order* was
    correct, however, because in that merger, any resulting harm from
    that increase in percentage points would not, in and of itself, have
    been fatal to the merger.").

[^442]: *See* *id.* at 14812-13, para. 226, n.424. In the SBC/Ameritech
    merger, we reached the same conclusion and agreed with Sprint that
    "the combined entity would terminate 45 percent of minutes that the
    combined entity controls on the originating end, a 50 percent
    increase from the 30 percent of minutes for which Ameritech
    currently controls both the originating and terminating ends." *Id.*
    at para. 226, n.420.

[^443]: *See* MCI WorldCom Nov. 23, 1998 Comments at 38 (asserting that
    common ownership facilitates Bell Atlantic's and GTE's ability to
    focus their non-price discrimination efforts across their regions);
    *see also SBC/Ameritech Order,* 14 FCC Rcd at 14813, para. 226,
    n.425.

[^444]: *See* MCI WorldCom Nov. 23, 1998 Comments at 38.

[^445]: *SBC/Ameritech Order,* 14 FCC Rcd at 14813, para. 228.

[^446]: At the time of the Bell Atlantic/NYNEX merger, the two firms
    controlled about 24% of customer lines nationwide, while the merged
    Bell Atlantic/GTE entity will control more than 33% of customer
    lines nationwide. *See 1997/1998 Statistics of Communications Common
    Carriers*, Tables 2.3 & 2.10, Federal Communications Commission;
    *Trends in Telephone Service, March 2000,* Tables 20.1, 20.2 & 20.3,
    Industry Analysis Division, Common Carrier Bureau, Federal
    Communications Commission; Bell Atlantic/GTE May 22, 2000 *Ex Parte*
    Letter; Bell Atlantic 1999 Annual Report at 6. Non-price
    discrimination is a violation of several provisions of the
    Communications Act, as well as a number of rules adopted by the
    Commission. Section 272(c) of the Communications Act states that a
    BOC, in dealing with its long distance affiliate: (1) may not
    discriminate between that company or affiliate and any other entity
    in the provision or procurement of goods, services, facilities, and
    information, or in the establishment of standards; and (2) shall
    account for all transactions with an affiliate described in
    subsection (a) of this section in accordance with accounting
    principles designated or approved by the Commission. 47 U.S.C. §
    272(c). We have adopted a number of rules implementing these
    provisions and otherwise designed to prevent non-price
    discrimination. *See* 47 C.F.R. §§ 53.200, et seq. *See also
    Implementation of the Telecommunications Act of 1996: Accounting
    Safeguards Under the Telecommunications Act of 1996, Report and
    Order,* 11 FCC Rcd 17539 (1996) (*Accounting Safeguards Order*);
    *Implementation of the Non-Accounting Safeguards of Sections 271 and
    272 of the Communications Act of 1934, as amended, First Report and
    Order and Further Notice of Proposed Rulemaking*, 11 FCC Rcd 21905
    (1996) (*Non-Accounting Safeguards Order*); *Regulatory Treatment of
    LEC Provision of Interexchange Services Originating in the LEC's
    Local Exchange Area and Policy and Rules Concerning the Interstate,
    Interexchange Marketplace, Second Report and Order in CC Docket No.
    96-149 and Third Report and Order in CC Docket No. 96-61*, 12 FCC
    Rcd 15756 (1997) (*LEC In-Region, Interexchange Order*).

[^447]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14814, para. 229.

[^448]: *Id.*

[^449]: *See* MCI WorldCom Nov. 23, 1998 Comments at 36-38. A price
    squeeze, as opponents use the term, refers to a particular,
    well-defined strategy of predation that would involve the combined
    entity setting high prices for access services while charging
    relatively low prices for retail services. It is this relationship
    between the input prices and the affiliate\'s prices, and not the
    absolute levels of those prices, that defines a price squeeze. *See*
    *SBC/Ameritech Order*, 14 FCC Rcd at 14815, para. 231, n.429; *Bell
    Atlantic/NYNEX Order,* 12 FCC Rcd at 20044, para. 116.

[^450]: We note that access charges already are above cost. Therefore,
    in order to implement a price squeeze, an incumbent need only offer
    low prices for its long distance services. *SBC/Ameritech Order,* 14
    FCC Rcd at 14815, para. 231, n.430.

[^451]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14815, para. 232.

[^452]: *See id.* at 14815-16, para. 232.

[^453]: We reached the same conclusion in both the *Bell Atlantic/NYNEX
    Order and the SBC/Ameritech Order. See Bell Atlantic/NYNEX Order* at
    20045, para. 117. *See also SBC/Ameritech Order,* 14 FCC Rcd at
    14816, para. 233.

[^454]: *Access Charge Reform Order,* 12 FCC Rcd at 16100-04, paras.
    275-282. For example, the Commission noted that the prohibition on
    joint ownership of switching and transmission facilities reduces the
    risk of improper allocations of the costs of common facilities
    between the incumbent and its interexchange affiliate, and helps
    deter any discrimination in access to the incumbent\'s transmission
    and switching facilities by requiring the affiliates to follow the
    same procedures as competing carriers to obtain access to those
    facilities. *See id.* at 16102, para. 279 (citing *Non-Accounting
    Safeguards Order*, 11 FCC Rcd at 21982-84, paras. 159-162). The
    Commission also noted that the requirement that an incumbent LEC
    offer services at tariffed rates, or on the same basis as requesting
    carriers that have negotiated interconnection agreements pursuant to
    section 251, reduces the risk of a price squeeze to the extent that
    an affiliate\'s long distance prices would have to exceed its costs
    for tariffed services. *See Access Charge Reform Order*, 12 FCC Rcd
    at 16102, para. 279.

[^455]: *Id.* at 15993-94, para. 26 (stating that \"price caps act as a
    transitional regulatory scheme until the advent of actual
    competition makes price cap regulation unnecessary.\") Price caps
    fundamentally alter the process by which incumbent LECs determine
    the revenues they are permitted to obtain from interstate access
    charges for access services.

[^456]: *SBC/Ameritech Order,* 14 FCC Rcd at 14816-17, para. 234, n.
    436.

[^457]: *See* *AT&T/TCI Order*, 14 FCC Rcd at 3215-16, para. 118.

[^458]: *See* MCI WorldCom Nov. 23, 1998 Comments at 29. *See also
    SBC/Ameritech Order,* 14 FCC Rcd at 14817, para. 236 (noting that
    competitive LECs providing local services to larger business
    customers may still be discriminated against, but that these LEC
    generally have more experience negotiating with incumbent LECs).

[^459]: *SBC/Ameritech Order,* 14 FCC Rcd at 14817, para. 237.

[^460]: *See* *id.*

[^461]: *See* *id.*

[^462]: For example RCN Corporation is currently operating in, or has
    begun building in, seven of the top ten US cities as measured by
    population density -- Boston, New York, Philadelphia, Washington,
    DC, San Francisco, Los Angeles, and Chicago. *RCN Press Release --
    May 1, 2000*.

[^463]: *See* *SBC/Ameritech Order,* 14 FCC Rcd at 14818, para. 238.

[^464]: *See* *id.*

[^465]: *See* Sprint Nov. 23, 1998 Petition at 25.

[^466]: *See id*.

[^467]: *See* MCI WorldCom Mar. 1, 2000 Comments at 2.

[^468]: *See* *id.*

[^469]: *See id.*

[^470]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14819, para. 240. We
    note that this is changing in some areas, such as New York and
    Texas, where there is increasing residential entry via the unbundled
    network element platform (UNE-P), a combination of the loop,
    transport and switching.

[^471]: For example, if the cost of non-price discrimination to
    competitive providers is \$5.00 per customer, it is easier to pass
    that cost along to business customers than mass-market customers.
    The \$5.00 represents a much greater portion of a typical
    mass-market customer's bill than it does of a typical business
    customer's bill.

[^472]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14819, para. 240.

[^473]: *See id.* at 14819, para. 241.

[^474]: *See id.* The incumbent LEC, for example, may fail to provision
    enough equipment for a competing LEC so that a higher percentage of
    the competitor's calls are blocked from terminating in the
    incumbent's region. When a competitor orders trunks in the
    incumbent's end office, the incumbent may fail to make available the
    number of trunks requested by competitor, or it may delay installing
    the trunks in the end office. *Id.*

[^475]: *See id.*

[^476]: *See id.* at 14820, para. 243.

[^477]: *See id.*

[^478]: *See id.*

[^479]: *See id.*

[^480]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply, Arrow Decl. at
    23-25.

[^481]: *See* Sprint Apr. 2, 1999 *Ex Parte* Letter, Hayes, Jayaratne,
    and Katz Report at 21 (stating that incumbent LECs "have attempted
    to degrade the quality of interconnection facilities provided to
    their local cellular competitor," and citing that "it is clearly
    incorrect to assert there is no evidence of exclusionary behavior by
    ILECs in cellular markets. On the contrary, the history of cellular
    competition, like the history of intraLATA competition, shows that
    ILECs will work hard to prevent entry when they can capture the
    benefits of doing so.").

[^482]: *See SBC/Ameritech Order,* 14 FCC Rcd at 14821, para. 244.

[^483]: *See* Sprint Nov. 23, 1998 Petition at 32 (noting that by
    internalizing the anticompetitive spillover benefits the merger
    makes discrimination more profitable and thus more likely); *see
    also See SBC/Ameritech Order*, 14 FCC Rcd at 14821, para. 244.

[^484]: *SBC/Ameritech Order*, 14 FCC Rcd at 14825, para. 255; *AT&T/TCI
    Order,* 14 FCC Rcd at 3168, para 13; *MCI/WorldCom Order,* 13 FCC
    Rcd at 18134-35, para. 194.

[^485]: *1992 Horizontal Merger Guidelines* at 30*.*

[^486]: *Bell Atlantic/NYNEX Order,* 12 FCC Rcd at 20063, para. 157.

[^487]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 2.

[^488]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14829, para. 267.

[^489]: *Id.*

[^490]: *Id.*

[^491]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 4.

[^492]: *See id.* at 3-4. *See also* AT&T Mar. 1, 2000 Opposition at
    19-20.

[^493]: *See* Bell Atlantic/GTE Feb. 22, 2000 Response at 7. As
    described above, the ultimate recombination of GTE's Internet
    backbone network with Bell Atlantic's established in-region local
    customers is contingent upon the merged entity obtaining section 271
    authority covering 95 percent of the access lines within Bell
    Atlantic's region. *See supra* Section V.

[^494]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at
    3-4. *See* *also* AT&T Mar. 1, 2000 Opposition at 20.

[^495]: *See* AT&T Mar. 1, 2000 Opposition at 20.

[^496]: *See* *Ex Parte* Letter from Michael E. Glover, Associate
    General Counsel, Bell Atlantic, to Michael Kende and To-Quyen
    Truong, Federal Communications Commission (filed Jan. 15, 1999) at 8
    (Bell Atlantic Jan. 15, 1999 *Ex Parte* Letter) ("\[T\]he merger
    will produce significant procompetitive benefits by strengthening
    GTE's Internet backbone business as a competitor of the Big Three
    backbone providers. To the extent this business is subject to
    Section 271, these benefits will depend on obtaining Section 271
    relief."); Letter from Steven G. Bradbury, Counsel for GTE, Kirkland
    & Ellis, to Michael Kende and To-Quyen Truong, Federal
    Communications Commission (filed Jan. 15, 1999) at 13 (GTE Jan. 15,
    1999 *Ex Parte* Letter) ("GTE-Bell Atlantic would not be able to
    realize fully the benefits of integrating both companies' long
    distance, Internet, and data traffic onto the GNI unless Bell
    Atlantic receives 271 approval. Without the ability to migrate Bell
    Atlantic's Northeast traffic, the company could not, for example,
    achieve the maximum possible unit cost reductions.").

[^497]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14842-43, paras.
    303-06.

[^498]: *See id.*

[^499]: *WorldCom/MCI Order*, 13 FCC Rcd at 18025, para. 148. *See also*
    Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 4.

[^500]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at
    3-4.

[^501]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 5-6.

[^502]: *See* *id.* at 6.

[^503]: *Id.*

[^504]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14842-43, paras.
    303-06.

[^505]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 5-6.

[^506]: *See Qwest/US WEST Order*, para. 56.

[^507]: *Id.* at para. 57.

[^508]: *See id.* at para. 56.

[^509]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply at 18. *See also*
    Bell Atlantic/GTE Oct. 2, 1998 Application, Attach. A at 1-3, 6-14;
    Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 9-11.

[^510]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply at 19-20.

[^511]: *See* Section VI.B.

[^512]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14833-33, paras.
    278-86.

[^513]: Bell Atlantic/GTE Kissel Decl., 4, para. 7.

[^514]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing, Exhibit 2,
    Joint Declaration of Geoffrey C. Gould and Edward D. Young, III
    (Bell Atlantic/GTE Gould/Young Joint Decl.), paras 3-4.

[^515]: GTE 1999 Annual Report at 3.

[^516]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 10.

[^517]: Bell Atlantic/GTE Kissel Decl., paras. 8-10.

[^518]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14835-36, para. 284.

[^519]: Bell Atlantic/GTE Kissel Decl., para. 8.

[^520]: *Id.* at para. 7.

[^521]: *SBC/Ameritech Order*, 14 FCC Rcd at 14842, para. 301;
    *WorldCom/MCI Order*, 13 FCC Rcd at 18138, para. 199; *AT&T/TCG
    Order*, 13 FCC Rcd at 15262, para. 48.

[^522]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 11.

[^523]: GTE Jan. 15, 1999 *Ex Parte* Letter at 13.

[^524]: *Id.* at 13. Similarly, the Applicants have stated that "\[T\]he
    ability of the combined company to enter the markets of the other
    Bell companies on an economic basis will be enhanced by the ability
    to offer a complete bundle of services to customers in those
    markets. For example, a major multi-location business customer
    headquartered in New York would be more likely to chose Bell
    Atlantic if it can provide a full bundle of services, including long
    distance services originating from the customer\'s headquarters in
    New York. Relief in one or more states would permit Bell Atlantic to
    begin offering a full range of services to corporations that have
    offices in both regions, and thus to gain more quickly the
    geographic footholds necessary to provide services to these and
    other customers on an economic basis." Bell Atlantic Jan. 15, 1999
    *Ex Parte* Letter at 13*.*

[^525]: *See id.*

[^526]: *Id.*

[^527]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14842-43, paras.
    303-06.

[^528]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 7-6.

[^529]: *Id.*

[^530]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14830, para. 270.

[^531]: *Id.* at 14829, para. 267.

[^532]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 6-7.

[^533]: Communications Daily (Mar. 30, 2000) at 8.

[^534]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 6-7.

[^535]: In this regard, we also note, as detailed above, that many of
    the claimed benefits in the market for long distance services are
    entirely speculative because they are contingent upon the merged
    company obtaining section 271 relief in Bell Atlantic's region.

[^536]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 7,
    Bell Atlantic/GTE Oct. 2, 1998 Application, Public Interest
    Statement at 4, 20-21.

[^537]: Bell Atlantic/GTE Jan. 27 2000 Supplemental Filing, Babbio
    Decl., para. 2.

[^538]: *See* Letter from William D. Wallace, Esq., Crowell & Moring
    LLP, to Magalie Roman Salas, Secretary, Federal Communications
    Commission, CC Docket No. 98-184 (filed May 4, 2000) (Bell
    Atlantic/GTE May 4, 2000 *Ex Parte* Letter); *see also* Morgan
    Stanley Dean Witter, *Urge to Merge* (May 22, 2000) at 36.

[^539]: Morgan Stanley Dean Witter, *Urge to Merge* (May 22, 2000).
    VoiceStream's footprint will encompass 193 million consumers after
    it completes its acquisitions of Omnipoint and Aerial.

[^540]: *See In re Vodafone AirTouch, Plc and Bell Atlantic
    Corporation,* Memorandum Opinion and Order, DA 00-721 (WTB/IB Mar.
    30, 2000) at para. 6.

[^541]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing,
    Babbio Decl., para. 3. GTE will contribute wireless properties in
    Chicago, San Francisco, Houston, Indianapolis, Richmond, Norfolk,
    Knoxville, Nashville, San Jose, Memphis, Louisville, Birmingham,
    Greensboro, Honolulu, Raleigh-Durham, Fresno, and St. Louis. *Id.*

[^542]: Bell Atlantic/GTE Oct. 2, 1998 Application, Attach. A at 22;
    Bell Atlantic/GTE Oct. 2, 1998 Application, Attach. A, Declaration
    of Doreen Toben at 1-2 (Toben Decl.).

[^543]: *Id.*

[^544]: *SBC/Ameritech Order*, 14 FCC Rcd at 14847, paras. 319-20; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20067, para. 169.

[^545]: *Id.*

[^546]: *SBC/Ameritech Order*, 14 FCC Rcd at 14847, paras. 319-20; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20066-67, paras. 169-70.

[^547]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14847, para. 320.

[^548]: *See id.*

[^549]: *Id.* at14849, para. 327; *Bell Atlantic/NYNEX Order*, 12 FCC
    Rcd at 20067, para. 171.

[^550]: *SBC/Ameritech Order*, 14 FCC Rcd at 14849, para. 328; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20067, para. 171.

[^551]: *SBC/Ameritech Order*, 14 FCC Rcd at 14849, para. 328; *Bell
    Atlantic/NYNEX Order*, 12 FCC Rcd at 20067, para. 171.

[^552]: *SBC/Ameritech Order*, 14 FCC Rcd at 14849, para. 328.

[^553]: *Id.*

[^554]: *Id.* Specifically, the Applicants claim \$2.6 billion of
    expense savings and \$1.6 billion of capital savings. *Id.*

[^555]: The Applicants claimed, prior to the completion of the Vodafone
    transaction, that reduced roaming charges resulting from the merger
    will enable the merged firm to offer national, one-rate wireless
    services at minimum monthly charges "other than" the \$159 per month
    being charged by Bell Atlantic at the time. *Id*.

[^556]: *In the Matter of Implementation of Section 6002(b) of the
    Omnibus Budget Reconciliation Act of 1993, Annual Report and
    Analysis of Competitive Market Conditions with Respect to Commercial
    Wireless Services*, 14 FCC Rcd 10145 (1999) (Fourth Annual CMRS
    Competition Report).

[^557]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing, Babbio
    Decl., para. 3.

[^558]: Bell Atlantic/GTE Nov. 23, 1998 Joint Reply, Toren Reply Decl.
    at 5-6.

[^559]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 2. *See
    also* Jan. 31, 2000 Public Notice.

[^560]: Bell Atlantic/GTE Mar. 14, 2000 *Ex Parte* Letter. The
    Applicants resubmitted their proposed conditions on April 28, 2000,
    encapsulating the revisions that they proffered on April 14 in
    addition to the contents of errata that they filed on April 17 and
    April 28. Bell Atlantic/GTE Apr. 28, 2000 *Ex Parte* Letter*.* *See
    also* Letter from Patricia Koch, Assistant Vice President, Bell
    Atlantic, to Magalie Salas, Secretary, Office of the Secretary,
    Federal Communications Commission, CC Docket No. 98-184, (filed Apr.
    17, 2000). We solicited further public comment on the proposed
    conditions as clarified and modified by the revisions reflected in
    the Applicants' April 28 submission. *See* Apr. 28, 2000 Public
    Notice.

[^561]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 17;
    *SBC/Ameritech Order*, 14 FCC Rcd at 14854-925, paras. 348-518
    (section of the order discussing the conditions); App. C,
    Conditions, *id.* at 14964-15172 (*SBC/Ameritech Conditions*). *See
    also* NEXTLINK Mar. 16, 2000 Reply at 2-3, 5-6; BlueStar et al. Mar.
    1, 2000 Comments at 3; Comptel Mar. 1, 2000 Comments at 2; IURC Mar.
    1, 2000 Comments at 4, 13; MCI WorldCom Mar. 1, 2000 Supplemental
    Comments at 7; National ALEC Mar. 1, 2000 Comments at 1; NorthPoint
    Mar. 1, 2000 Comments at 3 (supporting treatment of the
    *SBC/Ameritech Conditions* as a framework for our analysis of Bell
    Atlantic's and GTE's commitments). *But see* AT&T May 5, 2000
    Comments at 3.

[^562]: Sections of the *SBC/Ameritech Conditions* that Bell Atlantic
    and GTE do not include in their proffered commitments are: Access to
    Loop Information for Advanced Services, *SBC/Ameritech Conditions*
    Section IV; Restructuring OSS Charges, *SBC/Ameritech Conditions*
    Section IX; Carrier-to-Carrier Promotions: UNE Platform,
    *SBC/Ameritech Conditions* Section XVI; and Shared Transport in
    Ameritech States, *SBC/Ameritech Conditions* Section XIX. *See
    SBC/Ameritech Conditions*, 14 FCC Rcd at 14997-98, 15009-10,
    15020-24, paras. 19-20, 35, 50-52, 55-56. *See also infra* Section
    VIII.C (refuting comments that the Applicants in this merger
    likewise should be subject to conditions relating to access to loop
    information for advanced services, restructuring of OSS charges, and
    carrier-to-carrier UNE-platform promotions). No commenter takes
    issue with the Applicants' omission of commitments relating to
    shared transport, and we agree with the Applicants that no such
    commitments warrant attachment to Bell Atlantic and GTE in the
    context of their proposed merger, in light of our requirement that
    incumbent LECs provide shared transport as a UNE. *See* Bell
    Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 18 n.12; *UNE
    Remand Order* at para. 369. *See also infra* Conditions at para. 39
    (commitment to continue making UNEs available until the date of a
    final, non-appealable judicial decision relieving incumbent LECs of
    UNE provision requirements). The Applicants fold components of one
    other separate section of the *SBC/Ameritech Conditions*, Section
    III relating to Advanced Services OSS, into a comprehensive section
    of OSS-related commitments. *See* Conditions at paras. 18-25.
    *Compare with SBC/Ameritech Conditions*, 14 FCC Rcd at 14992-96,
    paras. 15-18.

[^563]: The specific conditions that we adopt in this merger proceeding
    are set forth in Appendix D to this Order. In order to provide
    guidance to the industry on particular interpretive issues, as well
    as to facilitate implementation and enforcement of the conditions,
    in some instances we have annotated the Applicants' proffered
    conditions with explanatory footnotes that further reflect and
    clarify the intent of the particular condition.

[^564]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14857, para. 356. *See
    also* AT&T Mar. 1, 2000 Opposition at 35; Covad Mar. 1, 2000
    Comments at 11-12 (conditions should supersede less stringent state
    certification requirements on the merged entity's separate advanced
    services affiliate); MCI WorldCom Mar. 1, 2000 Supplemental Comments
    at 8.

[^565]: If Bell Atlantic/GTE is unable to comply simultaneously with
    both the requirements of any condition and the requirements of any
    Commission rule or order, it must so inform the Commission and seek
    guidance as to how it should proceed.

[^566]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14857, para. 357. *See
    also* MCI WorldCom Mar. 1, 2000 Supplemental Comments at 8.

[^567]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14857, para. 358. *See
    also* MCI WorldCom Mar. 1, 2000 Supplemental Comments at 8.

[^568]: *See* *CCN, Inc., et al.*, CC Docket No. 97-144, Order, 13 FCC
    Rcd 13599 (1998) (revoking the Fletcher Companies' section 214
    operating authority for slamming and other violations of the
    Communications Act and Commission rules).

[^569]: *Cf. SBC/Ameritech Order*, 14 FCC Rcd at 14858, para. 360
    (granting section 214 application of SBC to acquire Ameritech
    subject to conditions, but stating that the Commission "can and
    will" revoke relevant licenses or require divestiture should the
    merged entity fail to meet its obligation to perform each of the
    conditions).

[^570]: *See id.* at 14858, para. 361; *Bell Atlantic/NYNEX Order*, 12
    FCC Rcd at 19993, para. 15.

[^571]: *See, e.g., SBC/Ameritech Order,* 14 FCC Rcd at 14858-59, para.
    362; *Bell Atlantic/NYNEX Order*, 12 FCC Rcd at 19994, para. 16.

[^572]: *See, e.g.,* CompTel Mar. 1, 2000 Comments at 2 (conditions are
    necessary "to increase competitive opportunities in order to offset
    the loss of potential competition resulting from the merger").

[^573]: 14 FCC Rcd at 14859, para. 362.

[^574]: *See SBC/SNET Order*, 13 FCC Rcd at 21302, para. 21.

[^575]: *See, e.g.,* NEXTLINK Mar. 16, 2000 Reply at 16-18; Allegiance
    Mar. 1, 2000 Comments at 2; BlueStar et al. Mar. 1, 2000 Comments at
    16-18; CoreComm Mar. 1, 2000 Comments at 41.

[^576]: *See* Allegiance Mar. 1, 2000 Comments at 2; AT&T Mar. 1, 2000
    Opposition at 27-28 (so as to offset the harms from lost
    benchmarks); CoreComm Mar. 1, 2000 Comments at 25-26 (so as to
    offset the lack of a section 271 inducement with respect to GTE);
    NEXTLINK Mar. 16, 2000 Reply at 10.

[^577]: *See, e.g., infra* paras. 296-99.

[^578]: We use the term "Bell Atlantic/GTE" to represent the entity that
    will result from the merger, consisting of today's Bell Atlantic
    Corporation, GTE Corporation, and each company's incumbent LEC
    telephone subsidiaries.

[^579]: For example, the requirement to have separate officers,
    directors, and employees, as well as the requirements to operate
    independently and to deal at arm's length, will deter a Bell
    Atlantic/GTE incumbent LEC and its separate affiliate from
    coordinating activities to discriminate against competitors.

[^580]: For example, the separate affiliate's section 272(b)(5)
    disclosure requirements will ensure that all dealings between the
    Bell Atlantic/GTE incumbent LECs and their separate affiliates will
    occur at arm's length and in the public eye. The relevant disclosure
    requirements will provide competitors the information needed to
    resolve disputes. *See Non-Accounting Safeguards Order,* 11 FCC Rcd
    at 22021, para. 243**.** Moreover, we note that the Applicants'
    modified their proposal to allow the public access to data showing
    the performance BA/GTE's incumbent LECs provide to their Advanced
    Services Affiliate. *See infra* Appendix D at para. 9 (specifying
    that performance measurements regarding the separate affiliate shall
    be made available to other parties); *see also* MCI WorldCom Mar. 1,
    2000 Comments at 8 (advocating stricter reporting requirements). In
    addition, we note that the rigorous audit requirements that apply to
    Bell Atlantic/GTE will further increase the probability of detecting
    discriminatory practices.

[^581]: *See* Advanced Telecom Mar. 1, 2000 Comments at 7-9 (addressing
    equal treatment for collocation of DSLAMs in remote terminals);
    Covad Mar. 1, 2000 Comments at 7-8; *see also* *SBC/Ameritech
    Order*, 14 FCC Rcd at 14859, n.674 (summarizing the collocation
    benefits arising out of the separate affiliate nondiscrimination
    safeguards).

[^582]: *See* Advanced Telecom Mar. 1, 2000 Comments at 9-10 (addressing
    risk of incumbent LEC and affiliate collaborating to develop a
    network that limited competitive access); Comptel Mar. 1, 2000
    Comments at 8-9 (pointing out that competitors can opt into portions
    of the interconnection agreement between BA/GTE incumbent LECs and
    their Advanced Services Affiliate); *see also Non-Accounting
    Safeguards Order**, ***11 FCC Rcd at 22003, para. 210 (finding that
    the section 272(c) nondiscrimination safeguards obligate the BOC "to
    work with competitors to develop new services if it cooperates in
    such a manner with its section 272 affiliate) & 22013, para. 229.

[^583]: *See* *SBC/Ameritech Order,* 14 FCC Rcd at 14859-60, para.
    363**.**

[^584]: 47 U.S.C. § 272(b), (c), (e), and (g); *see also Implementation
    of the Accounting Safeguards Under the Telecommunications Act of
    1996*, CC Docket No. 96-150, Report and Order, 11 FCC Rcd 17539
    (1996) (*Accounting Safeguards Order*), Second Order On
    Reconsideration, FCC 00-9 (rel. Jan. 18, 2000); *Non-Accounting
    Safeguards Order*, *petition for review pending sub nom. SBC
    Communications v. FCC*, No. 97-1118 (filed D.C. Cir. Mar. 6, 1997)
    (held in abeyance May 7, 1997), First Order on Reconsideration, 12
    FCC Rcd 2297 (1997) (*First Order on Reconsideration*), Second Order
    on Reconsideration, 12 FCC Rcd 8653 (1997) (*Second Order on
    Reconsideration*), *aff'd sub nom. Bell Atlantic Telephone Companies
    v. FCC*, 131 F.3d 1044 (D.C. Cir. 1997), *Third Order on
    Reconsideration*, FCC 99-242 (rel. Oct. 4, 1999) (*Third Order on
    Reconsideration*); *but see* Covad Mar. 1, 2000 Comments at 7-14
    (arguing that the Applicants' proposal does not adequately
    incorporate all section 272 safeguards).

[^585]: *See* Conditions at paras. 3-4. As CompTel points out, the
    conditions prohibit joint ownership of advanced services equipment.
    Comptel Mar. 1, 2000 Comments at 9. Starting 30 days after the
    merger closing date, BA/GTE's incumbent LECs may no longer buy new
    advanced services equipment. Under certain conditions, BA/GTE
    incumbent LECs may continue to own and operate advanced services
    equipment bought and installed prior to that date. *See* Conditions
    at para. 4(n).

[^586]: The customer care services permitted under the condition on an
    exclusive basis are: (1) ongoing customer notification of service
    order progress; (2) response to a customer's inquiry regarding the
    status of an order; (3) changes to customer account information; and
    (4) receipt of customer complaints (other than receipt and isolation
    of trouble reports).

[^587]: The OI&M functions subject to these conditions encompass the
    deployment and operation of a facilities-based telecommunications
    network. Many competitive carriers contract with third parties for
    some or all of these functions, and the conditions permit the Bell
    Atlantic/GTE separate affiliate to contract with the Bell
    Atlantic/GTE incumbent LEC for such functions, provided that the
    incumbent acts in a nondiscriminatory fashion. The OI&M activities
    performed by an incumbent LEC in the normal course of providing
    unbundled elements, services or interconnection are not subject to
    these conditions. Such normal OI&M activities will not be affected
    by the conditions and will be provided and priced in accordance with
    forward-looking rules applicable to the underlying service,
    unbundled element or interconnection.

[^588]: We note that, in accordance with the Commission's accounting
    safeguards, any transactions or shared services performed pursuant
    to this written affiliate agreement must be valued in accordance
    with the affiliate transactions rules, reduced to writing and posted
    on the Internet, and made available to competitors on the same
    rates, terms and conditions. *See* *Non-Accounting Safeguards
    Order*, 11 FCC Rcd at 21992, para. 181.

[^589]: The billing and collection services that the incumbent is
    permitted to provide on a nondiscriminatory basis include payment
    arrangements, account adjustment, responding to account balance
    inquiries, account closure, responses to legal action affecting or
    involving the customer, and receipt and resolution of customer
    billing and collection complaints. Bell Atlantic/GTE may, for
    example, include the affiliate's and other carriers' bills on a
    separate page in the same envelope with its bill, or it may choose
    to place the affiliate's and other carriers' bills in a separate
    envelope. Either way, Bell Atlantic/GTE must offer the same services
    that it provides to its affiliate to unaffiliated carriers at the
    same rates, terms and conditions, and on a disaggregated basis that
    permits the unaffiliated providers to select the particular services
    that they desire from the incumbent.

[^590]: For purposes of this condition, the equipment that may be
    transferred consists of: (1) DSLAMs or functionally equivalent
    equipment; (2) spectrum splitters that are solely used in the
    provision of advanced services; (3) packet switches and multiplexers
    such as ATMs and frame relay engines used to provide advanced
    services; (4) modems used in the provision of packetized data; and
    (5) DACS frames used only in the provision of advanced services.
    Spectrum splitters used to separate the voice-grade channel from the
    advanced services channel are not permitted to be transferred. Such
    asset transfers must take place in accordance with the Commission's
    accounting safeguards. Consistent with the Commission's rules, if
    Bell Atlantic/GTE transfers to its separate advanced services
    affiliate a facility (e.g., copper loops, dark fiber, switching
    equipment) that is deemed to be an unbundled network element under
    47 U.S.C. § 251(c)(3), the Commission's unbundling requirements will
    attach with respect to that element. *See* 47 C.F.R. § 53.207.

[^591]: This prohibition against joint ownership, as per the section
    272(b)(1) non-accounting safeguards, is critical for ensuring that
    the Bell Atlantic/GTE incumbent LECs do not circumvent the
    nondiscrimination safeguards and that ratepayers of regulated
    services do not bear the costs of Bell Atlantic/GTE's competitive
    operations. *See* Comptel Mar. 1, 2000 Comments at 9. Under certain
    conditions, BA/GTE incumbent LECs may continue to own and operate
    advanced services equipment bought and installed prior to the 90 day
    deadline. *See* Conditions at para. 4(n).

    With respect to ownership of new advanced services equipment, we
    note that several parties raise concerns about competitive access to
    the BA/GTE incumbent LEC remote terminals. *See, e.g.,* Letter from
    Patrick J. Donovan, Counsel for Mpower Communications Corporation,
    to Magalie Roman Salas, Secretary, Federal Communications
    Commission, CC Docket No. 98-184 (filed June 6, 2000); Advanced
    Telecom Mar. 1, 2000 Comments at 7-10; CompTel Mar. 1, 2000 Comments
    at 5. These concerns stem from similar issues arising in the context
    of the *SBC/Ameritech Conditions*, as well as a previous description
    of the Applicants\' proposal. *See* Bell Atlantic/GTE May 19, 2000
    *Ex Parte* Letter, Attach. at para. 3d(1); *Common Carrier Bureau
    Seeks Comment on SBC's Request for Interpretation, Waiver, or
    Modification of the SBC/Ameritech Merger Conditions*, Public Notice,
    DA 00-335 (rel. Feb. 18, 2000). To address these concerns, the
    Applicants modified their proposal to state that they will comply
    with the Commission\'s resolution of this issue in the proceeding
    related to SBC. *See* Conditions at para. 3d.

[^592]: The Commission's nondiscrimination and accounting safeguards
    will continue to apply in these circumstances in order to protect
    competition from potential abuse.

[^593]: *See Accounting Safeguards Order*, 11 FCC Rcd at 17588-618,
    17652-55, paras. 111-70, 251-58.

[^594]: To ensure Bell Atlantic/GTE implements its separate affiliate in
    a timely manner, the conditions establish a deployment schedule for
    interstate and intrastate advanced services. The deployment schedule
    varies depending on the type of customer, i.e., a new activation or
    an embedded customer. *See* Conditions at paras. 5-6. As a general
    matter, we expect Bell Atlantic/GTE to start providing interstate
    advanced services through the separate affiliate as quickly as
    possible, even though the separate affiliate may continue to
    outsource a number of functions during the transition period. *See
    id.* at para. 5(a) (requiring the incumbent LECs and the separate
    affiliate to operate pursuant to an interconnection agreement for
    interstate services within 90 days of filing such agreement with a
    state commission). The Bell Atlantic/GTE separate affiliate will be
    fully operational once it is acting in accordance with the
    "Steady-State Provisioning" requirements and after all transition
    periods have ended. *See id.* at para. 4.

[^595]: By "network planning, engineering, design, and assignment
    services," we mean those functions described in subparagraphs 4(a),
    4(c), and 4(d). Such activities are to be narrowly construed and do
    not include, for example, ordering any services or facilities. *See*
    Conditions at para. 4(f), 6(g)(3). All permissible forms of "network
    planning, engineering, design, and assignment" services, for
    example, end no later than 180 days after the merger closing date.

[^596]: *See SBC/Ameritech Conditions*, 14 FCC Rcd at 14983, 14984-86,
    paras. 5(a), 6.

[^597]: *See* Conditions at para. 6(g) (establishing the functional
    equivalent requirements as the minimum operating standard). We
    further note that the functional equivalent requirements guard
    against potential delays in the implementation of Bell
    Atlantic/GTE's separate affiliate. Under the functional equivalent
    requirements, the separate affiliate must order all "facilities
    and/or services" used to provide advanced services, which will
    trigger immediately the Bell Atlantic/GTE incumbent LECs' incentive
    to improve their processes and systems. Consistent with the scheme
    laid out in *SBC/Ameritech Order*, however, the functional
    equivalent requirements also allow the Bell Atlantic/GTE incumbent
    LECs to process orders for ADSL service and order the necessary
    facilities until the Steady-State Provisioning requirements go into
    effect. *See* Conditions at para. 6(g)(2)-(4).

[^598]: Examples of such a material change would be if the Commission
    prohibits an incumbent LEC from providing joint marketing or
    operation, installation and maintenance services to an advanced
    services affiliate. *See SBC/Ameritech Order*, 14 FCC Rcd at 14862
    n.685.

[^599]: The separate office or division will, for example, wait in line
    for collocation space like unaffiliated carriers. In this way,
    unaffiliated parties will continue to receive the benefits of the
    separate affiliate condition.

[^600]: 47 U.S.C. §§ 251(h)(1) & 153(4)(B). *See SBC/Ameritech Order*,
    14 FCC Rcd at 14893, para. 445.

[^601]: We do not address in this proceeding the potential obligations
    or requirements with respect to third parties that may be imposed on
    Bell Atlantic/GTE in the event that its advanced services affiliate
    is found to be a successor or assign.

[^602]: *Id.* We note that, after that time, if Bell Atlantic/GTE
    decides to no longer provide advanced services through a separate
    affiliate in a particular state, it will provide them through a
    separate division that will comply with certain obligations until 48
    months after the merger closing date. *See* Conditions at para. 12.

[^603]: *See* Conditions at para. 11c.

[^604]: 47 U.S.C. § 251(c). *But see* AT&T May 5, 2000 Comments at 8-15.

[^605]: *Compare SBC/Ameritech Conditions*, 14 FCC Rcd at 14969-90,
    paras. 1-13 (SBC/Ameritech separate advanced services affiliate
    conditions) *with* Conditions at paras. 1-12 (Bell Atlantic/GTE
    separate advanced services affiliate conditions). In the
    *SBC/Ameritech Order*, we concluded that, in determining whether an
    advanced services affiliate is a successor or assign of an incumbent
    LEC, we must consider whether "substantial continuity" exists
    between the incumbent LEC and the affiliate. We identified four
    indicia of a lack of substantial continuity between an incumbent and
    its advanced services affiliate; specifically, whether: (1) there is
    identifiable physical separation between the entities; (2) the
    incumbent LEC has not transferred to its affiliate substantial
    assets or assets that are necessary for the continuation of the
    incumbent\'s traditional business operations; (3) transactions
    between the incumbent and affiliate are conducted at arms-length and
    are transparent; and (4) the affiliate does not derive unfair
    advantage from the incumbent. *SBC/Ameritech Order*, 14 FCC Rcd at
    14899, para. 457 (citations omitted).

[^606]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14893-909, paras.
    444-76.

[^607]: *Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to All Americans in a Reasonable and
    Timely Fashion*, CC Docket No. 98-146, Report, 14 FCC Rcd 2398,
    2423, para. 48 (1999).

[^608]: *See supra* Section VI.D.

[^609]: We note that Bell Atlantic/GTE will not be transferring any
    network facilities that the Commission has found to be unbundled
    network elements to the separate affiliate. Rather, any facilities
    that will be transferred are those which the Commission has
    explicitly declined to unbundle. Of course, to the extent the
    incumbent LEC transfers a DSLAM in a remote terminal in which there
    is no collocation space, the separate affiliate will be considered
    to be a successor or assign with respect to this element. *See* 47
    C.F.R. § 53.207.

[^610]: *See Iowa Utilities Bd. v. FCC*, 120 F.3d 753, 812-13 (8th Cir.
    1997), *aff\'d in part and rev\'d in part, AT&T Corp. v. Iowa
    Utilities Bd.*, 525 U.S. 366 (1999), proceedings on remand pending,
    Eighth Circuit Nos. 96-3321, et al. (Section 251(c) requires
    incumbents to allow access only to their \"existing network \-- not
    to a yet unbuilt superior one\"). *But see id*., 120 F.3d at 813
    n.33 (noting that ILECs may nevertheless be required under section
    251(c) to develop more limited \"modifications\" to their network
    elements that are necessary to accommodate interconnection or access
    to network elements).

[^611]: *See* 47 U.S.C. § 251(c)(4) (imposing discounted resale
    obligation on services the incumbent \"provides at retail to
    subscribers\").

[^612]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14861-64, paras. 365,
    369-70; *SBC/Ameritech Conditions*, 14 FCC Rcd at 14987-92, paras.
    8, 13a, 14.

[^613]: *See Line Sharing Order*.

[^614]: *Id.* at 20982-85, paras. 161-68.

[^615]: The line sharing compliance audit that Bell Atlantic and GTE
    agree to undergo will help to identify any delays on the part of
    Bell Atlantic and GTE in implementing line sharing.

[^616]: *Cf.* NorthPoint May 5, 2000 Comments at 1 (the proposed interim
    line sharing conditions, in effect, "would appear to sanction
    continued delays by Bell Atlantic/GTE in implementing the provision
    of line sharing to unaffiliated advanced service providers," and
    thus should be eliminated). United States Telecom Association has
    appealed the *Line Sharing Order* to the United States Court of
    Appeals for the District of Columbia Circuit. *United States Telecom
    Association v. FCC & USA*, No. 00-1012 (D.C. Cir. filed Jan 18,
    2000) (held in abeyance, per order issued Apr., 3, 2000, pending
    Commission action on petitions for reconsideration of the *Line
    Sharing Order*). We note that in the Offering of UNEs Section of the
    conditions, Bell Atlantic and GTE commit to continue making UNEs,
    including the high frequency portion of the loop UNE, available in
    the event that the underlying rules are stayed or vacated, until
    such rules are overturned by a final and non-appealable judicial
    decision. *See* Conditions at para. 39.

[^617]: This condition is designed to promote rapid deployment of
    advanced services by removing any cost advantages that the separate
    advanced services affiliate, which exclusively would receive line
    sharing capability from a Bell Atlantic/GTE incumbent LEC, would
    have over other advanced services providers that, because line
    sharing would no longer be required, would have to provide such
    services over a stand-alone line.

[^618]: The appropriate state commission has discretion to deny a
    carrier the surrogate line sharing charges on any loop for which it
    finds the use restriction or audit provision violated, and to remove
    a carrier's entitlement to any future surrogate line sharing charges
    only upon a finding of an intentional and repeated violation.

[^619]: *See* Covad May 5, 2000 Comments at 16-17. *But see* Bell
    Atlantic/GTE Mar. 16, 2000 Reply App. C, Response to Comments on
    Specific Conditions at 9-10 (Bell Atlantic/GTE Response to
    Conditions Comments). We clarify that the OSS discounts which we
    agree should apply to all loops used to provide advanced services,
    and not just loops used for surrogate line sharing, are discounts
    that are altogether separate from and complementary to the surrogate
    line sharing discounts. *See* Conditions at para. 25; BlueStar et
    al. Mar. 1, 2000 Comments at 3, 5-6; CoreComm Mar. 1, 2000 Comments
    at 31-33.

[^620]: *See* Covad May 5, 2000 Comments at 17.

[^621]: *See* Conditions at para. 9.

[^622]: *See* 47 C.F.R. § 51.501 *et seq.* (requiring the total element
    long-run incremental cost standard for the pricing of network
    elements).

[^623]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 19
    (*citing* *SBC/Ameritech Order*, 14 FCC Rcd at 14866, para. 376).

[^624]: We reject IURC's request that we require Bell Atlantic/GTE to
    deploy xDSL service to 20 rural wire centers and 20 urban wire
    centers within 24 months after the merger closing date, subject to
    deployment benchmarks. *See* IURC Mar. 1, 2000 Comments at 13-14.
    Given the high market demand for advanced services, and that a
    number of other conditions are designed to spur deployment of
    advanced services and to benefit low-income consumers, we decline to
    subject Bell Atlantic/GTE to a specific timetable for advanced
    services deployment. We note, however, that Bell Atlantic/GTE will
    report the status of its xDSL deployment, including deployment to
    low-income areas, to the Commission on a quarterly basis. *See
    SBC/Ameritech Order,* 14 FCC Rcd at 14909-10, para. 480.

[^625]: We further reject IURC request that we require state commission
    approval of urban and rural wire center classifications. *See id.*
    at 14. We believe that the condition as written provides state
    commissions with a sufficient vehicle for input into such
    classifications where they choose to provide it. Moreover, this
    condition (like all others) does not prevent a state from imposing
    additional consistent requirements.

[^626]: *See* APT Mar. 16, 2000 Reply at 6 ("these commitments are a
    genuine step towards bridging the 'digital divide'"); APT Mar. 1,
    2000 Further Comments at 2; American Telemedicine Association Mar.
    1, 2000 Comments at 6; CWA Mar. 1, 2000 Comments at 4; IURC Mar.1,
    2000 Comments at 13; United States Hispanic Chamber of Commerce Mar.
    1, 2000 Comments at 7 (these commitments "will have a positive
    impact on Hispanic-owned businesses and consumers"); World Institute
    on Disability Mar. 1, 2000 Comments at 4, 6.

[^627]: *Cf.* MCI WorldCom Mar. 1, 2000 Supplemental Comments at 18
    ("\[c\]omparative practices analysis, which the merger would
    undermine, dictates use of the best practice in both \[Bell Atlantic
    and GTE legacy\] regions").

[^628]: This includes the line sharing provisioning performance
    measurement (or sub-measurement) that Bell Atlantic/GTE is required
    to propose and implement after the merger closing date. *See*
    Conditions at para. 9. The Applicants added this commitment in
    response to comments on their original proposal. *See* MCI WorldCom
    Mar. 1, 2000 Supplemental Comments at 18. As we did with the line
    sharing performance measurement proposed by SBC subsequent to its
    merger with Ameritech, *see*
    http://www.fcc.gov/ccb/mcot/misc_reports/, we will place Bell
    Atlantic/GTE's proposal on our website, thus affording competitive
    LECs the opportunity for public comment. *See* Covad May 5, 2000
    Comments at 16. *But see* Bell Atlantic/GTE May 9, 2000 Response
    App. A, Responses to Specific Allegations Regarding Proposed
    Conditions at A-5 (Bell Atlantic/GTE Responses to Specific
    Conditions Allegations) (objecting based on the Applicants'
    assertion that the new performance measurement or sub-measurement
    will be based on measurements developed in collaborative proceedings
    in New York and California, in which competitive LECs participated,
    such that, in the Applicants' view, competitive LECs already "have
    had ample input" into the development of the new measurement or
    sub-measurement).

[^629]: *See, e.g.*, Conditions Attach. A, Carrier-to-Carrier
    Performance Assurance Plan at para. 4 (Performance Plan). Indeed,
    the scope of this semi-annual review is broad, and it encompasses
    the business rules associated with such measurements. Other elements
    of the plan also are subject to periodic review and modification by
    the Chief of the Common Carrier Bureau, including certain aspects of
    the payment calculation mechanism. Thus, we agree with the
    Applicants that AT&T's contention that the plan submitted by the
    Applicants is "fixed and inalterable" is incorrect. *See* Bell
    Atlantic/GTE Response to Conditions Comments at 11. *But see* AT&T
    Mar. 1, 2000 Opposition at 29-30. S*ee also* MCI WorldCom Mar. 1,
    2000 Supplemental Comments at 17 (maintaining that the plan should
    allow the Commission to reallocate remedies to address severe
    performance deficiencies or add new measures if necessary to deter
    discrimination).

[^630]: The payment caps proffered by the Applicants are intended to be
    "directly proportionate" to those that we adopted with respect to
    SBC and Ameritech in their merger. *See* Bell Atlantic/GTE Jan. 27,
    2000 Supplemental Filing at 24. *Cf. SBC/Ameritech Order*, 14 FCC
    Rcd at 14868, para. 378; *SBC/Ameritech Conditions*, 14 FCC Rcd at
    14999-15000, para. 23. As part of the calculation of voluntary
    payments, Bell Atlantic/GTE will increase the payments for
    performance measurements where observations are particularly low, as
    well as for specific sub-measurements representing low-volume,
    nascent services. For these sub-measurements, the per-occurrence
    payments will be tripled. The Applicants added these provisions
    subsequent to their initial proposal, in response to comments
    expressing concern regarding a lack of appropriate remedies for
    metrics with typically low monthly volumes. *See* MCI WorldCom Mar.
    1, 2000 Supplemental Comments at 16. We find that this "low-volume"
    multiplier will help to ensure that the Applicants' proposed
    incentive mechanism will offer meaningful protections where service
    volumes are low. *See SBC/Ameritech Order*, 14 FCC Rcd at 14868
    n.706. Particularly in light of these modifications, we find that
    the voluntary payment structure and cap are sufficient to address
    the limited purposes of the Carrier-to-Carrier Performance Plan --
    to neutralize the merged firm's increased incentive and ability to
    discriminate and to remedy other merger-specific potential harms
    such as the loss of a major incumbent LEC benchmark. Thus, we
    disagree with WorldCom's contention that the payment caps are
    inadequate to discourage the merged firm from providing substandard
    service to competitors. *But see* MCI WorldCom Mar. 1, 2000
    Supplemental Comments at 15-17.

[^631]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 24.
    As lines in the GTE legacy service areas in Pennsylvania and
    Virginia are converted to achieve network and OSS uniformity with
    Bell Atlantic's legacy systems in those states, *see* Conditions at
    para. 19f, performance for those lines will be measured using the
    performance measurements and business rules that apply to Bell
    Atlantic legacy service areas. *See* Conditions Attach. A-1b, BA/GTE
    Performance Measurements GTE States. *Cf.* Allegiance Mar. 1, 2000
    Comments at 8 (suggesting that Bell Atlantic/GTE should implement
    Bell Atlantic systems and policies in GTE's Pennsylvania and
    Virginia service areas in accordance with the intervals that we
    adopted in the *SBC/Ameritech Order*).

[^632]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14868, para. 379.

[^633]: *But see* AT&T Mar. 1, 2000 Opposition at 34-36 (alleging that
    these conditions would as a practical matter serve as a *de facto*
    ceiling on state performance plans). State commissions may take
    appropriate actions to ensure that these conditions do not impede
    state-specific performance plans, either in the context of section
    271 applications or outside of it.

[^634]: *See* MCI WorldCom Mar. 1, 2000 Supplemental Comments at 19
    (*citing* *SBC/Ameritech Order*, 14 FCC Rcd at 14868, para. 380).

[^635]: *See generally* CoreComm Mar. 1, 2000 Comments at 26 (asserting
    that "\[t\]he absence of the Section 271 incentive with respect to
    GTE is a significant public convenience detriment").

[^636]: *Cf.* Bell Atlantic/GTE Response to Conditions Comments at 15
    ("\[t\]he very fact that Bell Atlantic/GTE have designed the
    performance plan to sunset in a particular state when Bell Atlantic
    receives Section 271 authority for that state demonstrates that the
    plan is not intended as an 'anti-backsliding' plan for Section 271
    purposes"). Consistent with the Applicants' sentiments and our
    explicit holding above, we reject CoreComm's argument that section
    271 authority should not relieve Bell Atlantic/GTE of its
    responsibility to meet carrier-to-carrier performance standards in
    the Bell Atlantic legacy service areas subject to such authority. In
    support of its argument, CoreComm asserts that carrier-to-carrier
    performance standards become even more important following section
    271 authority in order to prevent against backsliding. *See*
    CoreComm Mar. 1, 2000 Comments at 40. Likewise, we reject Covad's
    averment that Bell Atlantic/GTE still should be subject to the
    Performance Plan in New York, notwithstanding Bell Atlantic's
    section 271 authority there. *But see* Covad Mar. 1, 2000 Comments
    at 16.

[^637]: The Common Carrier Bureau Chief shall determine whether a
    state-approved performance plan is "comprehensive" for the purpose
    of these conditions. A state-approved mechanism may be determined
    not to be "comprehensive" if, for example, it omits a particular
    measurement or category of measurements deemed important by the
    Common Carrier Bureau Chief. The Common Carrier Bureau Chief may
    decide to retain part of the reporting and penalty obligations
    associated with these conditions where a state-approved mechanism is
    determined not to be comprehensive. *Cf.* CoreComm Mar. 1, 2000
    Comments at 41 (state performance plan "escape" only should be
    permitted if the state plan imposes noncompliance penalties that are
    at least equal to those in the Performance Plan); Covad Mar. 1, 2000
    Comments at 16 (between the Performance Plan and a state plan, the
    stronger and more procompetitive of the plans should control).

[^638]: The Applicants' initial proposal also provided for termination
    of Bell Atlantic/GTE's obligations under the Performance Plan on the
    date on which the merged firm completes 50 percent of its
    out-of-region investment commitment. The Applicants subsequently
    abandoned this facet of their proposal. *See* CoreComm Mar. 1, 2000
    Comments at 40.

[^639]: *But see, e.g.,* NEXTLINK Mar. 16, 2000 Reply at 12; AT&T Mar.
    1, 2000 Opposition at 33-34; CoreComm Mar. 1, 2000 Comments at
    39-40; MCI WorldCom Mar. 1, 2000 Supplemental Comments at 17-18.

[^640]: *But see, e.g.,* BlueStar et al. Mar. 1, 2000 Comments at 17.

[^641]: *But see, e.g.,* MCI WorldCom July 19, 1999 Comments at 17-19.

[^642]: *See* MCI WorldCom Mar. 1, 2000 Supplemental Comments at 19
    (*citing* *SBC/Ameritech Order*, 14 FCC Rcd at 14910, para. 481).

[^643]: *But see* NEXTLINK Mar. 16, 2000 Reply at 12; Allegiance Mar. 1,
    2000 Comments at 2, 6-8 (asserting that Bell Atlantic/GTE should
    commit to implement the "best practices" of Bell Atlantic's
    carrier-to-carrier performance standards throughout the combined
    company's service territory); BlueStar et al. Mar. 1, 2000 Comments
    at 3; IURC Mar. 1, 2000 Comments at 11. *See SBC/Ameritech Order*,
    14 FCC Rcd at 14910-11, para. 482.

[^644]: *SBC/Ameritech Conditions*, 14 FCC Rcd at 15001, para. 25.

[^645]: We note, in addition, that the conditions we adopt today
    generally set the standard for the Applicants' obligations under
    those conditions. Although the details of implementation may be
    worked out in a collaborative session, or under the auspices of an
    independent arbitrator where necessary, the Commission at all times
    maintains final enforcement authority over Bell Atlantic/GTE's
    implementation of the OSS commitments. *See SBC/Ameritech Order*, 14
    FCC Rcd at 14912 n.884.

[^646]: Conditions, Attach. B-1 (specifying electronic OSS interface
    functions to be made uniform across the combined Bell Atlantic/GTE
    region); Conditions, Attach B-2 (specifying a region-wide, uniform
    products set which will be available through Bell Atlantic/GTE's
    application-to-application ordering capability). *See* *also*
    CoreComm Mar. 1, 2000 Comments at 35 (requesting like functionality
    throughout Applicants' combined service area).

[^647]: Letter from Patricia E. Koch, Assistant Vice President Federal
    Regulatory, Bell Atlantic, to Magalie Roman Salas, Secretary,
    Federal Communications Commission, CC Docket No. 98-184 (filed Apr.
    14, 2000), Declaration of Paul A. Lacouture.

[^648]: *Id.*

[^649]: *E.g.*, WorldCom May 5, 2000 Further Supplemental Comments at
    10-11.

[^650]: *See* Allegiance Mar. 1, 2000 Comments at 8; Z-Tel Mar. 1, 2000
    Comments at 4.

[^651]: In attempting to comply with the OSS requirements of these
    commitments, Bell Atlantic/GTE shall not reduce the existing
    functionality, products, or services available to competing
    carriers, or decrease the capability to flow through transactions to
    its OSS systems because these conditions are intended to result in
    "best practices." If Bell Atlantic/GTE believes it cannot satisfy
    these commitments without doing so, this may be discussed in the
    collaborative sessions at the request of Bell Atlantic/GTE or
    participating competing carriers.

[^652]: We reject, however, the other more specific requirements for the
    plan of record suggested by commenters. Letter from Karen M.
    Johnson, Associate Counsel, MCI WorldCom, to Magalie Roman Salas,
    Secretary, Federal Communications Commission, CC Docket 98-184
    (filed Apr. 14, 2000) at 2; MCI WorldCom Mar. 1, 2000 Supplemental
    Comments at 11-12; NorthPoint Mar. 1, 2000 Comments at 9. We find
    that these are details that will be addressed in the collaborative
    process. We find no reason to prevent the voluntary participants in
    the collaboratives from attempting to determine the best manner in
    which to implement the requirements of these conditions.

[^653]: If the Plan of Record does not specify a collaborative process
    competitive LECs may, nonetheless, request that any issues they
    raise in their written comments to the Plan be addressed in a
    collaborative process.

[^654]: Conditions at paras. 19(b), 21; *see also SBC /Ameritech*
    *Order*, 14 FCC Rcd at 15002-04, para. 28; *id.* at 14870, para.
    383.

[^655]: *E.g.*, Conditions at para. 19(e). We agree with MCI WorldCom
    and Bell Atlantic, however, that nothing in this Order or these
    Conditions "excuses or modifies the obligations with respect to
    uniform interfaces established in the *Bell Atlantic/NYNEX Order* or
    the complaint proceeding referenced in paragraph 19 of the proposed
    conditions." Bell Atlantic/GTE Response to Conditions Comments at
    19, n.7 (*citing* MCI WorldCom Mar. 1, 2000 Supplemental Comments at
    12).

[^656]: *See* Conditions at para. 64 (each condition is designed to
    yield at least 36 months of benefit). Thus, Bell Atlantic/GTE may
    not claim that its obligations under this set of conditions cease 36
    months after the merger closing date, because that would allow for
    Bell Atlantic/GTE to stop providing these interfaces and
    enhancements merely six months after the two-and-a-half years
    post-merger closing that it has afforded itself to deploy such
    interfaces and enhancements.

[^657]: We disagree with Commenters' concerns that the terms "up to" and
    "substantial compliance" inject uncertainty into this provision.
    *See* MCI WorldCom Mar. 1, 2000 Supplemental Comments at 13;
    NorthPoint Mar. 1, 2000 Comments at 11. Rather, we conclude that
    such language merely permits the arbitrator to match the voluntary
    payment amount to the nature and severity of the violation.

[^658]: The Arbitrator may determine that more than one "violation" has
    occurred in a state on a given day. The total of all voluntary
    payments relating to any or all milestones under this condition may
    not, however, exceed \$20 million. Conditions at para. 24.

[^659]: *SBC/Ameritech Order*, 14 FCC Rcd at 14911-12, para. 485
    (interpreting same language).

[^660]: Amongst the compliance issues that the arbitrator may consider
    under this provision is whether Bell Atlantic/GTE indeed corrected
    the non-compliance by the time that it filed a notice of correction
    with the Chief of the Common Carrier Bureau.

[^661]: Conditions at para. 20; *See Application of Bell Atlantic New
    York for Authorization Under Section 271 of the Communications Act
    To Provide In-Region, InterLATA Service in the State of New York*,
    CC Docket No. 99-295, Memorandum Opinion and Order, FCC 99-404 (rel.
    Dec. 22, 1999) at para. 104; *see also* WorldCom May 5, 2000 Further
    Supplemental Comments at 14.

[^662]: Despite the benefits competing carriers derive from a uniform
    system of change management, the condition permits a state, if it so
    desires, to establish its own change management plan.

[^663]: Requesting carriers will not have to pay for the costs of the
    development and deployment of EBI compliant with, but not exceeding,
    industry standards. For example, a requesting carrier will not have
    to pay for the development and deployment of an industry compliant
    EBI in a service area previously lacking an EBI at all.

[^664]: Bell Atlantic must continue to provide the discount until it has
    filed an *ex parte* letter to the Chief of the Common Carrier Bureau
    certifying that it has reached the 75% threshold and specifying the
    evidence upon which it has relied.

[^665]: Covad Mar. 1, 2000 Comments at 13; *see SBC/Ameritech
    Conditions*, 14 FCC Rcd at 14992-96, paras. 15-18.

[^666]: *See* NEXTLINK Mar. 16, 2000 Reply at 13; BlueStar et al. Mar.
    1, 2000 Comments at 16-17; CoreComm Mar. 1, 2000 Comments at 37-39;
    RCN Mar. 1, 2000 Comments at 2-3.

[^667]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14912, para. 486.

[^668]: *See id.* *But see* BlueStar et al. Mar. 1, 2000 Comments at
    16-17; CoreComm Mar. 1, 2000 Comments at 39.

[^669]: *See* Bell Atlantic/GTE Jan. 27, 2000 Proposed Conditions at
    30-31. *See also SBC/Ameritech Order*, 14 FCC Rcd at 14871, para.
    385; *id.* at 15010, para. 36. The revenue restriction includes
    revenue from any affiliates, parents, subsidiaries and
    telecommunications joint ventures of the competitive LEC, but
    excludes revenues from wireless services.

[^670]: In response to comments on their initial proposal, the
    Applicants also changed the language of their proposal, so that,
    like in the *SBC/Ameritech Conditions,* OSS assistance is made
    available to any competitive LECs that have "attended any OSS
    training required by their interconnection agreements," rather than
    limiting OSS assistance to competitive LECs that have "completed any
    available Bell Atlantic/GTE OSS training." *See* CoreComm Mar. 1,
    2000 Comments at 34.

[^671]: *See* BlueStar et al. Mar. 1, 2000 Comments at 3; CoreComm Mar.
    1, 2000 Comments at 33-34. *Compare SBC/Ameritech Conditions*, 14
    FCC Rcd at 15010, para. 36b (commencing assistance 30 days after the
    merger closing) *with* Conditions at para. 26b (commencing
    assistance 90 days after the merger closing).

[^672]: *See* NEXTLINK Mar. 16, 2000 Reply at 14-15; BlueStar et al.
    Mar. 1, 2000 Comments at 4; CoreComm Mar. 1, 2000 Comments at 42.
    *See also Deployment of Wireline Services Offering Advanced
    Telecommunications Capability*, CC Docket No. 98-147, First Report
    and Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd
    4771-94, paras. 19-60 (1999). Though the D.C. Circuit vacated
    certain rules adopted in that order, most of the collocation rules
    that we adopted there were affirmed. *See* *GTE Service Corporation
    v. FCC*, 205 F.3d 416 (D.C. Cir. 2000).

[^673]: Bell Atlantic and GTE should work with the state commission in
    each Bell Atlantic/GTE state where the relevant company has not yet
    filed a tariff or offered to amend interconnection agreements to
    demonstrate compliance with the Commission's collocation rules, in
    order to determine which method of demonstrating compliance is
    preferred by the commission in the particular state. *See* IURC Mar.
    1, 2000 Comments at 19 n.38.

[^674]: We decline to impose the requirement sought by BlueStar et al.
    that the merged entity maintain uniform collocation practices based
    on Bell Atlantic "best practices." *But see* BlueStar et al. Mar. 1,
    2000 Comments at 4. An attestation report resulting in a positive
    opinion, with few or no exceptions noted, presumptively would be an
    indication of sufficient collocation practices in GTE service areas.

[^675]: *See, e.g., id.* (expressing "dismay\[\]" that Bell Atlantic and
    GTE "are not prepared to immediately certify that they are in
    compliance with the Commission's *Collocation Order*"); MCI WorldCom
    Mar. 1, 2000 Supplemental Comments at 19.

[^676]: *See SBC/Ameritech Conditions*, 14 FCC Rcd at 15011, para. 39.
    We decline to grant the request of CoreComm and NEXTLINK that we
    require the attestation report to be filed prior to the merger
    closing date. *But see* NEXTLINK Mar. 16, 2000 Reply at 15; CoreComm
    Mar. 1, 2000 Comments at 42. We do not wish to suspend the timing of
    the merger closing date awaiting arrival of the attestation report.
    We believe that permitting the filing of the attestation report
    within 10 days after the merger closing date constitutes sufficient
    proximity to the merger closing date to render the report useful,
    and, in any event, the report is based on an audit conducted prior
    to the merger closing.

[^677]: The auditor will take into account any collocation audits
    performed within the 18 months prior to the merger closing date.

[^678]: *Cf. SBC/Ameritech Conditions*, 14 FCC Rcd at 15012, para. 40e
    (requiring that final audit report be submitted no later than 10
    months after the merger closing date). We believe that the filing
    date for the final collocation audit report in this merger presents
    the advantages of being expedited yet still covering a sufficient
    period to yield useful data.

[^679]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14872, para. 387. The
    Applicants qualify this incentive by adding that the merged entity
    would not be required to waive these charges if it can demonstrate
    that the missed due date was caused solely "by equipment vendor
    delay beyond Bell Atlantic/GTE control." Conditions at para. 27d.
    This exception only applies, however, where Bell Atlantic/GTE
    demonstrates to this Commission or to the relevant state
    commission(s) that no alternative vendor reasonably and timely could
    provide Bell Atlantic/GTE with necessary equipment.

[^680]: *See, e.g.,* NEXTLINK Mar. 16, 2000 Reply at 14-15; BlueStar et
    al. Mar. 1, 2000 Comments at 4-5, 7-9; CoreComm Mar. 1, 2000
    Comments at 45.

[^681]: *See UNE Remand Order; Line Sharing Order.*

[^682]: *Compare* Conditions at para. 27c (collocation compliance
    examination engagement) *with id.* at para. 28a (UNE and line
    sharing compliance examination engagement). Consistent with the
    overall audit requirements contained in the conditions, these audits
    will be conducted in accordance with auditing industry standards.
    *See* American Inst. of Certified Pub. Accountants, [Attestation
    Engagements]{.smallcaps}, AT § 100; [Compliance
    Attestation]{.smallcaps}, AT § 500.01.

[^683]: Rather, the methods and procedures audit will be collapsed into
    the comprehensive compliance audit. *See* Conditions at para. 28a(6)
    (the independent auditor will evaluate, *inter alia*, the
    sufficiency of Bell Atlantic/GTE's methods, procedures, and internal
    controls for compliance with the Commission's UNE and line sharing
    rules); *see also* American Inst. of Certified Pub. Accountants,
    [Consideration of Internal Control in a Financial
    Statement]{.smallcaps}, AU § 319; [Compliance
    Attestation]{.smallcaps}, AT § 500.04 (addressing examination of
    internal controls).

[^684]: *See, e.g.*, BlueStar et al. Mar. 1, 2000 Comments at 4-5.

[^685]: *See* Conditions at para. 27c(5) & (7). Pursuant to its
    delegated authority, the Common Carrier Bureau will work closely
    with the state commissions in this effort.

[^686]: This commitment encompasses, both for out-of-region and
    in-region agreements, entire interconnection agreements or selected
    provisions from them.

[^687]: We decline IURC request that competing carriers in the Bell
    Atlantic/GTE region be able to obtain interconnection agreements and
    UNEs that Bell Atlantic or GTE secured as an out-of-region
    competitive LEC prior to the merger closing date. *But see* IURC
    Mar. 1, 2000 Comments at 15-16. Given the unique facts and
    circumstances of the instant merger, we believe that the post-merger
    restriction is reasonable. Furthermore, as we stated in the
    *SBC/Ameritech Order*, the merged entity, "bearing in mind its
    commitment to implement best practices, will be on notice as to
    which systems and procedures could become uniform across its
    region." 14 FCC Rcd at 14914, para. 492.

[^688]: To assist competitive LECs in exercising their options, each
    Bell Atlantic/GTE out-of-territory affiliate will post on the
    Internet all of its relevant interconnection agreements. We agree
    with the Applicants, however, that these conditions need not be
    expanded to encompass Internet posting of in-region interconnection
    agreements. *But see* NEXTLINK Mar. 16, 2000 Reply at 12; CoreComm
    Mar. 1, 2000 Comments at 47-48 (requesting that the conditions
    require Bell Atlantic/GTE to publish on Bell Atlantic/GTE websites
    all effective Bell Atlantic and GTE interconnection agreements and
    amendments within one month after the merger closing, and detailing
    other associated requirements). As the Applicants assert,
    interconnection agreements are available publicly in each state in
    which they are effective, and no commenter has claimed that it has
    any difficulty in obtaining access to such agreements. *See* Bell
    Atlantic/GTE Response to Conditions Comments at 25. *See also* 47
    U.S.C. § 252(h) (providing for Internet posting of in-region
    interconnection agreements by incumbent LECs).

[^689]: Several commenters take issue with this proviso requiring
    competitive LECs to accept "all reasonably related terms and
    conditions" of the underlying agreement. The crux of their concern
    is that this provision will encourage Bell Atlantic/GTE to attach
    extraneous terms and conditions to requested interconnection
    arrangements or network elements, under the guise of Bell
    Atlantic/GTE deeming such terms and conditions "reasonably related."
    The inclusion of such "poison pills," these commenters assert, then
    will deter competitors from exercising their rights under the
    most-favored nation commitments, or will force competitors to
    undergo the substantial costs and delays of going to arbitration to
    have such extraneous terms and conditions removed. *See* NEXTLINK
    Mar. 16, 2000 Reply at 11-12; Advanced Telecom Mar. 1, 2000 Comments
    at 4-5; AT&T Mar. 1, 2000 Opposition at 32; MCI WorldCom Mar. 1,
    2000 Supplemental Comments at 15. In response to these comments, a
    footnote has been added to the Conditions, clarifying that this
    proviso is to be read in the context of the *Local Competition
    Order*, 11 FCC Rcd at 16137-42**,** paras. 1309-23. *See* Conditions
    at para. 32. Specifically, the *Local Competition Order* stipulates
    that in order to prevent discrimination, terms and conditions that
    an incumbent LEC seeks to require a competitive LEC to accept must
    be "legitimately related to the purchase of the individual
    \[interconnection arrangement or network\] element being sought. By
    contrast, incumbent LECs may not require . . . agreement to terms
    and conditions relating to other interconnection, services, or
    elements in the approved agreement." 11 FCC Rcd at 16139, para.
    1315. We believe that this clarification, to the extent that it
    tracks the language of the *Local Competition Order*, disposes of
    the matter.

[^690]: *See, e.g.*, Bell Atlantic/GTE Mar. 14, 2000 *Ex Parte* Letter
    at 2. These revisions came in response to the allegations of
    numerous commenters that unless arbitrated agreements are included
    in this condition, the Applicants will have an incentive to be
    recalcitrant in negotiations, in order to prevent extension of
    interconnection arrangements and UNEs that Bell Atlantic/GTE
    perceives as unfavorable from one in-region state to another. *See*
    NEXTLINK Mar. 16, 2000 Reply at 11; Advanced Telecom Mar. 1, 2000
    Comments at 3; AT&T Mar. 1, 2000 Opposition at 30-33; BlueStar et
    al. Mar. 1, 2000 Comments at 10; CompTel Mar. 1, 2000 Comments at 7;
    CoreComm Mar. 1, 2000 Comments at 26-27, 46-47; Covad Mar. 1, 2000
    Comments at 17; IURC Mar. 1, 2000 Comments at 15; MCI WorldCom Mar.
    1, 2000 Supplemental Comments at 14.

[^691]: We observe that nothing in the conditions precludes IURC's
    argument that carriers seeking to compete in Bell Atlantic/GTE's
    incumbent service area should have made available to them
    interconnection arrangements and UNEs resulting from an arbitration
    involving Bell Atlantic/GTE, as a competitive LEC outside of its
    incumbent service area, after the merger closing date. *See* IURC
    Mar. 1, 2000 Comments at 15. In fact, SBC/Ameritech's original
    out-of-region most-favored nation commitments would have *limited*
    the out-of-territory arrangements available to in-region competitors
    to agreements obtained through arbitration initiated by
    SBC/Ameritech. Though SBC/Ameritech subsequently removed that
    limitation, it did not preclude making out-of-region arbitrated
    agreements available to in-region competitors. *See SBC/Ameritech
    Order*, 14 FCC Rcd at 14873 n.723. We read the conditions to the
    instant merger the same way.

[^692]: *See* 47 U.S.C. § 252(b)(1).

[^693]: *See* Covad Mar. 1, 2000 Comments at 17-18 (expressing that the
    conditions should provide for a faster means than negotiation
    between the parties to resolve disputes).

[^694]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14914, para. 491. We
    also noted there, however, that where the merged entity has
    stipulated in arbitration proceedings that specific arrangements
    have been determined through negotiation, these arrangements will be
    available for "most-favored nation" treatment. *Id.*

[^695]: For example, Bell Atlantic/GTE generally would not require a
    requesting telecommunications carrier to arbitrate in the
    "importing" state a provision that previously was arbitrated and
    decided in that state.

[^696]: *But see* NEXTLINK Mar. 16, 2000 Reply at 12; NorthPoint Mar. 1,
    2000 Comments at 12.

[^697]: Bell Atlantic/GTE Responses to Specific Conditions Allegations
    at A-13; Bell Atlantic/GTE Response to Conditions Comments at 26.

[^698]: *But see* NEXTLINK Mar. 16, 2000 Reply at 11; Covad Mar. 1, 2000
    Comments at 17; IURC Mar. 1, 2000 Comments at 15-16; MCI WorldCom
    Mar. 1, 2000 Supplemental Comments at 14.

[^699]: 14 FCC Rcd at 14914, para. 492.

[^700]: *SBC/Ameritech Order*, 14 FCC Rcd at 14873, para. 389.

[^701]: A multi-state agreement under this condition could extend to any
    in-region Bell Atlantic/GTE state. Even though Bell Atlantic/GTE
    will offer to negotiate a multi-state interconnection agreement, the
    affected Bell Atlantic/GTE incumbent LECs may separately sign the
    agreement, which shall constitute a separate contract for section
    252 purposes.

[^702]: The Applicants' original proposal contained language, both with
    respect to this condition and the most-favored nation conditions, to
    the effect that interconnection arrangements and UNEs may be
    modified to reflect "differences caused by state regulatory
    requirements, product definitions, network equipment, facilities,
    and provisioning, and collective bargaining agreements." Bell
    Atlantic/GTE Jan. 27, 2000 Proposed Conditions at 35-37, paras.
    32-35. In response to WorldCom's objections to this language,
    however, *see* MCI WorldCom Mar. 1, 2000 Supplemental Comments at
    15, the Applicants removed all such language, and replaced it with
    language clarifying that interconnection arrangements and UNEs are
    subject to 47 U.S.C. § 251(c) (incumbent LEC interconnection
    obligations), Paragraph 39 of the Conditions (commitment to continue
    making UNEs available until the date of a final, non-appealable
    judicial decision relieving incumbent LECs of UNE provision
    requirements), and provisions in applicable collective bargaining
    agreements.

[^703]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14874, para. 389.

[^704]: *See* 47 U.S.C. § 252(f).

[^705]: *But see* IURC Mar. 1, 2000 Comments at 16-19.

[^706]: Furthermore, Bell Atlantic may file state-specific SGATs for its
    legacy service areas. *See* 47 U.S.C. § 252(f).

[^707]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14874-75, paras.
    390-92; *SBC/Ameritech Conditions*, 14 FCC Rcd at 15015-19, paras.
    45-49.

[^708]: *See, e.g.*, BlueStar et al. Mar. 1, 2000 Comments at 3;
    CoreComm Mar. 1, 2000 Comments at 3, 28-29; Covad Mar. 1, 2000
    Comments at 18; IURC Mar. 1, 2000 Comments at 4, 10-11.

[^709]: *See Access Charge Reform,* CC Docket No. 96-262, Fifth Report
    and Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd
    14,221 (1999).

[^710]: These factors likewise measure the duration of the initial
    period for the promotional resale discount. *See infra* paras.
    310-15.

[^711]: *See* Conditions at para. 38. In order to provide competitive
    LECs with advance planning information, the conditions require Bell
    Atlantic/GTE to provide written or electronic (*e.g.,* Internet)
    notice to competitive LECs when the unbundled loop and resale
    promotions reach 50 percent and 80 percent of a state's maximum
    lines. We disagree with WorldCom's contention that, due to
    uncertainty regarding the duration of the promotions in a specific
    state, competitive LECs cannot make reliable business plans based on
    the availability of a discount. *But see* WorldCom May 5, 2000
    Further Supplemental Comments at 8. WorldCom cites as an example the
    provision allowing the unbundled loop discount promotion to end in a
    state upon Bell Atlantic/GTE's receipt of section 271 authority in
    that state. We believe that the 90 days afforded for the
    Commission's processing of section 271 applications provides
    competitive LECs with sufficient notice of the potential cessation
    of the unbundled loop discount in that state.

[^712]: We decline to require that the unbundled loop discount also
    apply to non-recurring charges. *But see* WorldCom May 5, 2000
    Further Supplemental Comments at 7-8. We believe that the discount
    on recurring charges for unbundled loops is sufficient to stimulate
    further competitive LEC penetration into the residential local
    market.

[^713]: *But see* National ALEC Mar. 1, 2000 Comments at 6-7 (requesting
    a discount in the range of 50-60 percent).

[^714]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14915 n.898 (*citing*
    *Local Competition Order*, 11 FCC Rcd at 15955-56, 15963-64, paras.
    910, 932-33).

[^715]: National ALEC Mar. 1, 2000 Comments at 7.

[^716]: *See* Covad May 5, 2000 Comments at 13-14; WorldCom May 5, 2000
    Further Supplemental Comments at 8. Both Covad and WorldCom seek
    extension of the applicability of the unbundled loop discount to
    loops used for advanced services.

[^717]: *See* AT&T May 5, 2000 Comments at 5, 7 (arguing that the line
    limitations are unlawful); CoreComm Mar. 1, 2000 Comments at 29
    (maintaining that the promotions likewise should apply to service
    rendered to small businesses).

[^718]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14914-15, para. 494;
    (*citing* S. Conf. Rep. No. 104-230 at 148) (contemplating that the
    1996 Act would promote facilities-based, "local residential
    competition").

[^719]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14915, para. 494.

[^720]: *Id. See also* Bell Atlantic/GTE May 9, 2000 Response at 3 n.3
    (*citing* *SBC/Ameritech Order*, 14 FCC Rcd at 14892, para. 440).

[^721]: *See* Conditions at para. 25.

[^722]: *See* AT&T May 5, 2000 Comments at 3, 4-7.

[^723]: *See* 47 U.S.C. § 251(c)(3), (4)(B) (nondiscrimination
    requirements); 47 C.F.R. § 51.313(a) (requiring nondiscriminatory
    access to network elements); 47 C.F.R. § 51.603(a) (requiring
    nondiscriminatory resale); 47 C.F.R. § 51.503(c) (providing that an
    incumbent's rates shall not vary on the "basis of the class of
    customers served by the requesting carrier, or the type of services
    that the requesting carrier purchasing such elements uses them to
    provide"). *See also SBC/Ameritech Order*, 14 FCC Rcd at 14915,
    para. 495.

[^724]: *See* 47 U.S.C. § 252(a)(1). With Bell Atlantic/GTE voluntarily
    offering to amend interconnection agreements, states will not be in
    the position of putting the discount into arbitrated agreements. Of
    course, the amended agreements still will be subject to state
    commission approval of voluntarily negotiated agreements pursuant to
    47 U.S.C. § 252(e). In this regard, we reject the proposal of the
    Allegiance Joint Commenters that the promotional discounts be made
    automatic, without amending interconnection agreements. *See*
    Allegiance May 5, 2000 Joint Comments at 6-7. As the Applicants
    aptly respond, section 252 requires inter-carrier arrangements for
    UNEs and resale to be embodied in interconnection agreements. *See*
    Bell Atlantic/GTE Responses to Specific Conditions Allegations at
    A-14. *See also, e.g.*, 47 U.S.C. § 252(e)(1), (h), (i).

[^725]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14915, para. 496.

[^726]: 47 U.S.C. § 252(a)(1). *See Local Competition Order*, 11 FCC Rcd
    at 15528, paras. 54, 58 (stating that "parties that voluntarily
    negotiate agreements need not comply with the requirements we
    establish under sections 251(b) and (c), including any pricing rules
    we adopt").

[^727]: 47 U.S.C. § 252(e)(2). The Supreme Court recognized this
    distinction in *AT&T Corp. v. Iowa Utilities Board*, stating: "When
    an entrant seeks access through \[resale, leasing of unbundled
    network elements, or interconnection\], the incumbent can negotiate
    an agreement without regard to the duties it would otherwise have
    under §251(b) or (c). But if private negotiation fails, either party
    can petition the state commission that regulates local phone service
    to arbitrate open issues, which arbitration is subject to §251 and
    the FCC regulations promulgated thereunder." *AT&T Corp. v. Iowa
    Utilities Bd.*, 525 U.S. 366, 372-73 (1999) (footnote and citation
    omitted).

[^728]: *See* 47 U.S.C. § 252(e)(2)(A)(i); AT&T May 5, 2000 Comments at
    7 n.8.

[^729]: AT&T May 5, 2000 Comments at 5, 7.

[^730]: *See* 47 C.F.R. § 51.809(a) (implementing pick and choose rule
    of section 252(i)). *See also* 47 C.F.R. §§ 51.313(a), 51.603(a). As
    explained above, the nondiscrimination requirements of section
    251(c) and corresponding Commission rules do not apply to
    voluntarily negotiated agreements.

[^731]: We also note, on the other hand, that states may choose to be
    involved in multi-state mediations of similar or common issues,
    though such participation, as with any state participation under
    this condition, is completely voluntary. *See SBC/Ameritech Order*,
    14 FCC Rcd at 14917, para. 499.

[^732]: *Cf.* CoreComm Mar. 1, 2000 Comments at 49-50 (Commission should
    establish an informal staff mediation process in order to facilitate
    resolution of interconnection negotiation disputes).

[^733]: As with the *SBC/Ameritech Conditions*, the Chief of the Common
    Carrier Bureau will resolve any disputes that may arise regarding
    the trial. *See SBC/Ameritech Order*, 14 FCC Rcd at 14877 n.743;
    *SBC/Ameritech Conditions*, 14 FCC Rcd at 15024-25, para. 57.

[^734]: This commitment also encompasses new cables installed or
    controlled by Bell Atlantic/GTE in a campus of garden apartment
    dwelling units. There may be, however, multiple points of entry
    where a property owner requests diversity.

[^735]: *But see* Covad Mar. 1, 2000 Comments at 19. *Compare
    SBC/Ameritech Conditions*, 14 FCC Rcd at 15024-25, para. 57
    (SBC/Ameritech to conduct trials in five "large cities" and complete
    them within two years after the merger closing) *with* Conditions at
    para. 41.

[^736]: *See* Bell Atlantic/GTE Response to Conditions Comments at 26.
    The Applicants also submitted relevant portions of the publicly
    available New York tariff to Commission staff, and these submissions
    were placed in the Commission's record for this proceeding on June
    12, 2000.

[^737]: Conditions at para. 41.

[^738]: *See* Bell Atlantic/GTE Response to Conditions Comments at
    26-27.

[^739]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14917, para. 500.

[^740]: *See, e.g.*, *UNE Remand Order* at paras. 168-70, 226.

[^741]: Customer lines are defined as including telephone access lines,
    xDSL or other lines used to provide Advanced Services, cable lines,
    or "other lines of communications used to provide Competitive Local
    Service." A line subject to line sharing will be considered one
    customer line even if Bell Atlantic/GTE, its affiliate, or the
    venture to which Bell Atlantic/GTE has contributed is providing both
    the voice and advanced services. Where Bell Atlantic/GTE counts
    cable or fixed wireless services towards satisfaction of the
    out-of-region commitment, each subscriber will be deemed to have one
    customer line.

[^742]: *Compare SBC/Ameritech Conditions*, 14 FCC Rcd at 15026-29,
    para. 59 (National-Local Strategy) *with* Conditions at paras. 43-48
    (Bell Atlantic/GTE out-of-territory competitive entry commitment).

[^743]: AT&T Mar. 1, 2000 Opposition at 29. *See* United States Hispanic
    Chamber of Commerce Mar. 1, 2000 Comments at 4 ("USHCC considers the
    out-of-region expenditure condition a distinct benefit of the
    proposed Bell Atlantic/GTE merger"); World Institute on Disability
    Mar. 1, 2000 Comments at 7 ("Bell Atlantic and GTE have committed to
    spending a substantial sum on out-of-territory competitive entry").

[^744]: *See* LCLAA Mar. 1, 2000 Comments at 2 ("LCLAA believes that the
    \$500 million out-of-region commitment of the post-merger company
    will open the door to exactly the kind of facilities-based
    competition that Congress intended when it enacted the
    Telecommunications Act of 1996").

[^745]: IURC Mar. 1, 2000 Comments at 11.

[^746]: *See* Conditions at para. 56.

[^747]: *But see* IURC Mar. 1, 2000 Comments at 11.

[^748]: *See* Bell Atlantic/GTE Response to Conditions Comments at 29.

[^749]: *See* Pub.L. 104-104, Title VII, § 706, Feb. 8, 1996, 110 Stat.
    153, reproduced in the notes under 47 U.S.C. § 157 (Section 706).

[^750]: *But see* AT&T Mar. 1, 2000 Opposition at 29.

[^751]: Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 28.

[^752]: *See* Conditions at para. 43. *But see* AT&T Mar. 1, 2000
    Opposition at 29.

[^753]: The Applicants originally proposed to extend this benefit
    immediately in the Bell Atlantic legacy states, and in the GTE
    legacy states only after AT&T ceased to apply such charges. *See*
    Bell Atlantic/GTE Jan. 27, 2000 Proposed Conditions at 40. In
    response to commenters, however, the Applicants agreed to extend the
    benefit throughout their combined service area as of the merger
    closing date. *See* Bell Atlantic/GTE Mar. 14, 2000 *Ex Parte*
    Letter at 2. *See also* IURC Mar. 1, 2000 Comments at 12; PUC of
    Texas Mar. 1, 2000 Comments at 3.

[^754]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14878, para. 400. This
    requirement does not prohibit the merged firm from offering its
    customers an optional, voluntary pricing plan that may include a
    minimum monthly charge, minimum flat rate charge, or a prepaid
    calling card.

[^755]: *See id.* at para. 401. State commissions are free to accept or
    reject the plan outlined in these conditions. *But see* State
    Advocates Mar. 1, 2000 Comments at 15-17 (requesting that the
    Commission clarify that states may adopt the enhanced Lifeline plan
    without reducing any benefits offered under existing state plans).

[^756]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14878, para. 401.

[^757]: We note that Bell Atlantic/GTE will provide these forms in
    English and such other languages as are prevalent in the applicable
    service area.

[^758]: *See* Conditions at para. 50j (providing that the obligations in
    this condition will not take effect until and unless the enhanced
    Lifeline tariffs are accepted and approved by a state commission)
    and para. 64 (each condition is designed to yield at least 36 months
    of benefit).

[^759]: *But see* State Advocates Mar. 1, 2000 Comments at 4-15.

[^760]: Bell Atlantic/GTE Response to Conditions Comments at 31.

[^761]: *See* 47 C.F.R. § 54.400(a).

[^762]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14918, para. 502.

[^763]: *See id*. at 14879, para. 403.

[^764]: In the Preamble to the Service Quality White Paper, NARUC states
    that a service quality reporting program will "allow interested
    parties to assess current service quality levels among the states,
    and identify increasing or decreasing trends over time." National
    Association of Regulatory Utility Commissioners, [Service Quality
    White Paper]{.smallcaps} (Nov. 1998); *see also* National Regulatory
    Research Institute, [Telecommunications Service Quality]{.smallcaps}
    127-60 (1996) (noting that information facilitates competition on
    quality).

[^765]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14880, para. 403.

[^766]: *See id*.

[^767]: *See* ARMIS 43-05 Service Quality Report, Table 1. In the ARMIS
    43-05 Service Quality Report, price cap incumbent LECs report the
    installation and maintenance of switched access, high speed special
    access, and special access services provided to interexchange
    carriers.

[^768]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14880, para. 404.

[^769]: *See id.*

[^770]: ^,^

[^771]: The merged entity, therefore, will report on its provision of
    these services to all companies, including Internet service
    providers, Internet backbone providers and interexchange carriers.

[^772]: ^.^

[^773]: *See* 47 C.F.R. § 43.21(g); ARMIS 43-05 Service Quality Report,
    Table 1 (establishing reporting requirements for special access
    provided to interexchange carriers).

[^774]: ^,^

[^775]: For example, these reporting requirements attach to the separate
    advanced services affiliate if it begins to provision these special
    access circuits to Genuity.

[^776]: ^;^

[^777]: We note that average delay days due to lack of facilities is not
    currently reported through ARMIS. *See* ARMIS 43-05 Service Quality
    Report, Table 1.

[^778]: ^.^

[^779]: *See* Conditions at para. 55(f). As provided in the Conditions,
    Bell Atlantic/GTE shall, in consultation with the Chief of the
    Common Carrier Bureau, modify these measurements and develop any
    applicable performance measurement business rules to the extent
    necessary. Any developed business rules, once approved by the Chief
    of the Common Carrier Bureau, will be made publicly available.

[^780]: Network Reliability and Interoperability Council, *NRIC V Goal*
    (visited June 13, 2000) [http://www.nric.org](http://www.nric.org/);
    *Revised Network Reliability and Interoperability Council -- V
    Charter* (effective Jan. 6, 2000). The NRIC is a federal advisory
    committee chartered to study the reliability of the public
    telecommunications network. *See* Network Reliability and
    Interoperability Council, NRIC [Network Interoperability: The Key to
    Competition]{.smallcaps} (1997). *See also Line Sharing Order*, 14
    FCC Rcd at 20992-93, paras. 184-85 (establishing NRIC's advisory
    function on advanced services spectrum compatibility and spectrum
    management matters).

[^781]: *See* NEXTLINK Mar. 16, 2000 Reply at 8-9; Allegiance Mar. 1,
    2000 Comments at 9-10 (recommending independent audit of
    compliance); CoreComm Mar. 1, 2000 Comments at 46 (supporting an
    audit); MCI WorldCom Mar. 1, 2000 Supplemental Comments at 19-20;
    NorthPoint Mar. 1, 2000 Comments at 10. S*ee also SBC/Ameritech
    Order*, 14 FCC Rcd at 14881, para. 406.

[^782]: A corporate compliance program is a well-established technique
    for ensuring that an organization takes active steps to comply with
    legal and regulatory requirements. The Commission and others have
    used compliance programs as a tool for addressing potential problem
    areas. *See* *id.* at 14881-82, paras. 407-08. *See also* *SBC
    Communications*, Order, FCC 99-153 (rel. June 28, 1999); *U.S. v.
    21^st^ Century Bidding Corp.*, No. 98-2752, 1999 WL 135165 (D.D.C.
    Feb. 25, 1999).

[^783]: Corporate compliance programs should both deter potential
    misconduct within the corporation, and provide a method for internal
    policing. Components of a corporate compliance program include, for
    example, corporate conduct codes, employee training, record-keeping,
    standard operating procedures followed by employees, individual work
    assignments, monitoring programs, and internal compliance audits.
    *See* Richard S. Gruner, *Designing Compliance Programs*, Practicing
    Law Institute: Corporate Law and Practice Course Handbook Series,
    1100 PLI/Corp 151 (1999); Don Zarin*, Doing Business Under the
    Foreign Corrupt Practices Act: Compliance Programs*, Practicing Law
    Institute: Corporate Law and Practice Course Handbook Series, 943
    PLI/Corp 525 (1996).

[^784]: We note that, as an additional safeguard, the Board of Directors
    of Bell Atlantic/GTE will oversee the activities of the Compliance
    Officer. *See* *In re Caremark Internat'l Inc. Derivative
    Litigation*, 698 A.2d 959, 967-70 (Del. Ch. 1996) (establishing a
    duty for corporate directors to implement an effective compliance
    program); *see also* Blue Ribbon Committee on Improving the
    Effectiveness of Corporate Audit Committees, [Report and
    Recommendations]{.smallcaps} (1999) (recommending actions by
    corporate boards to improve oversight and monitoring of corporate
    compliance).

[^785]: The Compliance Plan will describe Bell Atlantic/GTE's plan for
    ensuring compliance with the separate affiliate requirements. *See*
    BlueStar et al. Mar. 1, 2000 Comments at 6-7. The Compliance Report
    also will include a statement of the cost-savings achieved during
    the course of the calendar year in order to assist the Commission
    and the public in assessing any efficiencies arising out of this
    merger. This report will constitute, as required by industry
    standards, Bell Atlantic/GTE's written assertion regarding its
    compliance with the conditions contained herein and the
    effectiveness of Bell Atlantic/GTE's internal control structure over
    compliance. *See* American Inst. of Certified Pub. Accountants,
    [Compliance Attestation]{.smallcaps}, AT § 500.01.

[^786]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14882, para. 409.

[^787]: By "internal control," we mean the process implemented by a
    company's board of directors, management, and other personnel
    designed to provide reasonable assurance regarding, in this
    instance, the company's compliance with the requirements established
    in this Order and all applicable laws and regulations. *See*
    American Inst. of Certified Pub. Accountants, [Consideration of
    Internal Control in a Financial Statement]{.smallcaps}, AU § 319.06
    (1998); [Compliance Attestation]{.smallcaps}, AT § 500.01, n.1
    (1999). The independent auditor will examine, for example, Bell
    Atlantic/GTE's compliance with, as well as its ability to
    administer, the requirements of the Carrier-to-Carrier Performance
    Plan to report accurate and relevant performance data. *See, e.g.,*
    U.S. GAO, [Assessing the Reliability of Computer-Processed
    Data]{.smallcaps}, GAO/OP-8.1.3 (Apr. 1991) (providing guidance for
    auditing computer-processed data). Strong internal controls are
    necessary both to ensure that Bell Atlantic/GTE takes affirmative
    steps to comply with the conditions and to counteract its incentive
    to delay local competition in its region. Managerial philosophy,
    commitment to employee competence, ethical values, oversight by the
    board of directors, assignment of authority, and human resources
    practices work together to provide the discipline and structure
    necessary for ensuring compliance with the conditions. *See*
    American Inst. of Certified Pub. Accountants, [Attestation
    Engagements]{.smallcaps}, AT § 100.11-.12, .33-40; [Consideration of
    Internal Control in a Financial Statement]{.smallcaps}, AU § 319.

[^788]: *See* 47 U.S.C. § 220(c) (providing that the "Commission may
    obtain the services of any person licensed to provide public
    accounting services under the law of any State to assist with, or
    conduct, audits"). S*ee also* *SBC/Ameritech Order*, 14 FCC Rcd at
    14882-84, 14918-21, paras. 410-12, 503-07; *Separation of Costs of
    Regulated Telephone Services from Costs of Nonregulated Activities*,
    CC Docket No. 86-111, Report and Order, 2 FCC Rcd 1298, paras.
    243-73 (1987) ("*Joint Cost Order*"), *modified on recon.*, 2 FCC
    Rcd 6283 (1987) ("*Joint Cost Reconsideration Order*"), *further
    recon*., 3 FCC Rcd 6701 (1988*), aff'd sub nom.*, *Southwestern Bell
    Corp. v. FCC*, 896 F.2d 1378 (D.C. Cir. 1990). 47 C.F.R. §§ 64.904
    (requiring independent audits of cost allocation procedures), 69.621
    (establishing an independent audit requirement regarding certain
    universal service rules). Besides the audits noted above, the
    Commission has additional experience with independent evaluations of
    structural, transactional, and nondiscrimination requirements
    pursuant to the provisions of section 274. *See* 47 U.S.C. §
    274(b)(8); *Accounting Safeguards Order*, 11 FCC Rcd at 17640-43,
    paras. 220-26.

[^789]: *See Computer III Remand Order* at para. 52. S*ee also* *Pacific
    Bell*, Order to Show Cause, 10 FCC Rcd 5503 (1995), *Consent Decree
    Order*, 11 FCC Rcd 14813 (1996); *US West Communications, Inc.,*
    Order to Show Cause, 10 FCC Rcd 5523 (1995), *Consent Decree Order*,
    11 FCC Rcd 14822 (1996); *The Bell Atlantic Telephone Operating
    Companies*, Order to Show Cause, 10 FCC Rcd 5099 (1995), *Consent
    Decree Order*, 11 FCC Rcd 14839 (1996).

[^790]: *SBC/Ameritech Order*, 14 FCC Rcd at 14920, para. 505.

[^791]: *See* American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.28; *see also* U.S. GAO,
    [Government Accounting Standards]{.smallcaps} § 4.17 (1999) (The
    Yellow Book).

[^792]: *See* MCI WorldCom Mar. 1, 2000 Supplemental Comments at 19
    (noting that audits do not guarantee immediate detection of
    noncompliance); CompTel Mar. 1, 2000 Comments at 4.

[^793]: *See* 47 C.F.R. § 0.91; *Amendment of Parts 0, 1 and 64 of the
    Commission's Rules with Respect to Delegation of Authority to the
    Chief, Common Carrier Bureau, and Technical Corrections and
    Deletions*, Report and Order, 5 FCC Rcd 4601 (1990).

[^794]: *See Contel Telephone Operating Companies*, Notice of Apparent
    Liability for Forfeiture, 6 FCC Rcd 1880 (1991) (initiating an
    enforcement action based on the review of an independent auditor's
    working papers).

[^795]: *See* *SBC/Ameritech Order*, 14 FCC Rcd at 14882-83, para. 410.

[^796]: The independent auditor will examine, for example, execution of
    the contracts the Applicants' have submitted in this proceeding to
    ensure that the parties strictly abide by the terms of the
    agreements. In addition, the independent auditor will examine the
    full relationship between Bell Atlantic/GTE and Genuity, so that if
    the merged entity engages in any prohibited or questionable
    transactions, we can expect disclosure of the pertinent facts and
    potential enforcement action.

[^797]: The Commission's rules already require independent auditors to
    use generally accepted auditing standards ("GAAS") for conducting
    audits of an incumbent LEC's compliance with our accounting
    safeguards. 47 C.F.R. § 64.904(a); *see* *Computer III Remand
    Proceedings: Bell Operating Company Safeguards and Tier 1 Local
    Exchange Company Safeguards*, Report and Order, 6 FCC Rcd 7571,
    7582-83, para. 24 (1991) (*Computer III Remand Order*).

[^798]: American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.

[^799]: *Id.* at § 100.01. For the purposes of these conditions, we
    consider Bell Atlantic/GTE's annual Compliance Report to be its
    written assertion. Consistent with AICPA standards, the independent
    auditor's report "does not provide a legal determination of \[Bell
    Atlantic/GTE's\] compliance" with the specified requirements;
    however, the auditor's findings may aid the Commission in making
    such a determination. American Inst. of Certified Pub. Accountants,
    [Compliance Attestation]{.smallcaps}, AT § 500.03; *see also*
    American Inst. of Certified Pub. Accountants, [Illegal Acts by
    Clients]{.smallcaps}, AU § 317.03.

[^800]: *See* American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.27; [Attestation
    Engagements]{.smallcaps}, AT § 100.53 (noting that an examination
    engagement is used to reduce the attestation risk to a low level).

[^801]: *See* American Inst. of Certified Pub. Accountants, [Compliance
    Attestation]{.smallcaps}, AT § 500.15-20; [Agreed-Upon Procedures
    Engagements]{.smallcaps}, AT § 600. An agreed-upon procedures
    engagement is more thorough than an examination engagement because
    the concept of materiality does not apply to any reported findings.
    *See* American Inst. of Certified Pub. Accountants, [Agreed-Upon
    Procedures Engagements]{.smallcaps}, AT § 600.27.

[^802]: *See* 47 U.S.C. § 272(d). S*ee also* 47 C.F.R. §§ 53.209-213;
    *Accounting Safeguards Order*, 11 FCC Rcd at 17628-32, paras.
    197-205.

[^803]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14884, para. 412.

[^804]: AICPA standards recognize occasions in which an independent
    auditor has a duty to notify others, including regulatory agencies,
    of problems uncovered during an audit. *See* American Inst. of
    Certified Pub. Accountants, [Illegal Acts by Clients]{.smallcaps},
    AU § 317.23-.24.

[^805]: 47 C.F.R § 1.1105.

[^806]: *See* 47 U.S.C. § 410(b) (authorizing the Commission to confer
    with State commissions regarding telecommunications policy matters
    and "to avail itself of such cooperation, services, records, and
    facilities as may be afforded by any State commission").

[^807]: *See* 47 C.F.R. § 0.291(b). To improve operating and
    administrative efficiency, the Commission delegated authority to the
    Common Carrier Bureau to coordinate compliance and enforcement
    activities with state commissions when: (i) there is a shared policy
    interest, and (ii) the states have processes for protecting
    confidential information. *Amendment of Parts 0, 1, and 64 of the
    Commission's Rules with Respect to Delegation of Authority to the
    Chief, Common Carrier Bureau*, Report and Order, 5 FCC Rcd 4601
    (1990); *Delegation of Authority to the Chief, Common Carrier
    Bureau*, Memorandum Opinion and Order, 50 Fed. Reg. 18487-03 (1985),
    *on reconsideration*, 104 FCC 2d 733 (1986).

[^808]: *See* NEXTLINK Mar. 16, 2000 Reply at 19; NorthPoint Mar. 1,
    2000 Comments at 10 (advocating monetary penalties to ensure
    compliance).

[^809]: The Commission may, however, grant a waiver of Bell
    Atlantic/GTE's voluntary payment obligation if Bell Atlantic/GTE can
    demonstrate that the failure was due to an Act of God.

[^810]: *See* 47 C.F.R. § 1.3.

[^811]: 47 U.S.C. § 503.

[^812]: 47 U.S.C. §§ 316, 416(b).

[^813]: 47 U.S.C. § 209.

[^814]: *See* CompTel Mar. 1, 2000 Comments at 4.

[^815]: *See* NorthPoint Mar. 1, 2000 Comments at 11.

[^816]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14857, para. 358.

[^817]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14877, 14887, paras.
    398, 421.

[^818]: Thus, we disagree with WorldCom's assessment that "\[t\]he low
    caps and restrictions associated with the promotions render any
    benefits insignificant. The promotional scheme would allow
    \[competitive LECs\] to compete (for a limited and uncertain time)
    for only a small portion of the market using the promotional rate
    for unbundled local loops and resold services." WorldCom May 5, 2000
    Further Supplemental Comments at 7.

[^819]: As we discuss above, such best practices, for instance, may
    reflect a balance between maximizing OSS uniformity and not
    diminishing functionality or flow-through. *See supra* n.651.

[^820]: *See Line Sharing Order*, 14 FCC Rcd at 20995, para. 188.

[^821]: *See supra* paras. 286-88.

[^822]: *See generally Application by Bell Atlantic New York for
    Authorization Under Section 271 of the Communications Act to Provide
    In-Region, InterLATA Service in the State of New York*, CC Docket
    No. 99-295, Memorandum Opinion and Order, 15 FCC Rcd 3953, 4164-65,
    para. 429 (1999).

[^823]: *See generally Line Sharing Order*, 14 FCC Rcd at 20915, 20946,
    21000, paras. 3 n.5, 71, 197.

[^824]: *See* Bell Atlantic/GTE Response to Conditions Comments at
    27-28.

[^825]: *Id.* at 28. LCLAA also comments specifically on the innovative
    benefits which may ensue from the Applicants' out-of-region
    competitive entry conditions:

    > Bell Atlantic and GTE's determination to enter markets nationwide
    > will eventually guarantee countless consumers access to a range of
    > competitive alternatives for local, long distance, wireless and
    > advanced services . . . Additionally, because this expansion will
    > not be tied to the use of a specific telecommunications
    > technology, the merged company will be free to implement the most
    > advanced solutions as its buildout moves forward and, thus,
    > provide the most capable systems available in the marketplace.

    LCLAA Mar. 1, 2000 Comments at 2.

[^826]: *See supra* Section VI.D.2.a (increased discrimination in
    provision of Advanced Services).

[^827]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14890, para. 432.

[^828]: *See* Conditions at para. 9.

[^829]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14891, para. 434.

[^830]: *Compare. id.* at 15034-36, paras. 66-67 (September 1 annual due
    date under SBC/Ameritech conditions) *with* Conditions at para. 57
    (May 1 annual due date under Bell Atlantic/GTE conditions).

[^831]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 10;
    Bell Atlantic/GTE Gould/Young Joint Decl. at paras. 3-4.

[^832]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14865-66, paras.
    373-74; *SBC/Ameritech Conditions*, 14 FCC Rcd at 14997-98, paras.
    19-20.

[^833]: *See* CoreComm Mar. 1, 2000 Comments at 45 (further seeking
    implementation of these commitments on the merger closing date);
    Covad Mar. 1, 2000 Comments at 15-16.

[^834]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 18
    n.12; *UNE Remand Order* at paras. 426-431.

[^835]: *SBC/Ameritech Order*, 14 FCC Rcd at 14870, para. 384.

[^836]: *See* BlueStar et al. Mar. 1, 2000 Comments at 3; National ALEC
    Mar. 1, 2000 Comments at 7-8.

[^837]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14875, para. 393;
    *SBC/Ameritech Conditions*, 14 FCC Rcd at 15020-22, paras. 50-52.

[^838]: *See* BlueStar et al. Mar. 1, 2000 Comments at 3; CoreComm Mar.
    1, 2000 Comments at 29-31 (adding that the UNE platform promotion
    should incorporate the unbundled loop discount and not be limited to
    residential POTS or ISDN service); IURC Mar. 1, 2000 Comments at 4,
    10-11.

[^839]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 18
    n.12; *UNE Remand Order* at paras. 475-490. *Cf. SBC/Ameritech
    Order*, 14 FCC Rcd at 14875, para. 393 (suggesting that disposition
    of issues with respect to the UNE platform would be part of the
    outcome of the *UNE Remand Order*).

[^840]: *See* CoreComm Mar. 1, 2000 Comments at 30-31 (alleging that
    Bell Atlantic's UNE platform offerings have been deficient outside
    of states where it seeks or has sought section 271 approval, and
    suggesting therefore that the Commission require Bell Atlantic/GTE
    to offer, throughout its combined region, the same UNE platform
    offering that Bell Atlantic has made available in New York); Z-Tel
    Mar. 1, 2000 Comments at 7-11 (asserting that the Commission should
    require Bell Atlantic/GTE to implement a "best practices" UNE
    platform product throughout its combined service areas, at least
    some of which Bell Atlantic/GTE should base on the UNE platform
    offering in New York, which is "perhaps the most robust UNE Platform
    offering in the nation").

[^841]: This merger will add GTE's wireless assets to the extensive
    footprint established by Bell Atlantic and Vodafone AirTouch through
    the recent formation of their wireless joint venture, now providing
    service as Verizon Wireless. The other nationwide providers are AT&T
    Wireless Services, Inc., Sprint PCS, Nextel Communications, Inc.,
    and VoiceStream Wireless Corporation.

[^842]: *See* Application, Wireless Map, Ex. 3. We note, however, that
    this map does not include the properties that were recently
    contributed by Vodafone to the Verizon Wireless venture.

[^843]: *See* Letter from William D. Wallace, Esq., Crowell & Moring
    LLP, to Magalie Roman Salas, Secretary, Federal Communications
    Commission (filed May 4, 2000) (Bell Atlantic/GTE May 4, 2000 *Ex
    Parte* Letter) at 1.

[^844]: *See* Bell Atlantic/GTE Jan. 27, 2000 Supplemental Filing at 9.

[^845]: *Vodafone AirTouch, Plc and Bell Atlantic Corporation*,
    Memorandum Opinion and Order, DA 00-721 (WTB/IB rel. Mar. 30, 2000)
    (*Vodafone/Bell Atlantic Order*).

[^846]: *See* Bell Atlantic/GTE May 4, 2000 *Ex Parte* Letter at 2.

[^847]: *Id.* at 1.

[^848]: *Id.*

[^849]: *See* Oct. 8, 1998 Public Notice; *see also* *Commission Seeks
    Comment on Additional Applications Submitted by GTE and Bell
    Atlantic*, CC Docket No. 98-184, Public Notice DA 00-608 (rel. Mar.
    17, 2000) (Mar. 17, 2000 Public Notice).

[^850]: We find no basis in the record to be concerned that this merger
    will harm competition in markets for mobile data services. These
    markets remain in the early stages of development, with service or
    new entry likely via numerous platforms and spectrum bands,
    including but not limited to narrowband PCS, 700 MHz, SMR (220 MHz,
    800 MHz, and 900 MHz), cellular and broadband PCS, WCS, and possibly
    MMDS.

[^851]: 47 C.F.R. § 22.942(a) ("A direct or indirect ownership interest
    of 5% or less in both systems is automatically excluded from the
    general rule prohibiting multiple ownership interests.").

[^852]: 47 C.F.R. § 20.6.

[^853]: At the time of its dissolution, PrimeCo was a business jointly
    controlled by Bell Atlantic and Vodafone.

[^854]: *See In re Applications of BCP CommNet, L.P., Transferor, and
    Vodafone AirTouch, Plc, Transferee, For Consent to Transfer of
    Control of Licenses*, file nos. 0000018208 *et al*., Memorandum
    Opinion and Order, DA 99-3009 (WTB, rel. Dec. 27, 1999).

[^855]: *United States of America v. Bell Atlantic Corporation, GTE
    Corporation, and Vodafone AirTouch Plc,* U.S. Dist. Ct. D.C.
    Circuit, Civil No. 1:99CV01119 (LFO), Final Judgment, filed April
    18, 2000 at 2 (*Revised Consent Decree*).

[^856]: 65 Fed. Reg. 505 (Jan. 5, 2000).

[^857]: *Id.* at 508. The Revised Consent Decree requires more extensive
    divestitures than would be required under our rules. For instance,
    the Revised Consent Decree requires divestitures in numerous rural
    markets in which our spectrum cap rule permits the aggregation of
    spectrum up to 55 MHz. In five urban markets within the Seattle MTA,
    furthermore, divestitures are required although Applicants would
    jointly hold 45 MHz. In addition, there are several cases in which
    divestitures are required although one applicant holds an interest
    that is not attributable under our rules---*e.g.*, Jacksonville,
    Florida-5, Dallas-Fort Worth, Sherman-Denison (TX), Texas-20, and
    Wisconsin-8.

[^858]: *Revised Consent Decree* at Section IV.A.1.

[^859]: *Id.* at Section IV.A.2.

[^860]: *Id.* at Section II.G.

[^861]: *Id.* at Section IV(A)(2) (authorizing DOJ to grant up to two
    30-day extensions).

[^862]: 47 C.F.R. § 22.942. For purposes of the cellular cross-ownership
    rule, direct and indirect interests of more than five percent are
    attributed. *Id.* at (a).

[^863]: *Revised Consent Decree* at 12.

[^864]: 47 C.F.R. § 22.942(c).

[^865]: *See Wireless Telecommunications Bureau Grants Consent for
    Transfer of Control of Cellular and Related Microwave Licenses from
    Bell Atlantic Corporation and Vodafone AirTouch Plc to ALLTEL
    Corporation*, Public Notice, DA 00-731 (rel. Mar. 30, 2000);
    Wireless Telecommunications Bureau Action Report No. 523, Public
    Notice (rel. May 3, 2000); Wireless Telecommunications Bureau Action
    Report No. 546, Public Notice (rel. May 31, 2000). The divestiture
    of four of these properties---Phoenix, Tucson, Arizona-2, and
    Albuquerque---was required as a precondition for our approval of the
    Bell Atlantic-Vodafone joint venture transaction. *Vodafone/Bell
    Atlantic Order* at n.51. Also included were cellular properties
    providing service to Las Cruces, NM and El Paso, TX. These transfers
    were consummated on April 1, 2000, except for Las Cruces, which was
    consummated on May 15, 2000.

[^866]: *See Wireless Telecommunications Bureau Grants Consent to Bell
    Atlantic and GTE for Assignment and Transfer of Control of Certain
    Cellular and Microwave Licenses*, Public Notice, DA 00-1273 (rel.
    June 12, 2000). These seven properties are: Anderson and Greenville,
    SC; and Akron, Canton, Cleveland, Lorain-Elyria and Ashtabula, OH.

[^867]: *See Bell Atlantic, GTE and Vodafone Seek Consent to Transfer
    Control of or Assign Properties to Divestiture Trust*, Public
    Notice, DA 00-1076 (rel. May 12, 2000). These six California
    properties are Salinas-Monterey-Seaside, San Diego, San Francisco,
    San Jose, Santa Rosa-Petaluma and Vallejo-Napa-Fairfield. These
    applications will be acted on separately by the Wireless
    Telecommunications Bureau. We note that the Revised Consent Decree
    provides for the possibility of divesting to a trust as an interim
    measure. Revised Consent Decree at Section V.

[^868]: *See In the Matter of 1998 Biennial Regulatory Review Spectrum
    Aggregation Limits for Wireless Telecommunications Carriers, etc.*,
    WT Dkt Nos. 98-205 and 96-59, GN Dkt. No. 93-252, Report and Order,
    FCC 99-244, (rel. Sept. 22, 1999) (*Spectrum Cap Order*) at para.
    117 ("Consistent with section 0.5(c) of the Commission's rules, we
    delegate authority to the Wireless Telecommunications Bureau to
    review proposed trusts to ensure that they comply with our rules."
    (footnote omitted)).

[^869]: 47 C.F.R. § 20.6(a). Exceptions to the general rules are
    permitted under the significant overlap provision of the rule. 47
    C.F.R. § 20.6(c).

[^870]: In the Seattle MTA, GTE currently holds only 20 MHz as a result
    of a prior disaggregation to U S West.

[^871]: 47 C.F.R. § 20.6(d). In several cellular markets, GTE holds a
    non-controlling, minority, and otherwise non-attributable interest.
    These interests are in cellular licenses for service to
    Jacksonville, Florida-5, Dallas-Fort Worth, Sherman-Denison (TX),
    Texas-20, and Wisconsin-8.

[^872]: *Revised Consent Decree* at Section IV.A.

[^873]: *Id.* at 10. Compliance with our spectrum aggregation rule does
    not necessarily end our analysis. *See Spectrum Cap Order*. We find
    here that the terms of the Revised Consent Decree resolve all
    potential instances of competitive issues going beyond the terms of
    our spectrum aggregation rule and, therefore, that we need not
    conduct further market-by-market inquiries.

[^874]: *See Bell Atlantic, GTE and Vodafone Seek Consent to Transfer
    Control of or Assign Properties to Divestiture Trust*, Public
    Notice, DA 00-1076 (rel. May 12, 2000). Under our spectrum
    aggregation rule, parties must divest sufficient spectrum to remain
    in compliance with the aggregation limit before consummating an
    assignment or transfer of control. 47 C.F.R. § 20.6(e)(1). However,
    unlike in the context of the cellular cross-ownership rule, parties
    are considered to have met this requirement once they have submitted
    applications to the Commission for the transfer of control or
    assignment of license(s) such that, if consummated, the parties
    would not exceed the spectrum aggregation limit. 47 C.F.R. §
    20.6(e)(4)(A). We note that several of the divestitures to which the
    parties have committed may be accomplished without filing an
    application or a subsequent notification with the Commission because
    the ownership change would not involve a controlling interest.

    The parties have indicated to the Commission that they may seek
    approval to modify one or more divestiture applications currently on
    file, but that any amendments would not affect the ultimate
    divestiture of those properties. We note that, with the exception of
    the San Antonio MSA, consummation of the transactions that are the
    subject of divestiture applications already on file would achieve
    compliance with our CMRS ownership rules. However, because the
    Applicants prefer to sell directly to third parties and are
    continuing to negotiate such transactions, we anticipate that a
    number of additional divestiture applications may be filed. Further,
    the Applicants have requested a waiver of our spectrum aggregation
    rule to permit them to continue to file divestiture applications
    after consummation of the merger. *See Wireless Telecommunications
    Bureau Seeks Comment on Vodafone AirTouch Plc, Bell Atlantic
    Corporation, and GTE Corporation Request for Temporary Waiver of
    Section 20.6 of the Commission's Rules,* Public Notice, DA 00-953
    (rel. May 2, 2000); Petition for Temporary Waiver of CMRS Spectrum
    Cap Rule, filed April 6, 2000, by Vodafone AirTouch Plc, Bell
    Atlantic Corporation, and GTE Corporation, at Attach. 1. To the
    extent not rendered moot by additional divestiture applications
    filed prior to closing of the merger, this request will be addressed
    by separate order.

[^875]: In addition to the applications currently on file to divest to
    the trust, an application is currently on file to divest 20 MHz of
    former PrimeCo PCS spectrum in Richmond to VA RSA 6 Limited
    Partnership. *See PrimeCo PCS, LP and Virginia RSA 6 Cellular
    Limited Partnership Seek FCC Consent for Assignment or Transfer of
    Control of Wireless Licenses to Comply with Spectrum Cap Rules and
    Department of Justice Consent Decree Regarding Pending Applications
    of Bell Atlantic, GTE, and Vodafone AirTouch*, Public Notice, DA
    00-1138 (rel. May 23, 2000).

[^876]: *See* Triton Nov. 23, 1998 Comments at 12-14.

[^877]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply at 17.

[^878]: *Cellco Partnership d/b/a Bell Atlantic Mobile v. Triton
    Communications, Inc. et al*., Docket No. ESX-C-238-98 (Superior Ct.
    NJ).

[^879]: *See, e.g., Listeners Guild, Inc. v FCC*, 813 F.2d 465, 469
    (D.C. Cir. 1987); *Applications of Centel Corp., Sprint Corp, and FW
    Sub Inc*., 8 FCC Rcd 1829, 1831 (1993). The Commission has
    consistently refused to interject itself into private matters,
    finding that a court, and not the Commission, is the proper forum
    for resolving such disputes. *WorldCom/MCI Order,* 13 FCC Rcd at
    18148, para. 214; *PCS 2000, L.P.*, 12 FCC Rcd 1681, 1691 (1997)
    (citing *United Tel. Co of Carolinas v. FCC*, 599 F.2d 720,732 (D.C.
    Cir. 1977)).

[^880]: *Id.*; Sprint Nov. 23, 1998 Petition at 48.

[^881]: *Interconnection and Resale Obligations Pertaining to Commercial
    Mobile Radio Services*, CC Docket No. 94-54, Second Report and Order
    and Further Notice of Proposed Rulemaking, 11 FCC Rcd 9462 (1996).

[^882]: *See* Commonwealth of Northern Mariana Islands Nov. 23, 1998
    Petition.

[^883]: *Policy and Rules Concerning the Interstate, Interexchange
    Marketplace*, Order, 12 FCC Rcd 15739 (1997); *Policy and Rules
    Concerning the Interstate, Interexchange Marketplace*, Memorandum
    Opinion and Order, DA 98-1763 (WTB, rel. Sept. 1, 1998).

[^884]: *See WorldCom/MCI Order*, 13 FCC Rcd at 18071, para. 81 (stating
    that the "Commission appropriately has tended to focus its analysis
    on particular inputs in considering competitive effects on
    international routes\").

[^885]: *See id.* at 18072-73, paras. 82-83 (finding submarine cable
    capacity, but not satellite capacity, to be the transport medium
    that warranted review in that merger proceeding). Many other inputs
    are essential for the provision of international services, but there
    is no evidence in the record to demonstrate that the proposed merger
    would affect competition adversely in any of these markets. *See*
    g*enerally WorldCom/MCI Order*, *id.* at 18091-093, paras. 115-17.
    As discussed in Section VI, *supra*, we concluded that, on balance,
    any potential anticompetitive effects of the proposed merger in the
    domestic local exchange and exchange access markets would be
    outweighed by the accompanying benefits of the conditions we impose
    on the merger.

[^886]: *See* Letter from Karen Corbett Sanders, Bell Atlantic, to
    Magalie Roman Salas, Federal Communications Commission, CC Docket
    No. 98-184 (filed May 3, 2000) (Bell Atlantic May 3, 2000
    International Cable Capacity *Ex Parte* Letter).

[^887]: Compañia Dominicana de Teléfonos, C. por A. (CODETEL), a GTE
    subsidiary, owns 22 percent of a segment of the TCS-1 submarine
    cable system (the segment that extends from Puerto Rico to the
    Dominican Republic). *See* TCS-1 Construction and Maintenance
    Agreement Revised Schedules at Schedule C at 2 (effective Aug. 1,
    1997); Letter from Gordon Maxson, GTE, to Magalie Roman Salas,
    Federal Communications Commission, CC Docket No. 98-184, Attachment
    2 (filed May 11, 2000) (GTE May 11, 2000 International *Ex Parte*
    Letter). In addition, CODETEL owns approximately 22 percent of the
    ANTILLAS I cable, which links Puerto Rico and the Dominican
    Republic. *See* GTE May 11, 2000 International *Ex Parte* Letter at
    Attachment 2. Compañia Anónima Nacional Teléfonos de Venezuela
    (CANTV) owns a relatively large portion of cable segments from the
    U.S. Virgin Islands to Venezuela on the Americas I cable and the Pan
    American Cable (ownership varies from 19 percent to 56 percent on
    these two cables' sub-segments). *See* GTE May 11, 2000
    International *Ex Parte* Letter at Attachment 1. A review of GTE's
    percentage ownership interests in other cables in the Caribbean
    region demonstrates that GTE's ownership of other cables in that
    region is *de minimis*. *See* Letter from Gordon Maxson, GTE, to
    Magalie Roman Salas, Federal Communications Commission, CC Docket
    No. 98-184 (filed May 3, 2000) at Attachment (GTE May 3, 2000
    International *Ex Parte* Letter) (listing GTE's U.S. international
    carrier subsidiaries' ownership interests in all cables). Likewise,
    a review of GTE's percentage ownership interests in cables in the
    Pacific region shows that GTE's ownership of cables in that region
    also is *de minimis*. *See* GTE May 3, 2000 International *Ex Parte*
    Letter at Attachment.

[^888]: We forecast supply for two years in accordance with the
    Department of Justice Merger Guidelines. *See* *United States
    Department of Justice Horizontal Merger Guidelines*, 57 Fed. Reg. At
    41562, § 3.2, n.27. Bell Atlantic currently owns a .0248 percent
    interest in the TAT-12/TAT-13 cable system (three E-1 circuits,
    translating to three circuits with a speed of 2.048 megabits per
    second). Bell Atlantic owns 14.5 percent of the FLAG Atlantic-1
    cable system, but has acquired only 12 STM-1 circuits (translating
    to 12 circuits with a speed of 155.52 megabits per second). *See*
    Bell Atlantic May 3, 2000 International Cable Capacity *Ex Parte*
    Letter.

[^889]: GTE Corporation, including several of its international carrier
    subsidiaries, will own a very small percent of total available cable
    capacity in the Atlantic region by the end of 2001. After the
    spin-off of GTE Intelligent Network Services Inc., the projected GTE
    ownership of total available cable capacity in the Atlantic region
    will be even smaller because GTE Intelligent Network Services Inc.
    owns most of GTE's Atlantic cable capacity. *See* GTE May 3
    International *Ex Parte* Letter, Attachment; FCC International
    Bureau 1998 Section 43.82 Circuit Status Data Report at 33 (Int'l
    Bur., Dec. 17, 1999).

[^890]: *See* TRICOM Nov. 23, 1998 Comments at 6.

[^891]: *See* *id.*

[^892]: *Id*. at 7.

[^893]: *See* 47 C.F.R. §§ 63.11, 63.18(e).

[^894]: *See* 47 C.F.R. § 63.10(c), (e) (setting forth international
    dominant carrier safeguards).

[^895]: *See* 47 C.F.R. § 63.10(a).

[^896]: *See* TRICOM Nov. 23, 1998 Comments at 8.

[^897]: *See* 47 C.F.R. § 63.14.

[^898]: TRICOM expresses concern, for example, that GTE "successfully
    bid on the purchase of control of PRTC." *See* TRICOM Nov. 23, 1998
    Comments at 8. We note that, since TRICOM filed its comments, GTE
    has actually purchased the Puerto Rico Telephone Company (PRTC).

[^899]: *See* *Regulatory Treatment of LEC Provision of Interexchange
    Services Originating in the LEC\'s Local Exchange Area and Policy
    and Rules Concerning the Interstate, Interexchange Marketplace*, CC
    Docket Nos. 96-149, 96-61, Second Report in CC Docket No. 96-149 and
    Third Report and Order in CC Docket No. 96-61, 12 FCC Rcd 15756,
    15850 and 15858, paras. 163 and 179 (*LEC Classification Order*),
    Order on Reconsideration, 12 FCC Rcd 8730 (1997) (*LEC
    Classification Order on Reconsideration*), Order, 13 FCC Rcd 6427
    (Comm. Car. Bur. 1998) (*LEC Classification Partial Stay Order*);
    Second Order on Reconsideration and Memorandum Opinion and Order,
    FCC 99-103 (rel. June 30, 1999) (*LEC Classification Second
    Reconsideration Order*) (deciding to classify BOCs' section 272
    interLATA affiliates as nondominant in their provision of in-region,
    interstate, domestic, interLATA services and concluding that it
    should apply the same regulatory classification to the BOC interLATA
    affiliates\' provision of in-region, international services). *See
    also* *Nynex Long Distance Co., et al., Application for Authority
    Pursuant to Section 214 of the Communications Act of 1934, as
    amended, to Provide International Service from Certain Parts of the
    United States to International Points Through Resale of
    International Switched Services, GTE Telecom Incorporated,
    Application for Authority Pursuant to Section 214 of the
    Communications Act of 1934, as Amended, and Section 63.01 of the
    Commission\'s Rules and Regulations for International Resale
    Switched Service and Facilities-Based Service to Various Countries*,
    File Nos. ITC-96-125, 96-272, 96-181, 95-443, Memorandum Opinion and
    Order, 12 FCC Rcd 11654, 11660, paras. 11-12 (Int\'l Bur. 1997)
    (*International Out-of-Region Nondominance Order*) (Bureau finding,
    consistent with the Commission's finding regarding BOC provision of
    in-region international services, that BOCs should be treated as
    nondominant in their provision of out-of-region international
    services).

[^900]: GTE's international carrier subsidiaries that hold international
    authorizations that Bell Atlantic would control are: GTE
    Communications Corporation, GTE Hawaiian Tel International
    Incorporated, GTE Pacifica Incorporated, GTE Wireless Incorporated,
    GTE Airfone Incorporated, GTE Railfone Incorporated, Codetel
    International Communications Incorporated, GTE Telecommunication
    Services Incorporated, TELUS Communications (B.C.) Inc., and
    Celulares Telefónica, Inc. *See GTE May 3 International Ex Parte*
    Letter at 1. GTE notes that "TELUS Communications (B.C.) Inc." is
    the correct name for the entity holding the section 214
    authorization originally granted to BC TEL. *See* GTE May 3, 2000
    International *Ex Parte* Letter at 1 & n.1. GTE states that the
    Commission was notified of the name change by letter dated November
    18, 1999, from counsel for BCT.TELUS Communications, Inc. (the
    parent of TELUS Communications (B.C.) Inc.) and that the control of
    BC TEL was transferred to BCT.TELUS Communications, Inc. in File No.
    ITC-T/C-19990114-00023. *See* GTE May 3, 2000 International *Ex
    Parte* Letter at n.1. GTE points out that BCT.TELUS Communications,
    Inc. is incorrectly shown as holding that authority in the list of
    GTE subsidiaries holding Section 214 authorizations attached to the
    GTE Letter of March 8, 2000, which amended the original list of
    entities holding international section 214 authorizations. *See*
    Letter from Gordon Maxson, GTE, to Magalie Roman Salas, Federal
    Communications Commission, CC Docket No. 98-184 (filed May 4, 2000)
    (correcting part of footnote 1 in GTE May 3, 2000 International *Ex
    Parte* Letter). We refer hereinafter to TELUS Communications (B.C.)
    Inc.

[^901]: Bell Atlantic's international carrier subsidiaries are Bell
    Atlantic Communications, Inc. (BACI) and NYNEX Long Distance
    Company, Inc. (NYNEX-LD). In addition, Cellco Partnership is an
    international carrier affiliate of Bell Atlantic's.

[^902]: We do not address in this section the applications filed by GTE,
    pursuant to section 214 of the Communications Act and the Cable
    Landing License Act (in conjunction with the spinoff of GTE
    Internetworking into a separate corporation) requesting Commission
    approval to transfer control to Genuity of certain international
    section 214 authorizations and cable landing licenses currently held
    by various GTE subsidiaries. We address those applications above.
    *See supra* Section V. We also note that GTE, both as part of an
    application to transfer control of an international section 214
    authorization to Genuity, and in a recent letter, has relinquished
    certain international 214 authorizations that are subsumed by later
    authorizations. *See* GTE Corporation, Transferor, Genuity
    Corporation, Transferee, Application for Transfer of Control of
    Global International Section 214 Authorization,
    ITC-214-19990708-00391 at n.1(filed Apr. 28, 2000) (relinquishing
    authorizations held by GTE international carrier subsidiaries in
    File Nos. ITC-94-237, ITC --94-357-TC, ITC-95-443, ITC-96-313,
    ITC-96-314, and ITC-97-438); *see* GTE May 3, 2000 International *Ex
    Parte* Letter (relinquishing the authorizations held by GTE
    international carrier subsidiaries in File Nos. ITC-97-372,
    ITC-95-242, ITC-92-150, ITC-91-180, and ITC-91-037).

[^903]: *See* 47 C.F.R. § 63.09(e). Section 63.09(e) provides, in
    relevant part, that: \[t\]wo entities are *affiliated* with each
    other if one of them, or an entity that controls one of them,
    directly or indirectly owns more than 25 percent of the capital
    stock of, or controls, the other one.\" 47 C.F.R. § 63.09(e).

[^904]: 47 U.S.C. § 214.

[^905]: For a complete listing of Bell Atlantic's international section
    214 authorizations, *see* Letter from Karen Corbett Sanders, Bell
    Atlantic, to Magalie Roman Salas, Federal Communications Commission,
    CC Docket No. 98-184, Attachment (filed May 3, 2000) (Bell Atlantic
    May 3, 2000 International 214 *Ex Parte* Letter).

[^906]: *See* *Bell Atlantic Communications, Inc. and NYNEX Long
    Distance Company, Applications for Global Authority Pursuant to
    Section 214 of the Communications Act of 1934, as Amended, to
    Provide all Authorized Facilities-Based Services Between the United
    States and all International Points Except Gibraltar, Bell Atlantic
    Communications, Inc. and NYNEX Long Distance Company, Applications
    for Authority Pursuant to Section 214 of the Communications Act of
    1934, as Amended, to Resell International Services of U.S. Carriers
    to Provide all Authorized Services Between the United States and all
    International Points Except Gibraltar*, FCC File Nos.
    ITC-214-19971223-00813 (previous File No. ITC-98-002) and
    ITC-214-19971223-00811 (previous File No. ITC-98-003), Order,
    Authorization and Certificate, DA 99-2989 (rel. Dec. 22, 1999)
    (*BACI/NYNEX-LD New York International 214 Order*).

[^907]: For a complete listing of GTE's international section 214
    authorizations, *see* filings in CC Docket No. 98-184.

[^908]: Section 271(i) defines "in-region State" as follows: \"\[t\]he
    term \'in-region State\' means a State in which a Bell operating
    company or any of its affiliates was authorized to provide wireline
    telephone exchange service pursuant to the reorganization plan
    approved under the AT&T Consent Decree, as in effect on the day
    before the date of enactment of the Telecommunications Act of
    1996.\" 47 U.S.C. § 271(i).

[^909]: *See* *supra* Section V for an extensive discussion of section
    271 issues as they relate to domestic long distance service provided
    by the merged entity.

[^910]: The ECO analysis was developed and discussed in *Market Entry
    and Regulation of Foreign-Affiliated Entities*, IB Docket No. 95-22,
    Report and Order, 11 FCC Rcd 3873 (1995) (the *Foreign Carrier Entry
    Order*).

[^911]: *See Rules and Policies on Foreign Participation in the U.S.
    Telecommunications Market, Market Entry and Regulation of Foreign
    Affiliated Entities*, IB Docket Nos. 97-142, 95-22, Report and Order
    and Order on Reconsideration, 12 FCC Rcd 23891 23906-10, paras.
    33-43, 23913-17, paras. 50-58 (1997) (*Foreign Participation
    Order*), recon. pending; *In the Matter of the Merger of MCI
    Communications Corporation and British Telecommunications plc,* 12
    FCC Rcd 15351, 15409-10, paras. 154--55.

[^912]: *See Foreign Participation Order*, 12 FCC Rcd at 23944-46,
    paras. 124-29; 23949-50, paras. 139-42. Section 63.18(j)-(k) of the
    Commission\'s rules applies the ECO test in situations in which: an
    applicant is a foreign carrier in a non-WTO country; an applicant
    controls a foreign carrier in a non-WTO country; any entity that
    owns more than 25 percent of the applicant, or controls the
    applicant, controls a foreign carrier in a non-WTO country; or, in
    specified circumstances, more than 25 percent of an applicant is
    owned by two or more foreign carriers. *See* 47 C.F.R. §§
    63.18(j)-(k).

[^913]: *See*, *Foreign Participation Order*, 12 FCC Rcd at 23951-954,
    paras. 144-46 (1997); Thomas G. Krattenmaker & Steven C. Salop,
    *Anticompetitive Exclusion: Raising Rivals\' Costs to Achieve Power
    Over Price*, 96 Yale L.J. 209 (1986).

[^914]: *See Foreign Participation Order*, 12 FCC Rcd at 23954, para.
    147.

[^915]: *See* *id.* at 23919-21, paras. 61-66.

[^916]: The Commission\'s international dominant carrier safeguards are
    set forth in section 63.10(c), (e) of the Commission\'s rules (as
    amended in *International Settlement Rates*, IB Docket No. 96-261,
    Report and Order on Reconsideration and Order Lifting Stay, 14 FCC
    Rcd 9256 (1999)), 47 C.F.R. § 6310(c), (e).

[^917]: *See* *Foreign Participation Order*, 12 FCC Rcd at 23951-52,
    para. 144; 47 C.F.R. § 63.10(a)(3).

[^918]: *See* 47 C.F.R § 63.10(a)(3). Section 63.18 of the rules
    requires an applicant to demonstrate that it qualifies for
    nondominant classification on any affiliated route for which it
    seeks to be regulated as a nondominant international carrier. 47
    C.F.R. § 63.18.

[^919]: *See* Bell Atlantic Communications, Inc. and NYNEX Long Distance
    Company, and the GTE International Carriers, Notification of Foreign
    Affiliations, Notification of Affiliation and Request for Waiver,
    FCN-NEW-20000411-00019 (filed Apr. 11, 2000) (April 2000 Foreign
    Carrier Notification). The International Bureau put this
    Notification of Foreign Affiliations on public notice on April 14,
    2000. *See* *Foreign Carrier Affiliation Notification, Applications
    Accepted for Filing*, Report No. FCN-00020 (Apr. 14, 2000).

[^920]: *See* April 2000 Foreign Carrier Notification at 4.

[^921]: *See* *id.* at 5.

[^922]: *See* Oct. 2, 1998 International 214 Application at 1; April
    2000 Foreign Carrier Notification at Exhibit A (listing
    authorizations of GTE's international carrier subsidiaries). *See
    also* Oct. 2, 1998 International 214 Application at Exhibit 1
    (listing GTE's international authorizations); Amendment to
    Application for Commission Consent to Transfer Control of Entities
    Holding International Section 214 Authorizations and Cable Landing
    Licenses From GTE Corporation to Bell Atlantic Corporation, CC
    Docket No. 98-184 (filed Mar. 8, 2000) (adding new authorizations);
    *Commission Seeks Comment on Supplemental Filing Submitted by Bell
    Atlantic Corporation and GTE Corporation*, CC Docket No. 98-184,
    Public Notice, DA 00-608 (rel. Mar. 17, 2000).

[^923]: *See* Letter from Robert E. Dalton, Assistant Legal Adviser for
    Treaty Affairs, United States Department of State, to Rebecca
    Arbogast, Chief, Telecommunications Division, International Bureau,
    Federal Communications Commission at 1 (Feb. 16, 2000) (State
    Department WTO Letter).

[^924]: *See* Letter from Simon Towler, First Secretary (Trade Policy),
    British Embassy, Washington, to Rebecca Arbogast, Chief,
    Telecommunications Division, International Bureau, Federal
    Communications Commission at 1 (Jan. 20, 2000) (British Embassy WTO
    Letter).

[^925]: *See, e.g.*, *Cable and Wireless USA, Inc., Application for
    Authority to Operate as a Facilities-based Carrier in Accordance
    with the Provisions of Section 63.18(e)(4) of the Rules between the
    United States and Bermuda*, File No. ITC-214-19990709-00412, Order,
    Authorization and Certificate, DA 00-311, at para. 7 (Tel. Div. rel.
    Feb. 18, 2000) (deferring to the opinion of the U.S. Department of
    State in treating Bermuda as a WTO member for purposes of applying
    the proper entry standard).

[^926]: *See* April 2000 Foreign Carrier Notification at 8.

[^927]: *See* *id.* at 8.

[^928]: *See* *BACI/NYNEX-LD Out-of-Region Facilities Order*, 12 FCC Rcd
    at 1889, para. 20.

[^929]: *See* *id*.; 47 C.F.R. § 63.10(a)(3).

[^930]: *See* *Bell Atlantic Communications, Inc., Notification Pursuant
    to Section 63.11 of Foreign Carrier Affiliates*, FCN-97-011, Order,
    14 FCC Rcd 1934, para. 5 (Tel. Div. 1998), Order on Reconsideration,
    14 FCC 13418 (Int. Bur. 1998) (*BACI/Gibraltar Dominance
    Reconsideration Order*).

[^931]: *See* April 2000 Foreign Carrier Notification at 7.

[^932]: *See BACI/Gibraltar Dominance Reconsideration Order* at para. 4
    and n.10, *citing* 47 C.F.R. § 63.10(a)(4); *see also Cable and
    Wireless, Inc., Application for Authority Pursuant to Section 214 of
    the Communications Act, as Amended, to Provide Resold and
    Facilities-Based Switched and Private Line Service between the
    United States and China*, File No. ITC-214-19980515-00326 (previous
    File No. ITC-98-380), Order, Authorization, and Certificate, DA
    98-2498 at para. 19 (Tel. Div. rel. Dec. 8, 1998).

[^933]: Specific amendments appear in the ordering clauses below.

[^934]: *See* 47 C.F.R. § 63.09.

[^935]: Applicants state that GTE Corporation owns 100 percent of GTE
    International Telecommunications Incorporated, which owns 100
    percent of GTE Venezuela Incorporated, which owns 51 percent of
    VenWorld Telecom C.A., a consortium that owns 40 percent of CANTV,
    which provides domestic and international telecommunications
    services in Venezuela. *See* April 2000 Foreign Carrier Notification
    at 3.

[^936]: *See* *id*.

[^937]: *See* *id.* at 3-4.

[^938]: *See* *id.* at 6.

[^939]: *See* *id.* at 6.

[^940]: *See* *1998 Biennial Regulatory Review \-- Review of
    International Common Carrier Regulations,* IB Docket No. 98-118,
    Report and Order, 14 FCC Rcd 4909, 4922, para. 29 (1999), recon.
    pending (*1998 International Common Carrier Biennial Regulatory
    Review Order*).

[^941]: *See* April 2000 Foreign Carrier Notification at 6-7.

[^942]: *See* *id*. at 6, *citing* *Petition of GTE Hawaiian Telephone
    Company, Inc., for Reclassification as a Nondominant IMTS Carrier*,
    Order, 11 FCC Rcd 20354 (1996) (*GTE Hawaii Order*).

[^943]: *See* April 2000 Foreign Carrier Notification at 6.

[^944]: *See* *id.* at 6-7.

[^945]: *See* *id.* at 7.

[^946]: *See* *GTE Hawaii Order*, 11 FCC Rcd at 20383, para. 63.

[^947]: *See* April 2000 Foreign Carrier Notification at 7-8.

[^948]: *See* *id.* at 3, 7-8. Applicants assert that GTEFE has a
    Special Type 2 license in Japan. *See* *id.* at 3.

[^949]: *See* *1998 International Common Carrier Biennial Regulatory
    Review Order*, 14 FCC at 4922, para. 29.

[^950]: *See* April 2000 Foreign Carrier Notification at 7 (Dominican
    Republic), 8 (Venezuela).

[^951]: *See* *id*. at 7 (Dominican Republic), 8 (Venezuela).

[^952]: *See* *id*. at 7.

[^953]: *See* *id.* at 8.

[^954]: *See GTE Telecom Incorporated, Application for Authority
    Pursuant to Section 214 of the Communications Act to Provide
    International Switched Resale, Facilities-Based Switched, Private
    Line Voice and Data Services and Resold Non-interconnected Private
    Lines to Venezuela and the Dominican Republic*, ITC-95-443,
    ITC-96-313, ITC-96-314, *GTE MobilNet Incorporated, on Behalf of
    Itself and Certain of its Corporate Affiliates, Application for
    Authorization Pursuant to Section 214 of the Communications Act to
    Operate as an International Resale Carrier for International
    Switched Voice Services to the Dominican Republic and Venezuela*,
    ITC-95-561, Order, Authorization and Certificate, 13 FCC Rcd 4378,
    4390-92, paras. 29-34 (1998) (*GTE Venezuela/Dominican Republic
    Order*).

[^955]: *Id.* at 4390-91, para. 31.

[^956]: *Id.* at 4390-91, para. 31.

[^957]: *Id .*at 4391, para. 31.

[^958]: Upon consummation of the merger, however, Bell Atlantic's
    international carrier subsidiaries will be required to file
    quarterly reports of their switched resale traffic on these routes.
    *See* 47 C.F.R. § 43.61(c).

[^959]: Specific amendments appear in the ordering clauses below.

[^960]: GTE's international carrier subsidiaries are licensees on the
    following 16 submarine cable systems for which Applicants request
    authority to transfer control to Bell Atlantic: Japan-U.S. (GTE
    Hawaiian Tel International Incorporated), Guam-Philippines, MTC
    Interisland Cable System, TAT-8, HAW-4/TPC-3, G-P-T, PacificRimEast,
    HAW-5, TAT-10, TAINO CARIB, TPC-5, COLUMBUS II, AMERICAS-1, HTC
    Interisland, TAT-12/TAT-13, and ANTILLAS I. GTE Intelligent Network
    Services, Inc. also holds a license on the Japan-U.S. cable system.
    Applicants request authority to transfer control of this license to
    Genuity. GTE Intelligent Network Services, Incorporated also holds a
    license in the TAT-14 cable system, which Applicants request to
    transfer control to Genuity, as well as the license that GTE Telecom
    Incorporated holds in the Americas II Cable. As noted above, we do
    not address in this section the applications filed by GTE, pursuant
    to section 214 of the Communications Act and the Cable Landing
    License Act (in conjunction with the spinoff of GTE Internetworking
    into a separate corporation) requesting Commission approval to
    transfer control to Genuity of certain international section 214
    authorizations and cable landing licenses currently held by various
    GTE subsidiaries. We address those applications above. *See supra*
    Section V.

[^961]: *See, e.g.,* *Telefonica Larga Distancia de Puerto Rico, Inc.,
    Review of Nondiscrimination Safeguards Imposed, Application for
    Submarine Cable Landing License for the COLUMBUS II Cable System,
    Section 214 Application to Provide Service to Spain on the COLUMBUS
    II Cable System*, File Nos. I-T-C-92-116-AL, S-C-L-93-001,
    I-T-C-93-029, Memorandum Opinion and Order, 12 FCC Rcd 5173 (1997).
    The \"effective competitive opportunities\" analysis was developed
    and discussed in the *Foreign Carrier Entry Order*. *See* *Market
    Entry and Regulation of Foreign-Affiliated Entities*, RM-8355,
    RM-8392, IB Docket No. 95-22, Report and Order, 11 FCC Rcd 3873
    (1995) (*Foreign Carrier Entry Order*).

[^962]: *Foreign Participation Order*, 12 FCC Rcd at 23932-35, paras.
    87-96.

[^963]: *Id*.

[^964]: *Id*.

[^965]: *Id*. at 23934, para. 94.

[^966]: *See* *id*. at 23934, para. 95 & n.188, *citing* *General
    Communication, Inc., Application for a License to Land and Operate
    in the United States a Digital Submarine Cable System Extending
    Between the Pacific Northwest United States and Alaska*, File No.
    SCL-97-003, Cable Landing License, 12 FCC Rcd 18292 (I.B., T.D.,
    1997).

[^967]: *See* *Foreign Participation Order*, 12 FCC Rcd at 23946, para.
    130.

[^968]: *See* *id*.

[^969]: Pursuant to the Cable Landing License Act, the Department of
    State, after coordinating with the National Telecommunications and
    Information Administration and the Department of Defense, approved
    the transfers of control. *See* Letter from Geoffrey Chapman, United
    States Coordinator, Acting International Communications and
    Information Policy, United States Department of State, to Donald
    Abelson, Chief, International Bureau, Federal Communications
    Commission (filed May 23, 2000).

[^970]: *See, e.g.*, New Jersey Coalition Nov. 23, 1998 Comments at 3;
    PUCT Nov. 23, 1998 Comments at 3-4.

[^971]: Bell Atlantic/GTE Dec. 23, 1998 Joint Reply, Attach. K at 17-21.

[^972]: *See supra* Section VIII.

[^973]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14948, para. 568;
    *SBC/SNET Order* 13 FCC Rcd at 21305, para 26.

[^974]: *See Bell Atlantic/NYNEX Order* 12 FCC Rcd at 20092-93, para.
    236.

[^975]: *Policy Regarding Character Qualifications in Broadcast
    Licensing,* 102 FCC 2d 1179, 1209-10 at para. 57 (1986) (*Character
    Qualifications*), modified, 5 FCC Rcd. 3252 (1990) (*Character
    Qualifications Modification*), *recon. granted in part*, 6 FCC Rcd
    3448 (1991), *modified in part*, 7 FCC Rcd 6564, (1992) (*Further
    Character Qualification Modification*); *MCI Telecommunications
    Corp*., 3 FCC Rcd 509 (1998) (stating that character qualifications
    standards adopted in the broadcast context can provide guidance in
    the common carrier context). The Commission has also determined that
    allegations that an applicant has engaged in unreasonable or
    anticompetitive conduct is relevant to the Commission public
    interest analysis. *SBC/SNET Order* 13 FCC Rcd at 21306-07, paras.
    28-30.

[^976]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14948, para. 568;
    *SBC/SNET Order* 13 FCC Rcd at 21305, para. 26; *Bell Atlantic/NYNEX
    Order*, 12 FCC Rcd at 20092-93, para 236.

[^977]: National ALEC Nov. 23, 1998 Comments at 8-9.

[^978]: Focal Nov. 23, 1998 Comments at 2-4.

[^979]: CoreComm Nov. 23, 1998 Comments at 48-49; MCI WorldCom Nov. 23,
    1998 Comments at 2.

[^980]: MCI WorldCom Nov. 23, 1998 Comments at 5, n.7; CompTel Nov. 23,
    1998 Comments at 3-4 & App. B.

[^981]: AT&T Nov. 23, 1998 Comments at 25-26.

[^982]: *See* RCN Nov. 23, 1998 Comments at 1-2; AT&T Nov. 23, 1998
    Comments at 15; Allegiance Nov. 23, 1998 Comments at 5-6; MCI
    WorldCom Nov. 23, 1998 Comments at 2.

[^983]: *See* Bluestar, et al. Mar. 1, 2000 Comments at 18; MCI WorldCom
    Nov. 23, 1998 Comments at 2; Covad Nov. 23, 1998 Comments at 4;
    CoreComm Nov. 23, 1998 Comments at 41.

[^984]: Bluestar, et al. Mar. 1, 2000 Comments at 17.

[^985]: Covad Nov. 23, 1998 Comments at 13; Bluestar, et al. Mar. 1,
    2000 Comments at 17-18.

[^986]: Allegiance Nov. 23, 1998 Comments at 5.

[^987]: Covad Nov. 23, 1998 Comments at 4.

[^988]: *See* IURC Nov. 23, 1998 Comments at 6-9.

[^989]: *See* Cox Nov. 23, 1998 Comments at 1-3; Focal Nov. 23, 1998
    Comments at 2-3.

[^990]: *See* Comments of Peggy Arvanitas at 1-2.

[^991]: *See* NorthPoint Nov. 23, 1998 Comments at 9-10; MCI WorldCom
    Nov. 23, 1998 Comments at 2; IURC Nov. 23, 1998 Comments at 13-14.

[^992]: *See* IURC Nov. 23, 1998 Comments at 6-7.

[^993]: National ALEC Nov. 23, 1998 Comments at 15.

[^994]: Letter from James L. Casserly, Mintz Levin Cohn Ferris Glovsky
    and Popeo PC, Counsel for SCC Communications Corp., to Magalie Roman
    Salas, Secretary, FCC, CC Docket No. 98-141 (filed Apr. 14, 2000)
    (SCC Apr. 14, 2000 *Ex Parte* Letter) at Attachment.

[^995]: *See* Bell Atlantic/GTE Mar. 16, 2000 Joint Reply, Ex. D 8 at &
    Ex. E at 4-5; Bell Atlantic/GTE Dec. 23, 1998 Joint Reply, Ex. J at
    1-4.

[^996]: *SBC/SNET Order*, 13 FCC Rcd at 21306, para. 29. *See also
    SBC/Ameritech Order*, 14 FCC Rcd at 14950, para. 571.

[^997]: *See SBC/Ameritech Order*, 14 FCC Rcd at 14950, para. 571.

[^998]: *See* CTC Nov. 23, 1998 Comments at iii, 33; CoreComm Nov. 23,
    1998 Comments at 25; RCN Feb. 26, 1999 Petition for Evidentiary
    Hearing at 5.

[^999]: *See* 47 U.S.C. § 309. *See also SBC/Ameritech Order*, 14 FCC
    Rcd at 14951, para. 575.

[^1000]: 47 U.S.C. § 309(d).

[^1001]: 47 U.S.C. § 309(d)(1); *Gencom Inc. v. FCC*, 832 F.2d 171, 181
    (D.C. Cir. 1987); *see Astroline Communications Co. v. FCC*, 857
    F.2d 1556, 1562 (D.C. Cir. 1988).

[^1002]: 47 U.S.C. § 309(d)(2); *Gencom*, 832 F.2d at 181; *see
    Astroline*, 857 F.2d at 1562.

[^1003]: 47 U.S.C. § 309(e). *See also WorldCom/MCI Order*, 13 FCC Rcd
    at 18139-40, para. 202.

[^1004]: *United States v. FCC,* 652 F.2d 72, 89 (D.C. Cir.1980) (en
    banc) (*quoting Columbus Broadcasting Coalition v. FCC,* 505 F.2d
    320, 323-24 (D.C. Cir. 1974)).

[^1005]: *Gencom,* 832 F.2d at 181.

[^1006]: 47 U.S.C. § 309(d)(2). *See also Gencom,* 832 F.2d at 181;
    *SBC/Ameritech Order*, 14 FCC Rcd at 14951, para. 577.

[^1007]: *Serafyn v. FCC,* No. 95-1385, 149 F.3d 1213, 1216 (D.C. Cir.
    1998) (quoting *Citizens for Jazz on WRVR Inc. v. FCC,* 775 F.2d
    392, 395 (D.C. Cir. 1985)). A court may disturb the Commission's
    decision to deny an evidentiary hearing only if, upon examination of
    the Commission's statement of reasons for denial, the court
    determines the Commission's decision to be arbitrary and capricious.
    *Astroline,* 857 F.2d at 1562.

[^1008]: 47 U.S.C. § 309(d).

[^1009]: *SBC Communications, Inc. v. FCC*, 56 F.3d at 1496-97 (D.C.
    Cir. 1995) (quoting *United States v. FCC,* 652 F.2d at 89-90)
    (affirming the Commission's decision in the *AT&T/McCaw Order* not
    to hold a full evidentiary hearing before approving the merger).
    *See AT&T/McCaw Order*, 9 FCC Rcd 5836 at 5927-28, paras. 172-74.

[^1010]: *United States v. FCC,* 652 F.2d at 88-99.

[^1011]: The court deferred to the Commission's judgment not to hold a
    hearing when the Commission had "on two different occasions, invited
    interested parties to submit whatever written material they wanted
    the Commission to consider, and on one occasion heard oral argument
    en banc on the antitrust issues of the SBS venture." The court
    further noted that, "all of the business parties to this case, and
    others, participated in the argument, and submitted materials were
    voluminous." *Id.* 652 F.2d at 92. Similarly, in this proceeding we
    note the voluminous record before us, including the numerous
    comments and ex parte filings we have received and the public forums
    we have conducted.

[^1012]: *See* 47 U.S.C. § 309(d)(1).

[^1013]: *See id.*

[^1014]: *See SBC Communications,* 56 F.3d at 1496-97.

[^1015]: *See* 47 U.S.C.§ 309(d). *See also SBC/Ameritech Order*, 14 FCC
    Rcd at 14952, para. 580.

[^1016]: *See SBC Communications,* 56 F.3d at 1496. *See also
    SBC/Ameritech Order*, 14 FCC Rcd at 14953, para. 580.

[^1017]: 47 U.S.C. § 309(d).

[^1018]: *SBC/Ameritech Order*, 14 FCC Rcd at 14953, para. 580;
    *WorldCom/MCI Order,* 13 FCC Rcd at 18141, para. 205.

[^1019]: "Bell Atlantic in-region lines" shall equal the sum of the
    number of lines for each of the Bell Atlantic in-region states, and
    the number of lines for each Bell Atlantic state shall be the number
    of total billable access lines for the Bell Atlantic operating
    company in that state in Bell Atlantic's 1999 ARMIS reports (and
    reported in the FCC\'s 1999 ARMIS Report 43-04), except that because
    the entry for Bell Atlantic--New York Telephone includes Bell
    Atlantic lines in both New York and Connecticut, the number of lines
    for Connecticut shall be 54,087 and the number for New York shall be
    11,088,712.

[^1020]: Because Genuity operates its existing data business on a
    nationwide (indeed, worldwide) basis, the portion of appreciation
    attributable to Bell Atlantic\'s in-region states was calculated by
    dividing the number of Bell Atlantic\'s billable access lines in its
    in-region states by the number of billable access lines nationwide
    (as both reported in the FCC\'s 1999 ARMIS Report 43-04). The
    resulting percentage was then rounded up to 25% (putting a larger
    portion of the appreciation at risk). This provides a conservative
    estimate of the portion of the appreciation attributable to Bell
    Atlantic\'s in-region lines, particularly because it does not take
    into account the fact that a significant and growing portion of
    Genuity\'s revenues are attributable to international operations. If
    Genuity\'s international operations were taken into account, it
    would reduce the percentage further.

[^1021]: \"Bell Atlantic in-region lines\" are as defined in note 1,
    *supra*.

[^1022]: Likewise, if, during such period, NewCo sells a portion of its
    stock but retains stock convertible into more than a 10% equity
    interest in Genuity, NewCo will have a right to retain only a
    prorated portion of the amount described in clause (ii) above; and
    if, during such period, NewCo sells all of its stock except for an
    amount convertible into less than a 10% equity interest, NewCo will
    have a right to retain the proceeds from the number of shares sold
    that, together with the number of shares retained, would be
    convertible into a 10% equity interest, plus the amount described in
    clause (ii) above.

[^1023]: *See* Applications of Ameritech Corp., Transferor, and SBC
    Communications Inc., Transferee, for Consent to Transfer Control of
    Corporations Holding Commission Licenses and Lines Pursuant to
    Section 214 and Section 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* (Separate
    Statement of FCC Commissioner Michael K. Powell) (Oct. 8, 1999)
    ("SBC/Ameritech Separate Statement") \[Available on the World Wide
    Web at \<
    <http://www.fcc.gov/Speeches/Powell/Statements/stmkp930.doc>\>\].

[^1024]: Although I dissent in part to the *Order*, I do concur with the
    item's Section 271 analysis.

[^1025]: *See* SBC/Ameritech Separate Statement at 1. This balancing
    approach leads to a number of problems: [First]{.underline}, the
    approach creates a great temptation to load up the benefits side of
    the scale with a big wish list of conditions that are non-germane to
    the merger's harmful effects. [Second]{.underline}, the approach
    makes it easier for identified harms, even significant ones, to be
    visited upon the public in exchange for other benefits.
    [Third]{.underline}, the conditions that are sought are more often
    surrogates for policies and rules of general, rather than
    merger-specific, applicability, but without the extensive
    deliberative process and the check of judicial review normally
    afforded a rulemaking. And [fourth]{.underline}, the process of
    obtaining "voluntary" conditions inevitably involves bilateral
    negotiations with the parties that leave the integrity of the
    Commission's process vulnerable to criticism.

[^1026]: *See* SBC/Ameritech Separate Statement at 5-19. I would note,
    in addition, that I find little comfort in the fact that, in
    contrast to the proceeding leading to the *SBC/Ameritech Order,*
    this proceeding did not involve nearly as much haggling between the
    applicants and Commission staff regarding the proposed conditions.
    Among other things, I argued in that previous context that the
    process of obtaining "voluntary" conditions inevitably involves
    bilateral negotiations with the parties that leave the integrity of
    the Commission's process vulnerable to criticism. Although the
    proposed conditions here were not subject protracted negotiations
    with these two applicants, they are modeled so closely on the
    conditions negotiated by SBC and Ameritech that they carry the same
    taint. In short, we cannot turn a blind eye to the troubled origins
    of these conditions, simply because the applicants anticipated what
    would satisfy the Commission based on its previous negotiations with
    SBC and Ameritech. That said, I am at least pleased that the
    Commission did not pursue extensive negotiation with these
    applicants over the proposed conditions.

[^1027]: *See* SBC/Ameritech Separate Statement at 12 ("Sadly, all that
    one is left with after reading the \[SBC/Ameritech\] *Order*'s
    benchmarking analysis (and, indeed, its discrimination analysis) is
    the sense that, for some reason, the Bell Companies and perhaps GTE
    are on the 'too large to merge' side of the dividing line between
    permissible and impermissible mergers. If this was supposed to be
    the moral of the benchmarking and discrimination stories in this
    *Order,* I would have preferred to relay that moral more directly,
    rather then through these theoretical constructs.").