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                                                           Before the
               FEDERAL COMMUNICATIONS COMMISSION
                     Washington, D.C. 20554

In the Matters of                       )
                                   )
AMERITECH CORPORATION TELEPHONE    )
OPERATING COMPANIES' CONTINUING    )
PROPERTY RECORDS AUDIT             )
                                   )
BELL ATLANTIC (NORTH) TELEPHONE    )
COMPANIES' CONTINUING PROPERTY     )
RECORDS AUDIT                      )
                                   )
BELL ATLANTIC (SOUTH) TELEPHONE    )
COMPANIES' CONTINUING PROPERTY     )         CC Docket No. 99-117
RECORDS AUDIT                      )
                                   )         ASD File No. 99-22
PACIFIC BELL AND NEVADA BELL       )
TELEPHONE COMPANIES' CONTINUING    )
PROPERTY RECORDS AUDIT             )
                                   )
SOUTHWESTERN BELL TELEPHONE        )
COMPANY'S CONTINUING PROPERTY      )
RECORDS AUDIT                      )
                                   )
U S WEST TELEPHONE COMPANIES'      )
CONTINUING PROPERTY RECORDS AUDIT  )
                                   )
In the Matter of                        )
                                   )
MCI WORLDCOM, INC.                 )         FOIA Control No. 99-163
                                   )
On Request for Inspection of Records         )

                       MEMORANDUM OPINION AND ORDER

                    Adopted:  December 1, 1999;   Released:  December 6, 1999
       
By the Commission:


1.     The Commission has under consideration applications for review filed by Ameritech
Communications, Inc. (Ameritech), BellSouth Corporation (BellSouth), Southwestern Bell
Telephone Company, Pacific Bell, and Nevada Bell (jointly, SBC), and U S WEST
Communications, Inc. (U S West) (jointly referred to as the applicants).  The applicants seek
review of the decision of the Common Carrier Bureau (Bureau) to make available pursuant to a
protective order materials related to the Bureau's audits of the Regional Bell Operating
Companies' (RBOCs) Continuing Property Records (CPR), in response to a Freedom of
Information Act (FOIA) request by MCI WorldCom, Inc. (MCIW).  For the reasons discussed
below, we affirm the Bureau's decision to release the materials subject to a protective order.
       Background

2.     The Bureau's Accounting Safeguards Division (ASD) conducted audits of the RBOCs
hard-wired central office equipment (COE) to determine whether the carriers' records are in
compliance with Part 32 of Commission's rules.   The CPR audits included field audits in which
Commission auditors, together with representatives of the companies, inspected company
premises to verify the physical existence of specific items of equipment.  Items were classified or
"scored" as (1) found; (2) found in another location; (3) not found/missing; or (4) unverifiable.
Upon completion of the field audits, the ASD auditors asked the RBOCs for source documents to
prove the physical existence of items not found and for items the companies recorded as
"undetailed."  As the RBOCs provided documents, the auditors reviewed the information and
determined whether the evidence submitted was sufficient to warrant a change in the scoring. 
The auditors also provided each RBOC with copies of their respective audit reports for comment.
In their comments, the RBOCs disputed the auditors' conclusions and questioned the validity of
the audit procedures.  
3.     The RBOCs subsequently waived their claims of confidentiality for information in the
audit reports and the companies' comments, and the Commission publicly released these
materials.  In the audit reports, the ASD auditors noted that approximately 11 percent of the
equipment could not be found, and approximately 14 percent was unverifiable or found in another
location.  The audit reports also noted that certain carrier records contained deficiencies and did
not comply with the Commission's rules.  The Commission also initiated a Notice of Inquiry
(NOI) proceeding seeking comments on issues arising from the CPR audit reports.  Most
pertinent to this proceeding, the NOI sought public comment on "[t]he validity and
reasonableness of the methodology used by the Bureau's auditors in determining whether to
rescore or to modify a finding during the field audit that equipment was 'not found'."
4.     After the issuance of the NOI, MCIW filed a FOIA request seeking general public
release of "any materials that the RBOCs have submitted to the [ASD] to explain why hard-wired
COE equipment [sic] items were not found by the auditors or to support claims that items in the
audit sample should be 'rescored.'"  MCIW also sought "any audit workpapers generated by
ASD staff during the course of the audits that show or support the item-by-item scoring of the
items in the audit sample."  Finally, MCIW sought CPR detail for any items scored "partially
found," "not found," or "not verifiable" at any time during the audit process.  MCIW asserted
that this information was necessary to respond to the questions posed in the NOI, especially Issue
No. 2.  It stated that if the Commission determined that unrestricted public release was not
possible, the public should be allowed to review the material under a protective order.  The
RBOCs opposed MCI's FOIA request.
5.     The Bureau granted MCIW's FOIA request subject to a protective order.  The
Bureau determined that, while certain of the materials filed by the RBOCs during the course of
the audits contained confidential commercial information that presumably was exempt from
mandatory disclosure under the FOIA, it would, in its discretion, authorize release of the materials
to parties to the NOI who agreed to sign a protective order.  The Bureau explained that the
discretionary release was warranted because access to the materials was required in order to
comment on Issue No. 2 of the NOI.  The Bureau also explained that by allowing the release
through a protective order, any potential competitive harm to the RBOCs from release the
information would be "reasonably ameliorated."  
6.     All of the RBOCs, with the exception of Bell Atlantic, sought Commission review of
the Bureau Decision.  MCIW opposed the applications for review, and U S West replied to
MCIW.
          Decision
7.     Upon consideration of the applicants' arguments, and for the reasons stated below, we
affirm the Bureau's decision to make specified CPR audit materials available to the public
pursuant to a protective order.  However, as indicated below, we modify the terms and conditions
of the release in response to requests made by the carriers.
8.     The carriers generally contend that disclosure of these materials is unlawful, will result
in competitive harm, and is unnecessary in order to afford meaningful comment on the issues in
the NOI.  We disagree.  As to the claim that disclosure is unlawful, section 220(f) of the
Communications Act prohibits employees from disclosing information obtained during the course
of an audit "except as [the employee] may be directed by the Commission or by a court." 
Contrary to the contention of several of the applicants, the Bureau properly observed (Bureau
Decision at 3) that section 220(f) constitutes explicit authority to disclose audit-related materials
as a matter of the Commission's discretion.  See Examination of Current Policy Concerning the
Treatment of Confidential Information Submitted to the Commission, 13 FCC Rcd 24816, 24820-
21 (1998) (Treatment of Confidential Information), recon. denied, FCC 99-262 (rel. Oct. 5,
1999); Amendment of Part 0 of the Commission's Rules with Respect to Delegation of Authority
to the Chief, Common Carrier Bureau, 104 F.C.C.2d 733, 737 (1986) (CCB Delegation). 
Because disclosure is authorized, the Trade Secrets Act, which prohibits the release of trade
secrets and confidential information unless authorized by law, does not bar the release of the audit
materials, as some applicants assert.  Treatment of Confidential Information at 24820-21; CCB
Delegation at 737.  Although some applicants argue that section 220(f) was merely intended as a
prohibition on disclosures by Commission employees, the section's language also creates an
explicit exception to the prohibition for disclosures that are directed by the Commission.  The
Commission has consistently interpreted section 220(f) as permitting such discretionary
disclosures, and the applicants have not persuaded us that our longstanding interpretation is in
error.  Indeed, given the importance of Commission audits to the effective performance of the
Commission's statutory responsibilities with respect to carriers, we believe the Act's statutory
scheme fully envisions that, in some cases, disclosures of carrier-supplied audit information might
become necessary in the course of carrying out the Commission's enforcement and regulatory
policymaking functions.  
9.      We also agree with the Bureau and MCIW that in these circumstances the public
interest outweighs any potential harm to the RBOCs.  Release of the materials specified by MCIW
will enable the public to comment on NOI Issue No. 2 to an extent that is otherwise not possible,
and, most importantly, with respect to issues raised by the RBOCs that rescoring was done
incorrectly.  Several of the applicants claim that MCIW and other interested parties do not need
access to the audit workpapers or related audit submissions to comment on Issue No. 2 because
the previously disclosed audit reports and the Scoring Public Notice contain sufficient information
to allow parties to comment.  The scope of the inquiry envisioned by Issue No. 2 is not so
narrow as that posited by the applicants, however.  Public information released to date merely
summarizes the auditors' general procedures.  Comment on Issue No. 2 would not elicit useful
information about the accuracy and validity of the audits unless commenters were allowed to
examine how those general procedures were actually implemented when the auditors decided
whether rescoring was appropriate.  Therefore, we agree with the Bureau that the workpapers
and underlying submissions by the RBOCs are necessary to evaluate "the validity and
reasonableness of the methodology" as provided for in Issue No. 2 of the NOI. 
10.     We recognize, as the applicants note, that in many instances in the past we have
declined to release audit materials publicly.  The disclosures here are not public, however. 
Moreover, in none of the cases cited had we embarked on the type of public inquiry we have
instituted in the NOI.  It is fully consistent with Commission precedent to disclose confidential
information, using protective orders, to enable participation in Commission proceedings.  We
have therefore followed that policy here.
11.    Nor do we perceive the disclosure here as establishing a precedent that compromises
the integrity of the audit process.  The NOI proceeding that prompted the disclosures is unusual:
the Commission has rarely, if ever, sought public comment on its auditors' methodology and
findings.  Here, however, we were sufficiently concerned about the issues surrounding the audits
to invite public comment, and we believe that broader comment will greatly assist us in resolving
the issues.  Hence, the Bureau's decision does not mark a departure from our general policies
concerning the confidentiality of audit materials; rather, it is an exception to those policies that is
warranted by unusual circumstances.
12.    As to the potential harm to the carriers, the protective order adopted by the Bureau
was crafted to ensure that the potential for competitive harm, if any at all, is minimal.  Only
information related to the sampled items not found, unidentified or found in another location will
be disclosed, and then can only be used to file comments in the NOI proceeding.  In addition, no
party can copy these materials.  We also remind the parties of the severe penalties for violation of
the protective order.  
13.    The applicants indicate that they would prefer a more stringent protective order. We
agree with certain of their proposals in this regard.  We will grant the request that access to the
materials be limited to persons without decision making authority or influence regarding
competitive issues.  We also agree with SBC and BellSouth that vendor-specific pricing
information found in the audit materials should be redacted.   Redaction of this information will not
compromise the ability of the public to respond to Issue No. 2 of the NOI. Where invoices were supplied, the
entire invoice may be redacted, but a notation should be inserted indicating that an invoice was provided.  We
recognize that there may be instances where cost is relevant to the Bureau's scoring of an item.  MCIW already
has access to this type of information from Bell Atlantic's documents, see paragraph 6, supra, which should
provide it sufficient information to comment on the Bureau's methodology insofar as costs may be relevant to
scoring.  The extent to which cost issues were relevant varied considerably, depending on the carrier involved, but
was most relevant in the case of the Bell Atlantic (North) audit.  We do not think public comment on costs for the
other carriers is critical to our consideration of this issue in the NOI.
14.    Similarly, Ameritech and SBC object to the disclosure of materials concerning
undetailed investment.  MCIW's FOIA request did not include a request for these materials,
and we conclude that access to these materials should not be required.  The Bureau will also
ensure that only materials related to Issue No. 2 will be made available under the protective order,
thus alleviating Ameritech's concerns.   For this purpose, as well as to ensure that no vendor
pricing information is disclosed, we will permit the carriers to review and suggest redactions of
our workpapers and the carriers' responses, as Ameritech and SBC request.  However, the
ultimate decision as to whether specific materials should be redacted in accordance with our
decision here is to be made by the Bureau. 
15.    We will provide the carriers with ten (10) working days from the release date of this
decision (see paragraph 17, infra) to perform the review and redaction we authorize in this
decision.  Carrier review shall take place at the Commission.  Commission staff will be present
to assist the carriers.  Each carrier should review only the workpapers and carriers submissions
relevant to that carrier, unless, of course, the carriers agree to some other method of carrying out
the review.  The Bureau will, within ten (10) working days of the submission of the redacted
materials, determine whether the proposed redactions are within the scope of this decision.  The
redacted version will be provided to MCIW when the Bureau receives it, unless a carrier has
sought a stay of our decision here, see paragraph 17, infra.  To the extent the Bureau determines
that any carrier-redacted materials should be disclosed, such materials will be provided only after
the carriers have had an opportunity to seek Commission review of the Bureau's decision in
accordance with section 0.461(i) of our rules, 47 C.F.R.  0.461(i).  We expect, however, that the
carriers will propose redactions only in good faith compliance with this decision.  The Bureau is
also directed to modify the protective order consistent with this decision for further use in this
proceeding.
16.    Finally, Ameritech and U S West, relying on FOIA Exemption 5, 5 U.S.C.  
552(b)(5), argue that the Bureau's release of the audit workpapers is neither "compelled nor
warranted," and further that the Bureau provided no sound reasoning for its departure from
precedent in choosing to disclose the workpapers.  The decision to release or withhold
Exemption 5 materials is within the discretion of the Commission, and, as indicated above, we
believe that disclosure is warranted in the unusual circumstances of this case.
          Conclusion and Ordering Clauses
17.    For the reasons stated above, the materials sought by MCIW will be released under a
protective order, as modified in this decision, pursuant to section 220(f).  The Bureau will notify
applicants by telephone of this decision and the time for seeking a stay.  They will be afforded ten
(10) working days from the release date of this decision to seek a stay.  See 47 C.F.R. 
0.461(i)(4).    
18.    Accordingly, IT IS ORDERED that the applications for review by Ameritech
Communications, Inc., BellSouth Corporation, Southwestern Bell Telephone Company, Pacific 
19.    Bell, and Nevada Bell, and U S West Communications, Inc. ARE GRANTED IN
PART AND DENIED IN PART.
20.    The Officials responsible for this action are the following Commissioners: Chairman
Kennard, Commissioners Ness, Furchtgott-Roth, Powell and Tristani.

                         FEDERAL COMMUNICATIONS COMMISSION

       

                         Magalie Roman Salas
                         Secretary