*Pages 1--143 from  Microsoft Word - SBC-ATT Final _PUBLIC_.doc*
 Federal  Communications  Commission  FCC  05-  183 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of 
 SBC  Communications  Inc.  and  AT&  T  Corp.  Applications  for 
 Approval  of  Transfer  of  Control 


 )  ) 
 )  ) 
 )  )  WC  Docket  No.  05-  65 


 MEMORANDUM  OPINION  AND  ORDER 
 Adopted:  October  31,  2005  Released:  November  17,  2005 
 By  the  Commission:  Chairman  Martin  and  Commissioner  Abernathy  issuing  separate  statements;  Commissioners  Copps  and  Adelstein  concurring  and  issuing  separate  statements. 


 TABLE  OF  CONTENTS  Para. 
 I.  INTRODUCTION  ...........................................................................................................................  1  II.  EXECUTIVE  SUMMARY  .............................................................................................................  3 
 III.  BACKGROUND  .............................................................................................................................  5  A.  DESCRIPTION  OF  THE  APPLICANTS  ..................................................................................................  5 
 1.  AT&  T  Corp...................................................................................................................................  5  2.  SBC  Communications  Inc.............................................................................................................  8 
 B.  DESCRIPTION  OF  THE  TRANSACTION  .............................................................................................  11  C.  APPLICATIONS  AND  REVIEW  PROCESS...........................................................................................  14 
 1.  Commission  Review  ...................................................................................................................  14  2.  Department  of  Justice  Review  ....................................................................................................  15 
 IV.  STANDARD  OF  REVIEW  AND  PUBLIC  INTEREST  FRAMEWORK....................................  16  V.  POTENTIAL  PUBLIC  INTEREST  HARMS  ...............................................................................  20 
 A.  ANALYTICAL  FRAMEWORK  ...........................................................................................................  20  B.  WHOLESALE  SPECIAL  ACCESS  COMPETITION  ...............................................................................  24 
 1.  Relevant  Markets  ........................................................................................................................  25  2.  Competitive  Analysis  ..................................................................................................................  31 
 C.  RETAIL  ENTERPRISE  COMPETITION  ...............................................................................................  56  1.  Relevant  Markets  ........................................................................................................................  57 
 2.  Competitive  Analysis  ..................................................................................................................  65  D.  MASS  MARKET  COMPETITION  ........................................................................................................  81 
 1.  Relevant  Markets  ........................................................................................................................  82  2.  Competitive  Analysis  ................................................................................................................  101 
 E.  INTERNET  BACKBONE  COMPETITION...........................................................................................  108  1.  Background...............................................................................................................................  109 
 2.  Relevant  Markets  ......................................................................................................................  112  3.  Competitive  Analysis  ................................................................................................................  116 
 F.  WHOLESALE  INTEREXCHANGE  COMPETITION.............................................................................  146  1.  Relevant  Markets  ......................................................................................................................  147 
 2.  Competitive  Analysis  ................................................................................................................  149  G.  U.  S.  INTERNATIONAL  SERVICES  COMPETITION...........................................................................  153 
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 1.  International  Transport  Market  .................................................................................................  158  2.  Intermediate  Facilities-  Based  Markets......................................................................................  159 
 3.  End-  User  Markets  .....................................................................................................................  160  4.  Foreign  Carrier  Affiliations  ......................................................................................................  168 
 H.  SBCS  QUALIFICATIONS  TO  ACQUIRE  CONTROL  OF  AT&  TS  LICENSES  ....................................  171  I.  OTHER  ISSUES  ..............................................................................................................................  177 
 VI.  POTENTIAL  PUBLIC  INTEREST  BENEFITS.........................................................................  182  A.  INTRODUCTION.............................................................................................................................  182 
 B.  ANALYTICAL  FRAMEWORK  .........................................................................................................  183  C.  ENHANCEMENTS  TO  NATIONAL  SECURITY  AND  GOVERNMENT  SERVICES  .................................  186 
 D.  EFFICIENCIES  RELATED  TO  VERTICAL  INTEGRATION..................................................................  190  E.  ECONOMIES  OF  SCOPE  AND  SCALE  ..............................................................................................  193 
 F.  COST  SYNERGIES  .........................................................................................................................  196  VII.  PROCESS  AND  ENFORCEMENT............................................................................................  205 
 VIII.  CONCLUSION............................................................................................................................  209  IX.  ORDERING  CLAUSES  ..............................................................................................................  212 
 APPENDIX  A:  LIST  OF  COMMENTERS  APPENDIX  B:  LIST  OF  AT&  T  LICENSES  AND  AUTHORIZATIONS  SUBJECT  TO 
 TRANSFER  OF  CONTROL  APPENDIX  C:  ENTERPRISE  DATA 
 APPENDIX  D:  MASS  MARKET  DATA  APPENDIX  E:  INTERNET  BACKBONE  DATA 
 APPENDIX  F:  CONDITIONS 
 I.  INTRODUCTION 
 1.  SBC  Communications  Inc.  (SBC)  and  AT&  T  Corp.  (AT&  T)  (collectively,  the  Applicants)  have  filed  a  series  of  applications  1  pursuant  to  sections  214  and  310(  d)  of  the  Communications  Act  of 
 1934,  as  amended  (Communications  Act  or  Act)  2  and  section  2  of  the  Cable  Landing  License  Act  3  in  connection  with  their  proposed  merger.  This  merger  would  combine  one  of  the  largest  regional  Bell 
 Operating  Companies  (BOCs)  with  one  of  the  largest  providers  of  interexchange  and  competitive  local  service.  This  proposed  merger  occurs  against  the  backdrop  of  ongoing  change  in  the  industry,  including 
 the  pending  merger  of  Verizon  and  MCI  and  the  recent  merger  of  Sprint  and  Nextel.  4  SBC  and  AT&  T 
 1  Commission  Seeks  Comment  on  Application  For  Consent  to  Transfer  of  Control  Filed  By  SBC  Communications 
 Inc.  and  AT&  T  Corp.,  Public  Notice,  WC  Docket  No.  05-  65,  DA  05-  656  (rel.  Mar.  11,  2005),  corrected  by  Erratum,  WC  Docket  No.  05-  65  (rel.  Mar.  14,  2005)  (Public  Notice). 


 2  47  U.  S.  C.    214,  310(  d). 
 3  Id.    35;  see  generally  An  Act  Relating  to  the  Landing  and  Operation  of  Submarine  Cables  in  the  United  States,  47 
 U.  S.  C.    34-  39  (Cable  Landing  License  Act). 
 4  This  merger  is  one  of  three  in  little  more  than  a  year  involving  the  former  Big  3  long  distance  carriers  (AT&  T, 
 MCI,  and  Sprint),  which  faced  rapidly  declining  revenues  in  some  of  their  core  retail  markets  in  the  past  few  years  as  a  result  of  increasing  competition  from  local  carriers,  wireless  carriers,  cable  companies,  and  others.  See  Verizon 


 Communications  Inc.  and  MCI,  Inc.  Applications  for  Approval  of  Transfer  of  Control,  WC  Docket  No.  05-  75,  Memorandum  Opinion  and  Order,  FCC  05-  184  (rel.  Nov.  17,  2005);  Applications  of  Nextel  Communications,  Inc. 
 and  Sprint  Corporation  for  Consent  to  Transfer  Control  of  Licenses  and  Authorizations,  WT  Docket  No.  05-  63,  File  Nos.  0002031766,  et  al.,  Memorandum  Opinion  and  Order,  FCC  05-  148  (rel.  Aug.  8,  2005)  (Sprint/  Nextel 
 Order). 
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 III.  BACKGROUND 
 A.  Description  of  the  Applicants 
 1.  AT&  T  Corp. 
 5.  AT&  T,  a  publicly-  traded  corporation  incorporated  under  the  laws  of  the  State  of  New  York  in  1885,  and  headquartered  in  Bedminster,  New  Jersey,  8  is  one  of  the  nations  largest  providers  of  local 
 exchange,  long  distance,  and  international  telecommunications  services.  Today,  AT&  T  provides  telecommunications  services  through  two  principal  divisions    a  business  services  division  and  a 
 consumer  services  division.  AT&  T  owns,  operates,  monitors  and  maintains  extensive  communications  networks,  and  holds  numerous  Commission  licenses  and  authorizations,  including  domestic  and 
 international  section  214  authorizations,  wireless  and  earth  station  licenses,  and  interests  in  submarine  cable  landing  licenses,  with  facilities  in  countries  and  cities  throughout  North  America,  Latin  America, 
 Europe,  Africa,  and  the  Asia-  Pacific  region.  9 
 6.  AT&  T  Business  Services  (ABS)  provides  a  variety  of  communications  services  to  domestic  and  multi-  national  businesses  and  government  agencies.  10  These  services  include  retail  and  wholesale 
 domestic  and  international  voice  services,  and  a  wide  range  of  retail  and  wholesale  IP  and  other  data  transport  and  managed  data  services.  11  AT&  T  is  one  of  the  most  significant  providers  of 
 communications  services  to  the  United  States  government.  12  It  provides  services  that  include  capabilities  for  the  highest  levels  of  security,  reliability,  recoverability,  and  global  coverage.  13  Because  of  these 
 network  capabilities,  AT&  T  is  also  an  established  provider  to  many  of  the  largest  businesses  and 
 8  AT&  T  Corporation,  SEC  Form  10-  K  at  1  (filed  Apr.  28,  2005),  available  at 
 http://  www.  sec.  gov/  Archives/  edgar/  data/  5907/  000095012305002878/  y06520e10vk.  txt  (AT&  T  2004  Form  10-  K). 
 9  SBC/  AT&  T  Application,  App.  A  at  A-  1    A-  3;  Applications  for  Approval  of  Transfer  of  Control,  WC  Docket  No. 
 05-  65,  Electronically  Filed  Applications;  Public  Notice  at  2-  3  (listing  international  section  214  authorizations,  cable  landing  licenses,  satellite  earth  station  authorizations,  and  wireless  radio  service  licenses  for  which  AT&  T  is 


 seeking  to  transfer  control  to  SBC);  Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Sept.  29,  2005)  (minor  amendment  to  File  No.  SES-  T/  C-  200500232); 
 Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Sept.  29,  2005)  (minor  amendment  to  File  Nos.  SES-  T/  C-  20050224-  00230;  SES-  T/  C-  200501224-  00231); 
 Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Sept.  29,  2005)  (minor  amendment  to  File  Nos.  ITC-  T/  C-  20050224-  00072  et  al.,  SCL-  T/  C-  20050222-  0002); 
 Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Sept.  29,  2005)  (minor  amendment  to  File  No.  0012-  EX-  TU-  2005,  Confirmation  No.  EL656885);  Letter  from 
 Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Sept.  29,  2005)  (adding  call  sign  S2379  inadvertently  omitted  from  FCC  Form  312-  Alascom);  Letter  from  Mark  D. 
 Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Sept.  29,  2005)  (minor  amendment  to  File  No.  0002052535);  Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H. 
 Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Sept.  29,  2005)  (minor  amendment  to  File  No.  0002052427);  see  also  Appendix  B. 


 10  SBC/  AT&  T  Application,  App.  A  at  A-  1. 
 11  Id. 
 12  Id. 
 13  Id. 
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 wholesale  customers,  including  those  with  requirements  in  multiple,  widely  dispersed  locations  in  this  country  and  around  the  world.  14  Revenues  from  business  services  provided  by  AT&  T  were  $22.6  billion 
 in  2004.  15  As  a  result  of  significant  competitive  pressure,  these  revenues  have  declined  more  than  18  percent  over  the  past  four  years.  16 


 7.  AT&  T  Consumer  Services  (ACS)  provides  communications  services  to  AT&  Ts  remaining  mass  market  customers  and  small/  home-  based  businesses.  17  These  services  include  traditional  long  distance 
 voice  services,  such  as  domestic  and  international  dial  and  toll-  free  voice  services,  as  well  as  operator-assisted  services.  18  Approximately  65  percent  of  AT&  T  consumer  services  revenue  is  from  stand-  alone 
 long  distance  offerings.  19  In  addition,  AT&  T  provides  dial-  up  Internet  services  and  local  exchange  services,  and  often  relies  upon  unbundled  network  element  platform  (UNE-  P)  arrangements  with 
 incumbent  local  exchange  carriers  (incumbent  LECs)  such  as  SBC.  20  AT&  Ts  local  services  constitute  about  35  percent  of  consumer  services  revenue,  and  are  usually  bundled  with  its  facilities-  based  long 
 distance  services  to  provide  all-  distance  voice  services.  21  In  mid-  2004,  AT&  T  announced  that  it  would  no  longer  actively  compete  for  new  mass  market  customers.  22 


 2.  SBC  Communications  Inc. 
 8.  SBC  is  a  publicly-  traded  Delaware  corporation,  headquartered  in  San  Antonio,  Texas.  23  Through  its  operating  subsidiaries,  SBC  provides  communications  services  and  products  to  businesses 
 and  consumers  in  the  United  States.  24  SBCs  products  and  services  vary  by  market,  and  include  local  exchange  services,  wireless  communications,  long  distance  services,  Internet  services, 
 telecommunications  equipment,  network  access,  and  directory  advertising  and  publishing.  25  SBC  also 
 14  Id. 


 15  Id. 
 16  Last  years  revenues  for  services  provided  by  ABS  were  down  from  $25.1  billion  in  2003,  $26.6  billion  in  2002, 
 and  $27.7  billion  in  2001.  Id.;  AT&  T,  2002  Annual  Report  at  12  available  at  http://  www.  att.  com/  ar/  docs/  annualreport_  2002.  pdf  (AT&  T  2002  Annual  Report). 


 17  SBC/  AT&  T  Application,  App.  A  at  A-  1-  A-  2. 
 18  Id. 
 19  SBC/  AT&  T  Application,  Declaration  of  Dennis  W.  Carlton  and  Hal  S.  Sider  (SBC/  AT&  T  Carlton/  Sider  Decl.)  at 
 para.  41.  Specifically,  ACS  earned  approximately  $5.2  billion  for  stand-  alone  long  distance,  transactional  and  other  services  in  2004.  AT&  T,  AT&  T  Corp.  Fourth-  Quarter  and  Full-  Year  2004  Financial  Results,  Historical  Segment 


 Data  (Jan.  20,  2005)  available  at  http://  www.  att.  com/  ir/  pdf/  4q04_  financials.  pdf  (AT&  T  2004  Financials). 
 20  SBC/  AT&  T  Application,  App.  A  at  A-  1-  A-  2. 


 21  SBC/  AT&  T  Carlton/  Sider  Decl.  at  para.  41.  Specifically,  ACS  earned  approximately  $2.7  billion  for  bundles  of 
 local  and  long  distance  services  in  2004.  AT&  T  2004  Financials,  Historical  Segment  Data. 
 22  SBC/  AT&  T  Application,  App.  A  at  A-  2. 


 23  SBC  Communications  Inc.,  SEC  Form  10-  K  at  1  (filed  Mar.  11,  2005),  available  at 
 http://  www.  sec.  gov/  Archives/  edgar/  data/  732717/  000073271705000176/  form10k.  htm  (SBC  2004  Form  10-  K). 
 24  Id. 


 25  Id.  SBC  publishes  Yellow  and  White  Pages  directories  and  electronic  directories.  Id.  at  4. 
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 offers  satellite  television  services  through  an  arrangement  with  EchoStar  Communications  Corp.  26  In  addition,  SBC  has  investments  in  communications  companies  with  operations  in  14  countries.  27 
 9.  SBC  was  created  as  one  of  several  regional  holding  companies  to  hold  AT&  Ts  local  telephone  companies.  28  Originally,  SBC  operated  in  five  southwestern  states,  but  it  expanded  its  operation  to  13 
 states  through  mergers  with  Pacific  Telesis  Group,  Southern  New  England  Telecommunications  Corporation,  and  Ameritech  Corporation  in  1997,  1998,  and  1999,  respectively.  29  Currently,  SBC 
 provides  telecommunications  services  in  Arkansas,  California,  Connecticut,  Illinois,  Indiana,  Kansas,  Michigan,  Missouri,  Nevada,  Ohio,  Oklahoma,  Texas,  and  Wisconsin,  30  and  serves  a  total  of 
 approximately  52  million  local  access  lines  in-  region.  31 
 10.  SBC  provides  landline  telecommunications  services,  including  local  and  long  distance  voice,  data,  and  messaging  services,  on  a  retail  and  wholesale  basis.  32  Although  SBC  is  authorized  to  offer  long 
 distance  services  nationwide,  it  provides  long  distance  and  international  services  primarily  to  customers  in  its  region  and  to  customers  in  selected  areas  outside  of  its  wireline  subsidiaries  operating  areas.  33  SBC 
 also  provides  various  data  services,  such  as  switched  and  dedicated  transport,  Internet  access  and  network  integration,  and  sells  data  equipment.  34  SBCs  Internet  offerings  include  basic  dial-  up  access  service, 
 dedicated  access,  web  hosting,  e-  mail,  and  high-  speed  access,  such  as  digital  subscriber  line  (DSL),  services.  35  SBC  also  holds  a  60  percent  economic  interest  and  50  percent  voting  interest  in  Cingular 


 26  Id.  at  1. 
 27  Id.  at  1.  The  international  investments  include  companies  that  provide  local  and  long  distance  telephone  services, 
 wireless  communications,  voice  messaging,  data  services,  Internet  access,  telecommunications  equipment,  and  directory  publishing.  See  id.  at  5-  6. 


 28  Id.  at  1.  On  January  1,  1984,  SBC  was  spun  off  from  AT&  T  Corp.  as  a  result  of  a  1982  antitrust  consent  decree. 
 Id.;  United  States  v.  AT&  T,  552  F.  Supp.  131  (D.  D.  C.  1982),  affd  sub  nom.  Maryland  v.  United  States.,  460  U.  S.  1001  (1983). 


 29  SBC  2004  Form  10-  K  at  1;  Applications  of  Pacific  Telesis  Group,  Transferor,  and  SBC  Communications,  Inc., 
 Transferee,  for  Consent  to  Transfer  Control  of  Pacific  Telesis  Group  and  its  Subsidiaries,  Report  No.  LB-  96-  32,  Memorandum  Opinion  and  Order,  12  FCC  Rcd  2624  (1997)  (SBC/  PacTel  Order);  Applications  for  Consent  to  the 


 Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  from  Southern  New  England  Telecommunications  Corporation,  Transferor  To  SBC  Communications,  Inc.,  Transferee,  CC  Docket  No.  98-  25,  Memorandum  Opinion 
 and  Order,  13  FCC  Rcd  21292,  21306,  para.  29  (1998)  (SBC/  SNET  Order);  Applications  of  Ameritech  Corp.,  Transferor,  and  SBC  Communications,  Inc.,  Transferee,  For  Consent  to  Transfer  of  Control,  Memorandum  Opinion 
 and  Order,  CC  Docket  No.  98-  141,  14  FCC  Rcd  14712,  14737,  para.  48  (1999)  (SBC/  Ameritech  Order). 
 30  SBC  2004  Form  10-  K  at  1. 


 31  SBC  Communications  Inc.,  SBC  Investor  Briefing  No.  246,  SBC  To  Acquire  AT&  T,  Creates  Premier,  Global 
 Provider  for  New  Era  of  Communications  at  2  (Jan.  31,  2005),  available  at  http://  sbc.  merger-news.  com/  downloads/  sbc_  att_  IB.  pdf  (SBC  Jan.  2005  Investor  Briefing). 


 32  SBC  2004  Form  10-  K  at  3. 
 33  Id.  at  2. 
 34  Id.  at  4.  Network  integration  services  include  installation  of  business  data  systems,  local  area  networking,  and 
 other  data  networking  offerings.  Id. 
 35  Id.  SBC  has  approximately  5.1  million  digital  subscriber  lines  (DSL).  SBC  Jan.  2005  Investor  Briefing  at  2-  3. 
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 Wireless.  36  Through  Cingular,  SBC  provides  wireless  services  nationwide,  and  with  Cingulars  alliances  with  other  GSM-  based  providers,  Cingular  offers  coverage  in  170  countries  worldwide.  37  SBC  markets 
 many  of  its  services,  including  local  and  long  distance,  DSL,  and  satellite  television,  along  with  Cingular  wireless  service,  as  bundled  offerings.  38 


 B.  Description  of  the  Transaction 
 11.  In  July  and  November  2004,  members  of  AT&  Ts  and  SBCs  management  held  discussions  on  a  possible  merger.  39  In  January  2005,  AT&  Ts  and  SBCs  management  again  held  discussions,  and  on 
 January  30,  2005,  AT&  T  and  SBC  entered  into  a  merger  agreement  (  Merger  Agreement).  According  to  the  terms  and  conditions  of  the  Merger  Agreement,  a  wholly-  owned  subsidiary  of  SBC  will  merge  with 
 AT&  T,  and  AT&  T  will  thereby  become  a  wholly-  owned  subsidiary  of  SBC.  40  Pursuant  to  the  Merger  Agreement,  each  share  of  AT&  T  stock  will  be  converted  into  0.77942  shares  of  SBC  common  stock.  41 
 AT&  T  will  continue  to  own  the  stock  of  its  subsidiaries,  and  AT&  T  and  its  subsidiaries  will  continue  to  hold  all  of  the  Commission  licenses  and  authorizations  that  they  held  prior  to  the  merger.  42  SBC  will 
 become  the  new  parent  of  AT&  T,  resulting  in  the  indirect  transfer  of  control  of  the  Commission  licenses  and  authorizations.  43 


 12.  The  Applicants  contend  that  approval  of  the  proposed  transaction  is  in  the  public  interest.  They  assert  that  [  t]  he  public  will  benefit  from  the  mergers  creation  of  a  vigorous  U.  S.  carrier  with  global 
 reach,  44  and  claim  that  the  merger  will  strengthen  national  security  by  enabling  AT&  T,  as  a  robust,  U.  S.  -owned  carrier,  to  improve  and  expand  the  important  services  it  provides  to  numerous  government 
 customers.  45  Finally,  the  Applicants  assert  that  the  merger  will  increase  innovation  and  investment  in  the 


 36  SBC  Jan.  2005  Investor  Briefing  at  2. 
 37  SBC/  AT&  T  Application  at  10. 
 38  SBC  Communications  Inc.,  2004  Annual  Report  7,  11,  22,  28  (Feb.  25,  2005),  available  at 
 http://  www.  sbc.  com/  investor_  relations/  company_  reports_  and_  sec_  filings/  SBC_  2004_  AR.  pdf  (SBC  2004  Annual  Report). 


 39  AT&  T  Corp.,  SEC  Schedule  14A  at  28  (filed  May  23,  2005)  available  at 
 http://  www.  sec.  gov/  Archives/  edgar/  data/  5907/  000095012305006605/  y04651dmdefm14a.  htm  (AT&  T  2005  Proxy  Statement).  AT&  T  also  was  having  discussions  with  six  other  third  parties,  and  exchanged  confidential  information 


 with  one  of  them.  Id. 
 40  SBC/  AT&  T  Application  at  11. 


 41  Id.  In  addition,  prior  to  the  closing  of  the  merger,  AT&  T  will  pay  its  shareholders  a  special  dividend  in  cash,  in 
 the  amount  of  $1.30  per  share  of  AT&  T  common  stock.  Id. 
 42  Id. 


 43  Id. 
 44  Id.  at  4. 
 45  Id. 
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 telecommunications  industry,  as  the  companies  will  have  greater  incentives  to  invest  in  research  and  development.  46 
 13.  The  Applicants  also  assert  that  the  merger  will  not  reduce  competition.  The  Applicants  argue  that  the  two  companies  services  are  largely  complementary.  47  They  contend  that  AT&  T  focuses  on 
 national  and  global  enterprise  customers,  while  SBC  focuses  on  residential  consumers  and  regional  businesses.  48  They  also  contend  that  there  are  numerous  other  competitors  in  each  market  segment  in 
 which  they  compete.  49  Finally,  they  suggest  that  the  market  definitions  the  Commission  has  traditionally  applied  in  merger  proceedings  may  not  be  suitable  given  the  continual  advances  in  communications 
 technologies,  the  substitution  of  services  based  on  Internet  Protocol  (IP)  for  circuit-  switched  services,  and  the  substitution  of  wireless  services  for  traditional  wireline  services.  50 


 C.  Applications  and  Review  Process 
 1.  Commission  Review 
 14.  On  February  21,  2005,  SBC  and  AT&  T  jointly  filed  a  series  of  applications  seeking  Commission  approval  of  the  proposed  transfer  of  control  of  licenses  and  authorizations  held  by  AT&  T  and  its 
 subsidiaries  to  SBC.  51  On  March  11,  2005,  the  Wireline  Competition  Bureau  released  a  Public  Notice  seeking  public  comment  on  the  proposed  transaction.  52  In  response  to  the  Public  Notice,  more  than  50 
 parties  filed  petitions  to  deny  the  applications  or  formal  comments  supporting  or  opposing  grant  of  the 


 46  Id.  at  5. 
 47  Id.  at  6. 
 48  Id. 
 49  Id. 
 50  Id.  at  5-  6. 
 51  Pursuant  to  section  214  of  the  Communications  Act,  SBC  and  AT&  T  filed  applications  seeking  Commission 
 approval  to  transfer  to  SBC  control  of  domestic  and  international  section  214  authorizations  held  by  AT&  T  and  its  subsidiaries.  47  U.  S.  C.    214.  The  Applicants  also  filed  an  application  for  consent  to  transfer  control  of  AT&  Ts 


 interests  in  submarine  cable  landing  license  to  SBC  pursuant  to  section  2  of  the  Cable  Landing  License  Act.  47  U.  S.  C.    35.  Pursuant  to  section  310(  d)  of  the  Communications  Act,  SBC  and  AT&  T  filed  applications  seeking 
 Commission  approval  to  transfer  to  SBC  control  of  wireless  and  earth  station  licenses  and  authorizations  held  by  AT&  T  and  various  subsidiaries,  and  filed  an  application  for  Commission  approval  to  transfer  control  of 
 Experimental  Radio  Service  Licenses  from  AT&  T  to  SBC.  47  U.  S.  C.    310(  d);  see  also  Appendix  B  (listing  licenses  and  authorizations  subject  to  transfer  of  control). 


 52  Public  Notice.  The  Public  Notice  set  due  dates  of  April  25,  2005  for  the  filing  of  Comments  and  Petitions  to 
 Deny  and  May  10,  2005  for  Responses  and  Oppositions.  Id.  The  Wireline  Competition  Bureau  (Bureau)  adopted  protective  orders  under  which  third  parties  would  be  allowed  to  review  confidential  or  proprietary  documents.  SBC 


 Communications  Inc.  and  AT&  T  Corp.  Applications  for  Approval  of  Transfer  of  Control,  WC  Docket  No.  05-  65,  Order  Adopting  Protective  Order,  20  FCC  Rcd  5196  (2005)  (First  Protective  Order);  SBC  Communications  Inc. 
 and  AT&  T  Corp.  Applications  for  Approval  of  Transfer  of  Control,  WC  Docket  No.  05-  65,  Order  Adopting  Second  Protective  Order,  20  FCC  Rcd  8876  (2005)  (Second  Protective  Order). 
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 applications.  53  On  April  18,  2005,  Wireline  Competition  Bureau  and  International  Bureau  staff  requested  additional  information  from  the  Applicants  (  Information  Request).  54  The  Applicants  responses  to  the 
 Information  Request,  along  with  their  responses  to  additional  Commission  requests,  are  included  in  the  record.  55 


 2.  Department  of  Justice  Review 
 15.  The  Antitrust  Division  of  the  U.  S.  Department  of  Justice  (DOJ)  reviews  telecommunications  mergers  pursuant  to  section  7  of  the  Clayton  Act,  which  prohibits  mergers  that  are  likely  to  substantially 
 lessen  competition.  56  The  Antitrust  Divisions  review  is  limited  solely  to  an  examination  of  the  potential  competitive  effects  of  the  acquisition,  without  reference  to  national  security,  law  enforcement,  or  other 
 public  interest  considerations.  The  Antitrust  Division  reviewed  the  proposed  merger  between  SBC  and  AT&  T  and  entered  into  a  consent  decree  with  the  Applicants  on  October  27,  2005.  57  Under  the  DOJ 
 Consent  Decree,  the  Applicants  agreed  to  divest  certain  assets  in  the  form  of  Indefeasible  Rights  of  Use  (IRUs)  to  certain  buildings  where  only  SBC  and  AT&  T  had  direct  connections. 


 53  The  parties  that  filed  formal  pleadings  in  this  proceeding  are  listed  in  Appendix  A.  In  addition  to  those  formal 
 pleadings,  we  have  received  informal  comments  and  ex  parte  submissions.  All  pleadings  and  comments  are  available  on  the  Commissions  Electronic  Comment  Filing  System  (ECFS)  website  at  www.  fcc.  gov/  cgb/  ecfs/. 


 54  See  Letter  from  Michelle  M.  Carey,  Deputy  Chief,  Wireline  Competition  Bureau,  FCC,  to  Patrick  J.  Grant, 
 Counsel  for  SBC,  and  David  L.  Lawson,  Counsel  for  AT&  T,  WC  Docket  No.  05-  65  (Apr.  18,  2005)  (Information  Request). 


 55  Several  petitioners  and  commenters  raised  various  objections  to  the  manner  in  which  information  provided  by  the 
 Applicants  was  made  available  for  their  review.  See  Letter  from  Brad  E.  Mutschelknaus  et  al.,  Counsel  for  Cbeyond  et  al.,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  May  25,  2005);  Letter 


 from  Gary  R.  Lytle,  Senior  Vice  President    Federal  Relations,  Qwest,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  May  25,  2005);  Letter  from  Brad  E.  Mutschelknaus  et  al.,  Counsel  for  Cbeyond  et 
 al.,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  June  7,  2005);  Letter  from  Gary  R.  Lytle,  Senior  Vice  President    Federal  Relations,  Qwest,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  Nos.  05-65, 
 05-  75  (filed  June  7,  2005);  Letter  from  Colleen  Boothby,  Counsel  for  Ad  Hoc  Telecom  Users,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  June  8,  2005).  These  complaints  elicited  a  vigorous 
 defense  from  the  Applicants.  See  Letter  from  Gary  L.  Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  No.  05-  65  (filed  May  27,  2005);  Letter  from  Gary  L.  Phillips,  SBC,  and 
 Lawrence  J.  Lafaro,  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  June  1,  2005);  Letter  from  Gary  L.  Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC 
 Docket  No.  05-  65  (filed  June  9,  2005);  Letter  from  Gary  L.  Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  No.  05-  65  (filed  June  13,  2005);  Letter  from  Gary  L.  Phillips,  SBC,  and 
 Lawrence  J.  Lafaro,  AT&  T,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  No.  05-  65  (filed  June  15,  2005).  The  Commission  reviewed  the  multiple  pleadings  filed  on  both  sides,  met  with  both  the  Applicants  and  those  opposing 
 the  applications,  and  considered  the  merits  of  the  complaints,  including  potential  alternative  mechanisms  to  balance  the  risks  of  granting  access  to  certain  highly  confidential  sensitive  competitive  information  in  electronic  form 
 against  the  additional  benefit  of  such  access  in  providing  material  support  on  issues  of  real  controversy.  Under  the  particular  circumstances  of  this  case,  including  the  risks,  the  procedural  difficulties,  and  the  apparent  success  of  the 
 opponents  in  obtaining  sufficient  information  on  key  points,  either  from  that  provided  by  the  Applicants  or  from  other  sources  (such  as  their  own  confidential  records  or  third-  party  sources),  we  chose  not  to  intervene  further  in  the 
 production  process. 
 56  15  U.  S.  C.    18. 


 57  DOJ-  SBC/  AT&  T  Consent  Decree;  see  also  DOJ-  SBC/  AT&  T  Complaint. 
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 IV.  STANDARD  OF  REVIEW  AND  PUBLIC  INTEREST  FRAMEWORK 
 16.  Pursuant  to  sections  214(  a)  and  310(  d)  of  the  Communications  Act,  58  and  the  Cable  Landing  License  Act,  59  the  Commission  must  determine  whether  the  proposed  transfer  of  control  to  SBC  of 
 licenses  and  authorizations  held  by  AT&  T  will  serve  the  public  interest,  convenience,  and  necessity.  60  In  making  this  determination,  we  first  assess  whether  the  proposed  transaction  complies  with  the  specific 
 provisions  of  the  Communications  Act,  other  applicable  statutes,  and  the  Commissions  rules.  If  the  proposed  transaction  would  not  violate  a  statute  or  rule,  the  Commission  considers  whether  it  could  result 
 in  public  interest  harms  by  substantially  frustrating  or  impairing  the  objectives  or  implementation  of  the  Communications  Act  or  related  statutes.  The  Commission  then  employs  a  balancing  test  weighing  any 
 potential  public  interest  harms  of  the  proposed  transaction  against  the  potential  public  interest  benefits.  61  The  Applicants  bear  the  burden  of  proving,  by  a  preponderance  of  the  evidence,  that  the  proposed 
 transaction,  on  balance,  serves  the  public  interest.  62  If  we  are  unable  to  find  that  the  proposed  transaction 
 58  47  U.  S.  C.    214(  a),  310(  d). 
 59  47  U.  S.  C.    34-  39.  The  Cable  Landing  License  Act  provides  that  approval  of  a  license  application  may  be 
 granted  upon  such  terms  as  shall  be  necessary  to  assure  just  and  reasonable  rates  and  service.  .  .  .  47  U.  S.  C.    35.  The  Commission  does  not  conduct  a  separate  public  interest  analysis  under  this  statute.  See,  e.  g.,  WorldCom,  Inc. 


 and  Its  Subsidiaries  (Debtors-  in-  Possession),  Transferor,  and  MCI,  Inc.,  Transferee,  WC  Docket  No.  02-  215,  Memorandum  Opinion  and  Order,  18  FCC  Rcd  26484,  26492,  para.  12  (2003)  (WorldCom  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 
 (1998)  (WorldCom/  MCI  Order). 
 60  47  U.  S.  C.    310(  d)  requires  that  we  consider  the  applications  for  transfer  of  Title  III  licenses  (wireless  licenses 
 and  earth  station  authorizations  in  this  case)  under  the  same  standard  as  if  the  proposed  transferee  were  applying  for  the  licenses  directly  under  section  308  of  the  Act,  47  U.  S.  C.    308.  See  Applications  of  Western  Wireless 


 Corporation  and  Alltel  Corporation  for  Consent  to  Transfer  Control  of  Licenses  and  Authorizations,  WT  Docket  No.  05-  50,  Memorandum  Opinion  and  Order,  FCC  05-  138,  para.  17  (rel.  July  19,  2005)  (Alltel/  Western  Wireless 
 Order);  Applications  of  AT&  T  Wireless  Services,  Inc.  and  Cingular  Wireless  Corporation,  WT  Docket  04-  70,  Memorandum  Opinion  and  Order,  19  FCC  Rcd  21522,  21542,  para.  40  (2004)  (Cingular/  AT&  T  Wireless  Order); 
 General  Motors  Corporation  and  Hughes  Electronics  Corporation,  Transferors,  and  The  News  Corporation  Limited,  Transferee,  MB  Docket  No.  03-  124,  Memorandum  Opinion  and  Order,  19  FCC  Rcd  473,  485,  para.  18 
 (2004)  (News  Corp./  Hughes  Order).  Thus,  we  must  examine  the  Applicants  qualifications  to  hold  licenses.  See  discussion  infra  at  Part  V.  H  (SBCs  Qualifications  to  Acquire  Control  of  AT&  Ts  Licenses). 


 61  See,  e.  g.,  Sprint/  Nextel  Order,  FCC  05-  148  at  para.  20;  Alltel/  Western  Wireless  Order,  FCC  05-  138  at  para.  17; 
 Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21542-  43,  para.  40;  News  Corp./  Hughes  Order,  19  FCC  Rcd  at  483,  para.  15;  Application  of  GTE  Corporation,  Transferor,  and  Bell  Atlantic  Corporation,  Transferee,  CC  Docket 


 98-  184,  Memorandum  Opinion  and  Order,  15  FCC  Rcd  14032,  14046,  paras.  20,  22  (2002)  (Bell  Atlantic/  GTE  Order);  Applications  of  VoiceStream  Wireless  Corporation  and  Powertel,  Inc.,  Transferors,  and  Deutsche  Telekom 
 AG,  Transferee,  IB  Docket  No.  00-  187,  Memorandum  Opinion  and  Order,  16  FCC  Rcd  9779,  9789,  para.  17  (2001)  (Deutsche  Telekom/  VoiceStream  Order);  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14737-  38,  para.  48; 
 WorldCom/  MCI  Order,  13  FCC  Rcd  at  18031,  para.  10;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  19987,  para.  2. 
 62  See,  e.  g.,  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21542-  44,  para.  40  (citing  Applications  for  Consent  to 
 the  Assignment  of  Licenses  Pursuant  to  Section  310(  d)  of  the  Communications  Act  from  NextWave  Personal  Communications,  Inc.,  Debtor-  in-  Possession,  and  NextWave  Power  Partners,  Inc.,  Debtor-  in-  Possession,  to 


 subsidiaries  of  Cingular  Wireless  LLC,  WT  Docket  03-  217,  Memorandum  Opinion  and  Order,  19  FCC  Rcd  2570,  2581,  para.  24  (2004)  (Cingular/  NextWave  Order);  News  Corp./  Hughes  Order,  19  FCC  Rcd  at  483,  para.  15; 
 Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  from  Comcast  Corporation  and  AT&  T  Corp.,  Transferors,  to  AT&  T  Comcast  Corporation,  Transferee,  MB  Docket  No.  02-  70,  Memorandum  Opinion  and  Order, 
 (continued.) 
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 serves  the  public  interest  for  any  reason,  or  if  the  record  presents  a  substantial  and  material  question  of  fact,  we  may  designate  the  application  for  hearing.  63 
 17.  Our  public  interest  evaluation  necessarily  encompasses  the  broad  aims  of  the  Communications  Act,  64  which  include,  among  other  things,  a  deeply  rooted  preference  for  preserving  and  enhancing 
 competition  in  relevant  markets,  accelerating  private  sector  deployment  of  advanced  services,  ensuring  a  diversity  of  license  holdings,  and  generally  managing  the  spectrum  in  the  public  interest.  65  Our  public 
 interest  analysis  may  also  entail  assessing  whether  the  merger  will  affect  the  quality  of  communications  services  or  will  result  in  the  provision  of  new  or  additional  services  to  consumers.  66  In  conducting  this 


 (Continued  from  previous  page)  17  FCC  Rcd  23246,  23255,  para.  26  (2002)  (AT&  T/  Comcast  Order);  Application  of  EchoStar  Communications 
 Corporation  (a  Nevada  Corporation),  General  Motors  Corporation,  and  Hughes  Electronics  Corporation  (Delaware  Corporations)  (Transferors)  and  EchoStar  Communications  Corporation  (a  Delaware  Corporation) 
 (Transferee),  CS  Docket  No.  01-  348,  Hearing  Designation  Order,  17  FCC  Rcd  20559,  20574,  para.  25  (2002)  (EchoStar/  DirecTV  Order);  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14046,  para.  22;  Applications  of  SBC 
 Communications  Inc.  and  BellSouth  Corporation,  15  FCC  Rcd  25459,  25464,  para.  13  (BellSouth/  SBC  Order);  Applications  of  Vodafone  Airtouch,  PLC  and  Bell  Atlantic  Corporation,  File  Nos.  0000032969,  et  al.,  Memorandum 
 Opinion  and  Order,  15  FCC  Rcd  16507,  16512,  para.  13;  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  3160,  3169-  70,  para.  15  (1999)  (AT&  T/  TCI  Order);  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18031-  32,  para.  10). 


 63  We  are  not  required  to  designate  for  hearing  applications  for  the  transfer  or  assignment  of  Title  II  authorizations 
 when  we  are  unable  to  find  that  the  public  interest  would  be  served  by  granting  the  applications.  See  ITT  World  Communications,  Inc.  v.  FCC,  595  F.  2d  897,  901  (2d  Cir.  1979).  We  may,  however,  do  so  if  we  find  that  a  hearing 


 would  be  in  the  public  interest.  However,  with  respect  to  the  applications  to  transfer  licenses  subject  to  Title  III  of  the  Act,  if  we  are  unable  to  find  that  the  proposed  transaction  serves  the  public  interest,  or  if  the  record  presents  a 
 substantial  and  material  question  of  fact,  section  309(  e)  of  the  Act  requires  that  we  designate  the  application  for  hearing.  47  U.  S.  C.    309(  e);  see  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20574,  para.  25;  Cingular/  AT&  T 
 Wireless  Order,  19  FCC  Rcd  at  21542-  44,  para.  40. 
 64  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544,  para.  41  (citing  News  Corp./  Hughes  Order,  19  FCC 
 Rcd  at  483-  84,  para.  16;  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23255,  para.  27;  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20575,  para.  26;  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214 


 Authorizations  from  MediaOne  Group,  Inc.,  Transferor,  to  AT&  T  Corp.,  Transferee,  CS  Docket  No.  99-  251,  Memorandum  Opinion  and  Order,  15  FCC  Rcd  9816,  9821,  para.  11  (2000)  (AT&  T/  MediaOne  Order);  AT&  T 
 Corp.,  British  Telecommunications,  plc,  VLT  Co.  L.  L.  C.,  Violet  License  Co.  LLC,  and  TNV  [Bahamas]  Limited  Applications  for  Grant  of  Section  214  Authority,  Modification  of  Authorizations  and  Assignment  of  Licenses,  IB 
 Docket  No.  98-  212,  Memorandum  Opinion  and  Order,  14  FCC  Rcd  19140,  19146-  47,  para.  14  (1999)  (AT&  T/  British  Telecom  Order);  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18030-  31,  para.  9). 


 65  See  47  U.  S.  C.    157  nt.  (incorporating  section  706  of  the  Telecommunications  Act  of  1996,  Pub.  Law  No.  104- 
 104,  110  Stat.  56  (1996)  (1996  Act),  254,  332(  c)(  7));  1996  Act,  Preamble;  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544,  para.  41;  see  also  Cingular/  NextWave  Order,  19  FCC  Rcd  at  2583-  84,  para.  29;  WorldCom/  MCI 


 Order,  13  FCC  Rcd  at  18030-  31,  para.  9;  2000  Biennial  Regulatory  Review  Spectrum  Aggregation  Limits  for  Commercial  Mobile  Radio  Services,  Report  and  Order,  16  FCC  Rcd  22668,  22696,  para.  55  (2001)  (citing  47 
 U.  S.  C.    301,  303,  309(  j),  310(  d));  cf.  47  U.  S.  C.    521(  4),  532(  a). 
 66  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544,  para.  41  (citing  AT&  T/  Comcast  Order,  17  FCC  Rcd 
 at  23255,  para.  27;  AT&  T/  MediaOne  Order,  15  FCC  Rcd  at  9821-  22,  para.  11;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18030-  31,  para.  9). 
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 analysis,  the  Commission  may  consider  technological  and  market  changes,  and  the  nature,  complexity,  and  speed  of  change  of,  as  well  as  trends  within,  the  communications  industry.  67 
 18.  In  determining  the  competitive  effects  of  the  merger,  our  analysis  is  informed  by,  but  not  limited  to,  traditional  antitrust  principles.  68  The  Commission  and  the  DOJ  each  have  independent  authority  to 
 examine  telecommunications  mergers,  but  the  standards  governing  the  Commissions  review  differ  from  those  of  the  DOJ.  69  As  stated  above,  the  DOJ  reviews  mergers  pursuant  to  section  7  of  the  Clayton  Act, 
 which  prohibits  mergers  that  are  likely  to  lessen  competition  substantially  in  any  line  of  commerce.  70  The  Commission,  on  the  other  hand,  as  stated  above,  is  charged  with  determining  whether  the  transfer  of 
 control  serves  the  broader  public  interest.  In  the  communications  industry,  competition  is  shaped  not  only  by  antitrust  rules,  but  also  by  the  regulatory  policies  that  govern  the  interactions  of  industry  players.  71  In 
 addition  to  considering  whether  the  merger  will  reduce  existing  competition,  therefore,  we  also  must  focus  on  whether  the  merger  will  accelerate  the  decline  of  market  power  by  dominant  firms  in  the  relevant 
 communications  markets  and  the  mergers  effect  on  future  competition.  72  We  also  recognize  that  the  same  consequences  of  a  proposed  merger  that  are  beneficial  in  one  sense  may  be  harmful  in  another.  For 
 instance,  combining  assets  may  allow  the  merged  entity  to  reduce  transaction  costs  and  offer  new  products,  but  it  may  also  create  market  power,  create  or  enhance  barriers  to  entry  by  potential 
 competitors,  and  create  opportunities  to  disadvantage  rivals  in  anticompetitive  ways.  73 
 19.  Our  public  interest  authority  also  enables  us  to  impose  and  enforce  narrowly  tailored,  transaction-  specific  conditions  that  ensure  that  the  public  interest  is  served  by  the  transaction.  74  Section 
 303(  r)  of  the  Communications  Act  authorizes  the  Commission  to  prescribe  restrictions  or  conditions  not 
 67  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544,  para.  41. 
 68  See,  e.  g.,  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  News  Corp./  Hughes  Order,  19 
 FCC  Rcd  at  484,  para.  17;  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14046,  para.  23;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18033,  para.  13. 


 69  See,  e.  g.,  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  News  Corp./  Hughes  Order,  19 
 FCC  Rcd  at  484,  para.  17;  see  also  Satellite  Business  Systems,  62  FCC  2d  997,  1088  (1977),  affd  sub  nom.  United  States  v.  FCC,  652  F.  2d  72  (DC  Cir.  1980)  (en  banc);  Northern  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). 


 70  15  U.  S.  C.    18. 
 71  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  AT&  T/  Comcast  Order,  17  FCC  Rcd  at 
 23256,  para.  28. 
 72  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at 
 14047,  para.  23;  AT&  T/  British  Telecom  Order,  14  FCC  Rcd  at  19148,  para.  15. 
 73  See,  e.  g.,  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  by  Time 
 Warner  Inc.  and  America  Online,  Inc.,  Transferors,  to  AOL  Time  Warner  Inc.,  Transferee,  CS  Docket  No.  00-  30,  Memorandum  Opinion  and  Order,  16  FCC  Rcd  6547,  6550,  6553,  paras.  5,  15  (2001)  (AOL/  Time  Warner  Order); 


 Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42. 
 74  See,  e.  g.,  Alltel/  Western  Wireless  Order,  FCC  05-  138  at  para.  21  (conditioning  approval  on  the  divestiture  of 
 operating  units  in  specified  markets);  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21545-  46,  para.  43  (same);  see  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18032,  para.  10  (conditioning  approval  on  the  divesture  of  MCIs 


 Internet  assets). 
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 inconsistent  with  law  that  may  be  necessary  to  carry  out  the  provisions  of  the  Act.  75  Similarly,  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.  76  Indeed,  unlike  the  role  of  antitrust  enforcement  agencies,  our  public  interest  authority  enables  us  to  impose  and  enforce  conditions  based 
 upon  our  extensive  regulatory  and  enforcement  experience  to  ensure  that  the  merger  will,  overall,  serve  the  public  interest.  77  Despite  broad  authority,  the  Commission  has  held  that  it  will  impose  conditions  only 
 to  remedy  harms  that  arise  from  the  transaction  (i.  e.,  transaction-  specific  harms)  78  and  that  are  related  to  the  Commissions  responsibilities  under  the  Communications  Act  and  related  statutes.  79  Thus,  we  will 
 not  impose  conditions  to  remedy  pre-  existing  harms  or  harms  that  are  unrelated  to  the  transaction. 
 V.  POTENTIAL  PUBLIC  INTEREST  HARMS 
 A.  Analytical  Framework 
 20.  In  this  section,  we  consider  the  potential  public  interest  harms,  including  potential  harms  to  competition,  arising  from  the  merger.  Because  SBC  and  AT&  T  currently  compete  with  respect  to  a  wide 
 variety  of  services  and  groups  of  customers,  we  must  consider  the  potential  horizontal  effects  of  this  merger.  80  In  addition,  because  both  SBC  and  AT&  T  provide  critical  inputs,  particularly  special  access 
 services,  to  various  communications  markets,  we  need  to  consider  the  potential  vertical  effects  of  the  merger    specifically,  whether  the  merged  entity  will  have  an  increased  incentive  or  ability  to  injure 
 competitors  by  raising  the  cost  of,  or  discriminating  in  the  provision  of,  inputs  sold  to  competitors.  81 
 21.  With  respect  to  the  horizontal  effects,  consistent  with  Commission  precedent,  we  first  perform  a  structural  analysis  of  the  merger  to  examine  whether  it  is  likely  to  result  in  anticompetitive  effects.  82  We 


 75  47  U.  S.  C.    303(  r). 
 76  47  U.  S.  C.    214(  c);  see  also  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21545-  46,  para.  43;  Bell 
 Atlantic/  GTE  Order,  15  FCC  Rcd  at  14047,  para.  24;  AT&  T/  British  Telecom  Order,  14  FCC  Rcd  at  19148,  para.  15. 
 77  47  U.  S.  C.    303(  r);  see,  e.  g.,  Alltel/  Western  Wireless  Order,  FCC  05-  138  at  para.  21;  Cingular/  AT&  T  Wireless 
 Order,  19  FCC  Rcd  at  21545-  46,  para.  43;  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14047,  para.  24;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18032,  para.  10;  FCC  v.  Natl  Citizens  Comm.  for  Broadcasting,  436  U.  S. 


 775  (1978);  United  States  v.  Southwestern  Cable  Co.,  392  U.  S.  157,  178  (1968);  United  Video,  Inc.  v.  FCC,  890  F.  2d  1173,  1182-  83  (D.  C.  Cir.  1989). 


 78  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  43;  News  Corp./  Hughes  Order,  19  FCC  Rcd 
 at  534,  para.  131. 
 79  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  43. 


 80  A  transaction  is  said  to  be  horizontal  when  the  firms  in  the  transaction  sell  products  that  are  in  the  same  relevant 
 markets  and  are  therefore  viewed  as  reasonable  substitutes  by  purchasers  of  the  products.  News  Corp./  Hughes  Order,  19  FCC  Rcd  at  507,  para.  69. 


 81  Id.  at  508,  para.  71. 
 82  Structural  merger  analysis,  as  the  name  suggests,  considers  structural  characteristics  of  the  merging  firms  and  the 
 relevant  markets,  such  as  market  shares  and  entry  conditions,  to  make  predictions  about  the  likely  competitive  effects  of  a  proposed  merger. 
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 begin  by  defining  the  relevant  product  markets  83  and  relevant  geographic  markets.  84  We  next  identify  market  participants  and  examine  market  concentration  and  how  concentration  will  change  as  a  result  of 
 the  merger.  We  also  consider  whether  entry  conditions  are  such  that  new  competitors  could  likely  enter  and  defeat  any  attempted  post-  merger  price  increase. 


 22.  If  our  structural  analysis  suggests  that  the  merger  may  have  anticompetitive  effects,  we  must  then  examine  in  more  detail  whether  and  how  the  merger  might  affect  competitive  behavior.  In 
 performing  this  behavioral  analysis,  we  consider  whether  the  merger  is  likely  to  have  anticompetitive  effects  either  through  unilateral  actions  of  the  merged  entity  or  through  coordinated  interaction  among 
 firms  competing  in  the  relevant  market.  85 
 23.  With  regard  to  potential  vertical  effects,  we  will  examine  how  the  merger  affects  the  Applicants  incentives  and  ability  to  discriminate  in  provisioning  inputs  to  competitors.  In  particular,  we  will 
 consider  the  effect  of  the  merger  on  the  merged  entitys  incentives  and  ability  to  discriminate  in  the  provision  of  special  access  services. 


 B.  Wholesale  Special  Access  Competition 
 24.  In  this  section,  we  consider  the  effects  of  the  merger  of  SBC  and  AT&  T  on  the  provisioning  and  pricing  of  wholesale  special  access  services.  The  Commission  has  previously  defined  special  access  as  a 
 dedicated  transmission  link  between  two  places.  86  As  discussed  below,  wholesale  special  access  service  is 


 83  A  relevant  product  market  has  been  defined  as  the  smallest  group  of  competing  products  for  which  a  hypothetical 
 monopoly  provider  of  the  products  would  profitably  impose  at  least  a    small  but  significant  and  nontransitory  increase  in  price.  Horizontal  Merger  Guidelines,  issued  by  the  U.  S.  Department  of  Justice  and  the  Federal  Trade 


 Commission,  (Apr.  2,  1992,  revised  Apr.  8,  1997)    1.11,  1.12  (DOJ/  FTC  Guidelines);  see  also  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20605-  6,  para.  106. 


 84  A  relevant  geographic  market  has  been  defined  as  the  region  where  a  hypothetical  monopolist  that  is  the  only 
 producer  of  the  relevant  product  in  the  region  would  profitably  impose  at  least  a  small  but  significant  and  nontransitory  increase  in  the  price  of  the  relevant  product,  assuming  that  the  prices  of  all  products  provided 


 elsewhere  do  not  change.  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20609,  para.  117  (citing  DOJ/  FTC  Guidelines    1.21). 


 85  Id.  at  20619,  para.  151.  As  the  Commission  explained  in  the  EchoStar/  DirecTV  Order: 
 Unilateral  effects  arise  when  the  merging  firm  finds  it  profitable  to  alter  its  behavior  following  the  merger.  Examples  of  unilateral  effects  include  a  merging  firms  raising  its  price  or  reducing  the  quantity  it  supplies. 
 Coordinated  effects,  in  contrast,  arise  when  competing  firms,  recognizing  their  interdependence,  take  actions  that  are  profitable  for  each  of  them  only  as  a  result  of  the  accommodating  reactions  of  others. 
 Because  coordinated  effects  generally  are  more  likely  the  smaller  the  number  of  firms  in  a  market,  mergers  may  significantly  increase  the  likelihood  of  coordinated  effects  by  reducing  the  number  of  firms. 
 Examples  include  explicit  collusion,  tacit  collusion,  and  price  leadership.  Id.  at  20619,  para.  152  (footnotes  omitted). 


 86  See  Special  Access  Rates  for  Price  Cap  Local  Exchange  Carriers;  AT&  T  Corp.  Petition  for  Rulemaking  to 
 Reform  of  Incumbent  Local  Exchange  Carrier  Rates  for  Interstate  Special  Access  Services,  WC  Docket  No.  05-  25,  RM-  10593,  Order  and  Notice  of  Proposed  Rulemaking,  20  FCC  Rcd  1994,  1997,  para.  7  (2005)  (Special  Access 


 NPRM).  We  recognize  that  different  companies,  particularly  carriers  that  are  not  incumbent  LECs,  may  use  slightly  different  terms  to  refer  to  dedicated  loop  and  transport  links  between  two  points.  For  example,  AT&  T  uses  the 
 terms  Local  Private  Line  and  Domestic  Private  Line  to  refer  to  services  consisting  of  loops  and  transport,  typically  in  combination  that  generally  compete  directly  with  SBCs  special  access  services.  See,  e.  g.,  SBC/  AT&  T 
 (continued.) 
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 a  critical  input  for:  competitive  LECs  in  providing  services  to  their  retail  enterprise  customers,  wireless  and  competitive  LECs  in  connecting  their  networks  to  other  carriers,  long  distance  carriers  seeking  to 
 connect  customers  to  their  long-  distance  networks,  and  entities  seeking  to  connect  with  Internet  backbones.  87  Firms  needing  dedicated  transmission  links  essentially  have  three  choices:  to  deploy  their 
 own  facilities,  to  buy  special  access  service  from  incumbent  LECs,  or  to  purchase  such  service  from  a  competing  special  access  provider.  As  discussed  below,  we  find  that  AT&  T  provides  special  access 
 services  in  competition  with  SBCs  special  access  services,  and  that  the  merger,  absent  appropriate  remedies,  is  likely  to  result  in  anticompetitive  effects  for  wholesale  special  access  services  offered  wholly 
 over  AT&  Ts  own  facilities  to  certain  buildings.  We  conclude,  however,  that  the  consent  decree,  entered  into  between  the  Applicants  and  the  DOJ,  pursuant  to  which  the  Applicants  agreed  to  certain  divestitures 
 in  the  form  of  IRUs  for  loops  and  transport  necessary  to  reach  to  certain  buildings  where  AT&  T  is  the  only  competitive  LEC  that  has  a  direct  wireline  connection,  should  remedy  any  likely  anticompetitive 
 effects.  Moreover,  we  find  further  comfort  in  certain  voluntary  commitments,  which  the  Applicants  have  offered.  Accordingly,  we  adopt  the  proffered  commitments  as  express  conditions  of  our  approval  of  the 
 transfer  of  licenses  and  authorizations  from  AT&  T  to  SBC. 
 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 25.  As  previously  indicated,  special  access  is  a  dedicated  transmission  link  between  two  locations,  most  often  provisioned  via  high-  capacity  circuits.  Such  services  are  used  for  various  purposes,  such  as 
 direct  connection  between  tenants  of  commercial  buildings  and  a  competing  carriers  network  or  between  different  facilities  of  the  same  firm.  Both  voice  and  data  may  be  carried  using  special  access  services. 
 The  facilities  used  to  provide  special  access  service  typically  consist  of  three  different  segments:  (1)  an  entrance  facility,  which  connects  the  purchasing  carriers  point  of  presence  (  POP)  to  the  nearest  wire 
 center,  carrier  hotel,  or  similar  location  (  entrance  facility);  (2)  local  transport;  and  (3)  a  last  mile  connection  or  local  loop,  also  known  as  a  channel  termination,  which  runs  from  the  transport  facility  to 
 the  end-  user  customer. 
 26.  The  record  demonstrates  that  there  are  at  least  two  separate  relevant  product  markets  for  special  access  services:  Type  I  special  access  services,  which  are  offered  wholly  over  a  carriers  own  facilities, 
 and  Type  II  special  access  services,  which  are  offered  using  a  combination  of  the  carriers  own  facilities  for  two  of  the  segments  and  the  special  access  services  of  another  carrier  for  the  third  segment.  88  The 


 (Continued  from  previous  page)  Carlton/  Sider  Reply  Decl.  at  para.  9  n.  5;  DOJ-  SBC/  AT&  T  Complaint  at  para.  13.  For  simplicity,  we  will  use  the 
 term  special  access  to  refer  to  all  services  provided  by  any  carrier  that  involves  such  dedicated  links. 
 87  See  infra  Part  V.  C  (Retail  Enterprise  Competition);  Part  V.  D  (Mass  Market  Competition);  and  Part  V.  E  (Internet 
 Backbone  Competition). 
 88  See,  e.  g.,  Letter  from  Melissa  E.  Newman,  Vice  President-  Federal  Regulatory,  Qwest,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  8  (filed  June  15,  2005)  (Qwest  June  15  Ex  Parte  Letter).  Approximately  [REDACTED]  of  AT&  Ts  wholesale  DS3  and  lower-  capacity  special  access  services  are  Type  II. 


 Response  of  AT&  T  Corp.  to  the  Commissions  April  18,  2005  Information  and  Document  Request,  WC  Docket  No.  05-  65,  Exh.  5(  c)  II    5(  c)  VI  (filed  May  9,  2005)  (AT&  T  Info.  Req.)  (Local  Private  Line  and  Domestic  Private  Line 
 wholesale  special  access).  AT&  T  [REDACTED]  services.  See  Letter  from  Gary  L.  Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  App.  C  at  2  (filed  Aug.  1,  2005) 
 (SBC/  AT&  T  Aug.  1  Ex  Parte  Letter). 
 (continued.) 
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 record  evidence  suggests  that  many  purchasers  of  wholesale  special  access  services  view  Type  I  services  as  substantially  superior  to  Type  II  services,  due  to  differences  in  performance,  reliability,  security,  and 
 price,  and  that  these  differences  are  sufficiently  large  that  Type  I  special  access  services  fall  into  a  separate  relevant  product  market  from  Type  II.  89 


 27.  We  also  recognize  that  the  services  provided  over  different  segments  of  special  access  (e.  g.,  channel  terminations  and  local  transport)  constitute  separate  relevant  product  markets,  which  may  be 
 subject  to  varying  levels  of  competition.  90  In  the  competitive  analysis  section  below,  we  will  discuss  the  competitiveness  of  the  different  special  access  services. 


 (Continued  from  previous  page)  In  this  Order,  REDACTED  indicates  that  confidential  or  proprietary  information  that  is  subject  to  a  Protective 
 Order  in  this  proceeding  has  been  redacted  from  the  public  version  of  this  Order.  First  Protective  Order,  20  FCC  Rcd  at  5196;  Second  Protective  Order,  20  FCC  Rcd  at  8876.  The  unredacted  text  is  included  in  the  confidential 
 version  of  this  Order,  which  is  available  upon  request  only  to  those  parties  who  have  executed  and  filed  with  the  Commission  signed  acknowledgments  of  the  protective  orders.  Qualified  persons  who  have  not  yet  signed  the 
 required  acknowledgments  may  do  so  in  order  to  obtain  the  confidential  version  of  this  Order. 
 Note  that  in  some  cases  where  both  a  confidential  unredacted  version  and  a  redacted  public  version  of  a  document  were  filed,  the  page  number  was  inconsistent  between  the  two  documents.  With  respect  to  such  documents,  all 


 citations  are  to  the  redacted  version,  unless  otherwise  specified. 
 89  See,  e.  g.,  Qwest  June  15  Ex  Parte  Letter,  Attach.  at  8;  Letter  from  Melissa  E.  Newman,  Vice  President    Federal 
 Regulatory,  Qwest,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  7  (filed  July  7,  2005)  (Qwest  July  7  Ex  Parte  Letter);  Cbeyond  et  al.  Petition,  Declaration  of  Simon  Wilkie  (Cbeyond  et  al.  Wilkie 


 Decl.)  at  para.  17  n.  6  ([  O]  ther  things  being  equal,  buyers  have  a  preference  to  purchase  Type  I  circuits  to  avoid  any  reliance  on  the  ILEC  who  may  degrade  quality  or  be  unresponsive  to  service  problems.);  Letter  from  Gary  L. 
 Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  App.  C  at  2  (filed  Aug.  1,  2005)  (unredacted)  (AT&  T  [REDACTED]  services)  (SBC/  AT&  T  Aug.  1  Ex  Parte  Letter); 
 AT&  T  Info.  Req.,  ATT546000175-  79  ([  REDACTED]);  ATT598003761-  78  at  63  ([  REDACTED]);  ATT599000837-  44  at  39-  40  ([  REDACTED]).  We  note  that  the  analysis  of  Type  II  offerings  as  part  of  a  distinct 
 product  market  is  consistent  with  the  assertions  of  commenters  that  Type  II  services  are  significant,  as  well.  See,  e.  g.,  Letter  from  Brad  E  Mutschelknaus,  et  al.,  Counsel  for  Eschelon  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC, 
 WC  Docket  Nos.  05-  65,  05-  75  at  6  (filed  June  6,  2005)  (Eschelon  et  al.  June  6  Ex  Parte  Letter)  (asserting  that  the  fact  that  wholesale  services  are  provisioned  using  Type  II,  rather  than  Type  I,  offerings  does  not  significantly 
 diminish  the  competitive  significance  of  those  offerings,  and  that  criticisms  of  Type  II  offerings  do  not  account  for  the  important  role  played  by  those  facilities  in  the  wholesale  market). 


 90  We  do  not,  however,  analyze  separate  product  markets  for  different  capacities  of  special  access  services.  See, 
 e.  g.,  Letter  from  Brad  E.  Mutschelknaus,  Counsel  for  Conversent  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  3  (filed  Aug.  31,  2005)  (Conversent  et  al.  Aug.  31  Ex  Parte  Letter)  (asserting  that 


 different  capacity  services  should  be  different  relevant  product  markets).  While  customers  in  certain  circumstances  may  be  able  to  substitute  different  capacity  services  in  different  combinations  to  meet  their  needs  if  the  price  of  a 
 particular  capacity  circuit  were  raised  (for  example,  customers  could  substitute  multiple  DS1  loops  for  a  single  DS3  loop),  we  believe  that,  in  general,  different  capacity  circuits  are  likely  to  constitute  separate  relevant  product 
 markets.  However,  we  find  comparable  competitive  alternatives  for  varying  capacities  of  special  access  circuits,  and  thus  for  administrability  purposes  we  do  not  separately  analyze  different  capacity  services.  Where  competing 
 carriers  offer  Type  I  service  using  their  own  facilities,  the  facilities  can  be  channelized  to  provide  service  at  all  capacity  levels.  See,  e.  g.,  Response  of  SBC  Communications  Inc.  to  Information  and  Document  Request  Dated 
 April  18,  2005,  WC  Docket  No.  05-  65,  Exh.  6(  d)(  3)  at  III-  2  (filed  May  9,  2005)  (SBC  Info.  Req.);  see  also  Unbundled  Access  to  Network  Elements;  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local 
 Exchange  Carriers,  WC  Docket  No.  04-  313,  CC  Docket  No.  01-  338,  Order  on  Remand,  20  FCC  Rcd  2533,  2585-  86,  para.  86  (2005),  petitions  for  review  filed  (Triennial  Review  Remand  Order).  Where  carriers  seek  to  offer  Type 
 (continued.) 
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 b.  Relevant  Geographic  Markets 
 28.  Consistent  with  Commission  precedent  and  the  record  before  us,  we  conclude  that  the  relevant  geographic  market  for  wholesale  special  access  services  is  a  particular  customers  location,  since  it  would 
 be  prohibitively  expensive  for  an  enterprise  customer  to  move  its  office  location  in  order  to  avoid  a  small  but  significant  and  nontransitory  increase  in  the  price  of  special  access  service.  91  In  order  to  simplify  its 
 analysis,  however,  the  Commission  has  traditionally  aggregated  or  grouped  customers  facing  similar  competitive  choices,  and  we  will  do  so  in  our  discussion  below  to  the  extent  appropriate.  92 


 29.  In  addition,  however,  we  will  consider  the  potential  effect  of  the  merger  on  SBCs  special  access  prices,  which  are  generally  set  on  a  wider  geographic  basis.  Because  SBC  has  gained  Phase  II  pricing 
 flexibility  for  its  special  access  services  in  some  metropolitan  statistical  areas  (MSAs),  93  but  not  others,  (Continued  from  previous  page) 
 II  service,  they  can  purchase  the  required  capacity  of  special  access  service  from  the  incumbent  or  from  any  competitive  access  providers. 


 We  note  that,  in  prior  orders  addressing  our  section  251  unbundling  rules,  we  conducted  a  capacity-  based  analysis.  See,  e.  g.,  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2625,  para.  166  (describing  the  capacity-  based  analysis 
 used  for  DS1,  DS3,  and  dark  fiber  loops);  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local  Exchange  Carriers,  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996, 
 Deployment  of  Wireline  Services  Offering  Advanced  Telecommunications  Capability,  CC  Docket  Nos.  01-  338,  96-  98,  98-  147,  Report  and  Order  and  Order  on  Remand  and  Further  Notice  of  Proposed  Rulemaking,  18  FCC  Rcd 
 16978,  17102,  para.  197  (2003)  (Triennial  Review  Order),  corrected  by  Errata,  18  FCC  Rcd  19020  (2003)  (Triennial  Review  Order  Errata),  affd  in  part,  vacated  and  remanded  in  part,  and  remanded  in  part,  United  States 
 Telecom  Assn  v.  FCC,  359  F.  3d  554  (D.  C.  Cir.  2004)  (describing  the  capacity-  based  analysis  used  for  DS1,  DS3,  OCn,  and  dark  fiber  loops).  Our  approach  to  product  definitions  here  differs  in  key  respects  from  our  unbundling 
 analysis,  however.  Our  merger  analysis  focuses  on  special  access  competition  generally  (whether  through  facilities  deployment  or  partial  reliance  on  other  carriers  special  access  services),  whereas  our  high-  capacity  loop 
 impairment  analysis  focused  solely  on  the  likelihood  of  competitive  facilities  deployment.  Moreover,  our  location-specific  analysis  in  the  merger  context  focuses  on  those  locations  where  AT&  T  offers  competing  special  access 
 services  today,  whereas  the  Commission  applied  a  wire  center  test  for  high-  capacity  loop  unbundling  because  a  building-  by-  building  test  would  not  be  administrable.  Thus,  we  find  no  need  to  perform  separate  analyses  for 
 different  capacity  circuits  based  on  the  record  and  analytical  framework  here,  notwithstanding  our  prior  unbundling  analyses. 


 91  See,  e.  g.,  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14746,  para.  69;  Applications  of  Teleport  Communications 
 Group  Inc.,  Transferor,  and  AT&  T  Corp.,  Transferee,  For  Consent  to  Transfer  of  Control  of  Corporations  Holding  Point-  to-  Point  Microwave  Licenses  and  Authorizations  to  Provide  International  Facilities-  Based  and  Resold 


 Communications  Services,  CC  Docket  No.  98-  24,  Memorandum  Opinion  and  Order,  13  FCC  Rcd  15236,  15248,  para.  21  (AT&  T/  TCG  Order).  Our  geographic  market  definition  is  consistent  with  the  arguments  made  by  certain 
 commenters.  See  Global  Crossing  Comments  at  10-  14;  Global  Crossing  Comments,  Attach.  A,  Statement  of  Joseph  Farrell  at  paras.  117-  25  (Global  Crossing  Farrell  Decl.);  Conversent  et  al.  Aug.  31  Ex  Parte  Letter  at  3;  cf. 
 EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20609-  12,  paras.  117-  125;  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23282,  para.  90  (finding  that  the  relevant  geographic  market  was  individual  customer  residences  but  that  it  is  reasonable  to 
 aggregate  to  a  larger  geographic  area);  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016-  19,  para.  54-  57  (finding  that  separate  geographic  areas  were  appropriately  defined  by  the  availability  of  similar  set  of  services  at  similar 
 prices). 
 92  See,  e.  g.,  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23282,  para.  90;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20016-  19,  paras.  54-  56;  EchoStar/  DirecTV  Order  17  FCC  Rcd  at  20610-  11,  para.  120;  SBC/  Ameritech  Order  14  FCC  Rcd  at  14746,  paras.  67-  68. 


 93  SBC/  AT&  T  Application  at  103. 
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 SBCs  rates  for  special  access  may  vary  from  MSA  to  MSA.  94  Accordingly,  we  will  also  examine  on  an  MSA  basis  how  the  merger  is  likely  to  affect  SBCs  special  access  prices. 
 c.  Market  Participants 
 30.  SBC  can  access  all  or  virtually  all  of  the  buildings  and  transport  routes  in  its  territory.  Although  the  record  is  not  clear  as  to  what  extent  other  competitive  LECs  compete  in  the  special  access  market  in 
 SBCs  territory,  it  is  clear  that,  in  addition  to  AT&  T,  [REDACTED]  provide  wholesale  Type  I,  and  in  some  cases  Type  II,  special  access  services.  95  The  record  does  not,  however,  clearly  indicate  the  extent  to 
 which  individual  buildings  are  served  by  one  or  more  of  these  competitive  LECs. 
 2.  Competitive  Analysis 
 31.  In  this  section,  we  separate  our  discussion  of  the  competitive  effects  of  the  merger  into  the  effects  on  the  in-  region  special  access  market,  both  horizontal  and  vertical,  and  the  effects  on  out-  of-region 
 special  access  markets.  96  We  begin  by  considering  whether  the  merger  is  likely  to  result  in  a  meaningful  reduction  in  competition  or  increase  in  price  for  special  access  services  to  particular  locations. 


 32.  As  discussed  below,  we  find  that  the  elimination  of  AT&  T  as  a  provider  of  wholesale  special  access  services  is  likely  to  result  in  anticompetitive  effects  in  the  provision  of  Type  I  special  access 
 services  to  particular  buildings  where  AT&  T  is  currently  the  sole  carrier,  besides  SBC,  with  a  direct  wireline  connection  to  the  building,  and  where  barriers  to  entry  make  it  unlikely  that  other  carriers  will 
 build  their  own  facilities.  Absent  appropriate  remedies,  these  building-  specific  effects  may  also  lead  to  increases  in  SBCs  MSA-  wide  special  access  prices. 


 33.  With  respect  to  Type  II  special  access  services,  we  conclude  that  the  ability  of  remaining  carriers  in  the  market  to  offer  competitive  special  access  services  through  a  combination  of  their  own 
 transport  facilities  and  an  incumbent  LECs  special  access  or  high-  capacity  unbundled  loops,  or  a  competing  carriers  loop  facilities,  alleviates  concerns  about  the  loss  of  AT&  T  as  a  provider  of  Type  II 
 special  access  services  to  particular  buildings.  Further,  because  AT&  T  provides  such  a  relatively  small  amount  of  wholesale  Type  II  special  access  services  within  SBCs  region,  and  because  other  competitive 
 providers  should  be  able  to  move  in  quickly  to  fill  any  void  left  by  AT&  T,  we  conclude  that  the  merger  is  unlikely  to  result  in  an  increase  in  the  price  of  Type  II  services  within  SBCs  region. 


 34.  We  next  consider  whether  the  merger  is  likely  to  result  in  anticompetitive  effects  in  the  provision  of  wholesale  special  access  services  in  areas  outside  SBCs  territory.  In  particular,  we  consider 
 arguments  made  by  certain  commenters  that,  after  the  SBC/  AT&  T  and  Verizon/  MCI  mergers  are  consummated,  SBC  and  Verizon  will  have  an  incentive  to  forbear  from  competing  in  the  provision  of 
 wholesale  special  access  services  within  each  others  territories.  We  conclude  that  the  merger  will  not 


 94  We  recognize  that  SBC  also  offers  various  volume  and  term  discount  plans  which  offer  percentage  discounts  off 
 the  tariffed  rate.  Some  discounts  are  based  on  a  carriers  total  spend  over  a  larger  geographic  market  while  other  discounts  may  vary  from  MSA  to  MSA.  See,  e.  g.,  CompTel/  ALTS  Petition  at  15  (suggesting  a  regional  analysis  is 


 appropriate  given  SBC  pricing  strategies). 
 95  SBC/  AT&  T  Application,  Reply  Declaration  of  Anthony  Fea  et  al.  (SBC/  AT&  T  Fea  et  al.  Reply  Decl.)  at  paras. 
 15,  47. 
 96  By  in-  region,  we  mean  the  franchise  areas  where  SBC  is  the  incumbent  LEC.  Thus,  out-  of-  region  refers  to 
 all  other  regions  in  the  U.  S. 
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 result  in  competitive  harm  in  Verizons  territory.  We  find  that  a  variety  of  actual  and  potential  competing  providers  will  remain  post-  merger  to  fill  any  void  left  by  AT&  T  if  the  merged  entity  does  not  continue  to 
 offer  wholesale  special  access  services  in  Verizons  territory. 
 35.  Finally,  we  consider  possible  vertical  effects  of  the  merger.  SBC  is  already  a  vertically  integrated  company.  We  conclude  that  the  merger,  as  conditioned  by  the  DOJ  Consent  Decree,  will  not 
 increase  the  merged  entitys  ability  to  increase  prices  for  or  decrease  quality  of  wholesale  special  access  services.  To  the  extent  that  SBC,  prior  to  the  merger,  had  any  incentive  or  ability  to  raise  rivals  costs  or 
 discriminate  in  the  provision  of  wholesale  special  access  services,  those  issues  are  better  addressed  in  pending  general  rulemaking  proceedings. 


 a.  Horizontal  Effects 
 36.  Unilateral  Effects.  Several  commenters  claim  that,  as  a  result  of  the  merger,  wholesale  special  access  prices  are  likely  to  rise  at  specific  buildings  where  AT&  T  is  currently  offering  either  Type  I  or 
 Type  II  special  access  services.  97  As  discussed  in  greater  detail  below,  we  believe  these  claims  are  correct  in  part.  The  record  suggests  that  the  merger  will  result  in  a  reduction  in  the  number  of  competitors 
 offering  Type  I  services  in  buildings  where  AT&  T  is  currently  connected  via  its  own  facilities,  and  that,  absent  remedial  measures,  this  is  likely  to  lead  to  an  increase  in  the  price  of  special  access  service  to 
 buildings  where  only  SBC  and  AT&  T  own  or  control  a  direct  wireline  connection,  and  where  conditions  make  additional  facilities-  based  entry  unlikely.  98  We  further  find,  however,  that  the  merger  is  not  likely 
 to  result  in  anticompetitive  effects  in  the  provision  of  Type  II  services.  Competing  carriers  can  use  their  existing  collocation  facilities  in  the  relevant  wire  center  (or  contract  with  a  competitor  that  has  such 
 collocation  facilities)  and  can  purchase  special  access  circuits  or  UNE  loops  to  provide  Type  II  services. 
 37.  Type  I  Services.  We  disagree  with  the  Applicants  assertion  that  the  absolute  number  of  buildings  served  by  AT&  T  is  so  small  that  AT&  Ts  facilities  cannot  be  considered  competitively 
 significant.  99  As  discussed  above,  the  relevant  geographic  market  for  wholesale  special  access  services  is  a  particular  customers  location.  Thus,  where  AT&  T  is  the  only  carrier  besides  SBC  that  is  directly 
 connected  to  a  particular  building  and  where  entry  is  unlikely,  AT&  Ts  elimination  as  a  competitor  may  lead  to  an  increase  in  the  price  of  Type  I  special  access  services  to  that  building.  Thus,  absent  appropriate 
 remedial  measures,  like  those  imposed  by  the  DOJ  Consent  Decree,  the  proposed  merger  is  likely  to  have 
 97  See,  e.  g.,  ACN  et  al.  Comments  at  39-  41;  Broadwing  and  SAVVIS  Petition  at  22-  29;  Cbeyond  et  al.  Petition  at 
 22-  25;  CompTel/  ALTS  Petition  at  13-  15;  Global  Crossing  Comments  at  17-  19;  NASUCA  Comments  at  14-  18;  Qwest  Petition  at  12-  17;  Ad  Hoc  Telecom  Users  Reply  at  20-  23;  BT  Americas  Reply  at  13-  15,  19-  20;  Letter  from 


 Richard  M.  Blau  and  Edward  W.  Kirsch,  Counsel  for  CTC  Communications,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  4-  5  (filed  Sept.  21,  2005)  (CTC  Sept.  21  Ex  Parte  Letter);  Letter  from  Brad  E. 
 Mutschelknaus,  Counsel  for  BridgeCom  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  at  2  (filed  Sept.  22,  2005)  (BridgeCom  et  al.  Sept.  22  Ex  Parte  Letter);  Letter  from  John  T.  Nakahata,  Counsel 
 for  Level  3,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  2  (filed  Sept.  23,  2005)  (Level  3  Sept.  23  Ex  Parte  Letter). 


 98  In  the  19  in-  region  MSAs  where  AT&  T  has  local  facilities,  SBC  identifies  over  240,000  commercial  buildings 
 with  more  than  10  DS0  line  equivalents,  and  states  that  AT&  T  provides  Type  I  service  to  only  1,691  buildings  in  SBCs  region  as  a  whole  using  its  own  facilities  only  0.  7%.  See  SBC/  AT&  T  Application  at  105  n.  347; 


 SBC/  AT&  T  Reply  at  30-  32;  Letter  from  Christopher  M.  Heimann,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  2-  3  (filed  Sept.  6,  2005)  (SBC/  AT&  T  Sept.  6  Ex 
 Parte  Letter). 
 99  SBC/  AT&  T  Sept.  6  Ex  Parte  Letter  at  3. 
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 anticompetitive  effects  in  buildings  where  AT&  T  is  the  only  competitive  LEC  with  a  direct  wireline  connection  and  where  entry  appears  unlikely. 
 38.  AT&  T  is  directly  connected  via  its  own  facilities  to  at  least  1,691  buildings  in  the  19  MSAs  in  SBCs  territory  where  AT&  T  has  local  facilities.  100  AT&  T  has  provided  data  indicating  that  AT&  T  is  the 
 only  competitive  provider  to  approximately  [REDACTED]  of  those  buildings.  101 
 39.  The  record  also  indicates  that,  for  many  buildings,  there  is  little  potential  for  competitive  entry,  at  least  in  the  short  term.  As  the  Commission  has  previously  recognized,  carriers  face  substantial  fixed 
 and  sunk  costs,  as  well  as  operational  barriers,  when  deploying  loops,  particularly  where  the  capacity  demanded  is  relatively  limited.  102  Given  these  barriers,  it  appears  unlikely  that  a  carrier  would  be  willing 
 to  make  the  significant  sunk  investment  without  some  assurance  that  it  would  be  able  to  generate  revenues  sufficient  to  recover  that  investment.  103  Consistent  with  this  analysis,  there  is  evidence  in  the 
 record  that  carriers  generally  are  unwilling  to  invest  in  deploying  their  own  loops  unless  they  have  a  long-term  retail  contract  that  will  generate  sufficient  revenues  to  allow  them  to  recover  the  cost  of  their 
 investment.  104  Moreover,  even  where  there  is  adequate  retail  demand,  the  costs  of  constructing  the  loop  may  be  sufficiently  high,  or  there  may  be  other  operational  barriers,  that  may  deter  entry.  105 


 40.  This  analysis  is  consistent  with  the  analysis  contained  in  the  complaint  that  the  DOJ  filed  in  connection  with  this  merger.  In  its  complaint,  the  DOJ  alleged  that,  in  certain  buildings  where  SBC  and 
 AT&  T  are  the  only  firms  that  own  or  control  a  direct  wireline  connection  to  the  building,  the  merger  was  likely  to  substantially  reduce  competition  for  Local  Private  Lines  and  telecommunications  services  that 
 rely  on  Local  Private  Lines  to  those  buildings.  106  The  DOJs  complaint  goes  on  to  allege  that  [  a]  though 
 100  See  id. 


 101  SBC/  AT&  T  Sept.  6  Ex  Parte  Letter  at  3;  SBC/  AT&  T  Aug.  1  Ex  Parte  Letter,  App.  B  at  1;  Letter  from  Gary  L. 
 Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  at  2  (filed  June  24,  2005)  (SBC/  AT&  T  June  24  Ex  Parte  Letter).  We  note  that  AT&  Ts  data  is  likely  to  overestimate 


 the  number  of  buildings  where  AT&  T  is  the  sole  competitive  LEC  with  a  direct  connection,  because  the  data  only  count  competitive  LECs  with  whom  AT&  T  has  wholesale  contracts.  See,  e.  g.,  SBC/  AT&  T  Sept.  6  Ex  Parte  Letter 
 at  5;  SBC/  AT&  T  Carlton/  Sider  Reply  Decl.  at  paras.  27-  30. 
 102  See  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2615-  18,  paras.  149-  54;  see  also  Triennial  Review  Order, 
 18  FCC  Rcd  at  17160-  62,  paras.  303-  306. 
 103  See,  e.  g.,  Cbeyond  et  al.  Petition  at  23;  Letter  from  Brad  E.  Mutschelknaus,  Counsel  for  Cbeyond  et  al.,  to 
 Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  17  (filed  July  14,  2005)  (Cbeyond  et  al.  July  14  Ex  Parte  Letter);  Letter  from  Thomas  Cohen,  Counsel  for  XO,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC 


 Docket  Nos.  05-  65,  05-  75,  Attach.  at  paras.  15-  21  (filed  Oct.  21,  2005)  (XO  Oct.  21  Ex  Parte  Letter). 
 104  See  id. 


 105  We  are  not  persuaded  by  the  Applicants  argument  that  Commission  findings  that  network  elements  need  not  be 
 unbundled  pursuant  to  the  impairment  standard  of  section  251(  d)(  2)  demonstrate  that  the  special  access  market  has  sufficiently  low  entry  barriers  to  permit  sufficient  and  timely  competitive,  facilities-  based  entry  to  defeat  any 


 attempted  post-  merger  price  increase.  See,  e.  g.,  SBC/  AT&  T  Reply  at  26-  27,  32-  33,  37-  38,  41.  As  the  Commission  explained  in  the  Triennial  Review  Order,  [  t]  he  purposes  of  a  market  power  analysis  are  not  the  purposes  of  section 
 251(  d)(  2).  .  .  the  Act  requires  only  that  network  elements  be  unbundled  if  competing  carriers  are  impaired  without  them,  regardless  of  whether  the  incumbent  LEC  is  exercising  market  power  or  the  unbundling  would  eliminate  this 
 market  power.  Triennial  Review  Order,  18  FCC  Rcd  at  17051  at  para.  109. 
 106  DOJ-  SBC/  AT&  T  Complaint  at  para.  3. 
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 other  CLECs  can,  theoretically,  build  their  own  fiber  connection  to  each  building  in  response  to  a  price  increase  by  the  merged  firm,  such  entry  is  a  difficult,  time-  consuming,  and  expensive  process.  107  The 
 complaint  further  alleges  that  [  a]  lthough  entry  may  occur  in  response  to  a  post-  merger  price  increase  in  some  of  the  buildings  where  AT&  T  is  the  only  connected  CLEC,  the  conditions  for  entry  are  unlikely  to 
 be  met  in  hundreds  of  those  buildings.  108  To  remedy  this  problem,  the  DOJ  in  the  consent  decree  required  that  AT&  T  divest  IRUs  to  those  buildings  where  it  was  the  sole  CLEC  with  a  direct  connection 
 to  the  building  and  where  DOJ  found  entry  unlikely.  109  We  find  that  the  terms  of  the  consent  decree  should  adequately  remedy  any  likely  anticompetitive  effects  in  the  provision  of  Type  I  wholesale  special 
 access  services. 
 41.  Type  II.  In  buildings  where  a  competitive  LEC  is  not  directly  connected  to  a  building  via  its  own  facilities  and  where  customer  demand  may  not  justify  the  construction  of  competitive  facilities  (such  as 
 where  demand  is  less  than  the  OCn  level),  competing  carriers  can  either  combine  competitive  transport  with  special  access  loops  or,  where  available,  high-  capacity  loop  UNEs  purchased  from  SBC  (i.  e.,  Type  II 
 offerings).  110  Carriers  can  use  their  existing  collocation  facilities  in  the  relevant  wire  center  (or  contract  with  a  competitor  that  has  such  collocation  facilities)  and  can  purchase  special  access  loops  or  UNEs  to 
 provide  Type  II  services. 
 42.  Commenters  claim  that  AT&  T  has  three  unique  advantages  in  supplying  Type  II  special  access  services  to  other  competing  carriers:  (1)  AT&  T  obtains  greater  special  access  discounts  from  SBC  for  the 
 loop  portion  of  the  circuit;  111  (2)  AT&  T  has  more  collocations  than  other  competitive  LECs  so  it  can  use  the  incumbent  LEC  special  access  to  a  greater  number  of  buildings;  112  and  (3)  AT&  T  has  a  more 
 extensive  fiber  network  and  therefore  can  reach  more  commercial  buildings.  113  We  do  not  find  these  arguments  persuasive. 


 43.  First,  there  is  no  evidence  that  AT&  T  has  access  to  a  discount  plan  that  is  not  available  to  other  providers.  The  Applicants  assert,  and  opponents  do  not  rebut,  that  SBCs  MVP  volume  and  term 
 discount  plan,  under  which  AT&  T  takes  SBC  special  access  circuits,  is  also  available  to  other  competitive  LECs,  114  and  the  Applicants  state  that  eleven  carriers  in  addition  to  AT&  T  subscribe  to  the  MVP  plan.  115 


 107  Id.  at  para.  27. 
 108  Id.  at  para.  29. 
 109  DOJ-  SBC/  AT&  T  Consent  Decree,  App.  A. 
 110  While  UNEs  are  not  available  solely  for  the  provision  of  long  distance  or  mobile  wireless  services,  they  are 
 available  for  the  provision  of  local  exchange  and  exchange  access  services.  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2551-  58,  paras.  34-  40.  Carriers  that  obtain  UNEs  for  the  provision  of  local  exchange  or  exchange 


 access  services  may  also  provide  other  services  using  those  UNEs,  as  well.  47  C.  F.  R.    51.309(  d). 
 111  CompTel/  ALTS  Petition  at  14;  Cbeyond  et  al.  July  14  Ex  Parte  Letter  at  14. 


 112  Cox  Comments  at  15. 
 113  CompTel/  ALTS  Petition  at  14;  Cbeyond  et  al.  July  14  Ex  Parte  Letter  at  16-  21;  Letter  from  Teresa  D.  Baer, 
 Counsel  for  Global  Crossing,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  8  (filed  June  2,  2005)  (Global  Crossing  June  2  Ex  Parte  Letter). 


 114  SBC/  AT&  T  Reply,  Declaration  of  Parley  C.  Casto  (SBC/  AT&  T  Casto  Reply  Decl.)  at  paras.  3-  8;  SBC/  AT&  T 
 Aug.  1  Ex  Parte  Letter,  App.  C  at  1-  3. 
 115  SBC/  AT&  T  Casto  Reply  Decl.  at  para.  6. 
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 Indeed,  these  plans  are  made  available  to  others  pursuant  to  contract  tariffs  or  generally  available  tariffs.  Further,  the  record  indicates  that  negotiations  between  Qwest  and  SBC  have  led  to  a  special  access 
 discount  plan  that  would  enable  Qwest  to  obtain  special  access  discounts  that  are  double  what  Qwest  receives  under  the  MVP  plan.  116  Moreover,  SBC  provides  special  access  discounts  in  a  variety  of  ways 
 with  differing  conditions  in  different  states  and  regions,  including  discounts  available  even  to  those  carriers  that  might  not  qualify  for  the  precise  discount  plan  used  by  AT&  T.  117  Indeed,  the  Applicants  note 
 that  at  least  one  smaller  competitor  receives  a  larger  discount  off  the  tariffed  rate  than  does  AT&  T.  118  Finally,  we  note  that  regardless  of  whether  competitors  are  able  to  negotiate  significant  discounts,  where 
 competitive  duplication  of  the  last-  mile  facility  is  not  economic,  competing  carriers  will  be  able  to  rely  on  high-  capacity  loop  and  transport  UNEs  priced  at  Total  Element  Long  Run  Incremental  Cost  (TELRIC) 
 where  they  are  available.  119 
 44.  Second,  existing  competitive  collocations  and  the  threat  of  competitive  entry  through  collocation  allow  for  special  access  competition  in  SBCs  in-  region  wire  centers  where  AT&  T  competes  today. 
 Indeed,  in  the  19  MSAs  in  SBCs  territory  where  AT&  T  currently  has  local  facilities,  120  the  Applicants  indicate  that  AT&  T  only  has  collocations  in  [REDACTED]  wire  centers  compared  to  the  total  of  over 
 [REDACTED]  collocations  by  other  competing  carriers  in  SBC  wire  centers.  121  Thus,  other  competing 
 116  Letter  from  Gary  L.  Phillips,  General  Attorney  and  Assistant  General  Counsel,  SBC,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  No.  05-  65  at  2  (filed  Sept.  27,  2005).  Qwest  states  that  although  [  t]  here  were  a  number  of  areas  of  agreement  regarding  the  new  special  access  discount  plan,  it  has  not  yet  finally  agreed  to  that 


 plan.  Letter  from  Robert  L.  Connelly,  Jr.,  Vice  President    Deputy  General  Counsel,  Qwest,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  2-  3,  in  Letter  from  Melissa  Newman,  Vice  President    Federal 
 Regulatory,  Qwest,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  Oct.  5,  2005). 
 117  SBC  provides  special  access  services  under  tariffed  rates  as  well  as  through  individual  contracts,  as  SBC  has 
 gained  pricing  flexibility  in  certain  MSAs.  Various  volume  and  term  discounts  may  apply  to  individual  purchases  or  for  all  purchases  in  particular  regions.  Other  discounts  are  dependent  on  maintaining  minimum  purchasing  levels 


 over  several  years.  See,  e.  g.,  AT&  T  Info.  Req.,  ATT551001558-  84;  ATT564000335-  42.  While  it  is  not  always  clear  how  much  each  buyer  pays,  it  is  clear  that  the  simple  tariff  rate  sometimes  used  by  commenters  for  comparing 
 prices  is  not  adequate  for  that  purpose.  See,  e.  g.,  Letter  from  Thomas  Cohen,  Counsel  for  SAVVIS  and  XO,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  5  (filed  July  29,  2005)  (SAVVIS/  XO 
 July  29  Ex  Parte  Letter);  XO  et  al.  Oct.  3  Ex  Parte  Letter,  Attach.  at  2-  4;  see  also  Cbeyond  et  al.  Wilkie  Decl.  at  para.  15  (discussing  the  review  of  special  access  RFP  bid  data,  and  stating  that  the  incumbent  LEC  rarely  actively 
 underbid[  s]  the  posted  special  access  rates). 
 118  SBC/  AT&  T  Casto  Reply  Decl.  at  paras.  3-  8. 


 119  In  addition,  we  note  that  the  Commission  has  found  that  the  availability  of  UNEs  is  itself  a  check  on  special 
 access  pricing.  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2574,  para.  65. 
 120  The  Applicants  present  much  of  their  quantifiable  data  in  this  19  MSA  grouping.  These  MSAs  are  Austin, 
 Chicago,  Cleveland,  Columbus,  Dallas,  Detroit,  Dayton,  Hartford,  Houston,  Indianapolis,  Kansas  City,  Los  Angeles,  Milwaukee,  Reno,  Sacramento,  St.  Louis,  San  Antonio,  San  Diego,  and  San  Francisco.  For  analysis 


 purposes,  they  also  include  San  Jose  in  the  San  Francisco  MSA  and  Bridgeport,  CT  in  the  Hartford  MSA.  SBC/  AT&  T  Reply,  Declaration  of  Dennis  W.  Carlton  and  Hal  S.  Sider  (SBC/  AT&  T  Carlton/  Sider  Reply  Decl.)  at 
 para.  17,  n.  10. 
 121  Letter  from  Gary  L.  Phillips,  SBC,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  Attach.  (filed 
 Aug.  12,  2005)  (SBC  Aug.  12  Ex  Parte  Letter).  While  XO  expresses  concern  that  summaries  of  the  collocation  data  in  the  text  of  SBC/  AT&  Ts  August  12  ex  parte  letter  might  double-  count  fiber-  based  collocators,  our  analysis  relies 


 on  the  underlying  data  itself.  See  XO  Oct.  21  Ex  Parte  Letter  at  9.  Further,  XO  cites  an  order  by  the  Michigan  Public  Service  Commission  finding  that  SBCs  collocation  data,  submitted  for  purposes  of  implementing  the 
 (continued.) 
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 carriers  collectively  have  [REDACTED]  times  the  number  of  SBC  wire  center  collocations  compared  with  AT&  T.  In  addition,  there  are  approximately  [REDACTED]  other  competing  carriers  that  have 
 between  [REDACTED]  collocations,  with  an  average  of  [REDACTED]  collocations,  in  each  of  the  19  SBC  MSAs  where  AT&  T  has  local  network  facilities.  122  Moreover,  of  the  [REDACTED]  wire  centers  in 
 the  19  MSAs  in  SBCs  territory  in  which  AT&  T  has  collocations,  123  other  competing  carriers  are  collocated  in  [REDACTED].  Even  in  those  wire  centers  where  AT&  T  currently  is  the  only  collocated 
 carrier,  competitors  after  the  merger  are  likely  to  have  incentives  to  construct  substitute  collocations.  The  extensive  local  fiber  networks  124  already  deployed  by  other  competitors  in  SBCs  territory  indicate  that 
 these  competitors  are  likely  to  find  it  both  technically  and  economically  feasible  to  construct  additional  collocations.  125 


 45.  Third,  the  Applicants  submitted  maps  showing  the  local  fiber  routes  of  AT&  T  and  other  competing  carriers  in  the  19  MSAs  where  AT&  T  provides  special  access  in  SBCs  region.  126  These  maps 
 further  demonstrate  that  other  carriers  besides  AT&  T  have  fiber  networks  in  these  geographic  areas.  In  many  MSAs,  some  competitors  appear  to  have  more  extensive  networks  than  AT&  T.  127  We  conclude, 
 therefore,  that  there  are  existing  competitors  with  local  fiber  networks  that  reasonably  could  provide  wholesale  special  access  in  MSAs  where  AT&  T  now  operates  local  facilities.  128  We  note  that  our 
 (Continued  from  previous  page)  Commissions  unbundling  rules,  had  overstated  the  number  of  fiber-  based  collocators  in  one  wire  center.  Id.  As  an 
 initial  matter,  XO  does  not  explain  why  the  Michigan  commissions  interpretation  of  fiber-  based  collocation  for  purposes  of  implementing  the  Commissions  unbundling  rules  should  apply  to  the  use  of  collocation  data  for 
 purposes  of  evaluating  the  potential  to  offer  Type  II  services.  Moreover,  given  the  overall  significant  extent  of  collocation  by  other  competitive  LECs,  an  overstatement  of  the  extent  of  fiber-  based  collocation  in  one  wire  center 
 does  not  alter  our  conclusions. 
 122  SBC  Aug.  12  Ex  Parte  Letter,  Attach. 


 123  Id. 
 124  See  infra  para.  45  (discussing  evidence  of  competitive  fiber  deployment). 
 125  As  we  have  found  in  both  the  special  access  and  UNE  contexts,  the  presence  of  fiber-  based  collocators  is  a  good 
 proxy  for  sunk  investment  in  fiber  rings,  which  we  find  competitors  are  able  to  use  in  conjunction  with  special  access  or,  where  available,  UNEs  in  the  provision  of  Type  II  offerings.  See,  e.  g.,  Triennial  Review  Remand  Order, 


 20  FCC  Rcd  at  2589-  95,  2625-  26,  paras.  96-  105,  167  (discussing  the  inferences  drawn  from  fiber-  based  collocations  for  purposes  of  our  UNE  rules);  Access  Charge  Reform;  Price  Cap  Performance  Review  for  Local 
 Exchange  Carriers,  CC  Docket  Nos.  96-  262,  94-  1,  Fifth  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  14  FCC  Rcd  14221,  14265-  69,  paras.  81-  86  (1999)  (Pricing  Flexibility  Order)  (describing  the 
 correlation  between  fiber-  based  collocation  and  sunk  investment  in  competitive  transport  facilities). 
 126  SBC/  AT&  T  Sept.  6  Ex  Parte  Letter,  Attach.  3. 


 127  We  recognize,  however,  that  one  must  take  care  in  interpreting  such  maps.  For  example,  in  the  Triennial  Review 
 Remand  Order,  we  expressed  reluctance  to  rely  on  these  sort  of  maps  in  the  context  of  loop  unbundling  because  they  fail  to  indicate  the  capacity  of  service  being  provided  over  the  facilities  described,  or  whether  those  facilities 


 are  in  fact  being  used  to  provide  services  for  which  competitive  LECs  may  use  UNEs.  See  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2621,  para.  158  n.  445.  In  addition,  the  MSA-  level  maps  did  not  correspond  to  the 
 wire  center  analysis  the  Commission  conducted.  Id.  In  the  current  merger  context,  we  are  simply  using  the  maps  to  supplement  the  quantifiable  collocation  data  and  to  identify  the  existence  of  competitive  LEC  facilities  in  the  MSA. 


 128  Competitive  LECs  have  bought  special  access  services  from  each  other  for  some  time  and  [REDACTED]. 
 AT&  T  Info.  Req.,  ATT551001112-  54  at  52.  AT&  T  also  purchases  wholesale  special  access  service  from  [REDACTED]  other  competitive  LECs  in  SBC  territory.  SBC/  AT&  T  Fea  et  al.  Reply  Decl.  at  para.  15. 
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 findings  here  are  consistent  with  the  findings  underlying  the  Commissions  high-  capacity  loop  impairment  analysis  in  the  Triennial  Review  Remand  Order.  129 
 46.  We  are  also  not  persuaded  by  certain  study  results  cited  by  commenters  that  purport  to  show  that  the  removal  of  AT&  T  as  a  special  access  competitor  in  SBC  territory  would  result  in  significant  increases 
 in  bid  prices  for  wholesale  special  access  services.  130  Commenters  have  alleged  that  their  analysis  of  particular  carriers  special  access  bid  data  shows  that  AT&  T  and  MCI  were  the  most  frequent  bidders  to 
 offer  competitive  special  access  services  and  that  regression  analyses  of  a  large  sample  of  bids  submitted  in  response  to  competitors  RFPs  demonstrates  that  removal  of  AT&  T  from  SBC  territory  would  result  in 
 a  doubling  of  bid  prices.  131  As  an  initial  matter,  Applicants  have  noted  the  difficulty  in  relying  on  these  assertions  since  neither  the  majority  of  commenters  source  data  nor  even  the  underlying  methodologies 
 used  for  the  analyses  are  in  the  public  record  and  have  not  been  subject  to  examination  by  opposing  parties.  132  Further,  these  analyses  appear  to  conflate  Type  I  and  Type  II  special  access  offerings,  which, 
 as  we  find  above,  are  in  separate  relevant  product  markets.  133  Consequently,  we  do  not  accept  the 
 129  In  the  Triennial  Review  Remand  Order,  the  Commission  drew  inferences  that  requesting  carriers  were  not 
 impaired  without  unbundled  access  to  DS1  and  DS3  loops  in  wire  centers  with  a  significant  number  of  business  lines  and  fiber-  based  collocators.  See  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2622-  23,  para.  161.  The 


 Commission  further  noted  that  in  those  wire  centers  where  high-  capacity  loop  unbundling  was  eliminated,  carriers  could  compete  using  incumbent  LEC  or  third  party  special  access  to  serve  particular  buildings  to  the  extent  that 
 competitive  facilities  cannot  economically  be  deployed.  See  id.  at  2623-  24,  para.  163.  For  various  reasons,  the  Commission  did  not  directly  rely  on  the  availability  of  special  access  as  precluding  the  need  for  unbundling.  See 
 generally  id.  at  2560-  71,  paras.  46-  63.  In  the  Triennial  Review  Remand  Order,  the  Commission  was  evaluating  whether  a  requesting  carrier  would  be  impaired  without  access  to  a  UNE,  whereas  here  we  are  evaluating  the 
 mergers  effects  on  competition  in  the  market  for  special  access.  Consequently,  we  find  it  appropriate  here  to  rely  on  competing  carriers  ability  to  use  Type  II  special  access  facilities  given  the  evidence  in  the  record  on  all  sides 
 regarding  successful  special  access  competition  provided  by  Type  II  service  offerings.  Cf.  SBC/  AT&  T  Reply  at  27,  39  (contending  that  the  Commissions  high-  capacity  loop  impairment  analysis  suggests  that  competitive  alternatives 
 would  remain  for  AT&  Ts  lit  buildings). 
 130  ACN  et  al.  Comments  at  35;  Broadwing  and  SAVVIS  Petition,  Declaration  of  Mark  Pietro  (Broadwing  Pietro 
 Decl.)  at  para.  18;  CompTel/  ALTS  Petition  at  27;  Ad  Hoc  Telecom  Users  Reply  at  20-  22;  BT  Americas  Reply  at  15-  16;  Letter  from  Richard  M.  Blau  and  Edward  W  Kirsch,  Counsel  for  CTC  Communications,  to  Marlene  H. 


 Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  4-  5  (filed  Sept.  21,  2005)  (CTC  Sept.  21  Ex  Parte  Letter);  Letter  from  Brad  E.  Mutschelknaus,  Counsel  for  BridgeCom  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC, 
 WC  Docket  Nos.  05-  65,  05-  75  at  2  (filed  Sept.  22,  2005)  (BridgeCom  et  al.  Sept.  22  Ex  Parte  Letter);  Letter  from  John  T.  Nakahata,  Counsel  for  Level  3  Communications,  LLC,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket 
 Nos.  05-  65,  05-  75,  Attach.  at  2  (filed  Sept.  23,  2005)  (Level  3  Sept.  23  Ex  Parte  Letter). 
 131  Cbeyond  et  al.  Wilkie  Decl.  at  paras.  14-  16,  23-  27  ([  f]  or  those  circuits  where  competition  is  eliminated  and  the 
 requesting  carrier  is  left  with  the  current  special  access  tariff,  prices  will  rise  approximately  100%.);  see  also  Letter  from  Brad  E.  Mutschelknaus,  et  al.,  Counsel  for  Eschelon  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket 


 Nos.  05-  65,  05-  75,  Attach.  (filed  May  10,  2005)  (Eschelon  et  al.  May  10  Ex  Parte  Letter);  SAVVIS/  XO  July  29  Ex  Parte  Letter,  Attach.  at  5;  Letter  from  Teresa  D.  Baer,  Counsel  for  Global  Crossing,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  3  (filed  Sept.  7,  2005)  (Global  Crossing  Sept.  7  Ex  Parte  Letter)  (comparing  certain  AT&  T,  MCI,  and  BOC  T-  1  prices  for  two  states);  XO  et  al.  Oct.  3  Ex  Parte  Letter, 
 Attach.  at  3-  4. 
 132  SBC/  AT&  T  Aug.  1  Ex  Parte  Letter,  App.  A  at  3.  It  is  not  clear  how  similar  the  bid  process  was  between  the 
 several  companies,  whether  there  were  substantial  negotiations  after  the  bids,  or  whether  the  bids  were  conducted  in  several  rounds.  Understanding  these,  and  possibly  other,  considerations  could  be  important  in  interpreting  the  data. 


 133  See,  e.  g.,  XO  et  al.  Oct.  3  Ex  Parte  Letter,  Attach.;  SAVVIS/  XO  July  29  Ex  Parte  Letter,  Attach.  at  5. 
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 commenters  bid  data  analyses  as  demonstrating  that  the  merger  will  lead  to  special  access  price  increases  at  particular  buildings. 
 47.  In  summary,  within  SBCs  region,  we  find  that,  collectively,  other  competing  carriers  have  more  fiber  and  many  more  collocations  than  does  AT&  T.  134  In  the  limited  number  of  MSAs  where  AT&  T  has 
 local  facilities  in  the  SBC  region,  AT&  T  represents  less  than  [REDACTED]  percent  of  the  competitive  collocations.  Moreover,  the  record  clearly  shows  that  AT&  Ts  collocations  are  located  exclusively  in 
 MSAs  with  many  other  competitive  collocations.  Therefore,  we  conclude  the  elimination  of  AT&  T  as  a  provider  of  Type  II  wholesale  special  access  services  should  not  have  an  appreciable  effect  on  the  price  or 
 availability  of  Type  II  wholesale  special  access  services. 
 48.  MSA-  wide  effects.  To  the  extent  that  the  elimination  of  AT&  T  as  a  competitor  in  the  Type  I  wholesale  special  access  market  causes  competitive  harm,  this  also  could  result  in  increases  in  the  MSA-wide 
 prices  that  SBC  sets  for  its  own  special  access  services.  135  However,  as  discussed  above,  we  find  that  the  divestitures  contained  in  the  consent  decree  executed  by  the  Department  of  Justice  and  the 
 Applicants  should  adequately  address  any  competitive  concerns  that  we  might  have  relating  to  this  market.  Thus,  in  light  of  the  DOJ  Consent  Decree,  we  conclude  that  the  merger  is  not  likely  to  result  in 
 increases  in  the  MSA-  wide  prices  that  SBC  charges  for  special  access  services.  Moreover,  the  voluntary  commitments  that  the  Applicants  have  offered,  136  and  which  we  accept  and  make  conditions  of  our 
 approval  of  this  order,  provide  us  with  further  comfort  that  the  merger  is  not  likely  to  result  in 


 134  We  reject  EarthLinks  assertion  that  the  proposed  merger  will  eliminate  AT&  T  as  a  potential  wholesale  DSL 
 competitor.  EarthLink  contends  that  AT&  T  intended  to  move  aggressively  into  the  broadband  space  and  had  the  collocations,  networking  equipment,  and  other  technology  to  do  so.  Letter  from  Jennifer  L.  Phurrough,  Counsel  for 


 EarthLink,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  25  (filed  Sept.  26,  2005)  (EarthLink  White  Paper).  As  an  initial  matter,  we  note  that  EarthLink  relies  on  statements  about  AT&  Ts 
 intentions  regarding  DSL  from  1999-  2001,  see  id.  at  24-  25  nn.  56-  59,  many  years  prior  to  its  determination  to  discontinue  pursuing  its  consumer  DSL  line  of  business.  See  infra  Part  V.  D  (discussing  AT&  Ts  decision  to 
 discontinue  offering  mass  market  services).  Consequently,  EarthLinks  outdated  evidence  does  not  persuade  us  that  AT&  T  was  likely  to  begin  offering  wholesale  DSL  services  in  the  absence  of  the  merger.  Moreover,  we  conclude 
 that  AT&  T  is  not  uniquely  positioned  to  become  a  wholesale  DSL  provider.  The  Commission  previously  has  found  that  competitors  are  actively  deploying  their  own  packet  switches,  including  routers  and  DSLAMs  to  serve  both 
 the  enterprise  and  mass  markets,  and  that  these  facilities  are  much  cheaper  to  deploy  than  circuit  switches,  suggesting  that  AT&  T  likely  is  not  unique  in  its  ownership  of  DSLAMs  and  networking  equipment.  Triennial 
 Review  Order,  18  FCC  Rcd  at  17321-  22,  para.  538.  Further,  as  we  find  above,  there  are  numerous  other  competitive  LECs  with  collocations.  Given  that  unbundled  DS0  loops  are  available  throughout  SBCs  region,  those 
 other  carriers  also  can  use  their  collocations  in  conjunction  with  unbundled  loops  to  offer  wholesale  DSL  service.  Indeed,  AT&  T  itself  offers  DSL  by  leasing  wholesale  services  from  unaffiliated  DSL  providers  such  as  Covad, 
 New  Edge,  and  MegaPath.  AT&  T  Info.  Req.  at  54. 
 135  As  previously  discussed,  each  building  represents  a  separate  relevant  geographic  market,  and  competitors 
 frequently  charge  different  prices  for  special  access  services  to  different  buildings.  To  the  extent  that  SBC  has  received  Phase  II  pricing  flexibility,  but  nevertheless  sets  special  access  prices  that  are  geographically  averaged  over 


 an  entire  MSA,  we  would  expect  that  SBC  would  set  a  geographically  uniform  price  that  maximizes  its  profits  given  competitive  conditions  that  vary  from  building  to  building.  If  competition  is  reduced  to  a  number  of  buildings,  this 
 is  likely  to  cause  SBC  to  raise  its  MSA-  wide  price.  See,  e.  g.,  Global  Crossing  Farrell  Declaration  at  para.  17;  see  also  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20629,  para.  185  (providing  a  formula  that  describes  how  the  profit-maximizing, 
 uniform  price  that  is  averaged  over  multiple  geographic  markets  will  rise  in  response  to  a  decrease  in  competition  in  particular  local  markets). 


 136  See  generally  SBC  Oct.  31  Ex  Parte  Letter,  Attach.;  see  also  Appendix  F. 
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 anticompetitive  effects  either  in  the  building-  specific  markets  for  Type  I  wholesale  special  access  services,  or  derivatively  in  the  MSA-  wide  market  for  SBCs  special  access  services. 
 49.  We  note  that  certain  commenters  have  submitted  special  access  market  share  and  HHI  calculations  for  selected  MSAs  in  SBC  territory  to  demonstrate  that  the  merger  will  lead  to  competitive 
 harm  for  those  MSAs.  137  We  find  certain  weaknesses  with  this  analysis  and  data,  however.  First,  we  share  some  of  the  concerns  expressed  by  the  Applicants  concerning  the  reliability  of  the  underlying 
 data.  138  In  addition,  it  appears  that  the  commenters  market  share  calculations  include  all  capacity,  regardless  of  whether  it  is  used  to  provide  wholesale  special  access  or  to  support  AT&  Ts  own  retail 
 services.  139  Finally,  as  discussed  above,  we  find  that  any  increase  in  SBCs  MSA-  wide  special  access  prices  would  only  result  from  a  reduction  in  competition  in  building  specific  markets  for  Type  I  or  Type 
 II  wholesale  special  access  services.  Because  we  find  that  the  consent  decree  adequately  remedies  any  likely  anticompetitive  effects  on  Type  I  wholesale  special  access  services  and  that  the  merger  is  unlikely 
 to  result  in  anticompetitive  effects  in  the  provision  of  Type  II  wholesale  special  access  services,  we  find  that  no  additional  measures  are  required  to  protect  against  increases  in  SBCs  special  access  prices 
 resulting  from  the  merger. 
 50.  We  also  reject  commenters  assertions  that  AT&  T,  because  of  its  extensive  local  transport  network,  has  a  unique  ability  to  handle  short  and  intermediate  haul  traffic.  140  As  shown  above,  AT&  T 
 faces  competition  from  many  other  competitive  LECs,  which  also  possess  extensive  local  transport  facilities  and  collocations.  141  As  explained  above,  local  fiber  facility  maps  show  that  there  are  other 


 137  See,  e.  g.,  SAVVIS/  XO  July  29  Ex  Parte  Letter,  Attach.  at  9-  11. 
 138  See,  e.  g.,  SBC/  AT&  T  June  24  Ex  Parte  Letter  at  5-  6;  SBC/  AT&  T  Aug.  1  Ex  Parte  Letter,  App.  B  at  7-  8. 
 139  We  reject  the  national  private  line  market  share  calculations  submitted  by  commenters.  See  Letter  from  Thomas 
 W.  Cohen,  Counsel  for  XO,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  13  (filed  Sept.  21,  2005)  (XO  Sept.  21  Ex  Parte  Letter)  (attached  excerpts  from  a  January  2004  Yankee  Group  study). 


 As  an  initial  matter,  it  is  not  clear  what  data  Yankee  Group  used  to  calculate  market  shares.  For  example,  SBC  in  its  document  production,  supplied  a  Yankee  Group  report,  which  suggested  that,  in  the  SBC  region  SBC  has 
 [REDACTED]%  of  market  share,  with  AT&  T  having  [REDACTED]%  based  on  revenue.  SBC  Info.  Req.,  Exh.  5(  b)(  5)  (The  Yankee  Group,  SBC  Special  Access  Study:  Wholesale  Private  Line,  Nov.  2004  at  21).  However,  the 
 Applicants  dispute  the  reports  estimates,  asserting  that  it  overstates  AT&  T  revenue.  SBC/  AT&  T  July  15  Ex  Parte  Letter  at  3-  5.  Because  we  expect  AT&  T  to  be  in  the  best  position  to  know  its  revenues,  we  believe  that  the  revenue 
 submitted  by  AT&  T  in  response  to  the  Commissions  information  request,  showing  lower  revenues,  is  more  accurate  than  the  Yankee  Groups  earlier  estimate.  Indeed,  the  Yankee  Group  study  attributes  private  line  revenues 
 to  AT&  T  for  SBCs  region  that  exceed  AT&  Ts  nationwide  private  line  sales,  and  it  attributes  revenues  to  AT&  T  for  MSAs  where  AT&  T  has  no  private  line  revenues.  Letter  from  Gary  L.  Phillips,  SBC,  and  Lawrence  J.  Lafaro, 
 AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  1  (filed  Oct.  7,  2005)  (SBC/  AT&  T  Oct.  7  Ex  Parte  Letter);  SBC/  AT&  T  July  15  Ex  Parte  Letter  at  5.  Second,  even  if  the  market  shares  reported  for  AT&  T 
 were  accurate,  the  national  market  shares  likely  mask  variations  in  market  share  among  narrower  geographic  regions.  The  study  states  that  other  competing  carriers  market  shares  vary  among  Tier  1  to  Tier  4  metropolitan 
 markets,  for  example.  XO  Sept.  21  Ex  Parte  Letter  at  13. 
 140  See,  e.  g.,  Cox  Comments  at  15;  Qwest  July  7  Ex  Parte  Letter,  Attach.  at  7. 


 141  See  supra  para.  45  (discussing  evidence  of  competitive  fiber  networks);  para.  44  (discussing  competitive 
 collocation  in  the  same  wire  centers  as  AT&  T  within  the  19  MSAs  where  AT&  T  has  local  facilities).  The  Commission  has  previously  concluded  that  fiber-  based  collocation  is  a  key  indicator  of  competitive  fiber 


 deployment,  and  the  D.  C.  Circuit  has  affirmed  this  use  as  reasonable.  Fiber-  based  collocation  in  a  wire  center  very  (continued.) 
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 competing  carriers  besides  AT&  T  in  the  19  MSAs  where  AT&  T  provides  special  access  in  SBCs  region.  These  maps  demonstrate  that  other  carriers  besides  AT&  T  have  fiber  networks  in  these  geographic  areas 
 and  are  possible  suppliers  of  short  and  intermediate  haul  traffic.  142  Thus,  we  do  not  find  that  AT&  T  is  able  to  provide  local  transport  on  an  MSA-  wide  basis  more  efficiently  than  other  competing  carriers.  143 


 51.  We  find  further  comfort  in  certain  voluntary  commitments  which  the  Applicants  have  made  relating  to  unbundled  network  elements  and  special  access  services.  144  First,  the  Applicants  commit  not  to 
 seek  any  increase  in  state-  approved  rates  for  UNEs  that  are  currently  in  effect,  with  the  exception  of  rates  that  are  subject  to  specified  currently  pending  appeals.  Second,  the  Applicants  commit  to  exclude  fiber-based 
 collocation  arrangements  established  by  AT&  T  or  its  affiliates  in  identifying  wire  centers  in  which  SBC  claims  there  is  no  impairment  pursuant  to  section  51.319(  a)  and  (e)  of  the  Commissions  rules. 
 Third,  the  Applicants  commit  that  SBCs  incumbent  local  operating  companies  will  implement  a  performance  metrics  plan  for  interstate  special  access  services,  under  which  they  will  provide 
 performance  data  on  a  quarterly  basis.  Fourth,  the  Applicants  commit  not  to  raise  rates  paid  by  existing 
 (Continued  from  previous  page)  clearly  indicates  the  presence  of  competitive  transport  facilities  in  that  wire  center.  Triennial  Review  Remand 


 Order,  20  FCC  Rcd  at  2589-  90,  para.  96. 
 142  SBC/  AT&  T  Sept.  6  Ex  Parte  Letter,  Attach.  3. 


 143  Based  on  our  findings  regarding  the  ability  of  other  carriers  with  fiber  networks  to  offer  competing  special  access 
 services  where  AT&  T  offered  such  services  pre-  merger,  we  are  not  persuaded  by  commenters  assertions  that  the  merger  is  likely  to  result  in  anticompetitive  effects  because  the  remaining  competitive  LECs  are  unlikely  to  re-  create 


 AT&  Ts  facilities,  or  replicate  its  ability  to  expand,  in  the  near  future.  See,  e.  g.,  Cbeyond  et  al.  July  14  Ex  Parte  Letter  at  12-  13  (asserting  that  other  carriers  do  not  have  the  same  number  of  enterprise  customers  as  AT&  T,  and 
 thus  do  not  have  traffic  volumes  to  justify  the  same  level  of  competitive  facilities  deployment);  see  also  Qwest  July  7  Ex  Parte  Letter  at  7,  13  (contending  that  AT&  T  (and  MCI)  were  each  expected  to  deploy  more  local  facilities  so 
 as  to  reduce  their  dependence  on  the  incumbent  carriers  facilities  based  on  their  unique,  comparatively  larger  networks).  We  also  reject  CTC  Communications  assertion  that  we  should,  in  this  proceeding,  revise  the 
 unbundling  rules  adopted  in  the  Triennial  Review  Remand  Order.  Specifically,  CTC  contends  that  the  Commission  should  revise  its  unbundling  rules  so  that  AT&  T  fiber-  based  collocations  are  counted  as  affiliated  for  purposes  of 
 high-  capacity  loops  and  dedicated  transport  unbundling.  Letter  from  Edward  W.  Kirsch,  Counsel  for  CTC  Communications,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  8  (filed  Aug. 
 31,  2005)  (CTC  Aug.  31  Ex  Parte  Letter)  see  also  Letter  from  Brad  E.  Mutschelknaus,  Counsel  for  Bridgecom  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  3-  4  (filed  Oct.  18,  2005).  This  issue 
 currently  is  pending  before  the  Commission  on  reconsideration  of  the  Triennial  Review  Remand  Order,  and  we  believe  that  is  the  appropriate  forum  to  address  our  unbundling  rules.  See,  e.  g.,  CTC  Communications  Corp.  et  al. 
 Petition  for  Reconsideration,  Unbundled  Access  to  Network  Elements;  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local  Exchange  Carriers,  WC  Docket  No.  04-  313,  CC  Docket  No.  01-  338,  at  5-  8  (filed 
 Mar.  28,  2005).  While  we  decline  to  revise  our  unbundling  rules,  as  requested  by  commenters,  we  note  that  the  Applicants  have  voluntarily  committed  to  exclude  fiber-  based  collocation  arrangements  established  by  AT&  T  or  its 
 affiliates  in  identifying  wire  centers  in  which  SBC  claims  there  is  no  impairment.  See  SBC  Oct.  31  Ex  Parte  Letter,  Attach.  at  2;  see  also  Appendix  F. 


 Our  finding  above  that  the  merger  will  not  likely  have  anticompetitive  effects  with  respect  to  wholesale  transport  services  generally  applies  with  even  greater  force  in  the  context  of  entrance  facilities.  As  the  Commission  has 
 found  in  the  past,  entrance  facilities  are  less  costly  to  build,  are  more  widely  available  from  alternative  providers,  and  have  greater  revenue  potential  than  dedicated  transport  between  incumbent  LEC  central  offices,  and  no 
 significant  concerns  regarding  entrance  facilities  were  raised  in  the  record.  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2612,  para.  141. 


 144  See  SBC  Oct.  31  Ex  Parte  Letter,  Attach.  at  2-  3;  see  also  Appendix  F. 
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 customers  of  AT&  Ts  DS1  and  DS3  local  private  line  services  that  AT&  T  provides  in  SBCs  in-  region  territory  pursuant,  or  referenced,  to  its  TCG  FCC  Tariff  No.  2.  Fifth,  the  Applicants  commit  that  SBCs 
 incumbent  local  telephone  companies  will  not  provide  special  access  offerings  to  their  wireline  affiliates  that  are  not  available  to  other  similarly  situated  special  access  customers  on  the  same  terms  and 
 conditions.  Sixth,  the  Applicants  commit  that,  before  SBC/  AT&  T  provides  a  new  contract  tariff  to  its  own  section  272(  a)  affiliate(  s),  it  will  certify  to  the  Commission  that  it  provides  service  pursuant  to  that 
 contract  tariff  to  an  unaffiliated  customer  other  than  Verizon  or  its  wireline  affiliates.  Finally,  the  Applicants  commit  that  SBC/  AT&  T  will  not  increase  the  rates  in  SBCs  interstate  tariffs,  including 
 contract  tariffs,  for  special  access  services  that  SBC  provides  in  its  in-  region  territory  and  that  are  set  forth  in  tariffs  on  file  at  the  Commission  on  the  Merger  Closing  Date.  145  These  commitments  and  their  duration 
 are  described  in  greater  detail  in  Appendix  F.  Because  we  find  these  commitments  will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  conditions  of  our  approval  of  the  merger. 


 52.  Coordinated  Effects.  We  also  do  not  believe  that  the  merger  increases  the  likelihood  of  coordinated  interaction.  It  is  generally  recognized  that  the  likelihood  of  coordinated  effects  depends  on  a 
 number  of  factors,  including  the  ease  with  which  firms  can  reach  tacit  agreement,  the  incentive  of  firms  to  cheat,  and  the  ability  of  the  remaining  firms  to  detect  and  punish  such  cheating.  146  Carriers  that  purchase 
 wholesale  special  access  services,  whether  Type  I  or  Type  II,  are  sophisticated  customers  that  often  rely  on  a  competitive  bid  process  or  negotiate  individual  contracts,  and  that  enter  into  long-  term  contracts.  147 
 Further,  by  virtue  of  the  fact  that  AT&  T  will  be  divesting  assets  pursuant  to  the  DOJ  Consent  Decree,  there  need  not  be  significant  reduction  in  the  number  of  competitive  providers  of  Type  I  wholesale  special 
 access  services  to  specific  buildings.  Moreover,  as  noted  above,  there  will  remain  numerous  competitors  that  are  able  to  provide  Type  II  wholesale  special  access  services.  We  find  that  these  factors  make  it 
 unlikely  that  the  merger  will  lead  to  tacit  collusion  or  other  coordinated  effects  in  the  relevant  special  access  markets  in  SBCs  region.  148 


 53.  Mutual  Forbearance.  Commenters  assert  that,  if  their  respective  mergers  are  consummated,  SBC/  AT&  T  and  Verizon/  MCI  are  likely  to  mutually  forbear  from  competing  against  each  other  in  the 
 provision  of  wholesale  special  access  services  in  the  others  service  territory.  149  They  claim  that  the  revenues  SBC/  AT&  T  could  earn  by  offering  competing  special  access  services  in  Verizons  region  would 
 be  dwarfed  by  the  revenues  that  would  be  lost  if  Verizon/  MCI  responded  by  offering  competitive  special  access  services  in  SBCs  territory.  Commenters  assert  that  both  SBC/  AT&  T  and  Verizon/  MCI  would 
 recognize  that  it  is  in  their  mutual  interest  not  to  compete.  150  As  support,  commenters  assert  that  SBC 
 145  This  commitment  does  not  apply  to  DS0  services  or  to  advanced  services  as  defined  in  paragraph  2  of  the 
 SBC/  Ameritech  merger  conditions.  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14969,  App.  C,  para.  2. 
 146  JEAN  TIROLE,  THE  THEORY  OF  INDUSTRIAL  ORGANIZATION  239  (1988);  GEORGE  STIGLER,  A  Theory  of 
 Oligopoly,  in  THE  ORGANIZATION  OF  INDUSTRY  39  (1968);  ALEXIS  JACQUEMIN  AND  MARGARET  E.  SLADE,  Cartels,  Collusion,  and  Horizontal  Merger,  in  THE  HANDBOOK  OF  INDUSTRIAL  ORGANIZATION  415  (1989). 


 147  See,  e.  g.,  Broadwing  Pietro  Decl.  at  paras.  12-  16  (discussing  the  use  of  a  bidding  process  for  certain  special 
 access  services);  Cbeyond  et  al.  Wilkie  Decl.  at  para.  13  (discussing  the  use  of  a  bidding  process  for  special  access);  SBC/  AT&  T  Casto  Reply  Decl.  at  para.  3  (discussing  term  discounts  for  special  access). 


 148  See  DOJ/  FTC  Guidelines    2.12. 
 149  Cbeyond  et  al.  Petition  at  45-  46;  Qwest  Petition  at  30-  33;  Eschelon  et  al.  June  6  Ex  Parte  Letter  at  12;  Cbeyond 
 et  al.  July  14  Ex  Parte  Letter  at  22-  23. 
 150  Cbeyond  et  al.  Wilkie  Decl.  at  para.  32,  see  also  id.  at  paras.  28-  39;  Eschelon  et  al.  May  10  Ex  Parte  Letter, 
 Attach.  at  29-  30. 
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 and  Verizon  have  failed  to  compete  significantly  with  each  other  in  geographic  areas  where  they  already  have  adjacent  network  facilities,  such  as  Southern  California,  Dallas  and  Irving,  Texas  and  along  the 
 Connecticut/  New  York  border.  151 
 54.  While  we  recognize  that  mutual  forbearance  is  possible  in  theory,  we  reject  commenters  allegations  that  this  merger  is  likely  to  result  in  anticompetitive  effects  in  Verizons  region.  As  an  initial 
 matter,  SBC  is  spending  billions  of  dollars  to  buy  AT&  Ts  nationwide  network  and  global  enterprise  and  business  reach,  including  facilities  in  Verizons  region.  In  light  of  this  investment,  it  is  reasonable  to 
 expect  SBC  to  have  strong  incentives  to  utilize  fully  its  assets  in  Verizons  territory.  152  More  significantly,  however,  we  find,  as  discussed  above,  that  there  are  numerous  competitors  with  local 
 facilities  that  will  remain  post-  merger,  that  can  offer  competing  special  access  services  to  the  buildings  in  SBCs  region  where  AT&  T  offered  special  access  services.  153  Nothing  in  the  record  suggests  that  the 
 conditions  would  be  significantly  different  in  Verizons  territory.  Thus,  we  conclude  that,  even  if  SBC/  AT&  T  forbears  from  offering  competing  special  access  services  in  Verizons  region,  competitive 
 alternatives  will  remain  for  those  locations  where  AT&  T  offered  competing  special  access  services.  154 
 b.  Vertical  Effects 
 55.  We  disagree  with  commenters  that  the  merger  will  increase  the  Applicants  incentive  and/  or  ability  to  raise  rivals  costs  or  engage  in  a  price  squeeze.  155  As  an  initial  matter,  where  UNEs  are 
 available,  they  provide  an  alternative  for  special  access  service  and  might  serve  to  constrain,  at  least  to  some  extent,  special  access  price  increases  and  other  raising  rivals  costs  strategies.  156  For  areas  where 


 151  Eschelon  et  al.  May  10  Ex  Parte  Letter,  Attach.  at  14-  15,  30-  35;  Cbeyond  et  al.  July  14  Ex  Parte  Letter  at  22. 
 152  SBC/  AT&  T  Reply  at  131-  140;  SBC/  AT&  T  June  24  Ex  Parte  Letter  at  11. 
 153  Professor  Wilkie  submitted  a  declaration  that  contained  calculations  suggesting  that  SBC  and  Verizon  will  have 
 an  incentive  to  engage  in  mutual  forbearance.  See  Letter  from  Thomas  Cohen,  Counsel  for  XO,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  (filed  Oct.  18,  2005)  (XO  Wilkie  Supp.  Decl.). 


 Professor  Wilkies  declaration  fails  to  address  the  role  of  competing  providers  of  special  access,  however. 
 154  We  note  in  this  regard  that,  in  order  to  address  potential  competitive  harm  from  the  elimination  of  MCI  as  a 
 competitive  Type  I  service  provider  in  Verizons  region,  the  DOJ  required  certain  divestitures.  See  generally  Final  Judgment,  United  States  v.  Verizon  Communications  Inc.,  Civil  Action  No.  1:  05CV02103  (D.  D.  C.  filed  Oct.  27, 


 2005)  (DOJ-  Verizon/  MCI  Final  Judgment). 
 155  See,  e.  g.,  ACN  et  al.  Comments  at  34-  36  (claiming  not  only  that  the  merged  entity  will  have  the  ability  to  impose 
 a  price  squeeze,  but  that  the  mere  fact  that  the  merger  combines  SBCs  access  facilities  with  AT&  Ts  enterprise  customers  poses  competitive  problems  because  competitors  will  be  forced  to  pay  SBCs  prices  for  special  access, 


 while  SBC  itself  will  face  only  the  actual  economic  cost  of  providing  special  access  services  to  itself);  Broadwing  and  SAVVIS  Petition  at  6  (expressing  the  concern  that  SBC  will  provide  relatively  slower  and  poorer  provisioning 
 and  repair  of  circuits  supplied  to  its  competitors,  which  along  with  price,  are  critical  benchmarks  customers  use  to  select  suppliers);  see  also,  e.  g.,  Global  Crossing  Farrell  Decl.  at  paras.  37-  42;  Broadwing  and  SAVVIS  Petition  at 
 29-  35;  Consumer  Federation  of  America  et  al.  Petition  at  24;  Telscape  Comments  at  5-  6;  Ad  Hoc  Telecom  Users  Reply  at  13-  16;  BT  Americas  Reply  at  16-  20;  CompTel/  ALTS  Reply  at  4-  5;  Letter  from  Patrick  Donovan,  Counsel 
 for  ACN  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  5  (filed  Aug.  10,  2005)  (ACN  et  al.  Aug.  10  Ex  Parte  Letter). 


 156  See  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2625-  33,  paras.  167-  181  (discussing  the  general  criteria 
 used  to  determine  whether  UNE  DS1  and  DS3  loops  must  be  made  available);  id.  at  2570-  75,  paras.  62-  65  (discussing  the  potential  for  UNEs  to  act  as  a  constraint,  to  some  extent,  on  special  access  prices). 
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 UNEs  are  not  available,  we  note  that  competing  carriers  have  invested  heavily  in  the  19  MSAs  where  AT&  T  has  local  facilities.  157  As  described  above,  we  have  analyzed  the  likely  impacts  of  this  merger  with 
 regard  to  the  provision  of  special  access  services  and  have  determined  that  this  merger,  as  conditioned  by  the  DOJ  Consent  Decree,  is  not  likely  to  result  in  anticompetitive  effects  in  the  markets  for  special  access 
 services.  As  the  Applicants  point  out,  SBC  and  other  incumbent  LECs  .  .  .  already  are  vertically  integrated  participants  in  both  input  and  downstream  markets.  158  Second,  as  we  have  found  previously, 
 [  t]  o  the  extent  that  certain  incumbent  LECs  have  the  incentive  and  ability  under  our  existing  rules  to  discriminate  against  competitors  using  special  access  inputs,  such  a  concern  is  more  appropriately 
 addressed  in  our  existing  rulemaking  proceedings  on  special  access  performance  metrics  and  special  access  pricing.  159  In  fact,  a  voluminous  record  on  industry-  wide  special  access  pricing  issues  (along  with 
 specific  pricing  information)  has  only  recently  been  submitted  to  the  Commission  in  one  of  these  proceedings.  160  By  addressing  these  issues  in  the  context  of  a  rulemaking,  we  will  be  able  to  develop  a 
 comprehensive  approach  based  on  a  full  record  that  applies  to  all  similarly-  situated  incumbent  LECs.  161 


 157  SBC  Aug.  12  Ex  Parte  Letter,  Attach.  (fiber-  based  collocations);  SBC/  AT&  T  Sept.  6  Ex  Parte  Letter  at  3;  id., 
 Attach.  (shares  of  CLEC  lit  buildings  by  MSA).  In  addition,  competitive  LECs  have  deployed  substantial  local  fiber  facilities  in  many  MSAs.  SBC  Info.  Req.,  Exh.  6(  d)(  2).  While  exact  fiber  route  miles  for  the  competitive 


 LECs  are  not  available  for  the  19  MSAs  where  AT&  T  has  local  fiber  facilities,  it  appears  that  a  number  of  competitive  LECs  have  substantial  national  fiber  facilities,  some  even  greater  than  AT&  Ts.  SBC/  AT&  T  July  15 
 Ex  Parte  Letter  at  1-  2. 
 158  SBC/  AT&  T  Reply  at  51. 


 159  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21592,  para.  183  (citing  Performance  Measurements  and 
 Standards  for  Interstate  Special  Access  Services,  CC  Docket  No.  01-  321,  Notice  of  Proposed  Rulemaking,  16  FCC  Rcd  20896  (2001)  (inviting  comment  on  whether  the  Commission  should  adopt  metrics  to  prevent  discrimination  in 


 the  provision  of  special  access  services);  AT&  T  Corp.,  Petition  for  Rulemaking  to  Reform  Regulation  of  Incumbent  Local  Exchange  Carrier  Rates  for  Interstate  Special  Access  Services,  RM-  10593  (filed  Oct.  15,  2002));  Special 
 Access  NPRM,  20  FCC  Rcd  at  1994.  Similar  issues  also  are  raised  in  the  pending  proceeding  dealing  with  the  sunset  of  BOC  section  272  requirements.  Section  272(  f)(  1)  Sunset  of  the  BOC  Separate  Affiliate  and  Related 
 Requirements,  WC  Docket  No.  02-  112,  Further  Notice  of  Proposed  Rulemaking,  18  FCC  Rcd  10914  (2003)  (Section  272  FNPRM);  see  also  47  U.  S.  C.    272(  e)(  1). 


 160  Special  Access  NPRM,  20  FCC  Rcd  at  1994  (special  access  comments  filed  June  13,  2005  and  reply  comments 
 filed  July  29,  2005). 
 161  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21592,  para.  183;  see  also  Alltel/  Western  Wireless  Order,  FCC 
 05-  138  at  paras.  104,  109  (The  broad  scope  of  concerns  raised  that  the  merger  would  create  the  opportunity  for  Alltel  to  engage  in  anticompetitive  roaming  practices  .  .  .  are  more  appropriately  addressed  in  the  context  of  a 


 rulemaking  proceeding.  .  .  .  [The  rulemaking]  proceeding  will  afford  interested  parties  an  opportunity  to  comment  on  a  variety  of  roaming  issues,  including  manual  and  automatic  roaming,  technical  considerations,  and  small  and 
 rural  carrier  roaming  concerns.);  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23257,  para.  31  (  The  Commissions  pending  rulemaking  on  cable  horizontal  ownership  is  the  more  appropriate  forum  for  consideration  of  the  potential 
 effects  of  industry-  wide  clustering  on  the  distribution  of  programming  by  MVPDs  to  consumers.);  cf.  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20584,  para.  48  ([  W]  e  find  that  the  specific  recommendations  made  by 
 Consumers  Union  with  respect  to  public  interest  set-  aside  issues  are  properly  addressed  in  the  rulemaking  setting  rather  than  a  subset  thereof  in  the  context  of  a  merger  application.);  SBC/  SNET  Order,  13  FCC  Rcd  at  21306,  para. 
 29  (finding  that  the  Commission  need  not  address  in  the  context  of  the  merger  proceeding  the  allegation  that  SBC  was  not  providing  support  necessary  for  a  calling  party  pays  service  because  the  Commission  has  regularly 
 declined  to  consider  in  merger  proceedings  matters  that  are  subject  to  other  proceedings  before  the  Commission  because  the  public  interest  would  be  better  served  by  addressing  the  matter  in  the  broader  proceedings  of  general 
 applicability.);  AT&  T/  TCI  Order,  14  FCC  Rcd  at  3183,  para.  43  (  We  find  that  digital  broadcast  signal  carriage  (continued.) 
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 C.  Retail  Enterprise  Competition 
 56.  In  this  section,  we  analyze  the  potential  competitive  effects  of  the  proposed  merger  on  enterprise  services.  As  discussed  below,  we  find  that  the  Applicants  compete  against  each  other  with  respect  to 
 various  types  of  enterprise  services  and  various  classes  of  enterprise  customers,  and  that  the  merger  will  lead  to  increased  concentration  in  certain  relevant  markets.  We  conclude,  however,  that  the  merger  is  not 
 likely  to  result  in  anticompetitive  effects  for  enterprise  customers.  We  find  that  competition  for  medium  and  large  enterprise  customers  should  remain  strong  after  the  merger  because  medium  and  large  enterprise 
 customers  are  sophisticated,  high-  volume  purchasers  of  communications  services  that  demand  high-capacity  communications  services,  and  because  there  will  remain  a  significant  number  of  carriers 
 competing  in  the  market.  With  respect  to  small  enterprise  customers,  we  recognize  that  AT&  T  had  announced  its  gradual  withdrawal  from  that  market  prior  to  the  announcement  of  the  merger,  and  we 
 conclude  after  examining  the  record  that  it  was  not  exerting  significant  competitive  pressure  with  respect  to  those  customers. 


 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 57.  The  record  indicates  that  retail  enterprise  customers  purchase  a  variety  of  different  communications  services,  including  local  voice,  long  distance  and  international  voice,  and  data 
 services.  162  In  addition,  enterprise  customers  frequently  purchase  high-  capacity  transmission  services,  163 
 (Continued  from  previous  page)  requirements  should  be  addressed  in  the  Commissions  pending  rulemaking  proceeding  and  not  here.  .  .  .  [T]  his  is 
 like  other  cases  where  the  Commission  has  declined  to  consider,  in  merger  proceedings,  matters  that  are  the  subject  of  rulemaking  proceedings  before  the  Commission  because  the  public  interest  would  be  better  served  by  addressing 
 the  matter  in  a  broader  proceeding  of  general  applicability.).  For  these  same  reasons,  we  reject  the  claims  of  commenters  seeking  special  access  conditions  or  raising  concerns  unrelated  to  the  merger,  many  of  which  are  the 
 subject  of  pending  rulemaking  proceedings.  See,  e.  g.,  ACN  et  al.  Comments  at  70-  72;  CompTel/  ALTS  Petition  at  30-  32;  NASUCA  Comments  at  28;  Texas  OPC  Comments  at  9;  Global  Crossing  Comments  at  16-  17,  20-  21;  Ad 
 Hoc  Telecom  Users  Reply  at  29;  BT  Americas  Reply  at  9-  17;  ACN  et  al.  Aug.  10  Ex  Parte  Letter,  Attach.  at  5;  Letter  from  Melissa  E.  Newman,  Vice  President    Federal  Regulatory,  Qwest,  to  Marlene  H.  Dortch,  Secretary, 
 FCC,  WC  Docket  No.  05-  65,  Attach.  at  4-  8  (filed  Sept.  22,  2005)  (Qwest  Sept.  22  Ex  Parte  Letter). 
 162  SBC  lists  [REDACTED]  different  enterprise  services:  [REDACTED].  SBC  Info.  Req.,  SBC21749-  818  at 
 21752. 


 Note  that  documents  submitted  by  SBC  in  response  to  the  Commissions  information  request  include  numerical  labeling  in  the  following  format:  SBCFCC#########  (where  #  represents  a  digit).  For  convenience  in  citing  these 


 documents,  we  do  not  include  FCC  or  any  leading  0s.  Thus,  a  document  beginning  on  page  SBCFCC000012345  and  ending  on  page  SBCFCC000012349  would  be  cited  as  SBC12345-  49. 


 163  The  specific  technology  used  by  the  individual  enterprise  customer  depends  on  availability,  needed  capacity, 
 services  required,  and  desired  service  quality  levels.  Enterprise  services  could  include  some  number  of  DS0  circuits  or  high-  capacity  circuits  of  DS1  or  higher  bandwidth,  such  as  DS1,  DS3,  and  OCn  circuits.  See,  e.  g.,  Triennial 


 Review  Order,  18  FCC  Rcd  at  17155-  56,  para.  298  (discussing  services  typically  purchased  by  enterprise  customers).  A  DS0  is  a  two-  wire  basic  connection,  which  operates  at  64,000  bps,  the  worldwide  standard  speed  for 
 digitizing  voice  conversation  using  pulse  code  modulation.  HARRY  NEWTON,  NEWTONS  TELECOM  DICTIONARY,  273  (20th  ed.,  2004)  (defining  DS-  0)  (NEWTONS  TELECOM  DICTIONARY).  A  DS1  is  a  four-  wire  connection 
 equivalent  to  24  DS0s.  A  DS3  is  equivalent  to  28  DS1s.  These  loops  may  be  purchased  by  customers  from  state  and  federal  tariffs.  Triennial  Review  Order,  18  FCC  Rcd  at  17155-  56,  para.  298. 
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 such  as  Frame  Relay,  164  Asynchronous  Transfer  Mode  (ATM),  165  Gigabit  Ethernet,  166  and  similar  services  provided  via  emerging  technologies.  167  Retail  enterprise  customers  also  purchase  other  facilities  and 
 CPE.  168 
 58.  The  record  makes  clear  that  the  services  offered  to  enterprise  customers  fall  into  a  number  of  separate  relevant  product  markets.  For  example,  it  makes  little  sense  that  an  enterprise  customer  would 
 shift  to  making  only  long  distance  calls  in  response  to  a  small,  but  significant  and  nontransitory  increase  in  the  price  of  local  telephone  service.  Similarly,  an  enterprise  customer  would  not  shift  to  relying  totally 
 on  voice  services  (whether  local,  long  distance,  or  international)  if  the  price  of  data  services  rose  by  a  small,  but  significant  and  nontransitory  amount.  Consequently,  we  find  that  local  voice,  long  distance 
 voice,  and  data  services  constitute  distinct  product  markets. 
 59.  We  have  less  information  about  the  substitutability  of  different  transmission  services.  While  there  is  data  in  the  record  indicating  that  the  number  of  customers  taking  Frame  Relay  is  declining,  while 
 the  number  taking  IP  transmission  services  is  increasing,  169  we  do  not  have  data  on  elasticities  (and  cross  elasticities)  of  demand  for  any  particular  transmission  services.  Similarly,  there  is  insufficient 
 information  about  the  migration  time,  price  differences,  and  service  quality  differences  that  customers 
 164  Frame  Relay  is  a  high  speed  data  service  that  allows  local  area  networks  to  be  connected  across  a  public  network. 
 Frame  Relay  remains  a  cost  effective  service  option  for  smaller  businesses  that  do  not  generate  enough  traffic  to  support  a  full  T-  1.  See  TELECOMMUNICATIONS  INDUSTRY  ASSOCIATION,  2005  TELECOMMUNICATIONS  MARKET 


 REVIEW  AND  FORECAST  121  (2005)  (TIA  2005  MARKET  REVIEW).  A  T-  1  provides  the  same  speed  and  capacity  service  as  a  DS1.  Triennial  Review  Order,  18  FCC  Rcd  at  17104-  05,  para.  202  n.  634.  Similarly,  a  T-  3  provides  the 
 same  speed  and  capacity  service  as  a  DS3. 
 165  ATM  service,  which  was  developed  more  recently  than  Frame  Relay,  has  greater  availability  in  urban  areas,  is 
 currently  the  most  widely-  used  carrier  backbone  technology,  and  can  guarantee  different  quality  of  service  levels  to  meet  various  customer  needs.  ATM  offers  higher  reliability  and  greater  capacity  because  it  combines  the 


 advantages  of  circuit-  switched  and  packet-  switched  networks,  guaranteeing  the  delivery  of  information  that  is  intolerant  of  delays,  while  allocating  bandwidth  more  efficiently.  TIA  2005  MARKET  REVIEW  at  123-  125. 


 166  Gigabit  Ethernet  is  a  local  area  network  (LAN)  connection  technique  that  provides  high-  speed  access  to  file 
 servers  and  applications.  It  facilitates  applications  that  use  graphics,  large  database  design,  modeling  (e.  g.,  engineering/  medical  imaging  applications),  and  streaming  video.  TIA  2005  MARKET  REVIEW  at  99. 


 167  Enterprises  are  increasing  their  use  of  IP  Virtual  Private  Networks  (IP-  VPNs),  and  carriers  are  migrating  to 
 Multiprotocol  Label  Switching  (MPLS).  TIA  2005  MARKET  REVIEW  at  118-  25.  MPLS  is  similar  to  other  circuit-switched  ATM  or  Frame  Relay  networks,  except  that  MPLS  is  not  dependent  on  a  particular  technology.  See,  e.  g., 


 MPLS  Resource  Center,  The  MPLS  FAQ,  (visited  Aug.  19,  2005)  available  at  http://  www.  mplsrc.  com/  faq1.  shtml#  MPLS%  20History. 


 168  See  SBC/  AT&  T  Reply,  Reply  Declaration  of  Walid  Bazzi  (SBC/  AT&  T  Bazzi  Reply  Decl.)  at  paras.  8,  32.  SBC 
 explains  that  enterprise  customers  need  CPE  and  other  network  infrastructure  to  support  enterprise-  wide  management  applications  (e.  g.  linking  a  network  of  retail  stores  to  exchange  inventory  and  sales  information).  Id. 


 169  See,  e.  g.,  AT&  T  Info.  Req.,  ATTFCC02991-  3048  at  2996.  From  1997  through  2002,  the  use  of  Frame  Relay 
 grew  at  a  faster  rate  than  the  use  of  dedicated  leased  lines;  however,  in  the  past  two  years,  growth  in  Frame  Relay  ports  has  stagnated.  TIA  2005  Market  Review  at  120-  121.  From  the  year  2000  through  the  year  2004,  ATM  service 


 revenues  nearly  tripled,  from  $1.  1  billion  to  $2.  9  billion.  Id.  at  124.  The  number  of  ATM  ports  in  the  United  States  rose  by  10.5%  in  2004  to  42,000,  and  it  is  expected  to  climb  to  51,000  by  2008.  Id.  However,  as  newer 
 technologies  emerge,  ATMs  role  as  a  backbone  technology  is  changing  as  enterprise  customers  increase  their  use  of  IP-  VPNs.  Id.  at  123. 
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 face  when  deciding  to  change  from  one  transmission  service  to  another.  Thus,  the  evidence  is  insufficient  for  us  to  define  precisely  the  boundaries  of  those  transmission  service  markets. 
 60.  In  previous  orders,  the  Commission  also  has  found  it  appropriate  to  define  separate  relevant  product  markets  based  on  the  class  of  customer  (particularly  where  there  is  price  discrimination).  170  For 
 example,  the  Commission  previously  found  that  small  enterprise  customers  fall  into  a  separate  relevant  product  market  from  mid-  sized  to  large  retail  enterprise  customers.  171  This  distinction  exists  because, 
 unlike  small  enterprise  customers,  larger  businesses  often  contract  for  more  sophisticated  services,  including  Frame  Relay,  virtual  private  networks,  and  enhanced  800  services.  172  Larger  businesses  also 
 demand  a  greater  volume  of  minutes,  for  which  they  often  negotiate  discounts.  173  Not  only  do  smaller  enterprise  customers  tend  to  purchase  different  services  than  larger  business  customers,  174  but  carriers 
 treat  them  differently,  both  in  the  way  they  market  their  products  and  in  the  prices  they  charge.  175 
 61.  While  the  record  demonstrates  that  service  providers  charge  different  prices  to  different  customers  for  particular  services,  it  fails  to  reveal  any  standard  rules  or  general  principles  that  dictate  how 
 service  providers  set  prices  for  particular  customers.  For  example,  while  record  evidence  indicates  that  SBC  and  AT&  T  have  created  classes  of  enterprise  customers  for  pricing,  marketing,  and  other  purposes, 
 it  appears  that  the  two  carriers  use  different  break-  points  between  the  customer  classes.  176  There  is 
 170  See  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14088-  89,  para.  102  (finding  that  it  is  appropriate  to  define  the 
 product  market  by  aggregating  customers  with  similar  demand  patterns);  see  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040-  42,  paras.  24-  29;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14760,  para.  100;  SBC/  SNET  Order,  13  FCC 


 Rcd  at  21301,  para.  20;  DOJ/  FTC  Guidelines    1.12.  Economists  define  price  discrimination  as  charging  different  customers  prices  that  are  not  in  proportion  to  marginal  cost.  W.  KIP  VISCUSI  et  al.,  ECONOMICS  OF 
 REGULATION  AND  ANTITRUST  284-  85  (3d  ed.  2000).  Economists  have  distinguished  various  types  of  price  discrimination.  Under  second  degree  price  discrimination,  all  purchasers  confront  the  same  price  schedule,  but  pay 
 different  prices  depending  on  their  demands.  Id.  Volume  and  term  discounts  are  examples  of  second  degree  price  discrimination. 


 171  See  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14088-  89,  para.  102.  A  study  produced  for  the  United  States  Small 
 Business  Administration  states  that  large  businesses  may  be  more  likely  than  small  ones  to  use  alternatives  like  Public  Branch-  Exchange  (PBX)  systems,  local  area  networks  (LANs)  and  dedicated  high-  speed  data  services,  like 


 T-  l  and  T-  3  lines.  Stephen  B.  Pociask,  A  Survey  of  Small  Businesses  Telecommunications  Use  and  Spending  at  2  (Mar.  2004)  available  at  http://  www.  sba.  gov/  advo/  research/  rs236tot.  pdf  (SBA  Telecom  Report). 


 172  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040-  41,  para.  26. 
 173  Id. 
 174  According  to  one  study,  for  data  services,  38%  of  small  business  users  subscribe  to  Internet  dial-  up  services, 
 26%  use  cable  modem,  21%  use  DSL,  and  only  4%  of  small  businesses  subscribe  to  T-  1  services.  SBA  Telecom  Report  at  44. 


 175  AT&  T  Info.  Req.,  ATT509000105-  47  at  107  ([  REDACTED]);  see  also  infra  note  176  (discussing  how  both 
 AT&  T  and  SBC  adopt  different  marketing  approaches  for  different  classes  of  customers). 
 176  Indeed,  both  SBC  and  AT&  T  use  the  term  enterprise  differently  in  the  ordinary  course  of  business.  SBC 
 explains  that  it  breaks  down  its  business  customers  into  two  categories:  Global  and  Enterprise  Markets,  and  Business  Communications  Services  (BCS).  Within  the  Global  and  Enterprise  Markets  category,  there  are  the 


 following  sub-  categories:  Global;  Enterprise;  Entertainment/  Hospitality;  Service  Providers;  and  Federal.  Global  includes  customers  that  are  expected  to  spend  at  least  $1  million  per  year  on  communications  services,  and  that 
 generally  have  locations  in  multiple  regions  of  SBCs  franchised  territory.  Enterprise  includes  customers  that  are  expected  to  spend  over  $48,000,  but  less  than  $1  million  on  communications  services  on  an  annual  basis. 
 (continued.) 
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 evidence  in  the  record,  however,  suggesting  that  a  number  of  factors  influence  how  carriers  price  their  services  to  particular  types  of  customers.  177  These  factors  include  the  customers  total  telecom  spend;  the 
 types  of  services  and  technologies  ordered;  the  customers  total  employee  count;  the  customers  total  annual  revenues;  and  whether  the  customer  obtains  customized  services.  178  Further,  it  appears  that 
 carriers  place  varying  degrees  of  importance  on  each  of  these  factors,  and  consequently,  carriers  pricing  to  particular  enterprise  customers  may  vary.  Thus,  although  we  find  that  there  are  separate  product 
 markets  for  the  different  enterprise  customer  groups,  there  does  not  appear  to  be  industry-  wide  consensus  as  to  how  to  differentiate  one  class  from  another.  179 


 b.  Relevant  Geographic  Markets 
 62.  In  prior  merger  orders,  the  Commission  has  recognized  that,  because  a  customer  is  unlikely  to  physically  move  its  location  in  response  to  a  small,  but  significant  and  nontransitory  increase  in  the  price 
 of  a  communications  service,  each  customer  location  constitutes  a  separate  relevant  geographic  market.  180  For  reasons  of  administrative  practicality,  however,  the  Commission  has  aggregated  customers  facing 
 similar  competitive  choices  to  create  larger  relevant  geographic  markets.  181  We  believe  this  traditional  approach  is  appropriate  for  enterprise  customers  with  single  locations  in  SBCs  region.  Unfortunately, 
 the  data  in  the  record  is  not  sufficiently  detailed  to  define  localized  relevant  geographic  markets  in  which  all  enterprise  customers  face  the  same  competitive  choices.  Rather,  the  most  disaggregated  market  share 


 (Continued  from  previous  page)  Entertainment/  Hospitality  includes  customers  that  are  simply  customers  that  are  in  these  types  of  business. 
 Similarly,  Service  Providers  includes  simply  those  customers  that  provide  wireline  and  wireless  services.  Federal  includes  all  federal  government  agencies.  Within  the  BCS  category,  there  are  the  following  submarkets: 
 GEM;  Signature;  and  Valued.  GEM  includes  state  and  local  governments,  educational  institutions,  and  medical  institutions.  Signature  customers  are  expected  to  spend  between  $7,000  and  $48,000  on  communications  services 
 per  year.  Valued  customers  are  expected  to  spend  less  than  $7,000.  SBC  Info.  Request  at  3-  7. 
 AT&  T  breaks  down  its  business  customers  into  the  following  categories:  Signature;  Enterprise;  Select;  Global;  Government;  and  Wholesale.  Signature  comprise  a  defined  list  of  approximately  300  customers  that  are  typically 


 AT&  Ts  largest.  Enterprise  customers  order  more  than  $1  million  annually  and  include  qualifying  local  governments  and  all  state  government  customers  except  Hawaii  and  Alaska.  Select  customers  generally  order 
 more  than  $6,000  annually,  have  85  employees  on  average,  and  order  at  least  some  degree  of  managed  or  data  services.  The  Gold  class  of  Select  have  an  annual  spend  of  at  least  $18,000  (or  total  sales  in  excess  of  $10  million 
 with  potential  purchases  of  AT&  T  services  of  $60,000),  data  and  related  service  requirements  in  multiple  locations,  and  significant  IT  requirements.  The  Silver  class  of  Select  are  those  Select  customers  that  fail  to  meet  the  Gold 
 criteria.  Global  customers  include  multinational  accounts  headquartered  in  non-  U.  S.  locations  with  annual  spend  of  $100,000  for  international  services  (or  potential  purchases  of  services  provided  by  AT&  T  in  excess  of  $500,000) 
 and  operations  in  more  than  one  AT&  T  international  region.  It  also  includes  Japanese  domestic  customers  with  potential  purchases  of  $100,000.  Government  consists  of  federal  government  departments  and  agencies, 
 including  both  defense/  security  and  non-  defense.  Wholesale  consists  of  common  carriers  and  systems  integrators.  AT&  T  Info.  Request  at  3-  4. 


 177  See  AT&  T  Info.  Req.,  ATT509000105-  47  at  107  ([  REDACTED]). 
 178  See  supra  note  176. 
 179  Cf.  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18041,  para.  27  (finding  that  it  is  unnecessary  to  define  narrow 
 product  markets  where  there  is  insufficient  data  in  the  record  on  cross  elasticities  of  demand). 
 180  See,  e.  g.,  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20610,  para.  119. 


 181  Id.;  see  also  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016-  17,  para.  54. 
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 data  that  is  available  is  presented  at  the  state  level.  Accordingly,  we  will  use  the  most  disaggregated  data  possible  in  performing  our  structural  analysis  for  different  types  of  business  services  and  for  certain  broad 
 classes  of  business  customers,  where  such  data  is  available.  In  most  cases,  the  data  will  be  presented  at  the  state  level.  182 


 63.  For  larger,  multi-  location  enterprise  customers,  we  reach  a  slightly  different  conclusion.  We  find  that  these  customers  typically  seek  service  from  a  provider  that  can  serve  all  their  locations,  and  generally 
 only  a  few  carriers  serving  a  particular  location  have  such  capabilities.  In  light  of  the  fact  that  there  are  relatively  few  providers  that  can  offer  a  high  level  of  ubiquitous  service,  we  conclude  that  this  geographic 
 market  should  encompass  all  the  geographic  locations  where  these  multi-  location  business  customers  may  have  a  presence.  Thus,  we  consider  it  appropriate  to  consider  SBCs  various  states  and  regions  as  the 
 relevant  geographic  market  for  regional,  multi-  location  customers,  while  for  business  customers  with  locations  throughout  the  United  States,  we  will  perform  a  structural  analysis  based  upon  available  data  at 
 the  national  level  that  focuses  on  carriers  that  have  the  capability  of  serving  customers  throughout  the  country. 


 c.  Market  Participants 
 64.  We  find,  based  on  the  record,  that  there  are  numerous  categories  of  competitors  providing  services  to  enterprise  customers.  These  include  interexchange  carriers,  competitive  LECs,  cable 
 companies,  other  incumbent  LECs,  systems  integrators,  and  equipment  vendors.  183 
 2.  Competitive  Analysis 
 a.  Horizontal  Effects 
 65.  Unilateral  Effects.  The  lack  of  precise  demand  data  notwithstanding,  there  is  documentary  evidence  in  the  record  that  allows  us  to  examine  the  Applicants  assertions  regarding  the  degree  to  which 
 they  compete  for  enterprise  customers.  184  Moreover,  there  are  some  data  that  permit  us  to  identify  (with  some  level  of  disaggregation)  market  participants,  as  well  as  to  calculate  current  market  shares,  and  to 
 estimate  changes  in  market  share  that  are  likely  to  result  from  the  merger.  Specifically,  the  Applicants  have  provided  internal  documents  about  their  business  operations,  as  well  as  limited,  internal  studies  that 
 provide  market  share  data  about  the  carriers  serving  certain  markets.  In  this  section,  we  use  this  documentary  evidence  and  data  to  discuss  the  horizontal  concerns  raised  in  the  record.  We  conclude  that, 
 although  there  is  evidence  that  horizontal  concentration  will  increase  as  a  result  of  the  merger,  this  increase  is  not  likely  to  result  in  anticompetitive  effects,  given  the  large  number  of  competitors  already 


 182  Cf.  In  the  Matter  Of  2002  Biennial  Regulatory  Review  -  Review  of  the  Commissions  Broadcast  Ownership  Rules 
 and  Other  Rules  Adopted  Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996,  18  FCC  Rcd  13620,  13724,  para.  273  (2003)  (finding  that  the  use  of  a  broader  geographic  area  still  serves  as  a  rational  basis  when 


 defining  relevant  geographic  markets),  affd  in  part,  remanded  in  part  on  other  grounds,  Prometheus  Radio  Project  v.  FCC,  373  F.  3d  372  (D.  C.  Cir.  2003).  We  also  note  that  this  approach  is  consistent  with  SBCs  competitive 
 reports  and  assessments,  which  are  generally  conducted  on  a  state  wide  basis.  See,  e.  g.,  SBC  Info.  Req.,  SBC156307-  10. 


 183  See  SBC/  AT&  T  Application  at  72. 
 184  ACN  et  al.  claim  that  the  application  provides  neither  data  about  how  many  small  or  mid-  sized  business 
 customers  AT&  T  actually  serves  in  SBCs  region,  nor  data  about  how  many  national  customers  SBC  serves.  See  ACN  et  al.  Comments  at  9.  As  discussed  below,  however,  SBC  has  provided  some  data  regarding  these  markets. 
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 participating  in  this  market  and  the  high  level  of  customer  sophistication  for  mid-  sized  and  large  enterprise  customers.  For  small  enterprise  customers,  we  similarly  conclude  that  the  merger  is  not  likely 
 to  result  in  anticompetitive  effects,  based  upon  AT&  Ts  official  departure  from  this  segment  of  the  market,  as  well  as  likely  increased  competition  from  cable  and  VoIP  providers. 


 66.  Commenters  claim  that  the  merger  will  have  adverse  competitive  effects  because  SBC  and  AT&  T  already  compete  to  a  significant  degree  for  the  same  customers,  and  thus  the  merger  will  cause  an 
 increase  in  the  merged  entitys  market  share  and  in  market  concentration.  185  Commenters  further  assert  that,  if  the  Commission  finds  that  little  current  competition  exists  between  the  two  companies,  the  merger 
 nonetheless  eliminates  SBC  as  a  potential  competitor  in  the  large  enterprise  market.  186  Moreover,  commenters  assert  that,  after  the  merger,  SBC  and  AT&  T  together  will  have  about  a  75  percent  market 
 share  for  medium  and  large  enterprise  customers.  187  CompTel/  ALTS  argue  that  the  merger  will  increase  concentration  in  this  market  by  800  points  from  a  pre-  merger  HHI  of  2500  to  a  post-  merger  HHI  of  more 
 than  3300.  188 
 67.  The  Applicants  contend  that  they  generally  compete  at  opposite  ends  of  the  retail  enterprise  market.  189  SBC  argues  that  it  provides  its  local  network  services  to  primarily  small  and  medium  sized 
 enterprise  customers,  190  whereas  AT&  T  operates  a  global  network  that  serves  mainly  large  businesses.  191  SBC  states  that  it  is  acquiring  AT&  T  in  order  to  become  a  major  provider  of  communications  services  to 
 national  and  global  enterprise  customers  with  sophisticated  needs.  192  According  to  the  Applicants,  their 
 185  ACN  et  al.  Comments  at  3,  8-  9;  CompTel/  ALTS  Petition  at  24-  26;  Qwest  Petition  at  15;  Consumer  Federation  et 
 al.  Petition  at  22;  Cbeyond  et  al.  Petition  at  1-  2.  Specifically,  commenters  generally  assert  that,  because  AT&  T  is  SBCs  biggest  competitor,  there  will  be  too  much  market  concentration  in  the  hands  of  the  merged  entity. 


 186  ACN  et  al.  argue  that,  even  if  SBC  serves  only  a  few  large  enterprise  customers  today,  a  merger  with  AT&  T  is 
 not  its  only  possible  means  of  entry  into  this  market.  They  assert  that  SBC  has  not  shown  an  inability  to  compete,  but  rather,  only  that  it  has  never  attempted  to  do  so.  ACN  et  al.  Comments  at  9-  10. 


 187  Consumer  Federation  et  al.  Petition  at  22.  According  to  these  groups,  the  HHI  in  the  large  business  segment  is 
 just  under  4900.  A  dominant  firm  with  a  market  share  of  70%  would  cause  the  HHI  to  be  at  least  4900.  The  merger  would  raise  the  HHI  in  the  California  large  business  market  to  over  5800.  Id.;  see  also  ACN  et  al.  Comments  at  27 


 n.  71. 
 188  CompTel/  ALTS  Petition  at  25;  see  also  ACN  et  al.  Comments  at  27. 


 189  See  SBC/  AT&  T  Application  at  96-  97  (explaining  that  AT&  T  focus  on  the  largest  enterprise  customers  with  the 
 most  sophisticated  needs,  and  that  SBC  focuses  on  customers  with  a  predominance  of  locations  within  the  SBC  13-  state  region  (plus  the  30  out-  of  region  markets)  and  that  generally  require  less  complex  voice  and  data  solutions.). 


 190  SBC/  AT&  T  Application  at  iii,  6,  96-  97;  SBC/  AT&  T  Reply  at  v,  107.  SBC  explains  that  its  strength  among 
 small  and  medium-  sized  businesses  is  largely  due  to  these  companies  having  only  local  or  regional  operations  and  the  fact  that  they  require  less  sophisticated  products  and  services.  SBC/  AT&  T  Application,  Declaration  of  James  S. 


 Kahan  (SBC/  AT&  T  Kahan  Decl.)  at  para.  26. 
 191  AT&  T  asserts  that  its  ABS  division  provides  a  broad  array  of  voice,  data,  and  IP-  based  services  to  customers  in 
 more  than  50  countries,  allowing  AT&  T  to  compete  for  the  business  of  the  largest  global  enterprises.  SBC/  AT&  T  Application  at  iv,  98;  SBC/  AT&  T  Reply  at  123-  25.  Given  its  ability  to  compete  for  large  businesses,  AT&  T 


 contends  that  it  focuses  primarily  on  serving  national  and  global  enterprise  customers  with  sophisticated  needs.  SBC/  AT&  T  Application  at  6,  96,  98. 


 192  SBC/  AT&  T  Reply  at  134.  SBC  explains  that  it  has  been  unsuccessful  in  attracting  larger  enterprise  customers 
 despite  its  investment  of  over  $1  billion  in  an  interconnecting  backbone  network,  which  expands  SBCs  presence  to  (continued.) 
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 respective  enterprise  businesses  are  largely  complementary,  and  thus,  the  merger  will  have  little  competitive  impact  upon  the  enterprise  market.  193  They  assert,  therefore,  that  the  merger  will  not 
 significantly  increase  their  respective  shares  of  these  markets.  SBC  acknowledges  that  there  are  instances  in  its  region  where  SBC  and  AT&  T  were  both  finalists  for  a  customers  bid,  but  it  maintains  that  in  those 
 cases  there  are  a  large  number  of  other  firms  competing  for  these  same  customers.  194 
 68.  Based  upon  review  of  internally  produced  documents,  we  find  that  the  two  companies  in  fact  compete  for  a  range  of  customers  in  the  enterprise  market.  195  Specifically,  contrary  to  the  Applicants 
 description  of  their  respective  enterprise  operations,  we  find  that  SBC  competes  to  a  certain  extent  with  AT&  T  for  large  enterprise  customers  and  that  conversely,  AT&  T  competes  with  SBC  for  small  and  mid-sized 
 enterprise  customers.  With  respect  to  the  level  of  competition  between  the  Applicants  in  the  large  enterprise  market,  we  agree  with  ACN  et  al.  that  it  would  be  extraordinary  for  SBC  already  to  have  a 
 large  share  of  this  market  given  that  it  only  had  region-  wide,  section  271  authority  for  15  months  at  the  time  of  the  mergers  announcement;  and  indeed,  SBCs  revenues  in  this  market  are  smaller  than 
 AT&  Ts.  196  Documents  clearly  show,  however,  that  SBC  has  achieved  some  degree  of  success  with  its 
 (Continued  from  previous  page)  30  out-  of-  region  cities.  SBC/  AT&  T  Reply  at  138;  SBC/  AT&  T  Kahan  Decl.  at  para.  24.  In  addition  to  the 


 backbone  network,  SBC  states  that  it  has  entered  into  agreements  to  use  third-  party  networks  for  transport  and  local  access  in  areas  where  it  lacks  its  own  network  facilities.  SBC/  AT&  T  Kahan  Decl.  at  para.  25.  SBC  attributes  its 
 difficulties  in  attracting  larger,  out-  of-  region  business  customers  to  the  fact  that  its  network  lacks  feature-  rich,  cost-effective,  flexible,  reliable,  and  secure  communications  services.  Id.  at  para.  26.  According  to  SBC,  large  business 
 customers  hesitate  to  use  SBC  because  it  does  not  directly  control  the  management  of  many  of  the  networks  that  it  uses  to  provide  service.  Id.  Similarly,  SBC  explains  that  it  frequently  cannot  meet  the  high  service  levels  that  large 
 companies  often  require  of  their  providers.  Id.  SBC  concludes  that  it  lacks  the  necessary  array  of  enterprise  services,  and  out  of  region  lacks  the  dense  ubiquitous  network  needed  to  support  a  broad  array  of  services  required 
 by  larger  businesses.  SBC/  AT&  T  Application,  Declaration  of  Christopher  Rice  (SBC/  AT&  T  Rice  Decl.)  at  para.  32. 


 193  SBC/  AT&  T  Reply  at  125.  While  SBC  acknowledges  that  its  Global  and  Enterprise  sales  have  grown 
 marginally,  it  argues  that  they  are  a  small  fraction  of  AT&  Ts  and  other  significant  national  competitors  sales.  SBC/  AT&  T  Application  at  100-  01.  In  support  of  this  statement,  the  Applicants  cite  a  Deloitte  Consulting  report, 


 which  provides  that  in  the  twenty-  one  procurements  for  which  Deloitte  has  data,  SBC  and  AT&  T  bid  against  each  other  only  three  times  and  were  both  finalists  in  only  one  procurement.  SBC/  AT&  T  Reply  at  124;  see  also 
 SBC/  AT&  T  Bazzi  Reply  Decl.  at  paras.  19-  24. 
 194  SBC/  AT&  T  Reply  at  124. 


 195  Given  this  finding,  we  find  inapposite  the  assertions  of  some  commenters  that  SBC  is  a  potential  competitor  to 
 AT&  T  for  large  enterprise  customers.  See,  e.  g.,  ACN  et  al.  Comments  at  9.  We  discuss  below  commenters  contention  that  SBC  was  a  potential  competitor  for  global  telecommunications  service  (GTS)  customers.  See  infra 


 Part  V.  G.  3.  c  (U.  S.  International  Services  Competition    Global  Telecommunications  Services). 
 196  ACN  et  al.  Comments  at  9,  28;  cf.  BT  Americas  Reply  at  5-  7  (claiming  that  SBC  is  a  potential  competitor  for 
 GTS  customers).  SBC  reports  that  for  2004,  its  revenues  for  the  largest  enterprise  customers  ($  1  million  or  more  in  annual  spend  for  communications  services)  amounted  to  [REDACTED]  or  [REDACTED]%  of  its  total  annual 


 revenue.  SBC  Info.  Req.  at  9  (unredacted).  For  the  same  class  of  customers,  AT&  T  reports  that  it  generated  [REDACTED],  or  [REDACTED]%  of  its  total  annual  revenue.  Letter  from  David  L.  Lawson,  Counsel  for  AT&  T, 
 to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  Specification  1(  c)  Attach.  (filed  June  13,  2005)  in  Letter  from  Nirali  Patel,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed 
 July  21,  2005)  (AT&  T  June  13  Ex  Parte  Letter).  For  enterprise  customers  spending  less  than  $1  million  annually,  SBC  reports  that  in  2004,  it  generated  [REDACTED]  or  [REDACTED]%  of  its  total  annual  revenue  from  these 
 customers.  Letter  from  Thomas  F.  Hughes,  Vice  President-  Federal  Regulatory,  SBC,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  2  (filed  June  24,  2005)  (SBC  June  24  Ex  Parte  Letter).  AT&  T  reports 
 (continued.) 
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 entry  into  the  large  enterprise  market,  especially  in  its  own  region.  197  Documents  in  the  record  further  show  that  AT&  T  has  a  presence  in  the  small  and  mid-  sized  enterprise  market,  and  that  it  competes  for  a 
 wide  range  of  customers.  198 
 69.  Using  data  submitted  by  the  Applicants,  staff  calculated  Herfindahl-  Hirschman  Indices  (HHIs)  199  at  the  state  level  for  local  voice,  long  distance  voice,  and  data  enterprise  services.  In  keeping  with  our 
 conclusions  about  the  relevant  geographic  markets,  this  analysis  is  conducted  by  examining  the  competitive  alternatives  of  enterprise  customers  with  single  or  multiple  operations  within  the  SBC 
 franchise  area,  and  also  conducting  a  separate  examination  of  the  competitive  choices  for  enterprise  customers  having  multiple  operations  throughout  the  country. 


 70.  In  general,  the  market  share  calculations  indicate  a  high  level  of  concentration  in  most  franchise  areas  for  all  relevant  services  for  both  mid-  sized  and  large  enterprise  customers  with  significant 
 operations  in  SBCs  region  after  the  merger.  200  SBCs  median  statewide  share  of  local  voice  services  201 
 (Continued  from  previous  page)  that  for  the  same  class  of  enterprise  customers,  it  generated  [REDACTED]  or  [REDACTED]%  of  its  total  revenue. 


 AT&  T  June  13  Ex  Parte  Letter,  Specification  1(  c)  Attach.  In  sum,  SBCs  business  enterprise  operations  generated  [REDACTED],  whereas  AT&  Ts  generated  [REDACTED]. 


 197  SBC  Info.  Req.,  SBC255592-  621  at  255598  [REDACTED]).  An  AT&  T  study  found  that  [REDACTED]. 
 AT&  T  Info.  Req.,  ATT532007204-  305  at  220.  One  SBC  report  explains  that  SBC  enterprise  operations  captured  [REDACTED].  SBC  Info.  Req.,  SBC257440-  545  at  257458.  During  the  second  quarter  of  2004,  SBC  stated  that 


 it  had  responded  to  57%  more  bid  requests  compared  to  the  previous  year.  In  addition,  contracts  won  in  this  space  have  increased  34%  from  the  fourth  quarter  of  2003.  SBC,  Investor  Briefing,  No.  243  at  6  (July  22,  2004)  available 
 at  http://  www.  sbc.  com/  Investor/  Financial/  Earning_  Info/  docs/  2Q_  04_  IB-  FINAL.  pdf.  An  AT&  T  study  also  found  that  SBC  [REDACTED].  AT&  T  Info.  Req.,  ATT532007204-  305  at  232. 


 198  An  SBC  report  finds  that  in  April  2004,  [REDACTED]%  of  SBCs  business  access  line  competitive  losses  were 
 in  the  [REDACTED]  line  space,  and  most  of  these  lines  fell  in  the  [REDACTED]  line  space.  SBC  Info.  Req.,  SBC259046-  63  at  259047.  Thus,  almost  [REDACTED]  of  its  enterprise  losses  were  from  small  businesses,  and 


 the  report  found  that  [REDACTED]%  of  customers  left  SBC  for  AT&  T.  SBC  Info.  Req.,  SBC21465-  525  at  21479.  Another  SBC  document  explains  that  this  exodus  occurred  because  [REDACTED].  SBC  Info.  Req., 
 SBC259046-  63  at  259047.  It  states  that  [REDACTED].  Id.  In  response,  SBC  developed  an  initiative  beginning  in  [REDACTED].  Id.  at  48. 


 199  The  HHI  is  calculated  as  the  sum  of  the  squares  of  the  market  shares  of  each  firm  participating  in  a  relevant 
 market.  The  HHI  can  range  from  nearly  zero  in  the  case  of  an  atomistic  market  to  10,000  in  the  case  of  a  pure  monopoly.  Because  the  HHI  is  based  on  the  squares  of  the  market  shares  of  the  participants,  it  gives 


 proportionately  greater  weight  to  carriers  with  larger  market  shares.  Changes  in  market  concentration  are  measured  by  the  change  in  the  HHI.  See  DOJ/  FTC  Guidelines    1.5. 


 200  Our  analysis  of  SBCs  position  in  the  mid-  size  and  large  enterprise  service  market  both  before  and  after  the 
 acquisition  is  based  upon  data  reported  in  an  SBC  internal  report  that  was  submitted  in  response  to  our  data  request.  See  SBC  Info.  Req.,  Exhs.  3(  d)(  2),  3(  d)(  3).  Subsequently,  SBC  provided  the  underlying  data  which  served  as  the 


 basis  for  this  internal  report.  See  Letter  from  Robert  M.  Halperin,  Counsel  for  SBC,  to  Marlene  H.  Dortch,  Secretary,  FCC,  Exhs.  2004  Data  Survey,  2004  Voice  Survey  (filed  Aug.  31,  2005)  (SBC  Aug.  31  Ex  Parte  Letter). 
 Specifically,  SBC  provided  2004  state  and  regional  market  share  data  for  primary  provider  voice  and  data  services;  basic  business  lines;  local  voice  services;  intraLATA  voice  services;  interLATA  voice  services;  DSL  and  cable 
 modem  broadband  services;  retail  T-  1;  and  retail  Hi-  Cap  services.  SBC  explains  that  for  voice  service  surveys,  it  polled  via  telephone  up  to  4,000  customers  that  spent  more  than  $500  per  month  on  these  services.  It  explains  that 
 the  results  are  weighted  to  represent  the  overall  population  of  both  medium  and  large  business  customers.  For  data  services,  SBC  explains  that  it  surveyed  via  written  questionnaire  4,283  businesses  that  qualified.  See  SBC  Aug.  31 
 Ex  Parte  Letter  at  2-  3.  Market  share  calculations  pre-  and  post-  merger  are  provided  in  Confidential  Appendix  C,  (continued.) 
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 increases  from  [REDACTED]  percent  to  [REDACTED]  percent  within  the  states  in  its  region.  202  The  median  pre-  merger  HHI  for  these  services  203  in  SBCs  entire  region  is  [REDACTED],  and  it  increases  to 
 [REDACTED]  post-  merger.  204  SBCs  median  statewide  share  of  interLATA  voice  services  205  increases  from  [REDACTED]  percent  before  the  merger  to  [REDACTED]  percent  after  the  merger  for  states 
 within  its  region.  The  median  pre-  merger  HHI  for  these  services  in  SBCs  region  is  [REDACTED],  and  it  increases  to  [REDACTED]  after  the  merger.  206  For  high-  cap  data  services,  207  SBCs  median  statewide 
 market  share  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  for  its  in-  region  states.  The  median  pre-  merger  HHI  for  these  services  in  SBCs  entire  region  is  [REDACTED],  and  it  increases 
 to  [REDACTED]  post-  merger.  208 


 (Continued  from  previous  page)  Tables  1-  4.  See  SBC  Aug.  31  Ex  Parte  Letter,  Exhs.  (providing  enterprise  data  for  voice  and  data  services  used  to 
 calculate  market  shares). 
 201  The  SBC  survey  does  not  provide  a  definition  for  these  services,  but  it  is  generally  accepted  that  local  voice 
 services  encompass  calls  placed  to  a  location  within  the  local  service  area.  See  NEWTONS  TELECOM  DICTIONARY  at  488  (defining  local  call). 


 202  The  market  share  data  summarized  in  the  text  are  based  on  revenues.  The  market  share  data  for  all  the  relevant 
 geographic  areas  are  presented  in  Confidential  Appendix  C.  The  percentages  shown  reflect  the  share  of  customer  expenditures  captured  by  the  named  provider.  In  addition,  it  should  be  observed  that  the  sample  data  provided  was 


 not  statistically  sufficient  for  the  state  of  Nevada,  and  thus,  the  data  results  are  provided  only  for  SBCs  other  12  states.  Appendix  C  also  presents  market  share  data  based  on  customer  accounts  for  basic  business  lines. 


 203  In  the  text,  we  present  the  median  pre-  merger  HHI  and  median  post-  merger  HHI  over  the  entire  SBC  in-  region 
 territory  for  each  product  where  data,  which  were  presented  at  the  state  level,  are  available.  The  pre-  merger  and  post-  merger  HHIs  for  each  state  in  this  region,  as  well  as  the  accompanying  changes  in  HHI,  are  presented  in 


 Appendix  C,  Tables  1,  2,  and  3. 
 204  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED].  BT 
 Americas  also  cites  HHIs  calculated  for  large  enterprise  customers  filed  in  the  California  commissions  merger  proceeding.  BT  Americas  Reply  at  7.  However,  as  BT  Americas  itself  notes,  the  underlying  data  is  not  available  in 


 this  record,  nor  is  it  even  clear  what  product  market  was  used  to  calculate  these  market  shares.  Id.  at  7  n.  15.  We  thus  do  not  rely  on  those  HHIs  in  our  analysis. 


 205  The  SBC  survey  does  not  provide  a  definition  for  these  services,  but  it  is  generally  accepted  that  interLATA 
 voice  services  are  carried  by  long  distance  companies,  and  include  calls  that  are  placed  within  one  LATA  and  received  in  a  different  LATA.  See  NEWTONS  TELECOM  DICTIONARY  at  430  (defining  InterLATA  call). 


 206  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED].  It 
 should  be  noted  that  we  exclude  Indiana,  which  actually  had  the  highest  HHI,  with  [REDACTED],  because  of  an  anomaly  caused  by  the  fact  that  Sprint  is  a  major  incumbent  LEC  in  Indiana  and  the  survey  combined  Sprints 


 incumbent  LEC  operations  and  its  interexchange  operations. 
 207  SBC  explains  that  this  category  represents  the  combined  shares  of  Fractional  T-  1,  T-  1,  Fractional  T-  3,  and  DS-3/ 
 T-  3  services  .  .  .  .  Both  T-  1  and  High-  Cap  shares  are  for  retail  data  services  only,  and  therefore  do  not  include  circuits  used  for  voice  or  wholesale  special  access  services.  See  SBC  Aug.  31  Ex  Parte  Letter  at  5  n.  12.  We  note 


 that  medium  and  large  enterprise  customers  can  use  these  high-  speed  transmission  services  for  voice  or  data  transmission,  or  to  connect  to  an  Internet  service  provider  or  Internet  backbone  provider  for  purposes  of  obtaining 
 Internet  access.  While  we  perform  a  competitive  analysis  for  high-  speed  transmission  services  above,  we  have  no  market  share  data  to  separately  analyze  high-  speed  services  used  specifically  for  Internet  access. 


 208  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
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 71.  Market  share  data  pertaining  to  small  enterprise  customers  within  SBCs  franchise  area  also  indicate  a  high  level  of  concentration  for  certain  services  in  particular  markets.  209  Specifically,  we 
 consider  data  pertaining  to  local,  long  distance,  and  to  Internet  access  services  for  small  enterprise  customers.  210  SBCs  median  share  of  local  access  services  211  increases  from  [REDACTED]  percent  to 
 [REDACTED]  percent  for  states  within  its  region.  The  pre-  merger  median  HHI  across  SBCs  states  for  these  services  is  [REDACTED],  and  increases  to  [REDACTED]  post-  merger.  212  SBCs  median  share  of 
 long  distance  voice  services  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  for  states  within  its  region.  The  pre-  merger  median  HHI  for  these  services  across  SBCs  states  is  [REDACTED] 
 and  increases  to  [REDACTED]  post-  merger.  213  For  Internet  access  services,  SBCs  median  share  within  its  region  increases  slightly  from  [REDACTED]  percent  pre-  merger  to  [REDACTED]  percent  post-merger 
 for  the  states  within  its  region.  The  pre-  merger  median  HHI  for  these  services  across  SBCs  states  is  [REDACTED]  and  increases  to  [REDACTED]  post-  merger.  214 


 72.  The  data  indicate  that  the  merger  will  result  in  a  smaller  increase  in  market  concentration  for  enterprise  customers  having  multiple  operations  located  both  inside  and  outside  of  SBCs  region.  215  For 
 example,  for  long  distance  voice  services  provided  to  these  multi-  location  customers,  216  SBCs  national 
 209  Our  analysis  of  SBCs  position  in  the  small  enterprise  market  both  before  and  after  the  acquisition  is  based  upon 
 data  reported  in  an  SBC  internal  report  on  small  business  market  shares.  SBC  Info.  Req.,  Exh.  3(  d)(  1).  The  carrier  market  share  data  detailed  in  this  report  are  also  presented  at  the  state  level  and  based  upon  revenue.  HHI 


 calculations  pre-  and  post-  merger  are  provided  in  Confidential  Appendix  C,  Tables  5-  7.  We  note  that  although  this  study  does  not  specifically  define  small  business  customers,  SBC,  in  response  to  the  Commissions  information 
 request,  explained  that  it  considers  a  business  that  generates  less  than  $7,000  in  annual  communications  services  to  be  a  small  enterprise  customer. 


 210  Given  the  difficulty  in  obtaining  accurate  data  about  the  various  customer  groups,  it  is  likely  that  there  is  an 
 overlap  of  data  between  consumer  groups.  For  example,  as  noted  above,  SBC  explains  that  it  considers  a  business  that  generates  less  than  $7,000  in  annual  communications  services  to  be  a  small  enterprise  customer.  SBC  Info. 


 Req.  at  7.  In  light  of  this  consideration,  however,  SBCs  data  about  small  enterprise  customers  are  likely  to  contain  data  from  small  business  customers,  which  are  discussed  in  our  section  on  mass  market  customers. 


 211  In  the  text,  we  present  the  median  pre-  merger  HHI  and  median  post-  merger  HHI  over  the  entire  SBC  in-  region 
 territory  for  each  product  where  data,  which  were  presented  at  the  state  level,  are  available.  The  pre-  merger  and  post-  merger  HHIs  for  each  state  in  this  region,  as  well  as  the  accompanying  changes  in  HHI,  are  presented  in 


 Appendix  C,  Tables  5,  6,  and  7. 
 212  The  minimum  post-  merger  HHI  for  local  access  services  is  [REDACTED],  and  the  maximum  HHI  is 
 [REDACTED]. 
 213  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 


 214  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
 215  Our  analysis  of  SBCs  market  position  for  mid-  sized  and  large  enterprise  customers  with  operations  both  in  and 
 out  of  its  region  is  based  upon  data  reported  in  AT&  T  internal  reports  on  the  retail  data  services  market  (4Q  2004)  and  the  business  long  distance  voice  market  (4Q  2004).  See  AT&  T  Info.  Request,  ATT516000531-  49; 


 ATT517000001-  57.  The  carrier  market  share  data  detailed  in  this  report  are  presented  at  the  national  level,  and  shares  are  based  upon  revenue.  HHI  calculations  pre-  and  post-  merger  are  provided  in  Confidential  Appendix  C, 
 Tables  8-  9. 
 216  The  study  does  not  precisely  define  what  it  means  by  long  distance  service.  See  supra  note  205.  We  note  that 
 we  have  examined  the  revenue  shares  in  AT&  Ts  [REDACTED]  segment  because  we  find  that  customers  in  this  class  are  most  likely  to  have  multiple  locations  nationally.  See  AT&  T  Info.  Req.,  ATT517000001-  57  at  23. 
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 share  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  based  on  fourth-  quarter  2004  data.  However,  the  pre-  merger  HHI  for  these  services  is  [REDACTED]  and  rises  to  only  [REDACTED] 
 post-  merger.  Similarly,  although  SBCs  national  share  of  long  distance  data  services  217  increases  from  an  average  of  [REDACTED]  percent  to  [REDACTED]  percent  based  on  fourth-  quarter  2004  data,  the  HHI 
 for  these  services  increases  from  [REDACTED]  pre-  merger  to  [REDACTED]  post-  merger. 
 73.  For  enterprise  customers  with  locations  predominantly  in  SBCs  region,  we  find  that  myriad  providers  are  prepared  to  make  competitive  offers.  218  We  further  find  that  available  market  share  data 
 does  not  reflect  the  rise  in  data  services,  cable  and  VoIP  competition,  and  the  dramatic  increase  in  wireless  usage.  219  Foreign-  based  companies,  competitive  LECs,  cable  companies,  systems  integrators, 
 and  equipment  vendors  and  value-  added  resellers  are  also  providing  services  in  this  market.  220  Similarly,  we  find  that  market  shares  may  misstate  the  competitive  significance  of  existing  firms  and  new 
 entrants.  221  Large  interexchange  carriers  and  the  BOCs  currently  have  the  biggest  share  of  the  market,  but  they  are  not  the  only  providers  competing  for  these  customers.  We  find  that  a  large  number  of  carriers 
 compete  in  this  market  (even  though  the  market  shares  of  some  may  be  small),  and  that  these  multiple  competitors  ensure  that  there  is  sufficient  competition.  222  For  example,  in  the  state  of  Illinois,  although 
 the  combined  market  share  of  the  merged  entity  with  respect  to  the  mid-  sized  and  large  enterprise  customers  will  be  [REDACTED]  percent  of  interLATA  voice  services,  five  competitors  each 
 individually  capture  from  [REDACTED]  to  [REDACTED]  percent  of  the  market,  with  the  rest  of  the  other  competitors  capturing  the  remaining  [REDACTED]  percent.  223  Similarly,  in  California,  the  merged 


 217  Data  services  include  [REDACTED].  AT&  T  Info.  Req.,  ATT516000531-  49. 
 218  The  Applicants  include  statements  from  a  representative  from  Illinois-  based  Servicemaster,  stating  that  it 
 recently  released  an  RFP  to  six  carriers,  but  it  could  have  gone  out  to  15-  20  more,  including  Broadwing,  Global  Crossing  and  Level  3.  See  SBC/  AT&  T  Reply  at  117.  SBC  also  explains  that  VoIP  and  VPN  providers  are 


 emerging  threats  to  traditional  communications  carriers.  Additionally,  within  the  past  two  years,  equipment  providers  such  as  Nortel,  Avaya  and  Cisco  have  been  invited  to  bid  on  enterprise  service  contracts.  SBC/  AT&  T 
 Bazzi  Reply  Decl.  at  para.  26.  SBC  asserts  that  enterprises  are  beginning  to  test  the  approach  of  relying  on  traditional  telecommunications  carriers  for  basic  IP  connections  and  turning  to  equipment  providers  to  supply  them 
 with  premise  equipment  and  installation  and  maintenance  services  necessary  to  obtain  their  voice  and  data  services  more  cheaply.  Id. 


 219  SBC/  AT&  T  Reply  at  110. 
 220  SBC/  AT&  T  Application  at  72;  id.,  App.  B,  (  Description  of  Competitors).  As  discussed  in  prior  Commission 
 orders,  there  are  numerous  types  of  business  models  supporting  competition  for  enterprise  customers.  Some  competitive  LECs  market  integrated  voice  and  data  services  to  enterprise  customers,  primarily  through  leasing  high-capacity 


 loops  from  the  BOCs  as  UNEs  or  special  access  and  then  using  the  loops  to  provide  a  bundled  offering  including  voice,  data  and  Internet  access.  See  Triennial  Review  Order,  18  FCC  Rcd  at  17014,  para.  48  n.  159 
 (observing  that  companies  such  as  ITC^  Deltacom,  NewSouth  and  Cbeyond  have  focused  on  providing  integrated  services  to  the  business  market). 


 221  SBC/  AT&  T  Reply  at  110.  According  to  the  Applicants,  [  h]  istorical  and  current  market  shares  obviously 
 overstate  SBCs  local  market  power  because  they  reflect  its  historical  position  in  local  market  prior  to  the  1996  Act.  Id. 


 222  See  Confidential  Appendix  C. 
 223  See  Confidential  Appendix  C,  Table  2  (citing  Illinois  interLATA  market  shares  of  [REDACTED]).  The 
 Applicants  explain  that  MCI,  Qwest,  and  Sprint  will  still  have  a  large  presence.  In  addition,  Time  Warner,  Comcast,  and  other  cable  companies  with  new  capabilities  not  dependent  on  the  copper-  based  telephone  network 


 will  compete,  along  with  systems  integrators  like  EDS  and  IBM.  The  Applicants  also  note  that  shares  may  (continued.) 
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 entitys  combined  market  share  of  high-  cap  data  services  for  mid-  sized  and  large  enterprise  customers  will  be  [REDACTED]  percent,  but  five  competitors  each  individually  capture  from  [REDACTED]  to 
 [REDACTED]  percent  of  the  market,  with  the  rest  of  the  carriers  capturing  the  remaining  [REDACTED]  percent.  224  Thus,  we  find  that  sufficient  enterprise  competition  remains  within  SBCs 
 region  to  ensure  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  for  medium  and  large  in-region  enterprise  customers. 


 74.  Although  we  find  that  medium-  sized  and  large  enterprise  customers  with  national,  multi-  location  operations  do  not  have  as  many  competitive  options,  we  nevertheless  conclude  that  this  merger  is  unlikely 
 to  cause  competitive  harm  to  this  market.  First,  SBCs  pre-  merger  presence  in  this  market  is  nascent,  and  thus,  the  post-  merger  market  will  have  virtually  as  many  competitors  as  before.  225  Second,  as  further 
 discussed  below,  given  their  size  and  geographically-  dispersed  operations,  these  customers  are  highly  sophisticated  and  negotiate  for  significant  discounts.  226  We  find  that  systems  integrators  and  the  use  of 
 emerging  technologies  are  likely  to  make  this  market  more  competitive,  and  that  this  trend  is  likely  to  continue  in  the  future.  227  Further,  we  note  that  the  merger  could  bring  even  more  competition  for  these 
 customers  because  the  merged  company  will  offer  a  true  end-  to-  end  solution  to  businesses,  which  in  turn,  will  likely  improve  quality  and  could  create  cost  savings.  228 


 75.  As  noted  above,  we  find,  consistent  with  the  Commissions  prior  conclusions,  that  mid-  sized  and  large  enterprise  customers  tend  to  be  sophisticated  purchasers  of  communications  services,  whether  they 
 are  located  solely  within  SBCs  region,  or  have  locations  both  inside  and  outside  SBC  territory.  229  These 
 (Continued  from  previous  page)  misstate  the  competitive  significance  of  existing  firms  and  new  entrants.  SBC/  AT&  T  Reply  at  110.  Accordingly, 


 contrary  to  commenters  assertions,  we  find  that  competition  in  the  enterprise  market  is  robust. 
 224  See  Confidential  Appendix  C,  Table  3  (citing  California  high-  cap  data  service  market  shares  of  [REDACTED]). 


 225  See  supra  note  192;  see  also  SBC/  AT&  T  Bazzi  Reply  Decl.  at  paras.  19-  24.  We  discuss  below  claims  that  SBC 
 is  a  potential  competitor  in  the  GTS  market.  See  infra  Part  V.  G.  3.  c  (U.  S.  International  Services  Competition    Global  Telecommunications  Services). 


 226  See  also  AT&  T/  SBC  Bazzi  Reply  Decl.  at  paras.  3,  7-  12.  SBC  explains  that  larger  enterprise  customers  typically 
 use  strategic  sourcing  in  order  to  exert  greater  control,  lower  costs,  and  increase  quality.  Id.  at  para.  11.  SBC  also  explains  that  the  the  suppliers  in  this  marketplace  recognize  the  intense  level  of  competition  and  have  a  strong 


 business  imperative  to  maintain  revenue  from  their  existing  customers.  The  very  process  of  competitive  bidding  and  contract  renegotiation  is  often  sufficient  to  create  the  perception  with  a  vendor  of  a  credible  threat  of  losing  an 
 existing  customer,  compelling  the  supplier  to  offer  lower  prices  and  improved  service  to  retain  the  customer.  Id.  at  para.  17. 


 227  For  example,  systems  integrators  acquire  and  combine  telecommunications  equipment  and  various  wholesale 
 transmission  services  to  provide  and  manage  complex  voice  and  data  services  for  enterprise  customers.  See,  e.  g.,  SBC/  AT&  T  Application  at  83-  85;  see  also  supra  note  218.  In  addition,  SBC  cites  an  InStat/  MDR  study  that 


 forecasts  that  emerging  services  will  grow  at  a  greater  than  30%  annual  rate  over  the  next  several  years.  SBC/  AT&  T  Bazzi  Reply  Decl.  at  para.  27. 


 228  See  SBC/  AT&  T  Application  at  iii,  35-  36,  39-  44;  SBC/  AT&  T  Reply  at  126,  129-  30;  SBC/  AT&  T  Application, 
 Declaration  of  Hossein  Eslambolchi  (SBC/  AT&  T  Eslambolchi  Decl.)  at  paras.  18-  20;  SBC/  AT&  T  Kahan  Decl.  at  paras.  33-  37;  SBC/  AT&  T  Rice  Decl.  at  paras.  8,  14,  18. 


 229  Competition  in  the  Interstate  Interexchange  Marketplace,  Report  and  Order,  6  FCC  Rcd  5880,  5887,  para.  39 
 (1991)  (Interexchange  Competition  Order);  see  also  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14096,  para.  120;  SBC/  SNET  Order,  13  FCC  Rcd  at  21301,  para.  20;  AT&  T/  TCG  Order,  13  FCC  Rcd  at  15250,  para.  27; 


 WorldCom/  MCI  Order,  13  FCC  Rcd  at  18073-  74,  paras.  84-  87.  ACN  et  al.  argue  that  no  degree  of  sophistication  (continued.) 
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 users  tend  to  make  their  decisions  about  communications  services  by  using  either  communications  consultants  or  employing  in-  house  communications  experts.  230  This  is  significant  not  only  because  it 
 demonstrates  that  these  users  are  aware  of  the  multitude  of  choices  available  to  them,  but  also  because  they  show  that  these  users  are  likely  to  make  informed  choices  based  on  expert  advice  about  service 
 offerings  and  prices.  231  Thus,  so  long  as  competitive  choices  remain  in  this  market,  these  classes  of  customers  should  seek  out  best-  priced  alternatives,  and  the  merged  entity  should  not  be  able  to  raise  and 
 maintain  prices  above  competitive  levels. 
 76.  Finally,  although  small  enterprise  customers  may  not  possess  the  same  level  of  sophistication  as  their  larger  counterparts,  we  nonetheless  find  that  the  merger  is  not  likely  to  result  in  anticompetitive 
 effects  for  this  group  of  customers.  We  base  our  conclusion  largely  on  the  fact  that  AT&  T  has  ceased  to  market  to  these  customers  and  has  reduced  its  small  enterprise  business  operations.  As  discussed 
 elsewhere  in  this  Order,  evidence  in  this  proceeding  clearly  indicates  that  AT&  T  determined  that  these  types  of  services  no  longer  presented  a  viable  business  opportunity,  and  that  it  has  taken  steps  to  close 
 down  its  operations.  232  Thus,  AT&  Ts  gradual  withdrawal  from  this  market  is  due  to  its  own  internal  decisions  and  would  have  occurred  notwithstanding  SBCs  offer  to  acquire  it.  Moreover,  we  find  that 
 intermodal  competition  from  cable  telephony  and  mobile  wireless  service  providers,  and  providers  of  certain  VoIP  services  will  likely  continue  to  provide  these  customers  with  viable  alternatives.  233 


 77.  In  conclusion,  although  we  find  overlap  between  the  Applicants  enterprise  operations,  we  do  not  find  that  the  increase  in  concentration  resulting  from  the  merger  is  likely  to  result  in  anticompetitive 


 (Continued  from  previous  page)  can  alleviate  the  problems  caused  by  market  concentration  when  there  are  no  competitive  alternatives.  ACN  et  al. 
 Comments  at  11.  We  reject  this  argument  in  this  context  because,  as  discussed  above,  we  find  that  there  are  adequate  numbers  of  competitors  in  the  enterprise  market. 


 230  Interexchange  Competition  Order,  6  FCC  Rcd  at  5887,  para.  39;  see  also  Motion  of  AT&  T  Corp.  to  be 
 Reclassified  as  a  Non-  Dominant  Carrier,  Order,  11  FCC  Rcd  3271,  3306,  para.  65  (1995)  (AT&  T  Non-  Dominance  Order)  (finding  that  business  customers  have  highly  elastic  demands,  and  that  business  customers  routinely  request 


 proposals  from  carriers  other  than  AT&  T  and  accord  full  consideration  to  these  proposals);  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18064,  para.  65  (finding  that  larger  business  customers  are  knowledgeable  consumers  that  will  have 
 competitive  alternatives  to  the  largest  three  incumbents). 
 231  Interexchange  Competition  Order,  6  FCC  Rcd  at  5887,  para.  39.  Moreover,  the  Commission  found  that  name 
 recognition  and  goodwill  are  less  significant  in  markets  where  customers  tend  to  be  sophisticated  and  aware  of  the  choices  available  to  them.  Id.  at  para.  41.  Evidence  in  the  record  indicates  that  there  are  at  least  20  consulting  firms 


 that  provide  communications  sourcing  services,  and  when  engaged,  customers  are  able  to  achieve  an  annual  average  reduction  of  27%  (relative  to  their  pre-  engagement  annual  spend)  in  the  cost  of  the  communications  services  within 
 the  scope  of  the  procurement  process,  with  savings  ranging  from  2%  to  63%.  SBC/  AT&  T  Bazzi  Reply  Decl.  at  paras.  13,  15. 


 232  See  infra  Part  V.  D  (Mass  Market  Competition). 
 233  SBC/  AT&  T  Reply  at  122  n.  383.  Applicants  report  that  small  and  medium  businesses  are  proving  to  be  a 
 lucrative  market  for  IP  telephony  growth  opportunities  in  the  long  run.  Id.  (citing  Frost  &  Sullivan,  North  American  Enterprise  IP  Telephony  Systems  Markets,  5-  1  (2005)).  Applicants  also  state  that  several  manufacturers, 


 including  Avaya,  Cisco,  Siemens,  Mitel,  Alcatel,  and  Alitgen  have  recently  introduced  products  aimed  specifically  at  small  and  medium  businesses.  Id.  One  study  find  that  73%  of  small  businesses  use  wireless  services,  and  that 
 25%  of  all  small  businesses  spend  more  on  wireless  services  than  on  local  and  long  distance  services  combined.  SBA  Telecom  Report  at  ii,  43. 
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 effects  in  this  market.  As  discussed  above,  the  record  shows  that,  for  all  groups  of  business  customers,  there  are  multiple  services  and  multiple  providers  that  can  meet  their  demand.  234 
 78.  Coordinated  Effects.  We  find  that  the  merger  will  not  increase  the  likelihood  of  tacit  collusion  or  other  coordinated  behavior  in  relevant  markets.  On  the  contrary,  we  find  that,  even  if  competitors 
 reached  tacit  agreements  in  the  enterprise  market,  there  are  strong  incentives  to  cheat  and  scant  ability  to  detect  and  punish  such  cheating.  Specifically,  the  high  value  of  enterprise  contracts  will  create  significant 
 incentives  for  many  competitors    particularly  those  with  smaller  market  shares    to  cheat  on  tacit  agreements.  Moreover,  detection  and  punishment  would  be  significantly  frustrated  by  the  facts  that 
 enterprise  customers  tend  to  be  sophisticated  and  knowledgeable  (often  with  the  assistance  of  consultants),  that  contracts  are  typically  the  result  of  RFPs  and  are  individually-  negotiated  (and  frequently 
 subject  to  non-  disclosure  clauses),  that  contracts  are  generally  for  customized  service  packages,  and  that  the  contracts  usually  remain  in  effect  for  a  number  of  years.  Accordingly,  we  find  no  basis  to  conclude 
 that  the  merger  increases  the  likelihood  of  tacit  collusion  or  other  coordinated  effect  in  the  relevant  markets  in  SBCs  region.  235 


 79.  Mutual  Forbearance.  We  reject  commenters  assertions  that  this  merger  would  reinforce  the  BOCs  historical  reluctance  to  compete  with  each  other.  236  First,  we  find  it  highly  unlikely  that  the 
 companies  would  engage  in  mutual  forbearance  with  respect  to  large  national  enterprise  customers,  given  the  significant  revenue  opportunities  associated  with  serving  those  customers.  For  example,  SBC  already 
 provides  service  to  such  large  customers  as  the  American  Red  Cross,  which  has  its  headquarters  in  the  Verizon  region.  237  Second,  even  if  commenters  are  correct  with  respect  to  medium  and  large  in-  region 


 234  We  note  that  filings  in  this  proceeding  offer  the  opinions  of  various  enterprise  customers  expressing  either 
 support  for,  or  concern  about,  the  proposed  merger.  See,  e.  g.,  SBC/  AT&  T  Reply,  Attach.  Customer  Statements  (providing  the  statements  of  a  number  of  enterprise  customers  supporting  the  merger);  Letter  from  Thomas  Cohen, 


 Counsel  for  Alliance  for  Competition  in  Telecommunications,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  Attach.  (filed  Sept.  13,  2005)  (citing  survey  of  100  Fortune  1000  businesses  regarding  whether  they 
 have  concerns  about  the  SBC/  AT&  T  and  Verizon/  MCI  proposed  mergers).  We  conclude  that  none  of  these  filings  provide  representative  or  reliable  evidence  regarding  enterprise  competition  for  any  particular  class  or  classes  of 
 enterprise  customers  nor  do  they  provide  clear  evidence  regarding  particular  services  offered  in  particular  geographic  markets.  Thus,  we  do  not  rely  on  any  of  these  filings  in  our  analysis. 


 235  See  SBC/  AT&  T  Application  at  7-  8.  While  some  commenters  express  concern  that  the  merged  company  will  use 
 its  role  as  a  wholesale  provider  to  obtain  information  to  aid  tacit  collusion,  we  find  such  coordination  to  be  unlikely  given  the  characteristics  of  enterprise  customers  discussed  above.  Moreover,  we  find  that  even  without  the  merger 


 with  AT&  T,  SBC  is  a  major  supplier  of  special  access  services,  and  thus  it  already  has  the  ability  to  engage  in  such  anticompetitive  conduct.  Accordingly,  this  concern  is  not  merger  specific.  See  CompTel/  ALTS  Petition  at  25. 


 236  ACN  et  al.  Comments  at  29,  37-  38,  47-  48;  Broadwing  and  SAVVIS  Petition  at  18-  26;  Cbeyond  et  al.  Petition  at 
 4,  18,  44-  46,  54-  57;  CompTel/  ALTS  Petition  at  6;  New  Jersey  Ratepayer  Advocate  Comments  at  16;  Qwest  Petition  at  39-  44.  For  example,  Cbeyond  et  al.  argue  that,  if  SBC  were  to  compete  in  another  BOCs  market,  the  other  BOC 


 would  likely  react  by  reducing  its  retail  prices  and  increasing  its  wholesale  rates.  Consequently,  SBC  would  react  in-  kind  in  its  region.  The  result  is  a  net  loss  to  both  firms,  as  prices  are  forced  down  while  average  costs  increase. 
 Cbeyond  et  al.  Petition  at  44. 
 237  SBC/  AT&  T  Reply  at  138.  In  addition,  the  record  indicates  that  SBC  has  invested  over  $1  billion  in 
 improvements  to  its  out-  of-  region  network  which  can  be  used  to  serve  out-  of-  region  customers;  it  has  at  least  [REDACTED]  out-  of-  region  customers;  and  it  provides  enterprise  service  to  30  out-  of-  region  MSAs,  with 


 collocation  facilities  in  at  least  10  central  offices  in  each  MSA.  SBC/  AT&  T  Reply  at  136-  38;  SBC  Info.  Req.,  SBC255592-  621  at  255598. 
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 enterprise  customers,  we  find,  as  discussed  above,  that  there  will  be  sufficient  competition  based  on  the  competitors  that  remain  in  the  market.  Finally,  with  respect  to  small  enterprise  customers,  we  have 
 already  discussed  AT&  Ts  announced  gradual  withdrawal  from  this  market,  and  we  conclude,  based  on  the  record,  that  it  was  not  exerting  significant  competitive  pressure  with  respect  to  those  customers  prior 
 to  the  announcement  of  the  merger.  In  those  markets,  as  discussed  above,  we  find  that  intermodal  competition  from  cable  telephony  service  providers,  mobile  wireless  service  providers,  and  VoIP  service 
 providers  will  likely  continue  to  provide  these  customers  with  viable  alternatives.  238 
 b.  Vertical  Effects 
 80.  We  reject  commenters  concerns  about  their  continued  ability  to  serve  enterprise  customers  in  SBCs  franchise  region  because  the  merger  will  make  them  more  reliant  on  SBCs  facilities.  239  We 
 address  these  arguments  in  our  analysis  of  the  wholesale  special  access  market,  and  in  other  sections  of  this  Order.  240  In  addition,  we  reject  commenters  assertions  that  SBCs  acquisition  of  AT&  Ts 
 interexchange  network  will  lead  the  merged  entity  to  discriminate  against  its  rivals  who  rely  upon  this  network  for  essential  inputs  used  to  serve  their  own  enterprise  customers.  241  We  find,  as  discussed  below, 
 that  the  merged  entity  would  be  unable  to  increase  rivals  costs  due  to  the  presence  of  extensive  competitive  national  wholesale  interexchange  networks  with  excess  capacity.  242  Thus,  we  find  that  the 
 merger  is  not  likely  to  result  in  anticompetitive  effects  for  wholesale  inputs  used  to  serve  enterprise  customers. 


 D.  Mass  Market  Competition 
 81.  In  this  section,  we  consider  the  effects  of  the  proposed  merger  on  local  service;  long  distance  service;  and  bundled  local  and  long  distance  service  provided  to  mass  market  customers.  As  discussed 
 below,  we  find  that  SBCs  acquisition  of  AT&  T  is  not  likely  to  result  in  anticompetitive  effects  for  mass  market  services. 


 238  See  supra  note  233. 
 239  See,  e.  g.,  ACN  et  al.  Comments  at  39-  40;  Broadwing  and  SAVVIS  Petition  at  28-  29;  Cbeyond  et  al.  Petition  at 
 24-  30;  CompTel/  ALTS  Petition  at  21-  35;  Cox  Comments  at  13-  17;  United  States  Cellular  Comments  at  2-  4;  Global  Crossing  Comments  at  15-  16;  T-  Mobile  Reply  at  7-  14. 


 240  See  supra  Part  V.  B  (Wholesale  Special  Access  Competition);  infra  Part  V.  E  (Internet  Backbone  Competition). 
 241  Qwest  Petition,  Declaration  of  B.  Douglas  Bernheim  (Qwest  Bernheim  Decl.)  at  paras.  90-  91  (arguing  that  after 
 the  merger,  SBC  will  control  access  to  AT&  Ts  network  and  have  increased  incentives  and  ability  to  discriminate  and  increase  rivals  costs). 


 242  See  infra  Part  V.  F  (Wholesale  Interexchange  Competition);  cf.  Qwest  Communications  International  Inc.,  and  U 
 S  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, 


 Memorandum  Opinion  and  Order,  15  FCC  Rcd  5376,  5398,  para.  42  (2000)  (Qwest/  U  S  West  Order)  (finding,  in  the  context  of  the  Qwest/  U  S  West  merger,  that  an  incumbent  LEC  has  no  more  incentive  to  degrade  the  access  it 
 provides  to  competing  interexchange  carriers  whether  the  incumbent  LEC  is  providing  .  .  .  [interexchange]  service  over  facilities  it  constructed  or  [whether]  it  purchased  [them]  from  another  carrier). 
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 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 82.  Based  on  the  record  in  this  proceeding,  we  identify  three  relevant  product  markets  for  our  mass  market  analysis:  (1)  local  service;  (2)  long  distance  service;  and  (3)  bundled  local  and  long  distance 
 service.  243  In  previous  wireline  mergers,  the  Commission  focused  on  local  and  long  distance  services.  244  Based  on  recent  market  and  technological  developments,  including  increased  subscription  to  mobile 
 wireless  service  and  VoIP  services  that  provide  a  bundle  of  local  and  long  distance  services,  we  find  it  appropriate  to  refine  our  market  analysis,  including  defining  a  separate  relevant  product  market  for 
 bundled  local  and  long  distance  service. 
 83.  The  Commission  defines  product  markets  from  the  perspective  of  customer  demand.  245  We  thus  begin  our  analysis  by  recognizing  two  types  of  consumer  demand  for  communications  services: 
 (1)  demand  for  access  and  (2)  demand  for  usage.  The  consumer  demands  access  from  a  provider  so  as  to  be  able  to  connect  to  a  communications  network.  246  Depending  upon  the  type  of  access  chosen  by 
 the  consumer,  the  consumer  will  be  able  to  connect  to  a  wireline  telephone  network,  a  mobile  wireless  network,  or  the  Internet.  247 


 84.  Because  a  consumer  can  choose  multiple  access  providers,  his  demand  for  usage,  i.  e.,  how  much  of  a  service  he  consumes,  will  be  determined  by  his  particular  set  of  access  provider(  s)  as  well  as  the 
 terms  of  service  associated  with  the  consumers  chosen  access  provider(  s).  For  example,  consider  a  consumers  options  for  long  distance  service.  248  For  expositional  purposes,  we  assume  that  consumer 
 subscribes  to  a  wireline  long  distance  service  and  a  mobile  wireless  service.  This  consumer  could  choose  to  place  a  long  distance  call  using  a  presubscribed  long  distance  carrier,  a  dial-  around  alternative  such  as  a 
 prepaid  calling  card,  or  his  mobile  wireless  service,  but,  how  he  views  the  alternatives  would  be  affected 
 243  The  Commission  has  defined  mass  market  customers  as  residential  and  small  business  customers  that  purchase 
 standardized  offerings  of  communications  services.  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040,  para.  24;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14746,  para.  68.  The  Commission  addresses  international  mass  market 


 voice  services,  along  with  other  international  services  in  Part  V.  G  of  this  Order. 
 244  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040,  para.  25;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14745, 
 para.  66. 
 245  See,  e.  g.,  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20605-  06,  para.  106. 


 246  The  access  provider  usually  charges  a  recurring  monthly  fee,  and  it  frequently  offers  various  communications 
 services  in  combination  with  this  access  service. 
 247  Mass  market  customers  can  purchase  access  to  communications  services  from  a  single  provider,  such  as  a  local 
 telephone  company,  a  mobile  wireless  provider,  or  cable  provider;  or  from  multiple  providers.  For  example,  approximately  52%  of  U.  S.  households  subscribe  to  both  a  wireline  provider  and  a  mobile  wireless  provider,  and  an 


 increasing  percentage  of  consumers  are  choosing  to  subscribe  to  a  broadband  Internet  access  service.  See  Clyde  Tucker,  J.  Michael  Brick,  Brian  Meekins,  and  David  Morganstein,  Household  Telephone  Service  and  Usage 
 Patterns  in  the  United  States  in  2004,  page  4,  available  at  http://  www.  bls.  gov/  ore/  pdf/  st040130.  pdf  (Household  Telephone  Survey).  About  20%  of  households  subscribed  to  a  broadband  service  in  2003.  Federal 
 Communications  Commission,  Wireline  Competition  Bureau,  Industry  Analysis  and  Technology  Division,  Trends  in  Telephone  Service  at  2-  11  (Apr.  2005)  (Trends  in  Telephone  Service)  (citing  A  Nation  Online:  Entering  the 
 Broadband  Age,  U.  S.  Department  of  Commerce  (Sept.  2004)). 
 248  A  consumer  desiring  to  place  an  international  call  would  have  similar  options. 
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 by  the  terms  of  the  particular  service  plans  he  has  chosen.  If  he  subscribes  to  a  wireline  long  distance  plan  that  charges  a  flat  monthly  fee  for  unlimited  calling,  he  may  be  less  likely  to  use  an  alternative 
 service  (such  as  a  prepaid  calling  card  or  mobile  wireless)  because  the  marginal  cost  of  each  long  distance  minute  for  his  wireline  service  is  zero.  In  contrast,  if  he  subscribes  to  a  wireline  long  distance  plan  that 
 charges  a  low  monthly  fee  and  a  relatively  high  per-  minute  charge,  the  marginal  cost  of  each  long  distance  minute  is  the  per-  minute  charge,  and  he  might  be  more  willing  to  consider  alternative  usage 
 options  (such  as  prepaid  calling  cards  or  mobile  wireless)  when  placing  long  distance  calls.  For  example,  he  could  allocate  calls  among  different  service  providers  based  on  the  terms  of  service  plans  by  using  the 
 wireline  phone  for  long  distance  calls  made  during  peak  hours  (e.  g.,  week  days)  and  the  mobile  wireless  phone  for  long  distance  calls  made  during  off-  peak  hours  (e.  g.,  evenings  and  weekend  days)  when  the 
 price  per  minute  may  be  zero.  Accordingly,  we  consider  both  access  demand  and  usage  demand  in  defining  our  relevant  product  markets  of  local  service,  long  distance  service,  and  bundled  local  and  long 
 distance  service  because  these  decisions  play  a  role  in  whether  consumers  view  products  as  reasonable  substitutes  (meaning  that  those  services  are  in  the  same  product  market  for  purposes  of  our  analysis).  249 


 (i)  Local  Service 
 85.  Based  on  record  evidence,  we  define  the  market  for  local  service  to  include  not  only  wireline  local  service,  but  also  certain  types  of  VoIP  service  to  the  extent  that  consumers  view  them  as  close 
 substitutes  for  wireline  local  service.  In  addition,  the  record  evidence  suggests  that  for  certain  categories  of  customers,  mobile  wireless  service  is  viewed  as  a  close  substitute  to  wireline  local  service.  250 


 86.  VoIP.  VoIP  services  are  being  provided  to  consumers  in  a  variety  of  ways  today.  The  degree  to  which  particular  VoIP  services  are  viewed  as  close  substitutes  to  other  local  services  varies  depending 
 upon  the  characteristics  of  the  VoIP  offering.  For  purposes  of  our  analysis  we  find  it  useful  to  divide  VoIP  providers  into  two  general  types:  (1)  facilities-  based  VoIP  providers  and  (2)  over-  the-  top  VoIP 
 providers.  For  purposes  of  this  proceeding,  we  define  facilities-  based  VoIP  providers,  such  as  certain  cable  VoIP  providers,  as  providers  that  own  and  control  the  last  mile  facility.  These  providers  may  own 
 or  lease  the  switching  and  transmission  networks  that  are  used  to  carry  VoIP  calls.  251  Other  kinds  of  VoIP 
 249  See,  e.  g.,  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20606,  para.  106  (  In  other  words,  when  one  product  is  a 
 reasonable  substitute  for  the  other  in  the  eyes  of  consumers,  it  is  to  be  included  in  the  relevant  product  market  even  though  the  products  themselves  are  not  identical.)  We  note  that  the  evidence  in  the  record  is  insufficient  for  us  to 


 perform  a  quantitative  demand  analysis  to  estimate  the  likely  consumer  response  to  a  small  but  significant  change  in  the  price  of  a  particular  service.  Instead,  we  consider  indicia  of  demand  substitution  between  possible  services, 
 including:  (1)  the  attributes  and  relative  prices  of  possible  competing  services;  (2)  evidence  that  consumers  view  the  possible  competing  services  similarly,  and  have  shifted  or  have  considered  shifting  purchases  between  these 
 services  in  response  to  relative  changes  in  price  or  other  competitive  variables;  (3)  evidence  that  service  providers  consider  the  prospect  of  buyer  substitution  between  services  in  response  to  relative  changes  in  price  or  other 
 competitive  variables;  and  (4)  the  costs  a  consumer  could  incur  to  substitute  between  traditional  services  and  services  provided  on  an  alternative  platform.  See  DOJ/  FTC  Guidelines  at    1.11. 


 250  Circuit-  switched  cable  telephony  service  traditionally  has  been  included  within  the  Commissions  assessment  of 
 local  services  competition,  and  the  record  here  gives  us  no  reason  to  change  that  approach. 
 251  These  VoIP  providers  typically  have  dedicated  facilities,  transport  calls  over  their  own  or  a  private  network,  and 
 may  have  a  backup  power  source  in  the  event  of  a  service  disruption.  See,  e.  g.,  John  K.  Billock,  Vice  Chairman  and  Chief  Operating  Officer,  Time  Warner  Cable,  Testimony  before  the  Federal  Communications  Commission  at  3 


 (Dec.  1,  2003)  available  at  http://  www.  fcc.  gov/  voip/  presentations/  billock.  doc;  Long  Distance  Calling  Plan:  Local,  Regional  and  Long  Distance  Calling  Plans  from  Optimum  Voice  (visited  Sept.  14,  2005)  available  at 
 http://  www.  optimumvoice.  com/  index.  jhtml?  pageType=  what_  is_  it;  Phone  Services    Optimum  Voice  (visited  Sept.  20,  2005)  available  at  http://  optimumvoice.  custhelp.  com/  cgi-( 
 continued.) 
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 providers  not  meeting  this  definition  are  referred  to  as  over-  the-  top  VoIP  providers.  This  type  includes  those  providers  that  require  the  end  user  to  obtain  broadband  transmission  from  a  third-  party  provider, 
 and  such  VoIP  providers  can  vary  in  terms  of  the  extent  to  which  they  rely  on  their  own  facilities.  As  discussed  below,  the  record  indicates  that  mass  market  consumers  view  facilities-  based  VoIP  services  as 
 sufficiently  close  substitutes  for  local  service  to  include  them  in  the  relevant  product  market.  The  record  is  insufficient  to  determine  which  over-  the-  top  VoIP  services  should  be  included  in  the  relevant  product 
 market,  however.  We  thus  reject  the  Applicants  assertion  that  all  VoIP  offerings  should  be  included  in  the  relevant  product  market.  252 


 87.  Based  upon  the  information  in  this  record,  we  find  that  facilities-  based  VoIP  services  clearly  fall  within  the  relevant  service  market  for  local  services.  Facilities-  based  VoIP  services  have  many  similar 
 characteristics  to  traditional  wireline  local  service.  253  There  is  also  significant  evidence  in  the  record  indicating  that  mass  market  subscription  to  cable-  based  VoIP  continues  to  increase  nationwide  254  as  cable 
 operators  continue  to  roll  out  these  services  throughout  their  footprints.  255  In  addition,  there  is  documentary  evidence  that  SBC  views  cable-  based  VoIP  as  its  primary  competitive  threat  in  the  mass 
 market,  and  considers  the  prospect  of  consumer  substitution  to  cable-  based  VoIP  when  devising  its  strategies  and  service  offers.  256  While  we  recognize  that  facilities-  based  VoIP  services  may  not  be 
 available  ubiquitously  in  SBCs  territory,  our  product  market  analysis  does  not  require  that  all  mass  market  consumers  would  be  willing  or  able  to  substitute  VoIP  service  for  wireline  local  service,  or  even 


 (Continued  from  previous  page)  bin/  optimumvoice.  cfg/  php/  enduser/  std_  adp.  php?  p_  faqid=  261;  National  Cable  and  Telecommunications 
 Association,  Cable  Telephony:  Offering  Consumers  Competitive  Choice  at  5-  7  (July  2001)  available  at  http://  www.  ncta.  com/  pdf_  files/  Telephony_  ReportComplete.  pdf;  Cox  Communications,  Whitepaper:  Preparing  for 
 the  Promise  of  Voice-  over  Internet  Protocol  (VoIP)  at  5-  8  (Feb.  2003)  available  at  http://  www.  cox.  com/  PressRoom/  supportdocuments/  VOIDwhitepaper.  pdf  (Cox  White  Paper). 


 252  See,  e.  g.,  SBC/  AT&  T  Carlton/  Sider  Decl.  at  paras.  26-  29  (asserting  that  all  VoIP  services  should  be  included  in 
 the  relevant  product  market). 
 253  These  similar  characteristics  include:  installation  by  the  provider;  the  lack  of  a  requirement  for  a  broadband 
 subscription;  and  connection  to  the  consumers  home  inside  wiring,  which  permits  use  of  all  of  the  households  traditional  wireline  and  cordless  handsets.  See,  e.  g.,  Consumer  information  provided  by  Cablevision  (visited  Sept. 


 14,  2005)  available  at  http://  www.  optimumvoice.  com/  index.  jhtml?  pageType=  what_  is_  it;  http://  www.  optimumvoice.  com/  index.  jhtml?  pageType=  wiring;  http://  optimumvoice.  custhelp.  com/  cgi-bin/ 
 optimumvoice.  cfg/  php/  enduser/  std_  adp.  php?  p_  faqid=  258;  http://  optimumvoice.  custhelp.  com/  cgi-bin/  optimumvoice.  cfg/  php/  enduser/  std_  adp.  php?  p_  faqid=  262. 


 254  For  example,  between  June  2004  and  June  2005,  Cablevisions  subscriber  base  grew  from  115,048  to  475,357 
 and  its  penetration  rate  increased  from  3%  to  11%.  Similarly,  between  March  2005  and  June  2005,  Time  Warners  subscriber  base  grew  to  614,000  customers  (a  60%  increase).  Cablevision  Systems  Corporation  Reports  Second 


 Quarter  2005  Results,  Aug.  9,  2005;  Time  Warner  Second  Quarter  2005  Results,  Aug.  3,  2005. 
 255  For  example,  in  December  2004,  Time  Warner  completed  its  launch  of  residential  IP  telephony  service  in  all  of 
 its  divisions  across  the  country,  while  by  the  end  of  2005  Cox  will  have  completed  its  rollout  of  digital  telephone  service  to  70%  of  its  footprint.  Highlights:  A  Quarterly  Overview  of  Key  Developments  at  Time  Warner  and  its 


 Businesses,  Time  Warner  Release,  Feb.  3,  2005;  Cox  Names  New  2005  Telephony  Markets,  Cox  Press  Release,  Aug.  1,  2005;  SBC  Info.  Req.,  SBC232290-  306. 


 256  See,  e.  g.,  SBC/  AT&  T  Application  at  46,  58-  61;  SBC/  AT&  T  Reply  at  95-  96;  SBC  Info.  Req.,  SBC223687-  716; 
 SBC420677-  420703;  SBC224397  at  224400  ([  REDACTED]);  SBC39337  at  39338  ([  REDACTED]);  SBC22807-  42  at  22813-  15  ([  REDACTED]);  see  also  SBC  Info.  Req.,  SBC218651  at  218720-  22  ([  REDACTED]); 


 SBC76809-  76856;  SBC122201-  03;  SBC148115-  187;  SBC22807-  842. 
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 that  it  be  widely  available  for  it  to  be  included  in  the  relevant  product  market.  257  Rather,  our  product  market  definition  analysis  only  requires  evidence  of  sufficient  demand  substitutability  in  those  geographic 
 markets  where  facilities-  based  VoIP  service  is  available. 
 88.  The  record  is  inconclusive  regarding  the  extent  to  which  various  over-  the-  top  VoIP  services  should  be  included  in  the  relevant  product  market  for  local  services.  The  record  indicates  that  there  are  a 
 wide  variety  of  methods  by  which  over-  the-  top  VoIP  providers  offer  service.  The  varieties  of  over-  the-top  VoIP  differ  significantly  in  their  service  characteristics,  258  including  quality  of  service  259  and  price.  260 
 The  extent  to  which  consumers  view  these  services  as  substitutes  for  traditional  wireline  local  service  may  vary  based  on  these  differences.  261  In  addition,  the  requirement  that  a  customer  have  broadband  access  to 
 be  able  to  use  certain  over-  the-  top  VoIP  services  affects  the  substitutability  of  those  services  with  wireline  local  service.  Specifically,  for  customers  that  do  not  already  have  broadband  access  service,  the 
 subscription  fee  to  obtain  broadband  access  must  be  added  to  the  subscription  price  for  the  over-  the-  top  VoIP  service  when  weighing  it  against  the  price  of  traditional  wireline  local  service,  and  the  extra  fee 
 could  make  substitution  uneconomical.  262  Even  for  consumers  that  have  broadband  service,  however, 
 257  See,  e.  g.,  NASUCA  Comments  at  11-  12;  Cbeyond  et  al.  Wilkie  Decl.  at  para.  45;  Nevada  DOJ  Comments  at  6-  7. 
 258  Some  over-  the-  top  VoIP  services  require  a  consumer  to  have  a  computer  and  to  install  the  software  on  his 
 computer;  others  may  require  the  purchase  of  specialized  telephone  handsets;  and  some  require  specialized  equipment  such  as  terminal  adapters.  See,  e.  g.,  Vonage  Holdings  Corporation  Petition  for  Declaratory  Ruling 


 Concerning  an  Order  of  the  Minnesota  Public  Utilities  Commission,  WC  Docket  No.  03-  211,  Memorandum  Opinion  and  Order,  19  FCC  Rcd  22404,  22407-  08,  paras.  8-  9  (2004)  (Vonage  Order);  Petition  for  Declaratory 
 Ruling  that  pulver.  coms  Free  World  Dialup  is  Neither  Telecommunications  Nor  a  Telecommunications  Service,  WC  Docket  No.  03-  45,  Memorandum  Opinion,  19  FCC  Rcd  3307,  3309-  10,  paras.  5-  6  (2004)  (Pulver  Order). 


 259  For  example,  an  over-  the-  top  VoIP  providers  ability  to  assure  a  particular  quality  of  service  could  vary 
 depending  upon  whether  it  has  its  own  IP  switches  and  long-  haul  fiber  (or  a  virtual  private  network  (VPN)),  or  whether  it  relies  on  the  public  Internet  to  carry  subscribers  communications. 


 260  The  pricing  for  over-  the-  top  VoIP  services  varies  with  the  services  attributes,  such  as  whether  the  service 
 permits  the  consumer  to  connect  to  the  PSTN.  In  addition,  VoIP  providers  offer  different  rate  structures:  some  charge  on  a  per-  minute  basis  for  long  distance  calls;  some  charge  a  fixed  monthly  fee  for  unlimited  local  and  long 


 distance  calling;  some  offer  multipart  plans  with  baskets  of  minutes;  and  others  offer  their  service  for  free.  For  example,  for  calling  anywhere  in  the  U.  S.,  Canada,  or  Puerto  Rico,  Vonage  offers  a  basic  500  minute  plan  for 
 $14.99  and  an  unlimited  calling  plan  for  $24.99.  See  http://  www.  vonage.  com  (visited  Sept.  1,  2005).  Skype  offers  unlimited  free  PC  to  PC  calling  and  a  pay-  per-  call  PC  to  phone  service  on  a  per-  minute  basis.  See 
 http://  www.  skype.  com  (visited  Sept.  1,  2005);  see  also  http://  www.  ordervoip.  com  (visited  Sept.  1,  2005). 
 261  See,  e.  g.,  Texas  OPC  Comments  at  6;  Nevada  DOJ  Comments  at  6-  7;  Missouri  OPC  Reply  at  14-  15;  NASUCA 
 Comments  at  11-  12;  Cbeyond  et  al.  Wilkie  Decl.  at  para.  45;  ACN  et  al.  Petition  at  16-  18;  Consumer  Federation  et  al.  Petition  at  16-  17;  Qwest  Bernheim  Decl.  at  paras.  82-  83. 


 262  About  20%  of  households  subscribed  to  a  broadband  service  in  2003.  Trends  in  Telephone  Service  at  2-  11 
 (April  2005)  (citing  A  Nation  Online:  Entering  the  Broadband  Age,  U.  S.  Department  of  Commerce  (September  2004).  These  consumers  or  others  that  have  decided  to  subscribe  to  a  broadband  service  for  other  reasons  may  be 


 more  willing  to  consider  over-  the-  top  VoIP  services  than  consumers  without  broadband  service.  Where  a  consumer  has  already  subscribed  to  broadband,  the  cost  of  the  broadband  subscription  would  not  be  viewed  as  part  of  the 
 incremental  cost  of  subsequently  subscribing  to  the  VoIP  service.  SBC  Info.  Req.,  SBC224397  at  224400  ([  REDACTED]);  Forrester  Research:  The  State  of  Consumer  Technology  Adoption:  Survey  of  More  Than  68,000 
 Households  Reveal  How  Consumers  Adopt  and  Use  Technology,  Business  Wire,  Aug.  2,  2005;  Stephanie  Kirchgaessner  and  Paul  Taylor,  The  Americas:  FCCs  Easing  of  Internet  Service  Rules  Welcomed,  Financial 
 Times  USA,  Aug.  6,  2005.  Time  Warner  reports  a  22%  penetration  rate  for  their  own  residential  high-  speed  data  (continued.) 
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 their  willingness  to  subscribe  to  over-  the-  top  VoIP  service  in  lieu  of  wireline  local  service  will  vary  with  the  attributes  of  the  service  and  the  consumers  willingness  to  trade  off  service  characteristics  for  lower 
 prices.  Thus,  while  it  is  likely  that  some  proportion  of  mass  market  consumers  may  view  certain  over-the-  top  VoIP  services  as  substitutes  for  wireline  local  service,  there  is  insufficient  information  in  the 
 record  to  determine  which  types  of  over-  the-  top  VoIP  service  should  be  included  in  the  product  market.  Consequently,  in  order  to  be  conservative  in  our  structural  analysis,  we  exclude  these  services  from  the 
 relevant  product  market  in  our  structural  analysis.  263 
 89.  Mobile  Wireless  Service.  We  find  that  mobile  wireless  service  should  be  included  in  the  local  services  product  market  when  it  is  used  as  a  complete  substitute  for  all  of  a  consumers  voice 
 communications  needs.  264  On  the  one  hand,  increasing  numbers  of  mass  market  customers  are  subscribing  to  mobile  wireless  services,  265  thus  providing  an  additional  access  option  for  making  local 
 telephone  calls.  266  On  the  other  hand,  we  recognize  that  the  average  cost  for  mobile  wireless  service  appears  to  be  higher  than  for  wireline  local  service.  267  In  addition,  while  most  customers  making  wireline 
 local  calls  face  a  per-  minute  cost  of  zero  (because  they  can  make  unlimited  local  calls  for  a  flat  monthly 


 (Continued  from  previous  page)  service.  The  corresponding  figures  for  Cox  and  Comcast  are  respectively,  27%  and  19%.  Time  Warner  Reports 
 Second  Quarter  2005  Results,  Time  Warner  Press  Release,  Aug.  3,  2005,  at  1;  Comcast  Second  Quarter  2005  Results,  Financial  Tables,  Aug.  2,  2005;  Cox  Second  Quarter  2005  Results,  Suppl.  Tables,  Aug.  9,  2005.  Texas 
 OPC  Comments  at  5. 
 263  We  are  not  persuaded  by  commenters  claims  concerning  the  importance  of  AT&  Ts  over-  the-  top  VoIP  offering 
 to  this  market.  See,  e.  g.,  Cox  Comments  at  12-  13;  Missouri  OPC  Reply  at  6-  7;  Consumer  Federation  et  al.  Petition  at  10-  11.  AT&  T  has  few  VoIP  subscribers  ([  REDACTED]  nationwide);  thus  we  cannot  find  that  AT&  T  is  a 


 significant  provider  of  this  service.  SBC/  AT&  T  Reply,  Declaration  of  Cathy  Martine  (SBC/  AT&  T  Martine  Reply  Decl.)  at  para.  9.  Given  the  limited  significance  of  AT&  Ts  provision  of  mass  market  VoIP  services,  we  reject  the 
 concerns  of  commenters  that  the  merger  increases  SBCs  incentive  or  ability  to  discriminate  against  competitive  VoIP  offerings  using  its  wireline  and  wireless  facilities  and  operations.  See,  e.  g.,  Vonage  Comments  at  6-  8,  12-  13 
 (expressing  concern  about  VoIP  providers  access  to  tandem  switches,  E911  facilities,  white  pages  listings,  and  wireless  Internet  platforms);  Global  Crossing  Comments  at  22-  24  (expressing  concern  about  VoIP  providers 
 interconnection,  intercarrier  compensation,  and  switched  access  rights  and  obligations). 
 264  The  Commission  previously  found  that,  although  wireline  services  do  not  have  a  price  constraining  effect  on 
 mobile  wireless  services,  some  consumers  may  find  that  mobile  wireless  services  are  a  good  substitute  for  wireline  services.  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21558,  paras.  73-  74.  As  we  discuss  below,  we  include 


 mobile  wireless  services  in  the  long  distance  service  market  to  some  extent  as  well. 
 265  See,  e.  g.,  Household  Telephone  Survey  at  Figures  1,  2. 


 266  See  id.  at  Table  B. 
 267  The  Commission  reports  that  the  average  monthly  household  expenditure  for  billed  wireline  local  telephone 
 service  is  $37.  Leap  Wireless  is  the  largest  provider  of  wireline  replacement  plans.  It  offers  unlimited  local  calling  for  $35-$  40  per  month,  but  it  only  offers  service  in  portions  of  20  states.  The  price  of  a  mobile  wireless  plan  with 


 sufficient  anytime  minutes  to  accommodate  the  typical  calling  needs  of  a  wireline  consumer  generally  costs  between  $50-$  60,  which  may  make  it  not  price  competitive  for  consumers.  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  Mobile  Services,  WT  Docket  No.  04-  111,  Ninth  Report,  19  FCC  Rcd  20597,  20685,  para. 
 215  (2004)  (Ninth  CMRS  Competition  Report);  Tenth  CMRS  Competition  Report,  WT  Docket  No.  05-  71,  Tenth  Report,  FCC  05-  173  at  paras.  198-  200  (rel.  Sept.  30,  2005)  (Tenth  CMRS  Competition  Report);  Trends  in  Telephone 
 Service  at  3-  4  (April  2005);  Texas  OPC  Comments  at  5;  NASUCA  Comments  at  12. 
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 fee),  many  wireless  customers  must  pay  per-  minute  fees  when  making  local  calls  with  their  wireless  phones.  268 
 90.  Considering  consumer  behavior  more  closely,  the  record  reveals  that  growing  numbers  of  subscribers  in  particular  segments  of  the  mass  market  are  choosing  mobile  wireless  service  in  lieu  of 
 wireline  local  services.  Evidence  indicates  that,  overall,  approximately  6  percent  of  households  have  chosen  to  rely  upon  mobile  wireless  services  for  all  of  their  communications  needs.  269  Recent  research 
 sponsored  by  the  Bureau  of  Labor  Statistics  reveals  that  for  certain  segments  of  the  U.  S.  population,  a  significantly  higher  percentage  of  households  rely  solely  on  mobile  wireless  services  (e.  g.,  single  person 
 households  (8.1  percent),  adults  between  the  ages  of  twenty-  five  and  thirty-  four  (10.3  percent),  and  single  individuals  (11.1  percent)).  270  We  also  find  that  SBC  considers  this  growing  substitution  in  developing  its 
 marketing,  research  and  development,  and  corporate  strategies  for  its  local  service  offerings.  271  Finally,  we  base  our  finding  on  the  Commissions  determination  in  the  Sprint/  Nextel  Order  that  Sprint/  Nextel, 
 after  the  merger,  would  likely  take  actions  that  would  increase  intermodal  competition  between  wireline  and  mobile  wireless  services,  272  as  well  as  Sprints  plans  to  focus  its  efforts  on  encouraging  consumers  to 
 cut  the  cord.  273  Accordingly,  our  expectation  is  that  intermodal  competition  between  mobile  wireless  and  wireline  service  will  likely  increase  in  the  near  term.  274  Even  if  most  segments  of  the  mass  market  are 
 unlikely  to  rely  upon  mobile  wireless  services  in  lieu  of  wireline  local  services  today,  275  as  discussed  above,  our  product  market  analysis  only  requires  that  there  be  evidence  of  sufficient  substitution  for 
 significant  segments  of  the  mass  market  to  consider  it  in  our  analysis.  276  Based  on  the  factors  discussed  in  this  section,  we  conclude  that  mobile  wireless  services  should  be  included  within  the  product  market  for 


 268  Many  consumers  have  mobile  wireless  plans  in  which  they  are  assessed  a  per-  minute  charge  for  each  incoming 
 and  outgoing  call  (e.  g.,  prepaid  calling  plans).  Other  consumers  subscribe  to  mobile  wireless  plans  with  a  limited  number  of  anytime  minutes  with  the  result  that  they  may  incur  overage  charges  for  minutes  in  excess  of  their 


 allotted  anytime  minutes.  See,  e.  g.,  Tenth  CMRS  Competition  Report  at  paras.  99-  100;  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21613-  14,  para.  240. 


 269  Household  Telephone  Survey  at  Table  A. 
 270  Id.  at  Tables  A,  B. 
 271  In  the  Cingular/  AT&  T  Wireless  Order,  the  Commission  determined  that  SBC  considered  the  prospect  of 
 consumers  subscription  to  wireless  services  in  lieu  of  wireline  services  when  engaging  in  research  and  development  of  corporate  strategies  and  market  offerings.  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21614, 


 para.  241.  We  find  similar  evidence  in  this  proceeding.  See,  e.  g.,  SBC  Info.  Req.  SBC223687  at  223689,  223697,  223699;  SBC224397  at  224399,  224401-  02. 


 272  Sprint/  Nextel  Order,  FCC  05-  148  at  paras.  141-  43. 
 273  Sprint  Prepares  to  Cut  the  Cord,  WASHINGTON  POST,  June  6,  2005;  SBC  Info.  Req.,  SBC88998  at  89002-  03 
 ([  REDACTED]). 
 274  See,  e.  g.,  SBC  Info.  Req.,  SBC223687-  716,  SBC88998-  89061,  SBC120798-  814. 


 275  See,  e.  g.,  Texas  OPC  Comments  at  5  (wireless  is  expensive  compared  to  wireline  and  does  not  provide  reliable 
 911  access);  Nevada  DOJ  Comments  at  6-  7;  Missouri  OPC  Reply  at  13-  14;  NASUCA  Comments  at  11-  12;  Cbeyond  et  al.  Petition  at  31;  ACN  et  al.  Petition  at  18-  20;  Consumer  Federation  et  al.  Petition  at  17-  18;  Household 


 Telephone  Survey  at  Tables  A,  B;  SBC  Info.  Req.,  SBC77525  at  77598. 
 276  See,  e.  g.,  SBC  Info.  Req.,  SBC223687  at  223689,  223699  ([  REDACTED]);  SBC224397at  224400. 
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 local  services  to  the  extent  that  customers  rely  on  mobile  wireless  service  as  a  complete  substitute  for,  rather  than  complement  to,  wireline  service.  277 
 (ii)  Long  Distance  Services 
 91.  There  is  significant  evidence  in  the  record  that  long  distance  service  purchased  on  a  stand-  alone  basis  is  becoming  a  fringe  market,  including  the  decision  by  AT&  T  to  cease  marketing  long  distance 
 services,  278  the  declining  proportion  of  consumers  choosing  a  long  distance  provider  different  from  their  local  service  provider,  279  and  other  documentary  evidence.  280  Nonetheless,  because  equal  access 
 requirements  permit  a  consumer  to  choose  to  subscribe  to  an  alternative  carriers  long  distance  service,  281  we  follow  Commission  precedent  and  consider  long  distance  services  as  a  separate  relevant  product 
 market.  282  As  discussed  below,  we  find  that  this  market  includes  not  only  presubscribed  wireline  long  distance  providers,  but  also  mobile  wireless  service  and  transaction  services,  such  as  prepaid  calling  cards 
 and  dial-  around  services.  283 
 92.  Mobile  Wireless.  Although  the  precise  extent  to  which  a  mobile  wireless  service  is  in  the  long  distance  market  is  unclear  from  the  record,  we  find  it  appropriate  to  include  mobile  wireless  services  in 
 the  relevant  market  at  least  to  some  extent  based  upon  usage  substitution  between  wireless  and  wireline  long  distance  service.  The  Commission  previously  has  noted  mobile  wireless  providers  increased 
 offering  of  wide-  area  pricing  plans,  284  and  the  migration  of  minutes  from  wireline  to  mobile  wireless 


 277  In  addition,  we  agree  with  commenters  who  note  that  the  record  does  not  present  credible  evidence  that  mobile 
 wireless  services  have  a  price  constraining  effect  on  all  consumers  demand  for  primary  line  wireline  services.  Cbeyond  et  al.  Wilkie  Decl.  at  paras.  41,  44. 


 278  AT&  T  Info.  Req.,  ATT560000524  at  527,  538-  548,  558-  563;  ATT551002844-  51;  ATT500001377-  1402. 
 279  Between  March  2004  and  March  2005,  the  percentage  of  SBCs  residential  lines  with  a  presubscribed 
 interexchange  carrier  increased  from  [REDACTED]%  to  [REDACTED]%,  while  the  percentage  of  its  residential  lines  with  a  presubscribed  interexchange  carrier  other  than  SBC  declined  from  [REDACTED]%  to 


 [REDACTED]%.  Calculated  from  data  contained  in  SBC  Info.  Req.,  Exh.  16b(  1&  4). 
 280  AT&  T  Info.  Req.,  AT&  T543010157  at  10164-  73;  SBC  Info.  Req.,  SBC144309  at  144342-  43. 


 281  The  likelihood  that  consumers  subscribing  to  bundled  service  plans  consider  the  price  and  characteristics  of  the 
 bundle  as  a  whole,  rather  than  individual  components  of  the  bundle,  decreases  the  likelihood  that  an  increase  in  the  price  of  stand-  alone  long  distance  services  (or  the  long  distance  component  of  the  bundle)  would  lead  a  consumer  to 


 switch  to  an  alternative  service  provider  for  its  bundle  of  services.  Thus,  the  relevant  group  of  consumers  for  this  analysis  may  only  be  those  consumers  that  currently  purchase  a  wireline  long  distance  service  (whether  as  a  stand-alone 
 offering  or  bundled)  and  have  a  significant  demand  for  long  distance  services. 
 282  We  reject  the  Applicants  assertions  that  we  should  include  e-  mail  and  instant  messaging  in  the  relevant  service 
 markets  for  services  provided  to  mass  market  consumers.  SBC/  AT&  T  Carlton/  Sider  Decl.  at  para.  25.  In  light  of  the  qualitative  differences  between  these  options  and  voice  communications,  the  Applicants  have  not  demonstrated 


 that  they  belong  in  the  same  relevant  product  market. 
 283  There  is  insufficient  information  in  this  record  to  assess  the  extent  to  which  mass  market  consumers  use  over-the- 
 top  VoIP  services  specifically  for  domestic  long  distance  calls. 
 284  See,  e.  g.,  Tenth  CMRS  Competition  Report,  para.  97. 
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 services.  285  However,  the  long  distance  usage  data  in  the  record  are  for  mass  market  and  all  business  customers  combined,  286  and  thus  cannot  be  used  to  infer  the  calling  patterns  for  mass  market  consumers 
 alone. 
 93.  In  evaluating  the  substitutability  of  wireless  service  for  stand-  alone  long  distance  service,  our  analysis  focuses  on  the  behavior  of  those  consumers  that  currently  subscribe  to  both  a  wireline  long 
 distance  service  and  a  mobile  wireless  service.  287  There  is  evidence  suggesting  that  consumers  are  increasingly  using  their  mobile  wireless  service  for  long  distance  calls,  288  and  there  is  evidence  suggesting 
 that  SBC  and  AT&  T  consider  minute  substitution  in  their  business  strategies.  289  As  a  general  matter,  we  expect  that  a  consumer  who  subscribes  to  both  a  mobile  wireless  service  and  a  wireline  long  distance 
 service  will  allocate  minutes  between  these  services  in  an  optimal  manner,  i.  e.,  the  consumer  will  seek  the  lowest  possible  charge,  consider  service  quality,  and  consider  the  time  the  call  is  placed.  While  we  have 
 insufficient  information  in  this  record  to  determine  the  precise  extent  of  wireless  long  distance  minute  substitution,  we  acknowledge  that  mobile  wireless  services  are  in  the  relevant  product  market  at  least  to 
 some  extent. 
 94.  Transaction  Services.  As  with  mobile  wireless  service,  we  find  that  certain  segments  of  mass  market  consumers  use  these  services  (prepaid  calling  cards  and  dial-  around  services)  as  a  substitute  for 
 long  distance  services.  SBC  maintains  that  prepaid  cards  are  used  by  consumers  who  cannot  otherwise  afford  traditional  long  distance,  wireless  service,  or  a  home  phone;  who  travel  frequently;  or  who  have 
 very  targeted  calling  needs.  290  We  have  insufficient  information  to  determine  the  precise  extent  of  consumer  substitution  between  transaction  services  and  presubscribed  wireline  long  distance  services, 
 however.  In  the  absence  of  more  precise  information,  we  include  these  services  in  the  relevant  market  definition  to  the  extent  that  consumers  view  these  services  as  substitutes  for  presubscribed  wireline  long 
 distance  service.  In  any  event,  to  the  extent  that  these  services  are  part  of  the  relevant  market,  they  appear  to  be  of  declining  significance.  Publicly  available  information  291  as  well  as  the  evidence  in  this  record 


 285  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Report  and  Order  and  Second  Further 
 Notice  of  Proposed  Rulemaking,  17  FCC  Rcd  24952,  24966,  para.  22  (2002)  (Contribution  Methodology  Order  and  FNPRM). 


 286  SBC/  AT&  T  Reply  at  112. 
 287  Our  market  definition  exercise  does  not  consider  the  purchasing  behavior  of  consumers  who  do  not  have  a 
 presubscribed  interexchange  carrier  or  who  rely  upon  mobile  wireless  service  for  all  of  their  communications  needs,  because  they  would  be  unaffected  by  a  theoretical  price  increase  for  wireline  long  distance  services  as  a  result  of  the 


 merger.  In  addition,  our  market  definition  exercise  does  not  consider  the  purchasing  behavior  of  consumers  who  do  not  currently  subscribe  to  a  mobile  wireless  service  because  it  would  most  likely  be  more  costly  for  these  consumers 
 to  subscribe  to  a  mobile  wireless  service  in  order  to  migrate  wireline  long  distance  minutes  to  a  mobile  wireless  service  than  it  would  be  to  pay  a  higher  price  for  wireline  long  distance  service. 


 288  From  2000  to  2003,  the  Commission  reports  that  the  percentage  of  all  wireless  calls  that  are  interstate  calls 
 increased  from  10%  to  15%,  and  the  percentage  of  all  minutes  that  are  interstate  grew  from  16%  to  26%.  Trends  in  Telephone  Service  at  11-  2  (April  2005);  see  also  SBC/  AT&  T  Reply  at  112  (reporting  the  results  of  a  Yankee  Group 


 survey  finding  that,  in  U.  S.  households,  more  than  60%  of  long  distance  calls  have  been  replaced  by  wireless). 
 289  AT&  T  Info.  Req.,  ATT543010157  at  63-  69;  ATT560000524  at  533,  562;  SBC  Info.  Req.,  SBC144309  at 
 144327,  144354;  SBC218651  at  218693-  94. 
 290  SBC/  AT&  T  Application  at  65  n.  212. 


 291  AT&  T  2004  Annual  Report  at  45;  AT&  T  2003  Annual  Report  at  21-  22;  MCI  2004  Annual  Report  at  49-  50. 
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 indicates  consumer  demand  for  these  services  has  declined  significantly  in  the  last  two  years,  292  possibly  due  to  reductions  in  long  distance  pricing  as  well  as  substitution  to  mobile  wireless  services.  293 
 (iii)  Bundled  Local  and  Long  Distance  Services 
 95.  We  agree  with  the  commenters  that  bundled  local  and  long  distance  services  should  be  treated  as  a  separate  relevant  product  market.  294  The  economics  literature  generally  discusses  two  types  of  bundles: 
 a  pure  bundle,  where  the  bundled  services  are  only  sold  together  and  are  not  sold  individually;  and  a  mixed  bundle,  where  the  bundled  services  are  sold  individually,  as  well  as  in  a  package.  295  There  is 
 significant  variation  across  providers  as  to  whether  they  offer  a  pure  bundle  or  a  mixed  bundle.  Because  of  the  varied  marketing  strategies  and  limitations  in  the  data,  we  define  a  local  and  long  distance  service 
 bundle,  for  purposes  of  this  proceeding  only,  as  a  customers  purchase  of  local  and  long  distance  services  from  the  same  carrier,  regardless  of  whether  these  services  are  purchased  together  as  part  of  an  advertised 
 bundle  from  a  single  carrier  or  whether  the  consumer  creates  the  bundle  by  selecting  separately-  offered  local  and  long  distance  service  plans  from  the  same  provider.  The  evidence  indicates  that:  consumers 
 predominantly  purchase  local  and  long  distance  services  from  a  single  provider  today;  this  trend  is  likely  to  continue;  and  the  stand-  alone  wireline  long  distance  market  is  steadily  declining  in  size  relative  to  the 
 bundled  services  market.  296 
 96.  Several  other  factors  also  convince  us  that  it  is  appropriate  to  define  bundled  local  and  long  distance  services  as  a  separate  relevant  product  market.  First,  we  find  that  SBCs  marketing  and  pricing 


 292  Between  December  2002  and  December  2004,  the  percentage  of  households  within  SBCs  region  reporting  use 
 of  dial-  around  service  declined  from  [REDACTED]%  to  [REDACTED]%;  the  corresponding  figures  for  the  nation  as  a  whole  are  [REDACTED]%  and  [REDACTED]%.  SBC  Info.  Req.,  SBC77525  at  77585;  SBC144309 


 at  144344;  SBC218651  at  218695,  218703-  04;  AT&  T  June  13  Ex  Parte  Letter,  Specification  18  Attach.  at  8  (Atlantic  ACM  Excerpt). 


 293  SBC  Info.  Req.,  SBC144309  at  144344,  144353;  AT&  T  Info.  Req.,  ATT543010157  at  543010163-  73. 
 294  See,  e.  g.,  New  Jersey  Ratepayer  Advocate  Reply  at  6-  7;  Telecom  Consumers  Coalition  Reply  at  8;  Cbeyond  et 
 al.  Wilkie  Decl.  at  paras.  42-  43;  Cbeyond  et  al.  Petition  at  30-  31.  The  Commission  has  previously  noted  the  increased  subscription  to  bundled  telecommunications  service  offerings.  See,  e.  g.,  Section  272  Sunset  FNPRM,  18 


 FCC  Rcd  at  10919,  para.  9.  While  the  Applicants  do  not  specifically  address  the  issue  of  a  bundled  service  market,  they  assert  that  they  face  significant  competition  from  intermodal  and  VoIP  providers,  who  offer  a  bundled  service. 
 SBC/  AT&  T  Application  at  56-  67;  SBC/  AT&  T  Reply  at  106-  114. 
 295  In  a  mixed  bundle,  the  package  generally  is  sold  at  a  discount  relative  to  the  sum  of  the  individual  service 
 component  prices.  See,  e.  g.,  Barry  Nalebuff,  Bundling,  Tying  and  Portfolio  Effects,  DTI  Economics  Paper  No.  1  (2001)  at  13-  14,  available  at  http://  www.  dti.  gov.  uk/  ccp/  topics2/  pdf2/  bundle1.  pdf. 


 296  As  of  June  2005,  61%  of  SBCs  retail  local  consumer  lines  have  SBC  as  a  presubscribed  interexchange  carrier. 
 SBC  Investor  Briefing,  July  21,  2005,  at  5.  The  proportion  of  SBCs  residential  consumer  lines  that  have  SBC  as  the  interexchange  long  distance  carrier  increased  from  [REDACTED]%  to  [REDACTED]%  between  March  2004 


 and  March  2005.  See  SBC  Info.  Req.,  Exh.  16b(  1&  4).  Within  SBCs  region,  TNS  reports  that  the  proportion  of  households  purchasing  local  and  long  distance  from  a  single  provider  increased  from  [REDACTED]%  to 
 [REDACTED]%  between  December  2002  and  December  2004.  Nationally,  the  proportion  has  increased  from  [REDACTED]%  to  [REDACTED]%.  SBC  Info.  Req.,  SBC77525  at  77566-  567;  see  also  SBC  Info.  Req., 
 SBC144309  at  144342  ([  REDACTED]).  We  note  that  the  Commission  anticipated  that  a  bundled  product  market  might  become  a  relevant  product  market  sometime  after  the  BOCs  completed  the  section  271  process.  See,  e.  g., 
 Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20010-  11,  paras.  39-  42;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18038-  39,  para.  22  n.  60.  SBC  completed  the  section  271  process  in  October  2003. 
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 strategies  are  designed  to  encourage  subscription  to  a  bundled  service  package.  297  Second,  the  evidence  in  the  record  indicates  increasing  intermodal  competition  is  likely  between  wireline  services  and  services 
 provided  on  alternative  service  platforms  such  as  facilities-  based  VoIP  and  mobile  wireless.  These  intermodal  services  tend  to  be  offered  as  a  bundle  of  local  and  long  distance  services,  which  further 
 supports  the  use  of  a  bundled  local  and  long  distance  services  market.  298  These  findings  suggest  that  competition  tends  to  occur  between  bundled  offerings  rather  than  between  a  bundle  and  stand-  alone  local 
 and  long  distance  services  offered  by  separate  providers. 
 b.  Relevant  Geographic  Market 
 97.  As  with  special  access  and  enterprise  services,  we  conclude  that  the  relevant  geographic  market  for  mass  market  local,  long  distance,  and  bundled  local  and  long  distance  services  is  the  customers 
 location.  299  We  then  aggregate  customers  facing  similar  competitive  choices.  As  explained  below,  because  of  limitations  in  the  data  in  the  record,  we  analyze  local,  long  distance,  and  bundled  local  and 
 long  distance  service  for  SBCs  franchise  area  within  each  state. 
 98.  This  approach  is  consistent  with  the  way  we  have  defined  the  relevant  geographic  market  in  previous  mergers  of  incumbent  LECs.  300  We  acknowledge  that,  in  the  LEC  Classification  Order,  the 
 Commission  adopted  a  national  geographic  market  based  on  the  section  254(  g)  requirement  that  interexchange  carriers  adopt  geographically  averaged  prices  across  the  United  States.  301  Importantly, 
 however,  the  Commission  also  found  that,  while  a  long  distance  calling  plan  may  be  ubiquitous  in  that  it  offers  nationwide  coverage,  the  market  to  purchase  the  plan  is  a  localized  market,  not  a  national  one.  302 
 The  Commission  went  on  to  state  that  it  would  consider  a  smaller  relevant  geographic  market  if  it  found  evidence  that  there  is,  or  could  be,  a  lack  of  competition  in  a  particular  market.  303  Because  we  are 
 examining  here  whether  the  proposed  merger  involving  SBC  and  AT&  T  is  likely  to  lead  to  a  lessening  of 
 297  SBCs  documents  reveal  that  its  research  and  development,  marketing,  and  corporate  strategies  focus  upon 
 service  offerings  designed  to  encourage  consumers  to  subscribe  to  a  local  and  long  distance  service  bundle.  SBCs  incentive  is  to  drive  consumers  to  purchase  all  telephone  services  from  SBC  to  reduce  its  marketing  costs  and  churn, 


 as  well  as  to  increase  its  average  revenue  per  user.  SBC/  AT&  T  Reply  at  89-  91;  SBC  Investor  Briefing,  April  21,  2004  at  5;  SBC  Investor  Update,  SBC  2004  First  Quarter  Earnings  Conference  Call,  Apr.  21,  2004  at  6,  16,  18; 
 SBC  Info.  Req.,  SBC24705-  22.  Moreover,  these  strategies  are  revealed  by  the  marketing  of  its  bundled  service  offerings,  as  well  as  its  policy  of  requiring  consumers  to  subscribe  to  its  local  service  as  a  prerequisite  to 
 subscribing  to  its  long  distance  service.  See,  e.  g.,  SBC  Residential  Solutions  (visited  Aug.  19,  2005)  available  at  http://  www02.  sbc.  com/  Products_  Services/  Residential/  Catalog/  1,,  13--  1-  3-  13,00.  html;  see  also,  e.  g.,  SBC  Info.  Req., 
 SBC57075  at  57089;  SBC218651  at  218693;  SBC121379  at  121381,  121388;  SBC39089  at  39098,  39140-  41. 
 298  NASUCA  Comments  at  11-  12;  Cbeyond  et  al.  Wilkie  Decl.  at  paras.  40-  43.  We  note  that  SBCs  concerns  about 
 the  loss  of  customers  to  bundled  local  and  long  distance  service  offered  by  alternative  platforms  is  an  important  influence  on  its  strategies.  SBC/  AT&  T  Reply  at  103-  04. 


 299  See  supra  Parts  V.  B  (Wholesale  Special  Access  Competition),  V.  C  (Retail  Enterprise  Competition). 
 300  See,  e.  g.,  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016,  para.  54;  SBC/  Ameritech  Order,  14  FCC  Rcd  at 
 14746,  para.  69. 
 301  LEC  Classification  Order,  12  FCC  Rcd  at  15794,  para.  66;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18119-  20, 
 para.  166. 
 302  LEC  Classification  Order,  12  FCC  Rcd  at  15793,  para.  65. 


 303  Id.  at  15794,  para.  66. 
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 competition  for  long  distance  services,  and  because  SBCs  (and  to  some  extent  AT&  Ts)  market  shares  in  the  long  distance  and  bundled  local  and  long  distance  markets  vary  significantly  from  state  to  state,  304  we 
 find  it  appropriate  to  consider  a  narrower  relevant  geographic  market. 
 99.  We  recognize  that  the  competitive  choices  customers  face  may  vary  within  a  state  (e.  g.,  in  some  areas  of  a  state,  cable  companies  may  provide  cable  VoIP,  while  in  other  areas  they  may  not).  This 
 suggests  that  we  should  define  the  relevant  geographic  market  to  be  an  area  smaller  than  the  state.  The  data  in  the  record  is  not  sufficiently  detailed,  however,  for  us  to  perform  a  structural  analysis  at  a  more 
 disaggregated  level  than  that  of  the  state.  Accordingly,  in  performing  our  structural  analysis,  we  calculate  market  shares  and  changes  in  market  share  at  the  state  level.  While  we  recognize  that,  in  theory,  using  a 
 state-  level  analysis  may  mask  some  variations  in  smaller  geographic  areas,  we  find  it  a  reasonable  approach  to  our  analysis,  particularly  given  that  SBCs  pricing  for  local,  long  distance,  and  bundled  local 
 and  long  distance  services  is  generally  advertised  on  a  statewide  basis.  305  Accordingly,  we  analyze  mass  market  local,  long  distance,  and  bundled  local  and  long  distance  services  in  SBCs  franchise  area  within 
 each  state. 
 c.  Market  Participants 
 100.  As  the  foregoing  indicates,  SBC  faces  competition  from  a  variety  of  providers  of  retail  mass  market  services.  These  competitors  include  not  only  wireline  competitive  LECs  and  long  distance  service 
 providers  but  also,  to  at  least  some  extent,  facilities-  based  and  over-  the-  top  VoIP  providers,  and  wireless  carriers. 


 2.  Competitive  Analysis 
 a.  Horizontal  Effects 
 101.  Unilateral  Effects.  As  discussed  below,  we  find  that  SBCs  acquisition  of  AT&  T  is  not  likely  to  result  in  anticompetitive  effects  for  mass  market  services  due  to  AT&  Ts  actions  to  cease  marketing  and 
 gradually  withdraw  from  providing  local  service,  long  distance  service  and  bundled  local  and  long  distance  service  to  the  mass  market.  We  also  conclude  that  competition  from  intermodal  competitors  is 
 growing  quickly,  and  we  expect  it  to  become  increasingly  significant  in  the  years  to  come.  306 


 304  The  variation  in  market  share  from  state  to  state  for  long  distance  and  bundled  local  and  long  distance  services  is 
 due  in  large  part  to  the  fact  that  SBC  obtained  section  271  authority  in  a  particular  state  to  provide  such  services  at  different  times  and  therefore  has  been  competing  in  those  markets  for  varying  periods  of  time. 


 305  See,  e.  g.,  SBC    Residential  Products  and  Services  (visited  Sept.  9,  2005)  available  at 
 http://  www.  sbc.  com/  gen/  general?  pid=  1080&  cdvn=  localize&  prod-  snip=  res_  long_  distance;  SBC  Selector  (visited  Sept.  9,  2005)  available  at 


 http://  configurator.  sbc.  com/  acct_  cfg/  SBCSelector/  AppUI/  BMSFrontAppUI/  content/  residential/  splash_  files/  splash.  j  sp. 


 306  Although  the  Applicants  allude  to  regulatory  safeguards,  which  they  claim  would  constrain  the  post-  merger 
 firms  prices,  we  are  not  persuaded  that  this  would  adequately  address  competitive  concerns.  SBC  Application  at  45.  For  example,  local  services  are  subject  to  only  limited  price  regulation  in  some  states  (e.  g.,  Oklahoma, 


 Arkansas,  and  Ohio).  Currently  there  is  limited  regulatory  oversight  for  SBCs  retail  service  offerings  provided  through  its  section  272  separate  affiliate.  In  many  states,  SBCs  bundled  offerings  either  have  no  price  regulation 
 (e.  g.,  Arkansas,  Missouri,  Michigan)  or  they  can  be  priced  no  lower  than  a  price  floor  (e.  g.,  Texas,  California,  Nevada).  SBC  Info.  Req.  at  134-  169. 
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 102.  Following  Commission  precedent,  we  begin  our  analysis  by  examining  SBCs  and  AT&  Ts  market  share,  and  supply  and  demand  factors.  In  general,  the  market  share  calculations  indicate  a  high 
 level  of  concentration  in  most  franchise  areas  in  SBCs  states  for  all  relevant  services.  307  Within  SBCs  franchise  areas,  its  median  market  share  for  local  services  increases  from  [REDACTED]  percent  to 
 [REDACTED]  percent,  308  with  a  post-  merger  market  share  range  of  [REDACTED]  percent  to  [REDACTED]  percent.  Similarly,  within  SBCs  franchise  areas,  its  median  market  share  of  long 
 distance  services  will  increase  from  [REDACTED]  percent  to  [REDACTED]  percent,  with  a  post-acquisition  market  share  range  from  [REDACTED]  percent  to  [REDACTED]  percent.  309  Finally,  within 
 SBCs  franchise  areas,  its  median  market  share  for  bundled  local  and  long  distance  services  will  increase  from  [REDACTED]  percent  to  [REDACTED]  percent,  with  a  post-  acquisition  market  share  range  of 
 [REDACTED]  percent  to  [REDACTED]  percent.  310  Because  these  market  shares  suggest  potentially  problematic  levels  of  concentration,  we  must  next  evaluate  other  aspects  of  the  market. 


 307  We  discuss  the  Applicants  market  shares  before  and  after  the  merger  instead  of  HHIs  for  each  geographic 
 market  because  we  do  not  have  sufficient  market  share  information  for  all  of  the  significant  competitors  in  these  markets.  Market  share  calculations  for  each  of  SBCs  franchise  areas  are  provided  in  Confidential  Appendix  D. 


 Our  analysis  of  concentration  in  the  mass  market  relies  upon  data  for  residential  customers  because  of  the  administrative  difficulty  of  distinguishing  small  business  data  from  data  for  other  classes  of  businesses.  The 
 Commission  has  previously  found  that  residential  and  very  small  businesses  have  similar  patterns  of  demand,  are  served  primarily  through  mass  marketing  techniques,  purchase  similar  volumes  and  communications  services,  and 
 would  likely  face  the  same  competitive  alternatives  within  a  geographic  market.  Thus,  we  conclude  that  an  analysis  of  market  share  of  residential  consumers  is  likely  to  accurately  represent  SBCs  position  in  the  mass  market.  Cf. 
 Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016,  para.  53  (discussing  similarities  between  residential  and  small  business  customers);  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996, 
 Third  Report  and  Order  and  Fourth  Further  Notice  of  Proposed  Rulemaking,  15  FCC  Rcd  3696,  3829,  para.  293  (1999)  (discussing  similarities  between  residential  and  small  business  customers  in  the  context  of  unbundling  rules); 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14746,  para.  68  (including  residential  and  small  business  customers  in  the  same  market). 


 308  We  estimate  total  residential  local  access  lines  in  each  relevant  geographic  market  by  summing  the  number  of 
 wireline  local  access  lines  (i.  e.,  residential  resold  lines,  residential  UNE-  P  lines,  non-  SBC  residential  E-  911  listings,  and  SBCs  residential  access  lines)  and  an  estimate  of  the  number  of  residential  wireless-  only  lines.  We  estimate 


 residential  wireless-  only  lines  in  two  steps.  First,  we  assume  that  the  total  number  of  all  local  access  lines  is  the  number  of  landline  residential  lines  in  SBCs  franchise  areas  divided  by  94%  (100%  minus  that  6%  of  residential 
 customers  that  rely  solely  on  wireless).  Second,  we  estimate  the  number  of  wireless-  only  lines  by  taking  the  difference  between  the  estimate  of  the  total  number  of  local  access  lines  and  the  total  number  of  wireline  local 
 access  lines.  We  estimate  SBCs  share  of  the  residential  wireless-  only  lines  by  multiplying  the  estimate  of  residential  wireless-  only  lines  by  an  estimate  of  Cingulars  share  of  mobile  wireless  based  upon  mobile  wireless 
 lines  in  the  NRUF  database.  Facilities-  based  VoIP  lines  will  be  captured  in  the  E-  911  listings.  We  note  that,  although  we  do  not  intend  to  include  over-  the-  top  VoIP  subscribers  in  our  market  share  calculations  (because  we 
 are  unable  to  determine  which  services  fall  within  our  relevant  product  market),  subscribers  to  some  of  these  services  may  be  included  in  the  E-  911  listings,  and  thus  included  in  our  market  share  calculations. 


 309  Our  calculations  for  the  long  distance  market  include  only  those  consumers  with  a  wireline  long  distance 
 presubscribed  carrier.  We  have  no  information  to  estimate  the  extent  to  which  consumers  may  be  able  to  migrate  long  distance  minutes  to  their  mobile  wireless  service  or  prepaid  calling  cards.  Thus,  we  recognize  that  these 


 market  shares  are  likely  to  overstate  SBCs  share  of  the  long  distance  market. 
 310  With  respect  to  bundled  local  and  long  distance  market  shares,  we  follow  a  methodology  similar  to  that 
 employed  in  calculating  SBCs  share  of  local  services,  described  above.  See  supra  note  308.  In  this  case,  however,  we  exclude  consumers  who  do  not  have  a  PIC  or  who  subscribe  to  an  interexchange  carrier  other  than  their  local 


 service  provider.  Post-  merger,  we  assume  SBCs  local  customers  who  have  AT&  T  as  their  presubscribed  (continued.) 
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 103.  Although  we  agree  with  commenters  that  the  Applicants  post-  merger  market  shares  for  the  relevant  products  are  high,  311  we  nonetheless  find,  for  the  reasons  given  below,  that  these  numbers 
 significantly  overstate  the  likely  competitive  impact  of  the  merger.  Regardless  of  what  role  AT&  T  played  in  the  past,  we  conclude  that  AT&  Ts  actions  to  cease  marketing  and  gradually  withdraw  from  the  mass 
 market  mean  it  is  no  longer  a  significant  provider  (or  potential  provider)  of  local  service,  long  distance  service,  or  bundled  local  and  long  distance  service  to  mass  market  consumers.  312  We  base  this  conclusion 
 on  AT&  Ts  cessation  of  marketing,  its  reductions  in  consumer  operations,  its  retirement  of  infrastructure  used  to  support  mass  market  marketing  and  consumer  care  for  mass  market  services,  and  its  decision  to 
 harvest  its  mass  market  business  by  raising  prices,  resulting  in  a  declining  mass  market  customer  base.  313  The  record  indicates  that  AT&  Ts  decision  was  the  result  of  its  own  internal  deliberations  after 
 determining  that  it  would  be  uneconomical  for  it  to  continue  to  offer  mass  market  services.  314  We  reject  as  speculative  and  unrealistic  commenters  suggestion  that  AT&  T  could  readily  and  easily  reverse  its 
 decision.  315  The  record  demonstrates  that  once  AT&  T  determined  that  mass  market  services  were  no  longer  a  viable  business  opportunity,  it  implemented  steps  to  close  down  its  mass  market  operations  in  an 
 orderly  fashion,  and  there  is  no  indication  that,  absent  the  merger,  AT&  T  would  reverse  this  decision.  316  (Continued  from  previous  page) 
 interexchange  carrier  will  migrate  to  SBC.  Thus,  our  estimate  overstates  SBCs  relative  position  post-  acquisition  to  the  extent  that  SBC  local/  AT&  T  long  distance  consumers  switch  to  an  alternative  interexchange  carrier  or  AT&  Ts 
 local  customers  switch  to  a  competitive  provider. 
 311  See,  e.  g.,  Cbeyond  et  al.  Petition  at  34-  35;  Consumer  Federation  et  al.  Petition  at  19-  22;  Nevada  DOJ  Comments 
 at  5-  6;  Texas  OPC  Comments  at  4. 
 312  AT&  T  states  that  it  found  it  difficult  to  compete  for  mass  market  local  exchange  customers  for  a  variety  of 
 reasons,  including  competition  from  facilities-  based  intermodal  providers,  such  as  cable  companies  and  wireless  carriers;  competition  from  other  VoIP  providers;  competition  from  other  wireline  carriers;  and  the  D.  C.  Circuits 


 vacatur  of  the  unbundling  rules  set  forth  in  the  Triennial  Review  Order,  to  which  the  Commission  responded  by  phasing  out  competitive  LEC  access  to  UNE-  P  at  TELRIC  prices.  See,  e.  g.,  SBC/  AT&  T  Application  at  50-  52; 
 Polumbo  Declaration  at  paras.  6-  10;  SBC/  AT&  T  Application,  Declaration  of  Thomas  Horton  (SBC/  AT&  T  Horton  Decl.)  at  para.  7. 


 313  See  SBC/  AT&  T  Application,  Declaration  of  John  Polumbo  (SBC/  AT&  T  Polumbo  Decl.)  at  paras.  3-  40;  AT&  T 
 Info.  Req.,  Exhs.  16(  b)-  I,  16(  b)-  IV;  see  also  AT&  T  Info.  Req.,  ATT551002844-  51,  ATT5600000524-  90.  Harvesting  refers  to  AT&  Ts  increasing  prices  to  encourage  customers  to  discontinue  service.  Harvesting 


 refers  to  AT&  Ts  steps  to  manage  the  decline  in  its  mass  market  business.  See,  e.  g.,  Q4  2004  AT&  T  Earnings  Conference  Call  on  Jan.  20,  2005  at  9  (Jan.  20,  2005)  available  at  http://  www.  att.  com/  ir/  pdf/  4q04_  transcript.  pdf 
 (  in  our  consumer  business  the  revenue  decline  will  accelerate  from  04  as  weve  moved  to  harvest  that  business  as  a  result  of  the  regulatory  changes  effective  middle  of  last  year). 


 314  See  SBC/  AT&  T  Polumbo  Decl.  at  paras.  3-  9;  see  also  AT&  T  Info.  Req.,  ATT551002844-  51,  ATT5600000524- 
 90.  The  record  does  not  indicate  whether  AT&  T  was  continuing  to  offer  mass  market  prepaid  calling  cards.  Because  we  find  that  prepaid  calling  cards  are  of  diminishing  importance  for  domestic  long  distance  services,  we 


 conclude  that,  even  if  AT&  T  continued  to  have  a  role  in  that  market,  it  is  of  limited  significance.  AT&  Ts  significance  is  diminished  further  by  the  ability  of  other  competitors  to  provide  such  services,  given  continued 
 competition  and  excess  capacity  for  wholesale  interexchange  services.  See  infra  Part  V.  F  (Wholesale  Interexchange  Competition).  In  addition,  we  note  that  the  record  indicates  that  IDT  is  a  leading  provider  of  prepaid  calling  card 
 services,  and  that  other  carriers  and  resellers  operate  in  this  market.  SBC/  AT&  T  Application  at  65  n.  212. 
 315  See,  e.  g.,  ACN  et  al.  Petition  at  25;  Cbeyond  et  al.  Petition  at  31;  Qwest  Bernheim  Decl.  at  para.  77;  EarthLink 
 White  Paper  at  10. 
 316  See  SBC/  AT&  T  Horton  Decl.  at  paras.  2-  7;  SBC/  AT&  T  Polumbo  Decl.  at  paras.  3-  40;  AT&  T  Info.  Req., 
 ATT551002844-  51,  ATT5600000524-  90. 
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 Thus,  we  agree  with  the  Applicants  that  AT&  T  ceased  being  a  significant  participant  in  this  market.  317  We  note  that  the  record  evidence  further  indicates  that  SBCs  current  and  future  pricing  incentives  are 
 based  more  on  likely  competition  from  intermodal  competitors  and  the  remaining  competitive  LECs.  318 
 104.  Finally,  we  reject  commenters  arguments  that  consumers  will  be  worse  off  after  the  merger.  Qwest  argues  that  AT&  Ts  customers  would  be  better  off  if  SBC  had  to  compete  for  their  business.  319 
 First,  as  stated  above,  AT&  T  ceased  to  act  as  a  significant  competitive  presence  in  the  market  a  year  ago  when  it  began  to  implement  its  strategy  to  harvest  its  customer  base.  Second,  AT&  Ts  customers  will  not 
 necessarily  be  worse  off  after  the  merger  because  SBC  (or  other  incumbent  LECs  outside  of  SBCs  region)  and  the  remaining  competitive  providers  will  continue  to  compete  for  customers  (AT&  Ts  former 
 customers  as  well  as  each  others  customers).  320  Third,  AT&  Ts  customers  are  free  to  seek  service  from  whichever  providers  are  present  in  the  market.  321  As  noted,  we  find  that  intermodal  competitors, 
 including  facilities-  based  VoIP  and  mobile  wireless  providers,  are  likely  to  capture  an  increasing  share  of  mass  market  local  and  long  distance  services.  In  addition,  we  take  further  comfort  from  the  Applicants 
 voluntary  commitment  to  offer  stand-  alone  DSL  322 


 317  For  the  same  reasons,  we  conclude  that  AT&  T  has  ceased  to  operate  as  a  significant  competitor  for  mass  market 
 broadband  services.  AT&  T  Info.  Req.  at  52-  53.  Further,  the  record  indicates  that  AT&  T  has  only  a  limited  consumer  DSL  customer  base,  with  [REDACTED]  customers  nationwide.  AT&  T  June  17  Ex  Parte  Letter,  Suppl. 


 Exh.  1;  see  also  EarthLink  White  Paper  at  27  n.  65  (stating  that  AT&  T  has  not  yet  achieved  significant  actual  competition  with  a  critical  mass  of  DSL  customers).  We  also  note  that  AT&  T  provides  its  DSL  service  by  leasing 
 wholesale  services  from  unaffiliated  DSL  providers  such  as  Covad,  New  Edge,  and  MegaPath.  AT&  T  Info.  Req.  at  54.  Given  that  AT&  T  offers  DSL  through  such  wholesale  arrangements,  we  conclude  that  other  competitors  will 
 be  equally  able  to  do  so  post-  merger.  Thus,  as  with  mass  market  voice  services,  we  find  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  for  mass  market  broadband  services  through  either  unilateral  or  coordinated 
 effects.  See,  e.  g.,  Consumer  Federation  et  al.  Petition  at  3-  9  (expressing  concern  about  competitive  effects  with  respect  to  broadband  services). 


 318  AT&  Ts  decision  to  shut  down  its  mass  market  operations  indicates  it  was  not  a  potential  purchaser  of  third  party 
 UNE-  P  substitute  products,  as  some  commenters  claim.  The  elimination  of  UNE-  P  was  a  significant  factor  in  AT&  Ts  decision,  but  we  reject  commenters  suggestion  that  this  implies  other  wireline  competitive  LECs  would 


 also  find  it  unprofitable  to  serve  this  market.  See,  e.  g.,  Qwest  Petition  at  34.  While  certain  commenters  express  concern  about  their  ability  to  offering  competing  service  based  on  current  TELRIC  rates  for  unbundled  DS0  loops, 
 such  concerns  are  not  merger  specific.  Telscape  Comments  at  5-  6;  Letter  from  Ross  A.  Buntrock,  Counsel  for  Fones4All,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  2-  3  (filed  Sept.  7,  2005);  Letter  from 
 Richard  M.  Rindler,  Counsel  for  TDS  Metrocom,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  1-  2  (filed  Sept.  30,  2005). 


 319  Qwest  Bernheim  Decl.  at  paras.  76-  77. 
 320  See,  e.  g.,  SBC/  AT&  T  Reply  at  104.  We  note  that  Cbeyond  et  al.  s  claims  of  a  likely  price  increase  for 
 residential  long  distance  and  bundled  services  are  flawed  because  their  analysis  does  not  consider  competition  from  intermodal  competitors.  Moreover,  this  analysis  incorrectly  assumes  AT&  T  is  a  competitive  force  in  the  market 


 because  of  its  legacy  market  share  and  thus  overstates  AT&  Ts  significance  in  the  market  by  failing  to  account  for  the  fact  that  AT&  T  no  longer  is  a  significant  market  participant.  Cbeyond  et  al.  Wilkie  Decl.  at  paras.  41-  48. 


 321  SBC/  AT&  T  Reply  at  102. 
 322  Because  we  find  this  commitment  will  serve  the  public  interest,  we  accept  it  and  adopt  it  as  a  condition  of  our 
 approval  of  the  merger,  as  discussed  below.  See  infra  Part  VII  (Process  and  Enforcement). 
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 105.  Coordinated  Effects.  We  also  find  that  SBCs  acquisition  of  AT&  T  is  unlikely  to  result  in  anticompetitive  effects  through  coordinated  interaction  among  remaining  competitors.  Given  our  finding 
 that  AT&  T  is  not  a  significant  market  participant,  we  find  no  indication  that  the  proposed  acquisition  increases  the  likelihood  of  coordinated  interaction  for  the  relevant  products.  Moreover,  the  increasing 
 trend  toward  bundled  service  offerings  likely  decreases  the  possibility  of  coordinated  interaction.  Because  of  the  complexity  and  variety  of  the  bundled  local  and  long  distance  service  offers,  competitors 
 will  find  it  difficult  to  coordinate  on  prices.  323 
 106.  Mutual  Forbearance.  For  the  same  reasons  as  discussed  above  with  respect  to  claims  of  possible  coordinated  effects,  we  do  not  believe  that  the  merger  is  likely  to  result  in  anticompetitive  effects  for  mass 
 market  services  in  Verizons  region.  While  some  commenters  claim  that  the  merged  company  will  have  the  incentive  to  forbear  from  mass  market  competition  in  Verizon  territories,  as  stated  above,  we  note  that 
 AT&  T  had  already  had  decided  to  cease  marketing  and  to  harvest  its  customers  nationwide.  324 
 b.  Vertical  Effects 
 107.  We  are  also  not  persuaded  by  commenters  claims  that  the  merger  will  increase  the  merged  entitys  incentive  and  ability  to  raise  the  costs  of  mass  market  rivals.  325  We  discussed  these  vertical 
 concerns  in  our  analyses  of  the  wholesale  special  access  market  and  other  sections  of  this  Order.  326 
 E.  Internet  Backbone  Competition 
 108.  We  next  turn  to  the  potential  competitive  effects  of  the  proposed  merger  on  Internet  backbone  services.  We  find  that  the  proposed  merger  of  SBC  and  AT&  T  is  not  likely  to  result  in  anticompetitive 
 effects  in  the  Internet  backbone  market.  We  also  conclude  that,  while  the  merger  may  result  in  the  loss  of  a  potential  Tier  1  backbone  competitor  and  in  significant  vertical  integration,  the  record  does  not  support 
 commenters  conclusions  that  the  merger  will  tip  the  backbone  market  to  duopoly,  increase  transit  prices  to  supra-  competitive  levels,  or  lower  service  quality.  In  addition,  we  find  insufficient  evidence  in 
 the  record  to  conclude  that  the  merged  firm  will  engage  in  packet  discrimination  or  degradation  against  rivals  VoIP,  video  over  IP,  and  other  IP-  enabled  services.  Although  we  find  no  likely  anticompetitive 
 effects  for  Internet  backbone  and  related  services  as  a  result  of  the  merger,  we  note  that  the  Applicants 
 323  The  difficulties  in  coordinating  actions  may  be  exacerbated  not  only  by  the  bundling  of  local  and  long  distance 
 services  but  also  by  the  offering  of  discounts  to  consumers  that  purchase  additional  services  from  the  providers.  See,  e.  g.,  DOJ/  FTC  Guidelines    2.1.1  (  Reaching  terms  of  coordination  may  be  limited  or  impeded  by  product 


 heterogeneity  or  by  firms  having  substantially  incomplete  information  about  the  conditions  and  prospects  of  their  rivals  businesses,  perhaps  because  of  important  differences  among  their  current  business  operations.  In  addition, 
 reaching  terms  of  coordination  may  be  limited  or  impeded  by  firm  heterogeneity,  for  example,  differences  in  vertical  integration  or  the  production  of  another  product  that  tends  to  be  used  together  with  the  relevant  product.). 


 324  See  supra  para.  103. 
 325  See,  e.  g.,  Cox  Comments  at  13-  17  (expressing  concern  that  the  merged  company  would  have  increased  incentive 
 and/  or  ability  to  raise  rivals  costs  with  respect  to  Internet  backbone  and  transport  wholesale  inputs);  United  States  Cellular  Comments  at  2-  4  (expressing  concerns  about  discrimination  against  competing  wireless  carriers  in  the 


 pricing  and/  or  provisioning  of  wholesale  inputs);  T-  Mobile  Reply  at  7-  14  (expressing  concern  about  the  mergers  effects  with  respect  to  special  access  and  wholesale  interexchange  services). 


 326  See  supra  Part  V.  B  (Wholesale  Special  Access  Competition);  infra  Part  V.  E  (Internet  Backbone  Competition); 
 see  also  supra  Part  V.  C.  2.  b  (dismissing  concerns  about  vertical  effects  relating  to  the  wholesale  interexchange  market). 
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 have  put  forward  on  the  record  of  this  proceeding  several  commitments,  which  we  find  to  be  in  the  public  interest.  As  described  further  in  this  section,  the  commitments  relate  to  maintaining  settlement-  free 
 peering  arrangements  after  the  merger,  publicly  posting  peering  policies,  and  complying  with  the  principles  of  the  Commissions  September  23,  2005  Policy  Statement  327  designed  to  ensure  that 
 broadband  networks  are  widely  deployed,  open,  affordable,  and  accessible  to  all  consumers.  Because  we  find  these  commitments  will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  conditions  of  our 
 approval  of  the  merger. 
 1.  Background 
 109.  The  Internet  is  an  interconnected  network  of  packet-  switched  networks.  End  users  (individuals,  enterprise  customers,  and  content  providers)  typically,  though  not  always,  obtain  access  to  the  Internet 
 through  Internet  service  providers  (ISPs)  using  a  dial-  up  modem,  cable  modem,  DSL,  wireless  network,  or  a  dedicated  high-  speed  facility  (which  the  companies  often  call  Dedicated  Internet  Access  (DIA)).  328 
 ISPs  provide  access  to  the  Internet  on  a  local,  regional,  or  national  basis,  and  most  have  limited  network  facilities.  In  order  to  provide  Internet  service  to  end  users,  ISPs  and  owners  of  other  smaller  networks 
 interconnect  with  Internet  backbone  providers  (IBPs)  larger  Internet  backbone  networks.  329  The  backbone  networks  operate  high-  capacity  long-  haul  transmission  facilities  and  are  interconnected  with 
 each  other.  Typically,  a  representative  Internet  communication  consists  of  an  ISP  sending  data  from  one  of  its  customers  to  the  IBP  that  the  ISP  uses  for  backbone  services.  The  IBP,  in  turn,  routes  the  data  to 
 another  backbone  network,  which  delivers  the  data  to  the  ISP  serving  the  end  user  to  whom  the  data  is  addressed.  330 


 110.  IBPs  may  exchange  traffic  either  through  peering  or  transit  arrangements.  Under  a  peering  arrangement  each  IBP  peer  will  accept  and  deliver,  without  charge,  traffic  destined  either  for  its  own 
 network  or  for  one  of  its  own  backbone  customers.  331  Transit  arrangements,  by  contrast,  permit  an  ISP, 


 327  See  Appropriate  Framework  for  Broadband  Access  to  the  Internet  over  Wireline  Facilities,  Policy  Statement, 
 FCC  No.  05-  151  (rel.  Sept.  23,  2005). 
 328  See,  e.  g.,  SBC/  AT&  T  Reply,  Declaration  of  Marius  Schwartz  (SBC/  AT&  T  Schwartz  Reply  Decl.)  at  para.  23. 
 IBPs  often  offer  DIA  services  that  include  both  transit  service  and  a  high-  capacity  connection  to  their  backbone.  See,  e.  g.,  id. 


 329  An  ISPs  traffic  connects  to  a  backbone  providers  network  at  a  facility  called  a  point  of  presence  or  POP. 
 Backbone  providers  have  POPs  in  many  locations,  usually  concentrated  in  more  densely-  populated  areas  where  Internet  end  users  demands  for  access  are  highest.  An  ISP  or  end  user  relies  on  telecommunications  lines  to  reach 


 distant  POPs.  We  note  that  large  businesses  often  purchase  dedicated  lines  that  connect  directly  to  Internet  backbone  networks.  See  GAO  Report,  Characteristics  and  Competitiveness  of  the  Internet  Backbone  Market  at  4 
 (Oct.  2001)  available  at  http://  www.  gao.  gov/  new.  items/  d0216.  pdf  (GAO  Internet  Backbone  Report). 
 330  Once  on  an  Internet  backbone  network,  digital  data  signals  that  were  split  into  separate  pieces  or  packets  at  the 
 transmission  point  are  separately  routed  over  the  most  efficient  available  pathway  and  reassembled  at  their  destination  point.  The  Internet  Protocol  (IP)  Suite  is  the  standard  that  governs  the  routing  and  transfer  of  data 


 packets  on  the  Internet.  GAO  Internet  Backbone  Report,  at  6. 
 331  For  example,  if  IBP  A  only  has  a  peering  arrangement  with  IBP  B,  and  IBP  B  also  has  a  peering  arrangement 
 with  IBP  C,  then  IBP  B  will  not  allow  customers  of  IBP  A  to  send  traffic  to  or  receive  traffic  from  customers  of  IBP  C.  In  order  to  provide  access  to  customers  of  IBP  C,  IBP  A  must  either  peer  with  IBP  C  or  enter  a  transit 


 agreement,  i.  e.,  pay  for  a  connection,  with  IBP  B  or  IBP  C.  Decisions  about  peering  are  not  regulated,  but  are  the  product  of  negotiations  in  the  marketplace. 
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 small  or  regional  IBP,  or  other  corporate  business,  to  reach  the  entire  Internet  using  dedicated  access  lines  linking  it  directly  to  the  transit  providers  Internet  backbone  network.  332  An  IBP  providing  transit  service 
 enables  the  customer  to  send  and  receive  traffic  through  the  purchasers  IBP  to  any  other  network  or  destination  on  the  Internet.  333  Frequently,  IBP  customers  obtain  transit  packaged  with  a  dedicated  high-speed 
 facility  as  part  of  a  DIA  service,  334  with  the  transit  customers  paying  fees  for  both  the  connection  and  the  transit  service.  335 


 111.  IBPs  generally  can  be  categorized  into  tiers  based  on  their  size,  geographic  scope,  and  interconnections.  Tier  1  IBPs  are  a  small  group  of  the  largest  IBPs  that  sell  transit  and/  or  dedicated 
 Internet  access  to  substantial  numbers  of  ISPs  and  corporate  customers  or  other  enterprise  customers.  These  Tier  1  IBPs  peer  with  all  other  Tier  1  IBPs  on  a  settlement-  free  basis.  Lower  tier  IBPs  may  peer 
 with  each  other,  but  generally  must  purchase  transit  from  a  higher  tier  IBP  to  reach  end  users  that  are  not  customers  of  the  networks  of  their  peers.  336 


 2.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 112.  We  find  that  Tier  1  backbone  services  the  transporting  and  routing  of  packets  between  ISPs  and  large  enterprise  customers  and  Internet  backbone  networks    constitutes  a  separate  relevant  product 
 market.  337  In  this  regard,  we  note  key  differences  in  quality  and  price  between  the  transit  and  DIA  services  offered  by  Tier  1  and  lower  tier  IBPs.  For  example,  lower  tier  IBPs,  ISPs,  and  multi-  location 
 enterprise  customers  typically  seek  service  from  a  provider  that  can  serve  all  their  locations,  and  not  all  IBPs  with  POPs  in  a  particular  location  will  have  such  reach  to  all  other  locations.  Only  Tier  1  providers 


 332  That  is,  in  a  transit  arrangement,  an  IBP  agrees  to  deliver  all  Internet  traffic  that  originates  or  terminates  on  the 
 paying  IBPs  backbone  regardless  of  the  destination  or  source  of  that  traffic.  If  IBP  A  becomes  a  transit  customer  of  IBP  B,  then  as  a  paying  customer  of  IBP  B,  IBP  A  is  able  to  send  traffic  to  and  receive  traffic  from  IBP  C  via 


 IBP  Bs  network. 
 333  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18106,  para.  146. 


 334  See,  e.  g.,  Broadwing  and  SAVVIS  Comments,  Declaration  of  Gary  Zimmerman  (SAVVIS  Zimmerman  Decl.)  at 
 para.  5;  Letter  from  David  L.  Lawson,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC  at  2-  3  (filed  June  17,  2005)  (AT&  T  June  17  Ex  Parte  Letter). 


 335  Some  IBPs  also  offer  paid  peering,  where  the  paid  peer  pays  on  a  volume  basis  to  exchange  traffic,  but  the 
 quality  of  interconnection  is  similar  to  settlement-  free  peering.  By  contrast,  traffic  exchanges  involving  a  transit  provider  may  experience  up  to  nine  inter-  network  connections,  or  hops,  over  the  originating,  transiting,  and 


 terminating  networks,  reducing  efficiency  and  reliability  and  increasing  latency  and  potential  packet  loss.  SBC/  AT&  T  Rice  Decl.  at  para.  11. 


 336  IBPs  establish  a  variety  of  peering  criteria  that  are  used  when  deciding  whether  to  begin  peering  with,  or  to 
 continue  peering  with,  other  IBPs.  These  criteria  generally  specify  factors  such  as  ratios  of  traffic  exchanged  between  the  backbones,  the  geographic  scope  and  capacity  of  the  peering  networks  backbone  facilities,  and  the 


 number  of  interconnection  points,  among  other  things.  See,  e.  g.,  Letter  from  A.  Sheba  Chacko,  Chief  Regulatory  Counsel,  BT  Americas,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  15  (filed 
 June  13,  2005)  (BT  Americas/  SAVVIS  June  13  Ex  Parte  Letter);  SBC/  AT&  T  Reply,  Declaration  of  Susan  Martens  (SBC/  AT&  T  Martens  Reply  Decl.)  at  para.  7. 


 337  See,  e.  g.,  SBC/  AT&  T  Application,  Declaration  of  Marius  Schwartz  (SBC/  AT&  T  Schwartz  Decl.)  at  para.  8; 
 Broadwing  and  SAVVIS  Petition  at  36;  see  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18106,  para.  148. 
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 can  offer  such  a  high  level  of  ubiquitous  service.  We  find  that  there  are  no  substitutes  for  these  Tier  1  connectivity  services  sufficiently  close  to  defeat  or  discipline  a  small  but  significant  nontransitory 
 increase  in  price.  338 
 113.  We  decline  to  adopt  EarthLinks  suggestion  that  we  define  an  additional  product  market  of  end-to-  end  connectivity  to  reflect  the  fact  that  the  merged  company,  after  the  merger,  will  be  the  first  IBP  to 
 own  and  operate  a  network  that  is  fully  vertically  integrated  from  the  end  users  premises  to  the  termination  facility  that  connects  the  user  with  his  or  her  destination  on  the  Internet.  339  First,  it  is  not  clear 
 how  such  a  market  differs  from  the  retail  ISP  market.  340  From  the  perspective  of  end  users,  the  purchase  of  Internet  access,  whether  broadband,  narrowband,  or  DIA,  is  the  purchase  of  access  to  the  world,  i.  e., 
 the  purchase  of  end-  to-  end  service.  To  the  extent  that  EarthLinks  real  concern  is  the  vertical  integration  created  by  the  merger,  we  need  not  define  an  end-  to-  end  connectivity  market  to  analyze  these  effects. 


 b.  Relevant  Geographic  Markets 
 114.  Consistent  with  Commission  precedent  and  the  DOJs  previous  findings,  we  analyze  the  market  for  Tier  1  IBPs  using  a  national  geographic  market.  341  As  with  special  access,  enterprise,  and  mass 
 market  services,  we  conclude  that  the  relevant  geographic  market  for  Tier  1  IBP  services  is  the  customers  location.  342  We  then  aggregate  locations  where  customers  face  similar  competitive  choices.  Since  all  Tier 
 1  IBPs  have  extensive  nationwide  networks,  we  can  aggregate  Tier  1  customers  throughout  the  United  States  since  they  effectively  face  the  same  choice  of  Tier  1  IBPs  anywhere  in  the  United  States. 
 Moreover,  purchasers  of  Tier  1  Internet  backbone  service  generally  need  the  ability  to  connect  at  multiple  locations  throughout  the  United  States.  Consequently,  we  find  it  appropriate  to  aggregate  customer 
 locations  and  evaluate  Tier  1  backbone  services  at  the  national  level. 
 c.  Market  Participants 
 115.  Based  on  the  record  evidence,  we  find  that  there  likely  are  between  six  and  eight  Tier  1  Internet  backbone  providers  based  on  the  definition  of  Tier  1  backbones  that  has  been  used  in  the  past:  343  AT&  T, 
 MCI,  Sprint,  Level  3,  Qwest,  Global  Crossing,  and  likely  SAVVIS  and  Cogent.  344  These  eight  providers  offer  dedicated  Internet  access  and  transit  services  primarily  to  ISPs  and  enterprise  customers,  and  they 


 338  See  DOJ-  WorldCom/  Sprint  Complaint  at  para.  31. 
 339  See,  e.  g.,  EarthLink  Petition  at  8-  9,  11. 
 340  Letter  from  Gary  L.  Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Gary  Remondino,  Wireline  Competition 
 Bureau,  FCC,  WC  Docket  No.  05-  65  at  5-  7  (filed  July  6,  2005)  (SBC/  AT&  T  July  6  Ex  Parte  Letter). 
 341  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18106,  para.  148;  DOJ-  WorldCom/  Sprint  Complaint  at  para.  31. 


 342  See  supra  Parts  V.  B  (Wholesale  Special  Access  Competition),  V.  C  (Retail  Enterprise  Competition),  V.  D  (Mass 
 Market  Competition). 
 343  The  DOJ  defines  a  Tier  1  provider  as  a  provider  that  (i)  has  high-  capacity  networks  nationwide  or  internationally 
 and  (ii)  settlement-  free  interconnection  arrangements  with  all  other  Tier  1  providers.  See  DOJ-  WorldCom/  Sprint  Complaint  at  para.  27. 


 344  See  SBC/  AT&  T  Schwartz  Decl.  at  para.  20.  [REDACTED]  When  identifying  Tier  1  IBPs,  we  focus  on 
 Internet  backbone  providers  with  significant  domestic  operations  because  Tier  1  backbone  customers  are  unlikely  to  turn  to  any  foreign  providers  that  lack  these  domestic  operations  in  response  to  a  small  but  significant  and 


 nontransitory  increase  in  price  by  domestic  Tier  1  IBPs.  DOJ-  WorldCom/  Sprint  Complaint  at  para.  31. 
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 generated  [REDACTED]  in  revenues  in  2003,  the  most  recent  year  for  which  data  is  available.  345  In  choosing  an  IBP,  ISP  and  enterprise  customers  seek  the  lowest  price,  highest  quality,  and  broadest 
 geographic  reach  consistent  with  their  needs,  and  these  Tier  1  backbone  providers  compete  vigorously  on  these  bases. 


 3.  Competitive  Analysis 
 116.  For  the  reasons  given  below,  we  find  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  either  through  unilateral  action  by  the  merged  entity  or  possible  tipping  of  the  Tier  1  Internet 
 backbone  market  to  a  monopoly  or  duopoly.  We  also  find  it  unlikely  that  the  remaining  Tier  1  IBPs  would  engage  in  coordinated  interaction  as  a  result  of  the  merger.  Finally,  we  are  not  persuaded  that  the 
 vertical  aspects  of  the  proposed  merger  would  increase  the  merged  firms  incentive  and  ability  to  raise  rivals  costs  by  discriminating  against  the  IP  traffic  of  its  broadband  competitors  or  by  raising  the  price  of 
 special  access  services  to  its  backbone  competitors. 
 117.  The  Internet  backbone  market  is  characterized  by  direct  network  effects,  where  the  value  of  the  network  increases  with  each  additional  user  who  joins  it.  346  So  long  as  there  is  rough  equality 
 among  backbone  providers,  each  has  an  incentive  to  peer  with  the  others  to  provide  universal  connectivity  to  the  Internet.  347  In  the  proposed  WorldCom/  Sprint  merger,  the  DOJ  concluded,  however,  that  the 
 incentives  of  the  peering  backbones  would  change  if  one  backbone  provider  were  to  become  significantly  larger  than  the  others,  or  if  it  were  to  develop  greater  negotiating  power.  348  This  dominant  provider  might 
 be  able  to  tip  the  Internet  backbone  market  into  monopoly  and  then  raise  prices  for  all  transit  services.  349  Once  the  market  begins  to  tip,  connecting  to  the  dominant  network  becomes  even  more 
 important  to  competitors,  enabling  the  dominant  network  to  further  raise  its  rivals  costs.  350  By  contrast,  in  a  market  where  each  backbone  provider  derives  roughly  equal  benefit  from  settlement-  free  access  to 
 the  other  backbone  providers  customers,  the  incentive  to  cooperate  will  predominate  and  the  market  participants  will  peer  with  each  other.  If  terminating  a  peering  relationship  would  hurt  one  backbone 
 provider  significantly  less  than  the  others,  however,  then  the  first  backbone  provider  could  credibly  demand  payment.  351  Thus,  because  of  these  strong  network  effects,  the  Commission  and  the  DOJ  have 


 345  See  Letter  from  Thomas  F.  Hughes,  Vice  President-  Federal  Regulatory,  SBC,  to  Gary  Remondino,  Wireline 
 Competition  Bureau,  FCC,  WC  Docket  No.  05-  65,  Attach.  (filed  July  22,  2005)  (SBC  July  22  Ex  Parte  Letter)  (providing  DIA  revenues  and  upstream  transit  revenues). 


 346  See  DOJ-  WorldCom/  Sprint  Complaint  at  para.  36;  Jacques  Crmer  et  al.,  Connectivity  in  the  Commercial 
 Internet,  48  J.  IND.  ECON.  433,  458-  60  (2000). 
 347  See  DOJ-  WorldCom  Sprint  Complaint  at  para.  41. 


 348  See  id.  at  paras.  40-  41. 
 349  See  id.;  see  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18108-  09,  para.  150. 
 350  DOJ-  WorldCom/  Sprint  Complaint  at  para.  41  (  As  a  result  of  an  increase  in  their  costs,  rivals  may  not  be  able  to 
 compete  on  a  long-  term  basis  and  may  exit  the  market.  If  rivals  decide  to  pass  on  these  costs,  users  of  connectivity  will  respond  by  selecting  the  dominant  network  as  their  provider.  Ultimately,  once  rivals  have  been  eliminated  or 


 reduced  to  customer  status,  the  dominant  network  can  raise  prices  to  users  of  its  own  network  beyond  competitive  levels.  Once  this  occurs,  restoring  the  market  to  a  competitive  state  often  requires  extraordinary  means,  including 
 some  form  of  government  regulation.). 
 351  See  id.  at  paras.  33-  41. 
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 focused  on  whether  a  merger  between  two  Tier  1  IBPs  is  likely  to  lead  the  Internet  backbone  market  to  tip  into  a  situation  in  which  one  or  two  backbones  dominate. 
 118.  We  begin  our  horizontal  analysis  by  examining  the  relative  market  shares  of  the  Tier  1  IBPs  and  conclude  that  the  proposed  merger  would  not  create  a  backbone  provider  of  sufficient  size  to  cause 
 tipping.  We  next  consider  and  reject  various  arguments  raised  by  commenters  suggesting  that,  as  a  result  of  the  merger,  SBC/  AT&  T  would  have  a  unique  incentive  and  ability  to  engage  in  a  strategy  of  targeted 
 de-  peering,  leading  eventually  to  its  dominating  the  backbone  market. 
 a.  Horizontal  Effects  of  the  Merger 
 119.  Unilateral  Effects    Traditional  Analysis  of  Tipping.  In  the  proposed  WorldCom/  MCI  merger,  the  Commission  and  the  DOJ  concluded  that  the  merged  entities,  absent  divestiture,  would  have  been  so 
 large  relative  to  other  Tier  1  IBPs  as  to  raise  a  significant  danger  of  tipping.  352  In  contrast,  as  discussed  below,  we  find  here  that  the  Tier  1  market  has  since  become  less  concentrated  such  that  the  proposed 
 merger  will  not  create  a  dominant  backbone  provider.  Accordingly,  we  agree  with  the  Applicants  that,  based  on  current  market  shares,  the  proposed  merger  is  not  likely  to  cause  tipping  into  monopoly  or  other 
 competitive  effects. 
 120.  Various  commenters  contend  that  the  proposed  merger  would  create  a  dominant  Tier  1  backbone  monopoly  or  duopoly,  threatening  the  currently  competitive  market  for  Internet  backbone  services.  353 
 Commenters  claim  that  the  merger  will  result  in  an  increase  in  the  merged  firms  market  share  with  a  corresponding  reduction  of  the  Internet  backbone  market  shares  of  competing  Tier  1  providers.  354 


 121.  The  Applicants  respond  that  the  proposed  merger  will  not  reduce  competition  in  the  Internet  backbone  market,  because  SBC  is  not  a  Tier  1  backbone  provider,  and  the  combination  of  SBCs 
 backbone  with  AT&  Ts  backbone  will  not  significantly  increase  AT&  Ts  market  share.  355  The  Applicants  further  contend  that  the  Tier  1  Internet  backbone  market  has  become  significantly  less 
 concentrated  and  more  competitive  in  the  years  since  the  Commission  last  addressed  a  merger  involving  the  Internet  backbone.  356  The  Applicants  maintain  that  this  characterization  of  the  market  holds  true, 
 regardless  of  whether  market  shares  are  calculated  using  traffic,  357  revenues,  358  or  autonomous  systems 


 352  The  DOJ  also  reached  this  conclusion  with  respect  to  the  WorldCom/  Sprint  merger.  DOJ-  WorldCom/  Sprint 
 Complaint  at  para.  35. 
 353  See,  e.  g.,  EarthLink  Petition  at  3-  7;  Earthlink  Reply  at  3;  BT  Americas  Reply  at  24-  29;  CompTel/  ALTS  Petition 
 at  32-  36;  Broadwing  and  SAVVIS  Petition,  Declaration  of  Dr.  Mathew  P.  Dovens  (SAVVIS  Dovens  Decl.)  at  paras.  16-  17. 


 354  EarthLink  Petition  at  4-  5  (contending  that  SBC/  AT&  Ts  backbone  market  share  would  be  20%,  three  times 
 larger  than  that  of  its  nearest  competitors  (except  MCI  and  Sprint)  and  this  could  enable  SBC/  AT&  T  to  discriminate  against  rival  backbone  providers). 


 355  SBC/  AT&  T  Schwartz  Decl.  at  paras.  20,  30. 
 356  SBC/  AT&  T  Application  at  107-  08;  SBC/  AT&  T  Schwartz  Decl.  at  para.  22,  Table  2. 
 357  SBC/  AT&  T  Schwartz  Decl.  at  paras.  21-  23. 
 358  Id.  at  para.  26,  Table  3;  see  also  id.  at  para.  31. 
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 (AS)  connections.  359  They  also  emphasize  that  the  backbone  market  is  characterized  by  considerable  volatility,  which  is  demonstrated  by  the  fact  that  the  identity  of  the  top-  ranked  firm  changed  twice 
 between  January  2003  and  May  2004.  360 
 122.  As  a  preliminary  matter,  we  note  that  no  complete  and  reliable  data  sources  are  available  to  measure  relative  shares  of  Internet  backbone  providers.  Nor  does  it  appear  that  any  single  measure 
 uniquely  captures  the  relative  size  and  importance  of  competing  Internet  backbone  providers.  As  noted,  the  Applicants  present  data  on  relative  shares  in  three  ways:  revenues,  AS  connections,  and  traffic  flows. 
 We  do  not  agree,  however,  with  the  way  that  the  Applicants  calculated  key  revenue  and  traffic  share  percentages.  Among  other  things,  the  Applicants  appear  to  define  the  market  to  include  non-  Tier  1  and 
 non-  U.  S.  firms,  which  has  the  effect  of  diluting  their  estimated  market  shares.  361  In  addition,  the  Applicants  methodology  for  calculating  market  share  double  counts  the  traffic  and  revenue  of  lower  tier 
 providers  and  does  not  appear  to  account  fully  for  SBCs  current  DIA  and  backbone  revenues.  The  traffic  data  submitted  by  the  Applicants  do  not  permit  us  to  correct  for  the  market  definition  and  double  counting 
 errors  and  to  recalculate  market  shares  based  on  traffic  and,  as  the  Applicants  acknowledge,  there  are  problems  with  using  AS  connections.  362  Therefore,  using  available  revenue  data,  and  using  revenue 
 shares  as  a  proxy  for  firm  size,  we  recalculated  the  market  shares  of  the  top  eight  Tier  1  backbone  providers.  363  In  calculating  these  shares,  we  adjusted  the  revenues  for  Sprint,  Level  3,  and  Qwest  to 
 reflect  that  SBC  and  Verizon  will  not  continue  to  pay  transit  to  such  providers;  we  also  estimated  SBCs  and  Verizons  2003  transit  payments  based  on  2004  actual  payments. 


 123.  We  are  satisfied  that  the  proposed  merger  will  not  increase  horizontal  concentration  to  such  an  extent  that  it  is  likely  to  result  in  anticompetitive  effects  in  the  Internet  backbone  market.  As  noted 
 above,  there  are  at  least  six,  but  potentially  as  many  as  eight,  Tier  1  backbone  providers    AT&  T,  MCI,  Sprint,  Qwest,  Level  3,  Global  Crossing,  and  by  some  measures,  SAVVIS  and  Cogent.  Based  on  the 
 2003  revenue  data  submitted  by  the  Applicants,  the  merged  entitys  revenue  share  would  increase  by  a  modest  [REDACTED]  to  approximately  [REDACTED]  even  accounting  for  the  market  share  changes 


 359  An  Autonomous  System  (AS)  is  either  a  single  network  or  group  of  networks  controlled  by  a  common 
 administrator  on  behalf  of  a  single  organizational  entity  (such  as  a  university,  business,  or  an  IBP).  An  AS  is  assigned  a  globally  unique  number,  sometimes  referred  to  as  an  Autonomous  System  Number,  or  ASN.  The 


 number  of  AS  connections  refers  to  the  number  of  other  [Autonomous  Systems]  to  which  a  given  AS  is  connected.  SBC/  AT&  T  Schwartz  Decl.  at  para.  28  n.  17. 


 360  SBC/  AT&  T  Schwartz  Decl.  at  para.  24. 
 361  See,  e.  g.,  SBC/  AT&  T  Schwartz  Decl.  at  para.  22,  App.  2.  For  similar  reasons,  we  reject  the  market  share 
 calculations  proposed  by  BT  Americas.  See  Letter  from  A.  Sheba  Chacko,  Chief  Regulatory  Counsel,  BT  Americas,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  9-  11  (filed  Oct.  7, 


 2005)  (BT  Americas  White  Paper)  (utilizing  extrapolation  technique  employed  by  the  Applicants  to  calculate  market  shares). 


 362  SBC/  AT&  T  Schwartz  Decl.  at  paras.  27-  29. 
 363  Although  we  use  revenues,  because  it  is  the  best  evidence  in  the  record,  we  are  not  suggesting  that  this  is  the 
 only  way  or  most  appropriate  or  accurate  way  to  measure  market  share. 
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 associated  with  the  proposed  Verizon/  MCI  merger.  364  The  post-  merger  HHI  is  [REDACTED]  and  the  change  in  HHI  would  be  [REDACTED]  365 
 124.  We  further  find  that  the  merger  does  not  change  the  market  ranking  of  the  Tier  1  backbones,  and  several  Tier  1  competitors  with  significant  market  shares  would  remain  in  the  market  post-  merger. 
 Further,  the  merger  does  not  remove  an  existing  Tier  1  provider,  as  SBC  does  not  appear  to  have  yet  attained  that  status.  366  In  addition,  we  note  that  some  backbone  providers  appear  to  have  higher  shares  of 
 traffic  than  of  revenue.  367  In  particular,  we  note  that  2004  data  submitted  by  the  Applicants  confirm  that  Level  3s  share  of  Internet  traffic  had  surpassed  AT&  Ts.  368  Finally,  we  observe  that  the  market  shares 
 for  Tier  1  backbones  have  fluctuated  over  time,  suggesting  that  the  market  is  both  competitive  and  dynamic.  Therefore,  we  agree  with  the  Applicants  that  the  proposed  merger  is  unlikely  to  create  a  single 
 dominant  Tier  1  Internet  backbone  provider  with  a  market  share  that  is  overwhelmingly  disproportionate  to  its  rivals,  which  was  the  key  concern  in  prior  backbone  mergers. 


 125.  Unilateral  Effects    Other  Factors  that  Might  Lead  to  Tipping.  We  next  consider  whether  there  are  other  factors  that  could  lead  the  merged  company  to  engage  in  targeted  de-  peering  or  to  degrade  the 
 quality  of  backbone  interconnection.  369  We  examine  commenters  claims  first  by  assessing  the  merged  firms  incentives  to  pursue  de-  peering  strategies,  and  then  by  exploring  whether  adverse  competitive 
 effects  are  likely  to  arise  from  traffic  imbalances  or  relative  market  shares.  As  explained  below,  we  conclude  that  the  merged  firm  is  unlikely  to  have  the  incentive  and  ability  to  de-  peer  a  sufficient  number 
 of  its  backbone  rivals  to  tip  the  market  to  monopoly  or  duopoly.  Moreover,  we  conclude  that,  while  certain  smaller  Tier  1  backbone  providers  might  be  de-  peered  (with  or  without  the  proposed  merger),  it  is 
 unlikely  that  the  merger  will  result  in  anticompetitive  effects.  In  addition,  as  discussed  below,  we  take  further  comfort  from  certain  commitments  the  Applicants  have  made  relating  to  their  peering  practices. 


 126.  Eyeballs  vs.  Content.  We  are  not  persuaded  by  commenters  argument  that  AT&  Ts  acquisition  of  SBCs  residential  broadband,  voice,  and  wireless  customers  will  alter  the  merged 
 companys  incentives  to  maintain  AT&  Ts  peering  relationships.  370  These  commenters  argue  that  AT&  Ts  acquisition  of  these  SBC  eyeball  customers  will  give  the  merged  entity  significant  negotiating 


 364  See  Confidential  Appendix  E,  Table  1. 
 365  Commenters  express  concern  about  relying  on  2003  revenue  data,  asserting  that  the  data  are  outdated  and  do  not 
 reflect  possible  growth  in  IP-  enabled  services.  Broadwing  and  SAVVIS  Petition  at  17;  CompTel/  ALTS  Petition  at  29;  EarthLink  Reply  at  8;  Letter  from  Christopher  J.  Wright  et  al.,  Counsel  for  Broadwing  and  SAVVIS,  to  Marlene 


 H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  4  n.  10  (filed  Aug.  12,  2005)  (Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter).  We  believe  that  the  2003  data  provide  a  reasonable  basis  for  our  decision.  The 
 Applicants  have  also  submitted  more  recent  evidence  on  relative  size  and  significance  as  measured  by  peering  capacity  that  appears  consistent  with  the  above  conclusions.  See  SBC/  AT&  T  Martens  Reply  Decl.  at  paras.  17-  19. 


 366  As  we  discuss  below,  we  also  find  that  the  merger  is  not  likely  to  adversely  affect  Tier  1  backbone  competition 
 through  the  loss  of  SBC  as  a  potential  Tier  1  IBP. 
 367  See  Letter  from  David  L.  Lawson,  Counsel  for  AT&  T,  to  Gary  Remondino,  Wireline  Competition  Bureau,  FCC, 
 Attach.  (filed  Apr.  22,  2005)  (SBC/  AT&  T  Apr.  22  Ex  Parte  Letter). 
 368  SBC/  AT&  T  Schwartz  Reply  Decl.  at  para.  12. 


 369  See,  e.  g.,  SAVVIS  Dovens  Decl.  at  paras.  19-  24;  BT  Americas  Reply  at  24. 
 370  See,  e.  g.,  SAVVIS  Dovens  Decl.  at  paras.  19-  24. 
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 leverage  over  other  Tier  1  backbones  that  have  more  content  customers  than  eyeball  customers.  371  Ultimately,  commenters  claim  that  the  proposed  merger  will  give  the  merged  company  new  incentives 
 and/  or  an  increased  ability  to  serially  de-  peer  its  rivals,  degrade  the  quality  of  interconnection  among  backbones,  and  increase  transit  prices  to  disadvantage  its  backbone  rivals  and/  or  retail  competitors  served 
 by  competing  Internet  backbones  (even  at  the  expense  of  its  wholesale  backbone  business).  372 
 127.  We  are  not  persuaded  by  opponents  argument  that  peering  incentives  may  change  because  AT&  Ts  backbone  will  acquire  more  eyeballs  as  a  result  of  the  merger.  First,  as  to  possible  global  de-peering 
 of  all  other  Tier  1  IBPs  (or  all  others  except  Verizon/  MCI)  the  percentage  of  eyeballs  currently  associated  with  SBC  DSL  customers  is  relatively  small  compared  with  the  total  number  of  broadband 
 eyeballs  nationwide,  and,  as  the  Applicants  point  out,  SBC  only  has  approximately  16  percent  of  all  broadband  eyeballs.  373  In  addition,  there  are  other  Tier  1  backbones  with  access  to  significant  numbers 
 of  their  own  eyeball  customers  that  plan  to  expand  that  customer  base  (e.  g.,  by  offering  broadband  and  3G  wireless  services).  374  Thus,  even  if  eyeballs  confer  additional  leverage  in  peering  negotiations  as 
 commenters  claim,  other  Tier  1  backbones  besides  SBC/  AT&  T  and  Verizon/  MCI  either  currently  have,  or  have  the  potential  to  acquire,  significant  numbers  of  broadband  eyeballs  to  rival  SBC  and  Verizon. 
 Second,  if  SBC/  AT&  T  were  to  de-  peer  a  backbone  that  served  a  major  cable  company  or  ISP  with  broadband  eyeballs,  it  seems  unlikely  that  the  cable  company  or  ISP  would  switch  to  a  vertically 


 371  Commenters  assert  that  when  certain  customers  (  eyeball  customers),  such  as  residential  DSL  customers,  access 
 the  Internet,  they  typically  receive  much  more  traffic  than  they  transmit  because,  for  example,  a  residential  customers  query  for  a  Web  page  generates  little  outgoing  traffic,  but  could  generate  significant  incoming  traffic 


 when  the  Web  page  downloads.  Conversely,  commenters  claim  that  certain  Internet  backbone  customers,  such  as  Internet  content  providers,  transmit  much  more  content  than  they  receive  (  content  customers).  See,  e.  g.,  SAVVIS 
 Dovens  Decl.  at  paras.  19,  21-  24. 
 372  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  51-  54;  Cox  Comments  at  14;  CompTel/  ALTS  Petition  at  33; 
 EarthLink  Petition  at  6-  9;  EarthLink  July  15  Ex  Parte  Letter  at  3-  19;  Consumer  Federation  et  al.  Petition  at  23-  24. 
 373  SBC/  AT&  T  Schwartz  Reply  Decl.  at  Table  4.  Moreover,  cable  companies  collectively  control  more  broadband 
 eyeballs  than  do  all  the  incumbent  LECs  combined.  Federal  Communications  Commission,  Wireline  Competition  Bureau,  Industry  Analysis  and  Technology  Division,  High-  Speed  Services  for  Internet  Access:  Status  as  of 


 December  31,  2004,  at  6  (rel.  July  7,  2005).  Some  commenters  note  that  eyeballs  come  from  SBCs  dial-  up  Internet  access  customers  as  well.  However  there  likewise  are  many  more  customers  that  subscribe  to  competing 
 dial-  up  ISPs  nationwide  than  subscribe  to  SBCs  service.  SBC  Info.  Req.,  Exh.  13(  b)(  1).  While  EarthLink  asserts  that  certain  competing  dial-  up  Internet  access  providers  purchase  service  from  SBC  that  includes  both  last-  mile 
 service  and  transport  on  SBCs  backbone,  see  Letter  from  John  W.  Butler,  Counsel  for  EarthLink,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  para.  14  (EarthLink  Collins  Decl.)  (filed  Aug. 
 26,  2005)  (EarthLink  Aug.  26  Ex  Parte  Letter),  we  note  that  competing  ISPs  also  can  purchase  wholesale  offerings  that  include  only  the  last-  mile  service,  and  purchase  backbone  services  from  other  providers.  To  the  extent  that 
 EarthLink  has  concerns  about  how  these  various  wholesale  products  are  priced  today,  that  is  not  a  merger-  specific  concern.  EarthLink  Collins  Decl.  at  para.  15  (stating  that  Layer  3  services  that  include  both  last-  mile  service  and 
 transport  on  SBCs  backbone  are  priced  lower  than  Layer  2  services  that  include  only  last-  mile  service). 
 374  For  example,  as  we  discuss  in  greater  detail  below,  the  Sprint/  Nextel  merger  creates  a  backbone  with  access  to 
 significant  eyeball  customers,  and  Comcast  and  Google  are  considering  deploying  national  fiber  networks.  See  infra  para.  135  &  note  405.  Further,  instant  messaging  providers,  including  Microsoft,  Yahoo,  and  Google,  as  well 


 as  other  web  companies  such  as  eBay,  are  adding  VoIP  features  to  their  offerings,  and  may  add  additional  IM  services,  as  well.  In  so  doing,  these  IM  service  providers  might  attract  significant  numbers  of  eyeball  customers. 
 See,  e.  g.,  EBay's  Skype  Risk  Is  a  Calculated  One,  WASHINGTON  POST,  Sept.  22,  2005;  MSN  Buys  Into  Net-  Calling  Future,  CNET  News.  com,  Aug.  30,  2005,  available  at  http://  news.  com.  com/  MSN+  buys+  into+  Net-calling+ 
 future/  2100-  1032_  3-  5844873. 
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 integrated  backbone  provider  that  competes  against  it  for  broadband  and  VoIP  customers,  such  as  SBC  or  Verizon.  375 
 128.  Nor  are  we  convinced  by  opponents  claims  that  the  stickiness  of  eyeball  customers  would  largely  insulate  the  merged  firm  from  the  mutual  pain  associated  with  a  strategy  of  degradation  and  de-peering. 
 376  Given  the  widespread  availability  of  competing  broadband  and  narrowband  ISP  alternatives,  it 
 is  not  clear  that  SBC/  AT&  Ts  eyeball  customers  would  prove  sticky  in  practice  and,  in  any  case,  the  merged  entity  would  have  to  weigh  carefully  the  potential  for  customer  churn  as  a  result  of  degradation 


 strategies.  377  Further,  the  record  indicates  that  AT&  T  has  been  gaining  more  content  customers  for  its 


 375  We  also  reject  claims  that  the  SBC/  AT&  T  Internet  backbone  ultimately  will  gain  the  vast  majority  of  content 
 customers.  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  48.  As  preconditions  to  that  occurring,  commenters  rely  on  the  assertion  that  the  merger  will  lead  to  monopoly  or  duopoly,  or  that  it  will  result  in  the  SBC/  AT&  T  backbone 


 having  a  disproportionate  share  of  eyeballs  and  thus  engaging  in  targeted  de-  peering.  Id.  at  48-  51.  As  discussed  above,  we  find  those  preconditions  unlikely  to  occur  as  a  result  of  the  merger. 


 In  addition,  commenters  allege  that,  because  of  inbuilt  traffic  imbalances,  the  merged  SBC/  AT&  T  would  have  the  ability  ultimately  to  monopolize  Internet  content  because  of  a  possible  hold-  up  problem.  See,  e.  g.,  Letter  from 
 Christopher  J.  Wright,  Counsel  for  Broadwing  and  SAVVIS,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  para.  17  (Broadwing  and  SAVVIS  Wilkie  Decl.).  They  reason  that  the  merged  firm 
 would  be  particularly  likely  to  end  settlement-  free  peering  with  relatively  content-  heavy  networks.  In  the  context  of  such  targeted  de-  peering,  commenters  assert  that  other  backbone  providers  would  factor  the  risk  of  de-  peering  into 
 their  bids  for  the  content  customers.  Commenters  claim  that  as  a  result,  competition  for  such  customers  will  diminish,  creating  disincentives  for  content  customers  to  generate  high  bandwidth  content  and  applications  because 
 the  merged  companies  would  increase  prices  to  appropriate  the  rent  from  the  development  of  such  content.  Id.  We  disagree.  Given  our  conclusions  above  that  the  merged  entity  lacks  incentives  to  engage  in  a  strategy  of  targeted 
 de-  peering,  we  find  this  result  unlikely. 
 Further,  we  are  not  persuaded  by  BT  Americas  claim  that  the  financial  condition  of  other  Tier  1  IBPs  will  lead  SBC/  AT&  T  and/  or  Verizon/  MCI  to  increase  their  share  of  the  Internet  backbone  market.  See  BT  Americas  White 


 Paper  at  23-  25,  29-  30.  In  any  event,  even  if  certain  other  Tier  1  IBPs  are  not  as  financially  strong  as  others,  when  such  situations  have  arisen  in  the  past,  the  IBPs  have  been  acquired  by  other  firms  and  continued  to  be  operated  as 
 Tier  1  backbones,  or,  in  the  case  of  MCI,  have  gone  through  bankruptcy  and  still  maintained  its  status  as  a  significant  Tier  1  backbone.  See,  e.  g.,  BT  Americas  White  Paper  at  29  (noting  SAVVIS  purchase  of  Cable  & 
 Wireless  backbone);  Level  3  to  Acquire  Genuity  Assets  and  Operations,  (Nov.  27,  2002)  (discussing  Level  3s  acquisition  of  Genuity)  available  at  http://  www.  level3.  com/  press/  3053.  html;  Bankruptcy  Judge  Approves  MCI's 
 Plan  of  Reorganization,  (Oct.  31,  2003)  (discussing  MCIs  exit  from  bankruptcy)  available  at  http://  global.  mci.  com/  about/  news/  releases/  2003/. 


 376  See,  e.  g.,  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  at  3,  8-  9. 
 377  While  commenters  note  that  certain  contracts  with  DSL  or  3G  wireless  customers  might  include  early 
 termination  fees,  see  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  8,  we  note  that  there  nonetheless  appears  to  be  significant  competition  for  broadband  and  wireless  customers.  See,  e.  g.,  Appropriate  Framework  for 


 Broadband  Access  to  the  Internet  over  Wireline  Facilities;  Universal  Service  Obligations  of  Broadband  Providers;  Review  of  Regulatory  Requirements  for  Incumbent  LEC  Broadband  Telecommunications  Services;  Computer  III 
 Further  Remand  Proceedings:  Bell  Operating  Company  Provision  of  Enhanced  Services;  1998  Biennial  Regulatory  Review    Review  of  Computer  III  and  ONA  Safeguards  and  Requirements;  Conditional  Petition  of  the 
 Verizon  Telephone  Companies  for  Forbearance  Under  47  U.  S.  C.    160(  c)  with  Regard  to  Broadband  Services  Provided  Via  Fiber  to  the  Premises;  Petition  of  the  Verizon  Telephone  Companies  for  Declaratory  Ruling  or, 
 Alternatively,  for  Interim  Waiver  with  Regard  to  Broadband  Services  Provided  Via  Fiber  to  the  Premises;  Consumer  Protection  in  the  Broadband  Era,  CC  Docket  Nos.  02-  33,  01-  337,  95-  20,  98-  10,  WC  Docket  Nos.  04- 
 242,  05-  271,  Report  and  Order  and  Notice  of  Proposed  Rulemaking,  FCC  05-  150  at  paras.  47-  64  (rel.  Sept.  23,  (continued.) 
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 backbone.  378  Accordingly,  we  do  not  find  it  likely  that  the  merged  entitys  share  of  eyeballs  will  create  a  significant  incentive  for  it  to  engage  in  either  targeted  de-  peering  or  degradation  of  backbone 
 interconnection. 
 129.  More  generally,  we  are  not  convinced  that  the  merged  firm  would  gain  enough  by  disadvantaging  its  Internet  access  and  retail  competitors  to  alter  the  pre-  merger  calculus  that  led  to  the 
 current  peering  equilibrium.  If  the  merged  SBC/  AT&  T  were  to  de-  peer  one  or  more  of  its  Tier  1  peers,  it  could  not  be  certain  that  the  targeted  backbone  would  become  a  transit  customer  of  AT&  T  or  that  the 
 customers  of  the  former  peer  would  switch  to  the  SBC/  AT&  T  backbone.  The  backbone  might  instead  choose  to  purchase  transit  from  a  competing  Tier  1  backbone,  which  would  tend  to  increase  the  rivals 
 market  significance  relative  to  AT&  T,  379  and  thus,  a  decision  to  de-  peer  could  end  up  primarily  benefiting  one  of  AT&  Ts  rivals.  380  We  also  find  that  disaffected  Internet  access  providers  or  retail  competitors  that 
 were  customers  of  the  former  peer  could  choose  from  a  wide  range  of  competing  IBPs.  381  Peering  and  de-( 
 Continued  from  previous  page)  2005)  (Wireline  Broadband  Order)  (discussing  current  and  emerging  broadband  competition);  Petition  for 


 Forbearance  of  the  Verizon  Telephone  Companies  Pursuant  to  47  U.  S.  C.    160(  c);  SBC  Communications  Inc.  s  Petition  for  Forbearance  Under  47  U.  S.  C.    160(  c);  Qwest  Communications  International  Inc.  Petition  For 
 Forbearance  Under  47  U.  S.  C.    160(  c);  BellSouth  Telecommunications,  Inc.  Petition  for  Forbearance  Under  47  U.  S.  C.    160(  c),  WC  Docket  Nos.  01-  338,  03-  235,  03-  260,  04-  48,  Memorandum  Opinion  and  Order,  19  FCC  Rcd 
 21496,  21508,  para.  26  (2004)  (Section  271  Broadband  Forbearance  Order)  (discussing  competition  for  broadband  services);  Tenth  CMRS  Competition  Report,  FCC  05-  173  at  paras.  2-  5  (discussing  wireless  competition);  see  also 
 Federal  Communications  Commission,  Wireline  Competition  Bureau,  Industry  Analysis  and  Technology  Div.,  High-  Speed  Services  for  Internet  Access:  Status  as  of  December  31,  2004  at  6  (rel.  July  7,  2005)  (specifying  relative 
 market  shares  of  cable  and  DSL);  Letter  from  Brian  J.  Benison,  Associate  Director    Federal  Regulatory,  SBC,  to  Gary  Remondino,  Wireline  Competition  Bureau,  FCC,  WC  Docket  No.  05-  65,  Exh.  13(  b)(  7)  (providing  broadband 
 market  shares  in  SBCs  region);  SBC  Info.  Req.,  Exh.  13(  b)(  1)  (providing  market  shares  for  numerous  dial-  up  ISP  competitors  to  SBC). 


 378  AT&  T  Apr.  22  Ex  Parte  Letter,  Attach.  at  4. 
 379  See  SBC/  AT&  T  Reply  at  60;  SBC/  AT&  T  Schwartz  Reply  Decl.  at  paras.  30-  31. 
 380  Commenters  have  some  difficulty  specifying  when  targeted  de-  peering,  and  its  effects,  might  occur.  Broadwing 
 and  SAVVIS  claim  that  [  a]  ny  IBP  that  failed  to  reach  settlement-  free  peering  arrangements  would  quickly  lose  all  its  customers  to  a  competitor  that  could  provide  universal  connectivity.  SAVVIS  Dovens  Decl.  at  para.  15 


 (emphasis  added).  The  record  indicates,  however,  that  SBC  obtained,  and  retained,  Internet  backbone  customers  utilizing  the  very  transit  arrangements  that  commenters  decry.  See,  e.  g.,  SBC/  AT&  T  Schwartz  Decl.  at  paras.  20, 
 30. 
 381  See,  e.  g.,  SBC/  AT&  T  July  26  Ex  Parte  Letter  at  5.  While  opponents  claim  that  switching  backbone  providers  is 
 costly  and  time-  consuming,  the  Applicants  assert  that  major  purchasers  of  backbone  services,  including  cable  companies  and  other  large  ISPs,  could  easily  switch  to  competing  backbones.  Compare  Cox  Comments  at  14 


 (asserting  that  Cox  and  other  AT&  T  transit  customers  could  not  readily  switch  backbone  providers  without  loss  of  significant  time,  money,  and  resources)  with  SBC/  AT&  T  Schwartz  Reply  Decl.  at  para.  20  (stating  that  cable 
 operators  could  shift  IBPs,  giving  those  rival  backbones  a  significant  share  of  eyeballs).  As  an  example,  EarthLink  states  that  it  has  engineered  its  network  to  be  in  close  proximity  to  its  current  transit  provider,  Level  3, 
 and  that  switching  to  an  alternative  backbone  provider  would  require  it  to  purchase  special  access  service  to  link  the  EarthLink  network  to  the  new  backbone  provider  at  multiple  locations.  EarthLink  Collins  Decl.  at  para.  22. 
 EarthLink  estimates  that  the  cost  to  do  so  initially  would  involve  $2  million  for  fiber  build-  out  and  additional  recurring  charges  of  $1  million  per  year.  Id.  We  are  persuaded  that  Internet  backbone  customers  have  sufficient 
 ability  to  switch  backbones  to  provide  a  check  on  any  potential  strategy  of  targeted  de-  peering.  Particularly  given  the  sophistication  of  many  Internet  backbone  customers,  we  find  it  unlikely  that  they  would  allow  themselves  to  be 
 locked  in  to  a  particular  provider.  See,  e.  g.,  SBC/  AT&  T  Martens  Reply  Decl.  at  para.  14  (noting  that  cable  (continued.) 
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 peering  decisions  are  driven  by  a  backbones  incentives  to  maximize  network  efficiency  and  lower  interconnection  costs,  and  we  do  not  see  how  the  proposed  merger  would  materially  alter  this  calculus. 
 130.  Traffic  Imbalances.  Commenters  also  claim  that  significant  traffic  imbalances  would  flow  directly  from  the  proposed  merger  because  eyeball-  heavy  networks  generate  asymmetric  traffic  flows 
 with  content  networks,  and  because  the  Applicants  have  plans  to  increase  the  deployment  of  broadband,  video  over  IP,  and  3G  wireless  products  and  services.  382  Thus,  commenters  express  concern  that  current 
 Tier  1  peers  (other  than  similar  eyeball-  heavy  networks  like  the  merged  Verizon/  MCI)  would  suddenly  fail  to  qualify  for  peering  under  current  criteria  (which  generally  require  a  2:  1  traffic  ratio).  383  Based  on 
 the  pre-  merger  traffic  flows  it  is  possible  that  AT&  T,  absent  the  merger,  would  have  had  the  ability  to  de-peer  some  of  the  smaller  Tier  1  backbone  providers  pursuant  to  the  traffic  ratio  requirements  in  its 
 existing  peering  policy.  384  We  note,  as  a  general  matter,  however,  that  peering  decisions  are  based  on  a  range  of  factors,  385  and  AT&  T  explains  that  it  has  not  in  the  past  generally  enforced  the  2  to  1  traffic 
 ratio  requirement  against  carriers  that  only  temporarily  or  sporadically  fall  out  of  balance.  386  While  AT&  Ts  traffic  ratios  with  its  peers  appear  to  fluctuate  considerably,  several  backbones  are  close  to 


 (Continued  from  previous  page)  operators  seek  bids  from  Internet  backbone  providers  for  their  services,  or  self-  provide  backbone  services  using 
 leased  facilities).  EarthLinks  hypothetical  example  does  not  convince  us  otherwise  with  respect  to  IBP  customers  as  a  whole,  regardless  of  its  accuracy  for  EarthLink  itself.  Other  commenters  concerns  regarding  the  Internet 
 backbone  market  are  predicated  on  the  ease  with  which  customers  can  switch  IBPs.  See,  e.  g.,  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  8-  9  &  nn.  24-  25  (stating  that  larger  IBP  customers  generally  are  multi-  homed 
 and  more  readily  able  to  switch  IBPs  than  small  IBP  customers);  BT  Americas  White  Paper  at  26-  31  (claiming  that  customers  will  not  be  able  to  prevent  anticompetitive  behavior  by  the  jointly  dominant  AT&  T  and  MCI  Internet 
 backbones).  Indeed,  AT&  T  experiences  about  [REDACTED]  churn  per  month  in  its  DIA  customer  base,  demonstrating  customers  ability  to  switch  providers.  SBC/  AT&  T  Schwartz  Reply  Decl.  at  para.  25.  We  are 
 persuaded  by  the  record  that  most  backbone  customers  can  readily  switch  IBPs,  even  if  there  are  particular  customers  for  which  the  cost  of  switching  IBPs  might  be  significant. 


 382  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  48-  51;  CompTel/  ALTS  Petition  at  33;  Consumer  Federation  et  al. 
 Petition  at  24;  SAVVIS  Dovens  Decl.  at  paras.  19,  21-  24;  Broadwing  and  SAVVIS  Wilkie  Decl.  at  para.  16;  BT  Americas  White  Paper  at  15-  23. 


 383  See  id. 
 384  See  Confidential  Appendix  E,  Table  2  (AT&  T  pre-  merger  traffic  ratios).  Given  our  conclusions  that  the  merged 
 entity  would  not  have  incentives  to  engage  in  a  strategy  of  de-  peering,  we  thus  reject  the  concerns  of  commenters  that  SBC/  AT&  T  would  change  AT&  Ts  peering  policy  as  a  pretext  to  de-  peer  competitors.  See,  e.  g.,  SAVVIS 


 Dovens  Decl.  at  para.  24. 
 385  See,  e.  g.,  Michael  Kende,  Office  of  Plans  and  Policy,  FCC,  The  Digital  Handshake:  Connecting  Internet 
 Backbones  (Sept.  2000)  at  8  (  There  is  no  accepted  convention  that  governs  when  two  backbones  will  or  should  decide  to  peer  with  one  another,  nor  is  it  an  easy  matter  to  devise  one.  .  .  .  However,  there  are  many  measures  of 


 backbone  size,  such  as  geographic  spread,  capacity,  traffic  volume,  or  number  of  customers.  It  is  unlikely  that  two  backbones  will  be  similar  along  many  or  all  dimensions.  .  .  .  The  question  then  becomes,  how  the  backbones  weigh 
 one  variable  against  another.  .  .  .  In  sum,  peering  agreements  are  the  result  of  commercial  negotiations;  each  backbone  bases  its  decisions  on  whether,  how,  and  where  to  peer  by  weighing  the  benefits  and  costs  of  entering  into 
 a  particular  interconnection  agreement  with  another  backbone.)  available  at  http://  www.  fcc.  gov/  Bureaus/  OPP/  working_  papers/  oppwp32.  pdf. 


 386  Letter  from  Peter  J.  Schildkraut,  Counsel  for  SBC,  and  David  L.  Lawson,  Counsel  for  AT&  T,  to  Marlene  H. 
 Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  4  (filed  Sept.  7,  2005)  (SBC/  AT&  T  Sept.  7  Ex  Parte  Letter). 
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 violating  the  required  2:  1  ratio  currently,  such  that  small  increases  in  traffic  flows  from  the  addition  of  SBCs  IP  traffic  could  put  them  further  out  of  balance  or  cause  them  to  fail  the  traffic  ratio  criterion.  387 
 131.  Nevertheless,  we  disagree  with  commenters  that  the  proposed  merger  presents  a  real  danger  that  most  settlement-  free  peering  arrangements  will  dissolve,  even  under  the  commenters  traffic  imbalance 
 theory.  388  Several  competing  backbones,  [REDACTED]  have  traffic  ratios  that  are  well  within  the  required  2:  1  threshold  and  are  unlikely  to  be  de-  peered  based  on  a  failure  to  meet  the  balanced  traffic 
 ratio  requirement.  Therefore,  even  if  certain  backbones  were  de-  peered,  sufficient  competition  would  remain  in  the  Tier  1  backbone  market  such  that  transit  prices  would  not  be  affected.  389  While  commenters 
 point  to  [REDACTED]  390  it  is  not  clear  that  this  resulted  from  the  proposed  merger.  391  In  addition,  it  does  not  appear  that  less  significant  traffic  ratio  disparities  have  led  AT&  T  to  request  interconnection 
 payments  from  the  several  other  carriers  whose  traffic  ratios  periodically  exceeded  the  required  balance. 
 132.  Because  we  conclude  that  the  Internet  backbone  market  is  sufficiently  competitive  and  will  remain  so  post-  merger,  it  follows  that  the  prices  and  terms  of  interconnection  in  the  market  will  also  be 
 competitive.  392  We  recognize  that  AT&  Ts  peering  policy  is  not  public  and  that,  like  all  Internet  backbone  providers,  its  decisions  about  the  terms  of  interconnection  with  other  backbone  providers  are 
 based  on  prevailing  market  conditions,  including  incentives  to  maximize  profits  and  increase  efficiency.  393 


 387  See  Confidential  Appendix  E,  Table  2  (AT&  T  pre-  merger  traffic  ratios). 
 388  See  Broadwing  and  SAVVIS  Petition  at  49-  50.  Because  we  conclude  that  a  sufficient  number  of  settlement-  free 
 peers  will  remain  post-  merger,  we  therefore  need  not  address  factual  disputes  related  to  the  costs  associated  with  carrying  traffic,  including  whether  traffic  imbalances  impose  costs  sufficient  to  justify  de-  peering.  Compare 


 Broadwing  and  SAVVIS  Petition  at  50  (asserting  that  the  costs  associated  with  carrying  traffic  are  not  sufficient  to  warrant  de-  peering  based  on  traffic  imbalances);  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  11 
 (contending  that  the  traffic  ratio  requirement  has  no  basis  in  economic  cost)  and  Wilkie  Decl.  at  para.  9  (asserting  that  the  marginal  cost  of  transporting  IP  packets  is  nearly  zero)  with  SBC/  AT&  T  Sept.  7  Ex  Parte  Letter  at  6 
 (asserting  that  the  costs  associated  with  traffic  imbalances  can  justify  decisions  to  de-  peer  other  backbones);  SBC/  AT&  T  Schwartz  Reply  Decl.  at  para.  34  (same). 


 389  In  this  regard,  we  note  that  there  has  been  a  general  downward  trend  of  transit  prices  in  recent  years.  See  AT&  T 
 Apr.  22  Ex  Parte  Letter,  Attach.  at  13  ([  REDACTED]). 
 390  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  10  ([  REDACTED]).  SAVVIS  also  contends 
 [REDACTED].  SBC/  AT&  T  Sept.  7  Ex  Parte  Letter  at  4-  5. 
 391  See  Confidential  Appendix  E,  Table  2  (AT&  T  pre-  merger  traffic  ratios). 


 392  We  also  find  that  commenters  concerns  related  to  inefficiencies  in  the  current  system  of  hot  potato  routing 
 and  recommendations  for  reallocating  interconnection  costs  between  eyeball  and  content  backbones  based  on  relative  benefits  to  each  backbones  customers  are  not  merger-  specific.  See,  e.  g.,  Cox  Comments  at  13-  14;  Cox 


 Reply  at  2-  3.  Moreover,  we  find  that  their  proposed  remedies  are  beyond  the  scope  of  this  proceeding  as  they  would  reconfigure  the  routing  pattern  of  the  public  Internet.  See  Broadwing  and  SAVVIS  Wilkie  Decl.  at  paras.  5- 
 10. 
 393  See  AT&  T  Info.  Req.,  Exh.  9(  a),  AT&  T  Global  IP  Network  Peering  Policy,  at  1  [REDACTED]  Many  Tier  1 
 backbone  providers  publish  their  peering  policies,  a  practice  which  we  acknowledge  has  provided  some  useful  transparency  in  these  essentially  private  business  negotiations  over  interconnection.  See,  e.  g.,  SAVVIS  Settlement-Free 


 Peering  Policy  USA  (May  13,  2005)  available  at  http://  www.  savvis.  net/  NR/  rdonlyres/  16A6C413-  5D9F-  405D-B157-  BC6DC9A01B52/  8264/  peering_  usa2.  doc;  Qwest:  International  IP  Network  Peering  Policy  (Sept.  14,  2005) 
 available  at  www.  qwest.  com/  legal/  peering_  int.  html;  MCI  Policy  for  Settlement-  Free  Interconnection  with  Internet  (continued.) 
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 In  addition,  interconnection  between  Internet  backbone  providers  has  never  been  subject  to  direct  government  regulation,  and  settlement-  free  peering  and  degradation-  free  transit  arrangements  have 
 thrived.  We  see  no  evidence  that  the  merger  will  alter  this  dynamic. 
 133.  While  we  conclude  that  the  merger  is  unlikely  to  result  in  anticompetitive  effects  with  respect  to  Tier  1  peering  arrangements,  we  nonetheless  find  that  certain  commitments  made  by  the  Applicants  are  in 
 the  public  interest.  First,  they  commit  that  they  will  maintain  at  least  as  many  settlement-  free  U.  S.  peering  arrangements  for  Internet  backbone  services  with  domestic  operating  entities  as  they  did  in 
 combination  on  the  Merger  Closing  Date.  Second,  they  will  post  their  peering  policy  on  a  publicly  accessible  website,  and  will  post  any  revisions  on  a  timely  basis.  394  Because  we  find  these  commitments 
 will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  conditions  of  our  approval  of  the  merger. 
 134.  We  recognize  the  unique  concerns  of  rural  carriers  expressed  by  Great  Plains,  the  Rural  Alliance,  NTCA,  and  others  concerning  a  potential  lack  of  options  for  access  to  Internet  backbones  at  reasonable 
 rates,  terms,  and  conditions.  395  We  believe  that  the  Applicants  voluntary  commitments  will  reduce  this  concern.  396  Nonetheless,  we  commit  to  monitor  vigilantly  the  competitive  conditions  unique  to  rural  areas 
 and  will  take  action,  as  necessary,  to  ensure  that  the  benefits  of  the  Internet  are  extended  throughout  the  United  States.  We  also  commit  to  addressing  these  concerns  in  other  on-  going  rulemakings,  including  the 
 IP-  Enabled  Services  proceeding.  397 
 135.  Relative  Market  Share.  Finally,  we  disagree  with  commenters  who  allege  that,  separate  and  apart  from  whether  the  merger  creates  a  single  dominant  Tier  1  IBP,  the  merged  entity  will  have  sufficient 
 market  share  and  negotiating  leverage  to  engage  in  targeted  de-  peering  of  rival  Tier  1  IBPs.  398  We  are  persuaded  that  the  Applicants  moderate  combined  market  share  (by  our  calculations  40  percent,  based  on 
 backbone  revenues)  sufficiently  rebuts  commenters  claims  that  they  will  have  the  ability  to  engage  in  targeted  de-  peering  of  rival  Internet  backbones,  particularly  when  viewed  in  light  of  the  significant 
 market  shares  of  other  Tier  1  backbones.  399  While  the  merged  entity  may  have  some  increased  (Continued  from  previous  page) 
 Networks  (visited  Sept.  14,  2005)  available  at  http://  global.  mci.  com/  uunet/  peering/;  Level  3  Settlement-  Free  Interconnection  Principles  (visited  Sept.  14,  2005)  available  at  http://  www.  level3.  com/  1511.  html. 


 394  See  SBC  Oct.  31  Ex  Parte  Letter,  Attach.  at  3-  4;  see  also  Appendix  F. 
 395  See,  e.  g.,  NTCA  Comments  at  3  (expressing  concerns  about  possible  discrimination  by  the  merged  company 
 against  other  backbones  and  ISPs);  Letter  from  Ken  Pfister,  Vice  President-  Strategic  Policy,  Great  Plains  Communications,  to  Ms.  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65  &  05-  75  (filed  Oct.  20,  2005) 


 (raising  concerns  on  behalf  of  the  Rural  Alliance  about  Internet  backbone  connections  and  discrimination  against  smaller  ISPs). 


 396  See  SBC  Oct.  31  Ex  Parte  Letter,  Attach.  at  3-  4;  see  also  Appendix  F.  Further,  as  discussed  above,  we  find  that 
 sufficient  competition  should  remain  in  the  Tier  1  backbone  market  such  that  transit  prices  would  not  be  affected.  Indeed,  as  previously  noted,  there  has  been  a  general  downward  trend  of  transit  prices  in  recent  years.  See  AT&  T 


 Apr.  22  Ex  Parte  Letter,  Attach.  at  3  (noting  that  [REDACTED]). 
 397  See  IP-  Enabled  Services,  WC  Docket  No.  04-  36,  Notice  of  Proposed  Rulemaking,  19  FCC  Rcd  4863  (2004). 


 398  See,  e.  g.,  EarthLink  July  15  Ex  Parte  at  6-  8;  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  at  2-  3,  9-  10. 
 399  See  supra  paras.  122-  123  (discussing  Tier  1  IBP  market  shares);  see  also  BT  Americas  White  Paper  at  31  n.  58 
 (stating  that  in  the  absence  of  joint  dominance  by  SBC/  AT&  T  and  Verizon/  MCI,  the  parties  are  unlikely  to  be  able  to  successfully  engage  in  widespread  anticompetitive  degradation  or  pricing  strategies  in  the  downstream 


 Internet  backbone  market.). 
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 negotiating  leverage  over  smaller  backbone  providers,  400  we  conclude  that  the  merged  SBC/  AT&  T  likely  would  lack  the  ability  to  target  its  larger  rivals,  including  [REDACTED]  all  of  which  command 
 significant  revenue  shares  of  the  backbone  market.  401  These  providers  each  have  unique  advantages  in  the  backbone  services  marketplace  and  likely  would  provide  significant  counterweight  to  the  merged  entity. 
 In  addition,  we  note  that  some  backbone  providers  appear  to  have  higher  shares  of  traffic  than  of  revenue.  402  In  this  regard,  we  note  that  Level  3  recently  surpassed  AT&  T  in  backbone  traffic  volume.  403 
 Similarly,  the  recent  merger  of  Sprint  and  Nextel  creates  a  backbone  and  wireless  competitor  with  a  business  plan  focused  on  providing  wireless  data,  including  sports  and  entertainment  video,  as  well  as 
 traditional  wireless  telephony.  404  The  increasingly  IP-  based  traffic  of  Sprints  44  million  plus  mobile  phone  subscribers  would  presumably  ride  on  its  backbone  network.  Qwest,  as  another  vertically-integrated 
 incumbent  LEC  and  Tier  1  backbone  provider,  should  continue  to  bring  competitive  heft  to  the  backbone  market  as  well.  405  Based  on  the  foregoing,  we  see  no  need  for  the  conditions  that  commenters 
 suggest.  406  As  discussed  above,  we  take  further  comfort  from  the  commitments  the  Applicants  have  made  regarding  their  peering  practices. 


 136.  Coordinated  Effects.  Other  commenters  suggest  that  SBC/  AT&  T  and  Verizon/  MCI  together  might  come  to  dominate  the  Tier  1  IBP  market  and  then  engage  in  coordinated  interaction.  407  As  an  initial 
 matter,  we  conclude  that  the  proposed  merger  will  likely  not  result  in  competitive  harms  due  to 


 400  [REDACTED].  See  Confidential  Appendix  E,  Table  1  (Market  Shares  and  HHIs  of  Tier  1  Backbone  Providers). 
 401  See  id. 
 402  AT&  T  Apr.  22  Ex  Parte  Letter,  Attach. 
 403  SBC/  AT&  T  Schwartz  Reply  Decl.  at  para.  12. 
 404  Arshad  Mohammed,  Training  to  Become  Wireless  Heavyweight,  WASHINGTON  POST,  Aug.  22,  2005,  at  D01; 
 Sprint/  Nextel  Order,  FCC  05-  148  at  para.  134  (noting  merger-  specific  benefits  related  to  the  deployment  of  3G  technology,  including  high  performance  push-  to-  talk  capabilities  and  high  speed  data  rates). 


 405  In  addition,  Comcast,  the  largest  cable  modem  ISP,  has  announced  that  it  will  build  its  own  Internet  backbone. 
 See  Comcast  Extends  National  Fiber  Infrastructure  (Dec.  7,  2004)  available  at  http://  www.  cmcsk.  com/  phoenix.  zhtml?  c=  118591&  p=  irol-  newsArticle&  ID=  650960&  highlight=  backbone.  Google 


 has  also  announced  that  it  is  reviewing  bids  for  the  deployment  of  a  national  fiber  network.  See  Google  Reviewing  Bids  for  National  Optical  Switching  Network  (Sept.  19,  2005)  available  at 
 http://  www.  ipmediamonitor.  com/  subscribers/  index.  htm?  iid=  6&  article_  id=  21. 
 406  Commenters  proffer  a  number  of  remedies,  which  we  do  not  discuss  in  detail,  because  as  noted,  we  find  that  the 
 commenters  have  not  established  either  merger-  related  harms  requiring  remedy,  or  substantial  and  material  questions  of  fact  concerning  whether  such  harms  exist.  See,  e.  g.,  Cox  Comments  at  3;  Vonage  Petition  at  11; 


 Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  11;  Letter  from  Christopher  J.  Wright  et  al.,  Counsel  for  Broadwing  and  SAVVIS,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  8-  10  (filed  Oct. 
 21,  2005)  (Broadwing  and  SAVVIS  Oct.  21  Ex  Parte  Letter);  NCTA  Reply  at  2-  3;  EarthLink  Aug.  26  Ex  Parte  Letter  at  11-  15;  Letter  from  John  W.  Butler,  Counsel  for  EarthLink,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC 
 Docket  Nos.  05-  65,  05-  75  at  3-  12  (filed  Oct.  3,  2005). 
 407  See,  e.  g.,  EarthLink  Petition  at  7  (arguing  further  that  SBC  and  Verizon  have  long  history  of  avoiding  significant 
 competition  with  each  other,  and  that  the  two  merged  firms  thus  are  likely  to  do  so  here);  Letter  from  Kristen  Verderame,  BT  Americas,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  May  6, 


 2005)  (claiming  that  the  merged  firms  can  effectively  signal  each  other  through  bilateral  contractual  dealings  and  leaks  to  achieve  common  objectives). 
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 coordinated  interaction  among  Tier  1  backbone  providers.  Because  sufficient  vigorous  Tier  1  backbone  competitors  would  remain  (even  if  some  current  backbone  providers  were  de-  peered)  the  feasibility  of 
 such  coordinated  strategies  is  questionable.  408  In  short,  the  commenters  arguments  would  seem  to  require  that  SBC/  AT&  T  or  other  firms  be  able  to  de-  peer  a  sufficient  number  of  Tier  1  backbones  so  as  to  make 
 coordinated  effects  more  likely.  We  find  this  result  to  be  speculative  at  the  very  least,  and  not  supported  by  the  record.  Accordingly,  we  conclude  that  SBCs  control  of  AT&  T  is  unlikely  to  result  in 
 anticompetitive  coordinated  effects  in  the  Tier  1  Internet  backbone  market. 
 137.  For  the  reasons  discussed  above,  we  also  are  unpersuaded  that  SBC/  AT&  T  and  Verizon/  MCI,  in  particular,  will  have  the  ability  to  coordinate  to  de-  peer  a  sufficient  number  of  their  backbone  rivals 
 either  through  targeted  and  serial  de-  peering  or  global  de-  peering  to  effectively  tip  the  market  to  duopoly.  409  We  conclude  that  it  would  be  difficult  for  the  merged  SBC/  AT&  T  and  Verizon/  MCI  to  agree 
 tacitly  on  the  specifics  of  these  de-  peering  strategies,  such  as  which  peers  to  target,  and  in  which  sequence,  without  reaching  an  express  agreement  in  clear  violation  of  antitrust  laws.  410  It  is  also  not  clear 
 that,  even  together,  the  merged  SBC/  AT&  T  and  Verizon/  MCI  would  be  able  successfully  to  engage  in  global  de-  peering.  To  the  extent  that  other  Tier  1  backbones  have  a  significant  number  of  content 
 customers,  which  commenters  claim  to  be  the  case,  SBC/  AT&  Ts  and  Verizon/  MCIs  eyeball  customers  likely  will  value  access  to  that  content  so  highly  that  the  strategy  would  not  be  profitable.  In 
 addition,  even  after  combining  their  respective  retail  broadband  customer  bases,  the  merged  SBC/  AT&  T  and  Verizon/  MCI  would  have  less  than  30  percent  of  all  broadband  eyeballs.  411 


 138.  Loss  of  Potential  Competition.  We  reject  commenters  assertions  that  the  proposed  merger  will  eliminate  SBC  as  a  potential  Tier  1  competitor.  Commenters  contend  that  SBC  had  aggressive,  pre-merger 
 plans  to  build  a  nationwide  backbone  network,  and  that,  in  fact,  SBCs  backbone  has  grown  rapidly  over  the  last  four  years.  They  further  contend  that  SBC  is  nearly  a  Tier  1  competitor  that 
 potentially  could  compete  with  AT&  T.  412 


 408  While  some  commenters  contend  that  de-  peering  places  the  de-  peered  backbone  at  a  competitive  disadvantage,  it 
 is  possible  that  the  act  of  de-  peering  one  competitor  may  very  well  make  another  competitor  stronger,  as  the  de-peered  provider  (or  its  customers)  will  need  to  purchase  transit  and  will  be  disinclined  to  do  so  from  the  very 


 provider  (such  as  SBC/  AT&  T)  that  just  de-  peered  it.  See,  e.  g.,  Cox  Comments  at  14  (claiming  that  the  merged  company  would  have  increased  capability  and  incentive  to  maintain  transit  rates  at  supra-  competitive  levels  in  order 
 to  raise  the  costs  of  IP  service  providers  who  compete  against  SBCs  core  retail  services). 
 409  See,  e.  g.,  Broadwing  and  SAVVIS  Reply  at  48-  51;  BT  Americas  White  Paper  at  6-  31. 


 410  DOJ/  FTC  Guidelines  2.1  (noting  that  successful  coordinated  interaction  entails  reaching  terms  of  coordination 
 that  are  profitable  to  the  firms  involved  and  an  ability  to  detect  and  punish  deviations  that  would  undermine  the  coordinated  interaction). 


 411  SBC/  AT&  T  Schwartz  Reply  Decl.  at  Table  4.  While  some  commenters  note  that  eyeballs  come  from  SBCs 
 dial-  up  Internet  access  customers  as  well,  there  likewise  are  many  more  customers  of  competing  dial-  up  ISPs  nationwide  than  subscribe  to  SBCs  service.  SBC  Info.  Req.,  Exh.  13(  b)(  1)  (for  the  fourth  quarter  of  2004,  SBC 


 and  Verizon  combined  had  only  [REDACTED]%  of  dial-  up  Internet  access  customers). 
 412  See  Broadwing  and  SAVVIS  Petition  at  42;  SAVVIS  Dovens  Decl.  at  para.  11.  BT  Americas  contends  that  SBC 
 over  time  could  have  used  its  eyeballs  to  grow  into  an  Internet  backbone  provider  rivaling  the  size  and  competitive  position  of  the  largest  Tier  1  providers.  Letter  from  A.  Sheba  Chacko,  Chief  Regulatory  Counsel,  BT  Americas,  to 


 Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  (filed  May  6,  2005). 
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 139.  While  it  certainly  is  possible  that  SBC  would  have  achieved  Tier  1  status  absent  the  merger,  we  find  that  this  fact  alone  does  not  raise  a  potential  competition  concern.  413  In  order  for  a  loss  of  potential 
 competition  to  raise  an  antitrust  concern,  four  criteria  must  be  met:  the  market  must  be  concentrated;  the  potential  entry  must  produce  a  substantial  likelihood  of  producing  a  deconcentrated  market;  there  must  be 
 few  other  equivalent  potential  competitors;  and  the  company  being  acquired  must  be  able  to  enter  the  market  without  the  merger.  414  Here,  only  the  last  criterion  is  satisfied.  As  discussed  above,  we  are 
 satisfied  that  there  are  enough  competitors  in  the  Internet  backbone  market  to  provide  sufficient  competition.  Given  this,  the  acquisition  of  a  potential  competitor    which  by  definition  does  not  diminish 
 the  current  state  of  competition    cannot  cause  substantial  competitive  harm. 
 b.  Vertical  Effects  (Raising  Rivals  Costs) 
 140.  We  reject  commenters  assertions  that  the  vertical  integration  of  SBC  and  AT&  T  could  allow  the  merged  entity  to  raise  the  costs  of  its  VoIP  and  retail  broadband  rivals  by:  (a)  discriminating  against  IP 
 packets  transmitted  by  its  broadband  and  VoIP  competitors;  and/  or  (b)  leveraging  bottleneck  control  over  special  access  to  gain  a  competitive  advantage  in  the  backbone  and  broadband  markets.  For  the  reasons 
 given  below,  we  conclude  that  the  proposed  merger  is  not  likely  to  have  such  adverse  effects  on  competition. 


 141.  Packet  Discrimination  and  Traffic  Degradation.  We  are  not  persuaded  by  commenters  assertions  that  the  merger  gives  rise  to  an  increased  incentive  and/  or  ability  for  the  merged  company  to 
 degrade  or  otherwise  discriminate  against  competitors  IP  traffic.  Commenters  claim  that  the  merger  increases  the  potential  for  three  forms  of  broadband  discrimination  with  respect  to  competing  VoIP,  IP 
 video,  and  other  IP-  enabled  services  with  limited  tolerance  for  latency  and  packet  loss:  (i)  giving  the  merged  entitys  IP  packets  priority  over  the  packets  generated  by  third  party  providers;  (ii)  affirmatively 
 injecting  latency  or  otherwise  degrading  the  packets  sent  by  third-  party  Internet  application  providers;  and  (iii)  blocking  certain  transmissions.  415  Such  actions  by  the  merged  entity  would  allegedly  place 
 competing  providers  at  a  significant  competitive  disadvantage  as  to  quality  of  service.  416 


 413  We  note  that  SBCs  network  is  sufficiently  robust  to  qualify  as  a  settlement-  free  peer  with  [REDACTED].  SBC 
 Info.  Req.  at  72  ([  REDACTED]).  SBCs  [REDACTED].  See  SBC  Info.  Req.  at  97  (indicating  that  based  on  successful  completion  of  trials  with  [REDACTED]).  SBC  had  also  entered  into  trial  peering  with  [REDACTED]. 


 SBC  Info.  Req.  at  98.  In  addition,  SBC  continues  to  build  its  domestic  and  global  backbone  network.  SBC  has  opened  points  of  presence  in  Europe  in  order  to  satisfy  the  requirements  of  many  of  the  international  Internet 
 backbone  providers  that  a  prospective  peer  be  able  to  interconnect  at  multiple  geographic  locations  both  inside  and  outside  the  United  States.  SBC  expected  [REDACTED].  SBC/  AT&  T  Info.  Req.  at  97. 


 414  ABA  SECTION  OF  ANTITRUST  LAW,  ANTITRUST  LAW  DEVELOPMENTS  354-  62  (5th  ed.  2000). 
 415  See,  e.  g.,  Vonage  Comments  at  14  (describing  possible  broadband  discrimination);  EarthLink  Collins  Decl.  at 
 paras.  5-  6  (describing  possible  methods  of  programming  routers  to  discriminate  against  competing  service  providers,  such  as  by  disconnecting  networks  that  carry  particular  types  of  traffic  or  creating  queues  that  give  a 


 lower  priority  to  competing  service  providers  traffic);  Vonage  Comments  at  1,  14  (expressing  concerns  about  broadband  discrimination  based  in  part  on  a  March  2005  Consent  Decree  between  Madison  River  Communications 
 and  the  Commissions  Enforcement  Bureau  concerning  the  companys  practice  of  port  blocking,  such  that  all  of  the  communications  generated  by  Vonage  customers  were  blocked,  and  citing  Madison  River  Communications,  LLC 
 and  Affiliated  Companies,  File  No.  EB-  05-  1H-  0110,  DA  05-  543  (EB  rel.  March  3,  2005)). 
 416  Vonage  Comments  at  14.  Vonage  claims  that  while  cable  providers  have  committed  not  to  block  customer 
 access  to  new  innovative  IP  applications,  SBC  has  waffled  on  its  commitments  in  this  area  and  opposes  conditions  that  would  preclude  it  from  discriminating  in  price,  terms,  conditions  or  quality  of  service  to  customers  that  chose  to 


 (continued.) 
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 142.  We  are  generally  unpersuaded  that  commenters  concerns  are  sufficiently  merger  specific  and  that  the  merged  entity  is  likely  to  pursue  the  alleged  strategies.  First,  we  note  that  no  commenter  has 
 alleged  that  SBC  (or  AT&  T)  currently  engages  in  packet  discrimination  or  degradation.  417  Second,  to  the  extent  that  commenters  allege  that  packet  degradation  or  discrimination  could  occur  using  AT&  Ts 
 backbone,  we  find  it  unlikely  that  the  merged  SBC/  AT&  T  would  have  the  incentive  to  engage  in  such  conduct.  We  acknowledge  that,  in  theory,  the  merger  could  give  the  merged  company  an  incentive  to 
 degrade  or  discriminate  against  the  IP  traffic  of  its  retail  competitors.  On  the  other  hand,  we  agree  with  the  Applicants  that  the  merged  entity  will  likely  have  strong  incentives  to  provide  VoIP  (and  to  make 
 others  VoIP  services  available  to  its  broadband  customers),  in  order  to  retain  customers  that  seek  a  VoIP  alternative  to  circuit-  switched  voice  service.  418  Consequently,  we  believe  that  these  countervailing 
 incentives  make  it  unlikely  that  the  merged  company  would  choose  to  engage  in  packet  discrimination  or  degradation  of  IP  traffic. 


 143.  Third,  it  is  not  clear  that  the  merged  company  would  be  able  effectively  to  discriminate  or  degrade  competitors  IP  traffic  using  its  Internet  backbone.  419  Given  the  routing  of  VoIP  calls  today,  for 
 example,  it  does  not  appear  that  the  backbone  creates  a  new  bottleneck  for  VoIP  providers  that  use  their  own  backbone  or  a  virtual  private  network  to  deliver  service  to  their  customers  by  delivering  the  traffic 
 directly  to  the  public  switched  telephone  network  (PSTN),  rather  than  routing  it  through  the  SBC/  AT&  T 


 (Continued  from  previous  page)  purchase  a  competitive  IP  application  not  offered  by  SBC  or  its  affiliates.  Id.  Global  Crossing  similarly  alleges  that 
 combining  SBC  and  AT&  T,  which  are  current  competitors  in  the  enterprise  VoIP  market,  could  have  a  negative  impact  on  VoIP  services.  Global  Crossing  Comments  at  22,  24. 


 417  While  the  merger  does  not  materially  alter  SBCs  existing  incentives  to  prefer  affiliated  VoIP  and  other  IP  traffic 
 and  to  protect  traditional  voice  revenues  by  discriminating  against  or  degrading  the  traffic  of  competing  VoIP  providers,  some  commenters  contend  that  SBC  could  currently  leverage  its  control  over  last  mile  facilities,  on  which 


 VoIP  traffic  terminates,  to  block  or  degrade  access.  See,  e.  g.,  Vonage  Comments  at  15  (discussing  possible  discrimination  through  port  blocking).  That  is  not  a  merger-  specific  concern.  Further,  this  general  issue  is  the 
 subject  of  a  pending  Commission  proceeding.  See  IP-  Enabled  Services,  19  FCC  Rcd  at  4915,  para.  77  (seeking  comment,  for  example  with  respect  to  the  incentives  of  facilities-  based  IP  service  providers  to  provide  network 
 access  to  non-  facilities-  based  IP  service  providers). 
 418  SBC/  AT&  T  Application  at  A-  3  (noting  that  Project  Lightspeed  will  bring  next-  generation  integrated  video,  super 
 high-  speed  broadband  access,  and  voice  over  IP  (Internet  Protocol)  services  via  a  new  fiber-  rich  network  to  18  million  households  in  its  13-  state  region  by  the  year  2007);  Joint  Opposition  at  69,  note  20.  Even  if  the  merger  were 


 to  increase  the  ability  of  the  merged  entity  to  engage  in  packet  discrimination  and  degradation,  the  record  indicates  that  such  strategies  are  unlikely  to  be  profitable  in  the  long  term.  The  relevant  calculus  is  whether  the  potential 
 benefits  of  packet  discrimination  or  degradation  against  the  merged  entitys  VoIP  competitors  (i.  e.,  potentially  higher  customer  take  rates  or  win-  back  and  resulting  increases  in  VoIP  revenues)  would  outweigh  the  potential 
 costs  (i.  e.,  network  administration  costs  and  possible  customer  churn).  Compare  EarthLink  Collins  Decl.  at  para.  8  (discussing  possible  network  administration  costs  and  technical  obstacles  associated  with  a  selective  degradation 
 strategy,  although  suggesting  that  some  of  the  technical  obstacles  might  not  be  that  great)  with  Earthlink  Aug.  26  Ex  Parte  Letter  at  7-  8  (selective  degradation  possible  on  current  network  architecture  and  would  not  be  easily 
 identified  or  defeated).  In  the  race  to  roll  out  competitive,  nationwide  VoIP  offerings,  we  are  not  convinced  that  the  merged  entity  has  much  to  gain  from  blocking  or  affirmatively  degrading  rival  VoIP  services. 


 419  As  an  initial  matter,  although  SBCs  backbone  is  not  a  Tier  1  backbone,  all  traffic  destined  for  its  in-  region 
 Internet  access  and  other  Internet  customers  is  carried  on  SBCs  backbone  today  prior  to  delivery  to  those  customers.  See  Letter  from  Gary  L.  Phillips,  SBC,  and  Lawrence  J.  Lafaro,  AT&  T,  to  Marlene  H.  Dortch, 


 Secretary,  FCC,  WC  Docket  No.  05-  65  at  2  (filed  Oct.  10,  2005)  (SBC/  AT&  T  Oct.  10  Ex  Parte  Letter). 
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 backbone.  420  Further,  while  the  merged  entity  may  have  an  incentive  to  prioritize  its  own  traffic  using  queuing  or  other  such  differentiated  service  mechanisms,  by  recent  measures  significant  excess  capacity 
 remains  on  backbone  networks.  421  Thus,  in  the  absence  of  affirmative  efforts  to  degrade  a  competitors  traffic,  queuing  and  packet  prioritization  is  likely  to  yield  only  very  small  increases  in  latency  and  packet 
 loss  in  many  cases.  422 
 144.  Finally,  we  take  further  comfort  in  the  Applicants  commitment  to  conduct  business  in  a  manner  that  comports  with  the  principles  set  forth  in  the  Commissions  September  23,  2005  Policy  Statement 
 designed  to  ensure  that  broadband  networks  are  widely  deployed,  open,  affordable,  and  accessible  to  all  consumers.  423  Because  we  find  that  this  commitment  will  serve  the  public  interest,  we  accept  it  and  adopt 
 it  as  a  condition  of  our  merger  approval. 
 145.  Special  Access  and  the  Internet  Backbone  Market.  Several  commenters  maintain  that  the  merged  firm  will  have  an  incentive  to  leverage  its  alleged  market  power  in  the  special  access  market  to  gain  a 
 competitive  advantage  in  the  backbone  and  broadband  markets.  424  As  noted  above,  the  issue  of  competition  in  the  special  access  market  is  currently  being  addressed  in  two  ongoing  rulemaking 
 proceedings,  which  will  allow  the  Commission  to  address  any  competitive  issues  on  a  full  record  on  an  industry-  wide  basis.  425 


 F.  Wholesale  Interexchange  Competition 
 146.  We  find  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  in  the  wholesale  interexchange  services  market.  We  conclude  that  the  market  will  remain  competitive  post-  merger,  due 
 primarily  to  the  presence  of  extensive  competitive  national  networks  with  excess  capacity. 


 420  See,  e.  g.,  EarthLink  Aug.  26  Ex  Parte  Letter  at  4  (explaining  that  while  VoIP  calls  are  routed  in  a  variety  of  ways 
 today,  EarthLink  currently  routes  VoIP  calls  solely  over  Level  3s  backbone  until  they  are  handed  off  to  the  PSTN);  Letter  from  J.  G.  Harrington,  Counsel  for  Cox,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05- 


 75,  Attach.  at  4  (filed  July  28,  2005)  (describing  Coxs  use  of  dedicated  facilities,  rather  than  the  public  Internet,  for  its  provision  of  VoIP  services).  EarthLink  speculates  that  within  two  years  VoIP  providers  might  choose  to  route 
 50%  of  VoIP  traffic  between  Internet  backbones.  See,  e.  g.,  EarthLink  Aug.  26  Ex  Parte  Letter  at  4-  5.  While  we  find  it  fundamentally  speculative  that  VoIP  providers  necessarily  will  choose  to  pursue  the  approach  EarthLink 
 proposes,  we  note  in  any  event  that  we  find  it  unlikely  that  the  merged  entity  would  have  the  incentive  to  engage  in  such  conduct. 


 421  See,  e.  g.,  Broadwing  and  SAVVIS  Wilkie  Decl.  at  para.  6  (noting  the  excess  capacity  held  by  Internet  backbone 
 providers). 
 422  EarthLink,  for  example,  asserts  that  a  backbone  provider  might  assign  competing  VoIP  traffic  to  a  queue  that 
 results  in  those  packets  being  delivered  only  after  all  the  other  queues  are  empty.  EarthLink  Collins  Decl.  at  para.  7.  To  the  extent  that  there  is  excess  capacity,  however,  the  other  queues  will  quickly  empty,  and  there  will  be  little  or 


 no  delay  for  the  competing  VoIP  traffic,  absent  some  affirmative  efforts  to  delay  that  traffic.  Cf.  id.  (noting  that  the  backbone  provider  might  choose  to  implement  this  queuing  process  only  in  certain  circumstances,  such  as  high-traffic 
 periods). 
 423  See  SBC  Oct.  31  Ex  Parte  Letter,  Attach.  at  4;  see  also  Appendix  F. 


 424  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  52-  53;  CompTel/  ALTS  Petition  at  33;  Consumer  Federation  et  al. 
 Petition  at  24;  Global  Crossing  Comments  at  6,  9;  BT  Americas  White  Paper  at  13-  14. 
 425  See  discussion  supra  at  Part  V.  B  (Wholesale  Special  Access  Competition). 
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 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 147.  The  Commission  previously  has  identified  wholesale  domestic,  interstate,  interexchange  (i.  e.,  long  distance)  services  as  a  separate  product  market,  426  although  it  has  not  always  found  it  necessary  to 
 conduct  a  separate  analysis  of  that  product  market.  427  In  light  of  concerns  raised  by  some  commenters,  we  address  here  the  impact  of  the  proposed  merger  on  the  market  for  wholesale  long  distance  services. 


 b.  Relevant  Geographic  Markets 
 148.  Consistent  with  our  definition  of  the  relevant  geographic  markets  for  retail  enterprise  and  retail  mass  market  services,  428  we  conclude  that  the  relevant  geographic  market  for  wholesale  long  distance 
 services  is  the  customers  location.  429  We  then  aggregate  locations  where  customers  face  similar  competitive  choices.  Since  all  the  major  providers  of  wholesale  long  distance  services  have  nationwide 
 networks,  430  we  can  aggregate  customers  of  wholesale  long  distance  service  who  are  located  throughout  the  United  States.  Moreover,  wholesale  long  distance  customers  generally  need  to  connect  to  the 
 wholesale  long  distance  provider  at  multiple  locations  throughout  the  United  States.  Consequently,  we  find  it  appropriate  to  aggregate  customer  locations  and  evaluate  wholesale  long  distance  services  at  the 
 national  level.  431 
 2.  Competitive  Analysis 
 149.  The  record  does  not  support  the  contention  of  some  commenters  that  the  Applicants,  unilaterally  or  in  conjunction  with  the  proposed  Verizon/  MCI  entity,  will  be  able  to  exercise  market  power  to 
 discriminate  against  retail  competitors  by  withdrawing,  in  whole  or  in  part,  from  the  wholesale  long 


 426  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18041-  42,  para.  28. 
 427  Id. 
 428  See  supra  Parts  V.  C  (Retail  Enterprise  Competition),  V.  D  (Mass  Market  Competition). 
 429  We  note  that  individual  customers  of  wholesale  long  distance  services  are,  like  larger,  multi-  location  enterprise 
 customers,  likely  to  require  access  to  service  at  multiple  geographic  locations,  often  throughout  the  United  States  or  a  region  thereof.  See  supra  Part  V.  C  (Retail  Enterprise  Competition). 


 430  See,  e.  g.,  Jeff  Halpern,  U.  S.  Telecom:  Wholesale  Segment  is  Declining,  but  Still  Significant  at  2  (Bernstein 
 Research,  2005)  (Bernstein  Wholesale  Report),  in  Letter  from  Peter  J.  Schildkraut,  Counsel  for  SBC,  to  Gary  Remondino,  Wireline  Competition  Bureau,  FCC,  WC  Docket  No.  05-  65  (filed  June  6,  2005)  ([  REDACTED]); 


 AT&  T  Info  Req.,  ATT598001453-  78  at  598001453-  72  ([  REDACTED]). 
 431  We  note  that  this  approach  is  consistent  with  our  definition  of  the  relevant  geographic  markets  for  larger  multi-location 
 enterprise  customers  with  a  nationwide  presence  and  for  Tier  1  Internet  backbone  providers.  See  supra  Parts  V.  C  (Retail  Enterprise  Competition),  V.  E  (Internet  Backbone  Competition).  We  reject  the  suggestion  that  the 


 Commission  examine  specific  routes  in  the  SBC  region  on  which  AT&  T  and  SBC  have  overlapping  facilities.  See  Qwest  Bernheim  Decl.  at  para.  51;  CompTel/  ALTS  Reply  at  7  n.  27;  Cox  Comments  at  15-  16.  First,  SBC  currently 
 does  not  own  any  long  distance  facilities  in  or  out  of  its  region,  but  instead  purchases  and  resells  long  distance  transport  from  independent  providers  such  as  WilTel.  See  SBC  Info.  Req.  at  79.  The  merger  will  not,  therefore, 
 result  in  ownership  of  overlapping  long  distance  facilities  in  the  SBC  region.  Further,  the  merger  will  not  lead  to  horizontal  concentration  on  those  routes  where  AT&  T  is  currently  the  sole  provider  of  interexchange  transport. 
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 distance  market  or  by  providing  wholesale  long  distance  service  on  discriminatory  terms  or  conditions.  432  The  record  suggests  that  AT&  T  accounts  for  a  declining  portion  of  wholesale  long  distance  revenues  and 
 minutes  of  transport  due  to  significant  competition  from  multiple  other  facilities-  based  long  distance  service  providers.  433  The  evidence  of  wholesale  long  distance  competition  is  consistent  with  prior 
 Commission  findings  that  Sprint,  Qwest,  Level  3,  and  others  have  a  significant  presence  in  this  market.  434  As  a  result,  the  Applicants  ability  to  discriminate  against  their  retail  competitors  will  be  highly 
 constrained,  contrary  to  the  concerns  of  some  commenters.  435  Further,  as  the  Commission  has  found  previously,  it  would  not  be  economically  rational  for  the  Applicants  to  attempt  to  discriminate  against 
 rival  providers  of  retail  long  distance  service  if  the  wholesale  market  is  highly  competitive  and  there  are  numerous  competing  wholesale  providers  ready  and  able  to  supply  those  rivals.  436 


 150.  The  evidence  in  the  record  further  demonstrates  that  there  is  significant  spare  capacity  in  this  market.  437  In  addition,  the  evidence  shows  that  this  industry  segment  faces  increasing  pressure  from  the 
 migration  of  minutes  to  packet-  switched  voice  services,  Internet-  based  applications,  and  other  technological  substitutes,  438  suggesting  further  reductions  in  AT&  Ts  presence  in  this  market  and 
 increasing  excess  capacity  by  its  competitors.  Indeed,  given  that  SBC  currently  represents  approximately 


 432  See,  e.  g.,  United  States  Cellular  Comments  at  3-  4,  Independent  Alliance  Comments  at  2-  4;  T-  Mobile  Reply  at 
 12-  14. 
 433  AT&  T  Info.  Req.,  ATTFCC02257-  313  ([  REDACTED]). 


 434  See,  e.  g.,  Bernstein  Wholesale  Report  at  2  ([  REDACTED]);  AT&  T  Info  Req.,  ATT598001453-  78  at 
 598001453-  72  ([  REDACTED]);  see  also  AT&  T  Non-  Dominance  Order,  11  FCC  Rcd  at  3308,  paras.  70,  72;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18052-  56,  18066-  7,  paras.  43-  50,  70.  Because  we  find  there  exists 


 sufficient  excess  capacity  in  this  market,  we  decline  to  impose  non-  structural  conditions  such  as  those  suggested  by  United  States  Cellular  and  T-  Mobile.  See  United  States  Cellular  Comments  at  2-  5;  T-  Mobile  Reply  at  13-  14. 


 435  See  supra  note  432.  We  reject  as  fundamentally  speculative  commenters  concerns  that  other  BOCs  will  acquire 
 the  remaining  independent  facilities-  based  interexchange  carriers.  See  ACN  et  al.  Aug.  10  Ex  Parte  Letter,  Attach.  at  6.  No  such  mergers  are  pending  before  the  Commission  and,  in  any  event,  the  Commission  could  address  any 


 concerns  arising  from  such  mergers  when,  and  if,  they  are  presented  to  the  Commission  for  approval. 
 436  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18066-  67,  para.  70  ([  E]  ven  a  long  distance  carrier  with  a  large  retail 
 customer  base  will  have  an  incentive  to  provide  wholesale  services  to  resellers  if  the  reseller  can  obtain  these  services  on  favorable  terms  from  other  providers.)  (footnote  omitted).  For  the  same  reasons,  we  find  the  concerns 


 of  United  States  Cellular  regarding  the  sharing  of  call  detail  or  other  competitively  sensitive  information  between  AT&  T,  SBC  and  their  wireless  affiliate  unconvincing.  See  United  States  Cellular  Comments  at  3.  To  the 
 extent  United  States  Cellular  or  other  parties  have  concerns,  they  should  be  able  to  negotiate  an  appropriate  arrangement  with  a  competitive  provider  of  wholesale  long  distance  services.  Further,  although  United  States 
 Cellular  has  not  identified  the  nature  of  the  information  it  seeks  to  protect  with  great  specificity,  we  note  that    222(  b)  of  the  Act  provides  all  carriers  with  certain  protections.  See  47  U.  S.  C.    222(  b). 


 437  See,  e.  g.,  Bernstein  Wholesale  Report  at  2  ([  REDACTED]);  Level  3  Communications,  Inc.,  SEC  Form  10-  K  at 
 18  (filed  March  16,  2005)  (  The  result  of  [high  competitive  entry]  was  an  oversupply  of  capacity  and  an  intensely  competitive  environment.)  available  at 


 http://  www.  sec.  gov/  Archives/  edgar/  data/  794323/  000104746905006668/  a2153221z10-  k.  htm;  Leucadia  National  Corp.,  SEC  Form  10-  K  at  44  (filed  March  14,  2005)  (stating  that  telecommunications  capacity  far  exceeds  actual 
 demand  and  the  marketplace  is  characterized  by  fierce  price  competition.  .  .  .)  (Leucadia  2005  10-  K),  available  at  http://  www.  sec.  gov/  Archives/  edgar/  data/  96223/  000090951805000159/  jd3-  14_  new10k.  txt. 


 438  See,  e.  g.,  Bernstein  Wholesale  Report  at  2-  3;  AT&  T  Info.  Req.,  ATTFCC02915-  51  at  02932-  34. 
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 70  percent  of  WilTels  long  distance  revenue,  the  migration  of  SBCs  long  distance  traffic  to  the  AT&  T  network  will  free  significant  capacity  on  the  network  of  a  national  facilities-  based  wholesale  long  distance 
 provider.  439  Therefore,  there  should  be  more  than  sufficient  capacity  among  the  remaining  independent  providers  of  facilities-  based  wholesale  long  distance  services  to  accommodate  any  carrier  that  cannot 
 obtain  satisfactory  service  from  the  Applicants.  440  This  evidence  of  continued  competition  from  a  variety  of  wholesale  interexchange  service  providers  convinces  us  that  the  merger  is  unlikely  to  result  in 
 anticompetitive  effects  through  either  unilateral  effects  or  coordinated  interaction. 
 151.  Finally,  the  record  does  not  support  the  contention  of  some  commenters  that  the  Applicants,  unilaterally  or  in  conjunction  with  the  proposed  Verizon/  MCI  entity,  will  adversely  affect  the  viability  of 
 the  wholesale  interexchange  market  by  eliminating  SBC  as  a  purchaser  of  wholesale  long  distance  services.  441  While  the  merger  likely  will  gradually  eliminate  SBC  as  a  purchaser  of  wholesale  long 
 distance  service  over  the  next  five  years,  442  this  primarily  will  impact  only  WilTel,  SBCs  primary  wholesale  provider  of  long  distance  services    not  the  market  as  a  whole.  443  Further,  as  this  process  will 
 take  some  time,  affected  carriers  will  have  an  opportunity  to  seek  other  customers.  444  As  the  Commission  has  noted  previously,  [  o]  ur  statutory  duty  is  to  protect  efficient  competition,  not  competitors.  445 


 152.  Based  on  the  foregoing,  we  find  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  in  the  wholesale  segment  of  the  domestic,  interstate,  interexchange  market. 


 439  Leucadia  2005  10-  K  at  2,  10-  11  (  SBC  Communications  Inc.  (  SBC),  a  major  communications  provider  in  the 
 U.  S.,  is  WilTels  largest  customer,  accounting  for  70%  of  the  Network  segments  2004  operating  revenues.  On  January  31,  2005,  SBC  announced  that  it  would  buy  AT&  T  Corp.,  and  announced  its  intention  to  migrate  the 


 services  provided  by  WilTel  to  the  AT&  T  network.). 
 440  Qwest  Bernheim  Decl.  at  para.  54  (  Even  with  [the  SBC/  AT&  T  and  Verizon/  MCI]  mergers,  significant 
 independent  long  distance  transport  capacity  would  remain.). 
 441  See,  e.  g.,  ACN  et  al.  Comments  at  29-  30;  CompTel/  ALTS  Reply  at  6;  CompTel/  ALTS  Reply,  Reply  Declaration 
 of  Lee  L.  Selwyn  (CompTel/  ALTS  Selwyn  Reply  Decl.)  at  paras.  29-  32. 
 442  See  SBC  SEC  Form  8-  K  (filed  June  15,  2005)  available  at 
 http://  www.  sec.  gov/  Archives/  edgar/  data/  732717/  000073271705000325/  wiltel.  htm;  Leucadia  National  Corp.,  SEC  Form  8-  K  at  1  (filed  January  25,  2005). 


 443  SBC/  AT&  T  Reply  at  79-  80. 
 444  Leucadia  2005  10-  K  at  44  (  WilTel  expects  it  will  take  anywhere  from  two  to  three  years  from  now  for  SBC  to 
 migrate  all  of  its  traffic  off  of  WilTels  network,  and  anticipates  that  it  will  continue  to  provide  some  level  of  service  to  SBC  into  2007.) 


 445  Bell  Atlantic  Mobile  Systems,  Inc.  and  NYNEX  Mobile  Communications  Company,  File  Nos.  00762-  CL-  AL-  1-  95 
 through  00803-  CL-  AL-  1-  95;  00804-  CL-  TC-  1-  95  through  00816-  CL-  TC-  1-  95;  00817-  CL-  AL-  1-  95  through  00824-  CL-  AL-  1-  95;  and  00825-  CL-  TC-  1-  95  through  00843-  CL-  TC-  1-  95,  Memorandum  Opinion  and  Order,  12  FCC  Rcd 


 22280,  22288,  para.  16  (1997)  (citing  SBC  Communications,  Inc.  v.  FCC,  56  F.  3d  1484,  1491-  92  (D.  C.  Cir.  1995)). 
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 G.  U.  S.  International  Services  Competition 
 153.  In  this  section  we  consider  the  competitive  effects  of  the  proposed  merger  in  the  markets  for  U.  S.  international  services.  446  We  conclude  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  for 
 international  services  provided  to  mass  market,  enterprise  or  global  telecommunications  customers. 
 154.  While  there  exist  specific  differences  between  domestic  and  international  long  distance  telecommunications  services,  both  types  of  services  reflect  fundamental  similarities.  As  with  access  to 
 domestic  long  distance  telecommunications,  mass  market  customers  may  presubscribe  to  a  stand-  alone  domestic  long  distance  telecommunications  carrier  that  includes  access  to  international 
 telecommunications  services;  select  a  provider  of  bundled  local  and  long  distance  service  that  includes  access  to  international  long  distance  telecommunications;  or  use  prepaid  calling  cards,  dial-  around 
 carriers,  VoIP  carriers,  or  wireless  telecommunications  carriers.  In  contrast  to  domestic  long-  distance  service,  however,  mass  market  customers  of  international  long  distance  telecommunications  generally 
 appear  more  willing  to  access  carriers  other  than  their  presubscribed  carrier  through  the  use  of  prepaid  calling  cards  and  dial-  around  services. 


 155.  The  expressed  preferences  of  international  mass  market  telecommunications  users  reflect  several  distinct  attributes  of  international  telecommunications  that  differ  from  domestic  long  distance 
 telecommunications.  Specifically,  because  international  routes  differ  in  terms  of  traffic  capacity,  competition,  and  government  regulation,  the  wholesale  cost  and  consequently  retail  price  of  calls  to 
 different  international  destinations  vary.  For  example,  the  cost  to  terminate  international  services    the  settlement  rate    varies  for  each  market  and  is  usually  higher  than  that  for  domestic  services.  Because  of 
 this,  consumer  preferences  for  access  to  international  long  distance  telecommunications  will  differ  from  consumer  preferences  for  domestic  long  distance  telecommunications,  notwithstanding  the  fact  that  the 
 same  modes  of  access  are  available  for  either  domestic  or  international  long  distance  telecommunications. 
 156.  There  generally  appear  to  be  few  barriers  to  entry  into  the  international  long  distance  telecommunications  industry  for  either  facilities-  based  or  resale  entrants.  Resale  entrants,  in  particular, 
 face  relatively  modest  costs  of  market  entry  as  evidenced  by  the  presence  of  approximately  770  international  telecommunications  resellers.  These  low  entry  barriers  make  it  unlikely  that  SBC  will  be 
 able  to  raise  price  or  restrict  output  after  the  merger. 
 157.  We  examine  below  three  separate  end-  user  product  markets:  the  mass  market,  enterprise  market,  and  global  telecommunications  market.  We  also  separately  examine  the  international  transport  capacity 
 market,  which  provides  the  physical  transmission  path  that  carriers  use  to  deliver  services  in  the  end-  user  markets,  and  two  wholesale,  or  intermediate,  markets,  namely  facilities-  based  international  message 
 telecommunications  service  (IMTS)  and  private  line  service.  Input  markets,  particularly  international 
 446  U.  S.  international  services  consist  of  all  U.  S.-  billed  telecommunications  services,  including  calls  that  originate  in 
 the  United  States  and  terminate  at  a  foreign  point  and  calls  that  originate  at  a  foreign  point  but  are  billed  by  a  U.  S.  carrier,  such  as  international  calling  card  or  prepaid  card  calls.  This  proceeding  includes  thirteen  applications  to 


 transfer  control  of  licenses  and  authorizations  covering  the  provision  of  U.  S.  international  services  and  the  underlying  facilities  used  to  provide  them:  eight  international  214  authorizations,  one  submarine  cable  landing 
 license,  one  international  public  fixed  license,  and  three  earth  station  authorizations.  See  File  Nos.  ITC-  T/  C-20050222-  00079,  ITC-  T/  C-  20050222-  00080,  ITC-  T/  C-  20050222-  00081,  ITC-  T/  C-  20050222-  00082,  ITC-  T/  C-20050222- 
 00083,  ITC-  T/  C-  2005022-  00071,  ITC-  T/  C-  2005022-  00072,  ITC-  T/  C-  2005022-  00073  (International  Section  214  Applications);  SCL-  T/  C-  20050222-  00002  (Submarine  Cable  Application);  SES-  T/  C-  20050224-  00233 
 (International  Public  Fixed  Application);  SES-  T/  C-  20050224-  00230,  SES-  T/  C-  20050224-  00231,  SES-  T/  C-20050224-  00232  (Earth  Station  Applications). 
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 transport  capacity,  are  a  significant  component  of  the  international  services  market.  Wholesale  markets  for  international  service  also  are  essential  components  to  the  delivery  of  end-  user  retail  services.  We  also 
 examine  the  Applicants  affiliations  with  foreign  carriers. 
 1.  International  Transport  Market 
 158.  International  transport  refers  to  the  international  physical  transmission  paths  carriers  use  to  offer  services  between  the  United  States  and  other  countries.  International  traffic  can  be  transmitted  via 
 submarine  cable,  satellite  or  terrestrial  links.  Most  U.  S.  international  traffic,  however,  is  transmitted  over  submarine  cables.  447  We  need  not  conduct  an  analysis  of  the  international  transport  market  here,  however, 
 because  neither  SBC  nor  any  of  its  affiliates  own  or  control  international  facilities.  448  Rather,  these  carriers  only  provide  international  service  through  the  resale  of  other  carriers  facilities.  449  The 
 Applicants  specifically  state  that  SBC  holds  no  interests  in  submarine  cable  landing  licenses  and  no  indefeasible  rights  of  use  or  other  ownership  interest  in  any  international  submarine  cable.  450  Moreover, 
 no  commenter  has  contested  this  assertion,  and  we  have  no  other  evidence  to  suggest  that  SBC  may  control  such  ownership  interests.  Further,  we  note  that  neither  AT&  T  nor  SBC  holds  any  ownership 
 interest  in  satellite  systems  or  satellite  transponder  capacity.  Accordingly,  we  find  that  the  merger  will  not  likely  have  anticompetitive  effects  in  the  market  for  international  transport  capacity. 


 2.  Intermediate  Facilities-  Based  Markets 
 159.  IMTS  consists  of  telecommunications  services  provided  over  the  public  switched  networks  of  U.  S.  international  carriers.  In  recent  years,  IMTS  has  evolved  into  a  two-  sector  industry    a  wholesale 
 sector  in  which  carriers  can  buy  and  sell  bulk  IMTS  minutes  and  a  retail  sector  in  which  carriers  sell  minutes  to  end-  users.  Wholesale  IMTS  minutes  are  ultimately  provided  by  facilities-  based  U.  S. 
 international  carriers  that  terminate  those  minutes  over  their  own  networks  through  interconnection  agreements  with  their  foreign  correspondents.  451  Because  SBC  does  not  provide  facilities-  based  IMTS, 
 the  merger  will  not  increase  concentration  in  these  markets.  Therefore,  we  do  not  analyze  the  wholesale 


 447  In  2003,  submarine  cables  accounted  for  80%  of  the  overall  active  transmission  capacity.  Terrestrial  links 
 accounted  for  18%  and  satellites  for  1%.  See  International  Bureau,  FCC,  2003  Section  43.82  Circuit  Status  Data,  at  13,  Table  2,  19,  Table  3,  and  25,  Table  4  (Dec.  2004)  (2003  Circuit  Status  Report)  available  at 


 www.  fcc.  gov/  ib/  pd/  pf/  csmanual.  html;  International  Bureau  Releases  2003  Year-  End  Circuit  Status  Report  for  U.  S.  Facilities-  Based  International  Carriers;  Capacity  Use  Shows  Healthy  Growth,  News  Release  (IB  Dec.  23,  2004),  at 
 1. 
 448  A  traditional  analysis  of  the  international  transport  market  would  focus  on  submarine  cable  capacity  because 
 most  international  service  is  transmitted  over  submarine  cables,  but  it  would  also  look  at  satellite  capacity  and  the  terrestrial  links  on  the  U.  S.-  Canada  and  U.  S.-  Mexico  routes.  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at 


 18072-  74,  paras.  82-  85. 
 449  SBC  Info.  Req.  at  126. 


 450  SBC/  AT&  T  Application  at  115. 
 451  Approximately  80%  of  all  facilities-  based  IMTS  minutes  are  sold  to  other  carriers,  which  then  resell  them  to  end 
 users  or  to  other  resellers.  See  Strategic  Analysis  and  Negotiations  Division,  International  Bureau,  FCC,  2003  International  Telecommunications  Data  at  1  (January  2005)  (2003  Section  43.61  Report)  available  at 


 http://  www.  fcc.  gov/  ib/  sand/  mniab/  traffic/.  U.  S.  facilities-  based  carriers  also  sell  IMTS  services  to  foreign  carriers,  many  of  which  find  it  profitable  to  terminate  their  international  calls  to  third  countries  via  the  United  States. 
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 facilities-  based  market  as  a  part  of  this  merger  analysis.  Similarly,  because  SBC  does  not  provide  international  private  line  service,  we  need  not  analyze  the  international  private  line  services  market. 
 3.  End-  User  Markets 
 a.  Mass  Market 
 160.  The  mass  market  for  international  telecommunications  services  consists  of  international  telecommunications  services  sold  directly  to  residential  and  small  business  customers.  The  primary 
 suppliers  of  such  services  are  facilities-  based  IMTS  carriers  and  IMTS  resellers.  452  We  find  that  the  market  is  not  highly  concentrated  and  that  the  merger  is  not  likely  to  have  anticompetitive  effects.  We 
 also  find  that  structural  characteristics  of  the  IMTS  mass  market  facilitate  entry  and  will  ensure  that  the  market  remains  competitive. 


 161.  As  discussed  above,  a  mass  market  customers  presubscribed  interexchange  carrier  and/  or  wireless  carrier  will  be  the  presubscribed  carrier  for  both  the  domestic  and  international  long  distance 
 calls  placed  by  that  customer.  453  Presubscription,  however,  is  not  as  important  a  factor  in  a  consumers  choice  of  an  IMTS  provider  as  it  is  for  determining  his  choice  of  a  domestic  long  distance  provider. 
 Because  international  calls  are  relatively  more  expensive  than  domestic  long  distance  calls,  consumers  who  use  a  large  amount  of  international  telecommunications  services  often  choose  IMTS  providers  other 
 than  their  presubscribed  carrier  by  using  dial-  around  service  or  prepaid  calling  cards,  which  often  are  significantly  less  expensive.  454  The  facts  that  IMTS  resale  comprises  such  a  large  portion  of  IMTS 
 minutes,  and  dial-  around  carriers  and  prepaid  cards  make  up  a  high  proportion  of  IMTS  resale,  suggest  that  many  consumers  approach  IMTS  as  an  a  la  carte  service  often  purchased  from  providers  other  than 
 their  presubscribed  carrier,  including  independent  resellers.  455 
 162.  In  addition,  the  IMTS  mass  market  is  not  highly  concentrated.  There  are  approximately  40  facilities-  based  carriers  and  approximately  770  resellers  providing  IMTS  service.  Many  of  these  carriers 
 offer  service  on  all  or  most  international  routes  and  sell  directly  to  residential  and  small  business  customers.  Major  market  participants  include  MCI,  AT&  T,  IDT  Corporation,  and  Sprint,  as  well  as  a 
 number  of  other  highly  active,  facilities-  based  carriers  and  resellers.  456  Within  the  last  several  years,  AT&  T,  MCI,  and  Sprint  have  begun  focusing  on  the  provision  of  wholesale  IMTS  to  resale  carriers. 
 Many  smaller,  highly  competitive  resellers  also  have  entered  in  recent  years  to  compete  against  the 
 452  Although  we  cannot  identify  precisely  which  VoIP  providers  should  be  included  in  the  same  market  as  mass 
 market  IMTS,  we  nevertheless  find  that  certain  VoIP  providers  should  be  included  as  participants  in  this  market.  Cf.  supra  Part  V.  D  (Mass  Market  Competition).  We  further  find  that  wireless  providers  of  IMTS  should  be 


 included  in  this  market. 
 453  See  supra  Part  V.  D  (Mass  Market  Competition). 


 454  Based  on  a  study  in  the  record  of  this  proceeding,  international  prepaid  minutes  constituted  approximately 
 [REDACTED]%  of  total  end-  user  international  minutes  for  2003.  See,  e.  g.,  Atlantic  ACM  Excerpt  at  9;  2003  Section  43.61  Report  (sum  of  world  total  minutes  in  Tables  41  and  42). 


 455  In  2003,  U.  S.  end-  user  customers  purchased  approximately  37  billion  IMTS  minutes.  See  2003  Section  43.61 
 Report,  Tables  41  and  42.  Resellers  reported  approximately  35  billion  IMTS  minutes  in  2003,  although  this  figure  includes  substantial  double-  counting.  Id.  at  Table  D.  Resold  IMTS  is  mostly,  but  not  entirely,  provided  as  a  non-presubscribed 


 service,  such  as  prepaid  calling  cards  or  dial-  around. 
 456  See  2003  Section  43.61  Report,  Tables  A,  D. 
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 traditional  carriers  in  the  provision  of  mass  market  IMTS.  As  a  result,  the  traditional  international  carriers  no  longer  hold  the  substantial  market  shares  in  the  IMTS  mass  market  that  they  once  held.  Although  SBC 
 has  the  most  presubscribed  lines  of  any  carrier  within  its  footprint,  SBC  operates  exclusively  as  a  reseller  in  the  IMTS  mass  market  [REDACTED].  457  The  fact  that  SBC  sold  only  [REDACTED]  458  minutes  in 
 2004  is  evidence  that  it  possesses  only  a  limited  share  of  mass  market  IMTS  within  its  footprint.  459  Given  such  a  competitively  dynamic  environment,  we  find  that  the  merger  is  not  likely  to  result  in 
 anticompetitive  effects  in  the  IMTS  mass  market. 
 163.  We  also  find  that  various  structural  characteristics  of  the  IMTS  mass  market  will  ensure  that  the  market  remains  competitive.  As  explained  above,  mass  market  IMTS  customers  have  multiple  access 
 channels  through  which  to  obtain  international  service,  including  calling  plans  offered  by  their  presubscribed  long  distance  carrier,  dial-  around  services,  prepaid  calling  cards,  as  well  as  important 
 emerging  access  channels  such  as  discounted  international  calling  plans  offered  by  wireless  carriers  and  VoIP  providers.  In  addition,  as  discussed  above,  there  are  no  significant  barriers  to  entry  in  the  provision 
 of  mass  market  IMTS.  For  facilities-  based  providers,  substantial  international  transport  capacity  exists  in  all  regions  and  foreign  termination  services  are  available  on  virtually  every  route.  Because  facilities-based 
 IMTS  minutes  are  a  crucial  input  for  resellers,  their  wide  availability  will  continue  to  sustain  a  highly  active  resale  sector.  Indeed,  the  presence  of  approximately  770  resellers  nationwide  demonstrates 
 that  successful  entry  into  the  IMTS  mass  market  is  feasible  even  for  smaller,  non-  facilities-  based  carriers. 
 b.  Enterprise  Market 
 164.  The  enterprise  market  for  international  telecommunications  services  consists  of  international  telecommunications  services  sold  directly  to  medium  and  large  business  customers.  As  discussed  above 
 in  the  context  of  domestic  enterprise  services,  we  find  that  medium  and  large  enterprise  customers  are  sophisticated  purchasers  of  telecommunications  services  likely  to  make  informed  choices  based  on  expert 
 advice  about  service  offerings  and  prices.  As  we  concluded  above,  so  long  as  no  structural  barriers  prevent  carriers  from  offering  services  to  such  customers,  they  will  seek  out  best-  priced  alternatives.  460 
 Further,  SBC  states  that  it  generally  does  not  compete  for  businesses  where  more  than  half  of  the  customers  locations  are  outside  the  SBC  footprint  or  where  more  than  20  percent  of  the  customers 
 traffic  is  international.  461  In  light  of  these  facts  and  the  fact  that  SBC  does  not  provide  facilities-  based 


 457  SBC  Info.  Req.  at  174-  75,  178  (unredacted). 
 458  SBC  Info.  Req.,  Exh.  21(  b)(  3). 
 459  An  extremely  rough  upper  bound  on  SBCs  market  share  can  be  derived  as  follows:  Nationwide,  end-  user  IMTS 
 minutes  totaled  approximately  37  billion  minutes  in  2003.  See  2003  Section  43.61  Report,  Tables  41,  42.  Reflecting  growth  in  traffic,  it  is  likely  that  volume  grew  to  approximately  40  billion  end-  user  IMTS  minutes  in  2004.  The 


 proportion  of  residential  and  small  business  minutes  to  total  end-  user  minutes  is  approximately  60%,  so  that  the  residential  market  in  2004  consists  of  approximately  24  billion  minutes  nationwide.  Because  SBC  has 
 approximately  31%  of  total  U.  S.  local  loops  in  its  footprint,  we  estimate  that  approximately  7.4  billion  residential  minutes  were  sold  by  all  carriers  in  the  SBC  footprint  in  2004.  As  mentioned  above,  SBC  reported  [REDACTED] 
 end-  user  minutes  in  2004.  See  supra  note  458.  If  all  of  SBCs  minutes  are  residential  and  small  business  minutes  (i.  e.,  if  SBC  sells  no  IMTS  to  large  businesses)  then  it  has  approximately  [REDACTED]%  of  the  mass  market  in  its 
 footprint.  This  is  an  upper  limit  on  SBCs  mass  IMTS  market  share.  460 
 See  supra  Part  V.  C  (Retail  Enterprise  Competition). 
 461  SBC/  AT&  T  Kahan  Decl.  at  para.  27. 
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 international  services,  we  conclude  that  SBCs  merger  with  AT&  T  is  not  likely  to  result  in  anticompetitive  effects. 
 c.  Global  Telecommunications  Services 
 165.  The  global  telecommunications  services  (GTS)  market,  also  known  as  the  global  seamless  services  market,  is  a  segment  of  the  enterprise  market  that  is  focused  on  large  multi-  national  customers 
 that  require  connectivity  to  multiple  locations  throughout  the  world,  not  just  within  the  United  States.  These  customers  are  generally  large  multi-  national  corporations  that  have  significant  expertise  in 
 telecommunications  issues.  462  The  Commission  has  defined  the  global  seamless  services  market  as  a  combination  of  voice,  data,  video,  and  other  telecommunications  services  that  are  offered  by  a  single 
 source  or  multiple  sources  over  an  integrated  global  or  regional  international  network  of  owned  or  leased  facilities,  and  that  have  equivalent  (though  not  identical)  quality,  characteristics,  features,  and  capabilities 
 wherever  they  are  provided.  463 
 166.  We  are  not  persuaded  by  BT  Americas  claims  that  the  proposed  transaction  will  result  in  anticompetitive  effects  in  the  provision  of  global  telecommunications  services.  464  BT  Americas  primary 
 argument  is  that  the  merger  would  increase  SBCs  control  over  special  access  services  for  enterprise  networks,  a  critical  input  for  GTS.  465  We  have  already  addressed  the  wholesale  special  access  issue  in 
 this  Order.  466  We  do  not  find  any  unique  characteristics  with  respect  to  the  application  of  special  access  to  GTS  that  warrant  a  different  conclusion  as  to  that  market. 


 167.  We  also  reject  the  contention  of  BT  Americas  and  CompTel/  ALTS  that  the  merger  will  remove  a  potential  competitor  in  the  GTS  market.  467  The  Applicants  claim  that  the  merger  raises  no  horizontal 
 concerns  with  respect  to  GTS.  Specifically,  they  assert  that  SBC  should  not  be  considered  a  significant  potential  entrant  into  GTS  given  that  SBC  has  limited  international  operations,  assets,  and  expertise,  and 
 has  concentrated  on  serving  domestic  U.  S.  business  customers  with  locations  predominantly  located  within  its  footprint.  The  Applicants  also  note  that  SBC  does  not  attempt  to  win  bids  when  20  percent  or 
 more  of  the  traffic  involved  is  international.  468  Since  SBC  has  limited  international  operations,  we  find 
 462  See  AT&  T/  British  Telecom  Order,  14  FCC  Rcd  at  19151-  57,  paras.  22-  39. 


 463  AT&  T/  British  Telecom  Order,  14  FCC  Rcd  at  19153,  para.  28;  see  also,  e.  g.,  Sprint  Corporation,  Petition  for 
 Declaratory  Ruling  Concerning  Section  310(  b)(  4)  and  (d)  and  the  Public  Interest  Requirements  of  the  Communications  Act  of  1934,  as  amended,  File  No.  I-  S-  P-  95-  002,  Declaratory  Ruling  and  Order,  11  FCC  Rcd 


 1850,  1864,  para.  84  (1996)  (Sprint  Declaratory  Ruling);  United  States  v.  Sprint  Corp.,  Civil  Action  No.  95-  1304,  Complaint  at  paras.  18,  29,  39  (D.  D.  C.  filed  July  13,  1995)  (defining  market  of  seamless  international 
 telecommunications  services  that  is  distinct  for  purposes  of  antitrust  law). 
 464  See  generally  BT  Americas  Reply  at  3-  21;  see  also  CompTel/  ALTS  Petition  at  25  (stating  that  the  merger  would 
 harm  consumers  by  eliminating  SBC  as  a  significant  new  competitor  of  AT&  T  in  the  provision  of  global  enterprise  services,  at  least  within  SBCs  footprint). 


 465  BT  Americas  Reply  at  7-  20. 
 466  See  supra  Part  V.  B  (Wholesale  Special  Access  Competition). 
 467  BT  Americas  Reply  at  3-  7;  see  also  CompTel/  ALTS  Petition  at  25  (stating  that  the  merger  would  harm 
 consumers  by  eliminating  SBC  as  a  significant  new  competitor  of  AT&  T  in  the  provision  of  global  enterprise  services,  at  least  within  SBCs  footprint). 


 468  See  SBC/  AT&  T  June  2  Ex  Parte  Letter  at  4;  SBC/  AT&  T  Kahan  Decl.  at  para.  27. 
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 that  SBC  does  not  have  a  unique  competitive  advantage  as  a  potential  entrant  in  the  GTS  market.  To  the  extent  that  SBC  could  serve  to  constrain  the  exercise  of  market  power  as  an  entrant,  other  firms,  some 
 with  more  international  assets  and  operations,  and  thus  more  suited  to  entry  into  the  GTS  market  than  SBC,  would  continue  to  exert  a  restraining  influence,  or,  if  entry  would  become  profitable,  would 
 recognize  the  opportunity  to  enter.  For  these  reasons  we  also  are  not  persuaded  that  the  SBC/  AT&  T  merger,  taken  in  combination  with  the  proposed  merger  of  Verizon  and  MCI,  would  likely  result  in 
 anticompetitive  effects  in  the  GTS  market. 
 4.  Foreign  Carrier  Affiliations 
 168.  As  a  part  of  our  public  interest  analysis  under  section  214(  a)  of  the  Act,  we  also  consider  whether,  upon  consummation  of  the  proposed  transfers  of  control,  the  international  section  214 
 authorization  holders  will  become  affiliated  with  a  foreign  carrier  that  has  market  power  on  the  foreign  end  of  a  U.  S.  route  that  the  international  section  214  authorization  holders  have  the  authority  to  serve 
 pursuant  to  the  authorizations  that  will  be  transferred.  469  Under  rules  adopted  in  the  Foreign  Participation  Order,  the  Commission  classifies  a  U.  S.  carrier  as  dominant  on  a  particular  international  route  if  it  is,  or 
 is  affiliated  with,  a  foreign  carrier  that  has  market  power  on  the  foreign  end  of  that  route.  470  Similarly,  under  section  1.767(  a)(  8)  and  (a)(  11)  and  section  1.768  of  the  Commissions  rules,  a  submarine  cable 
 licensee  that  proposes  to  transfer  control  of  an  interest  in  a  submarine  cable  landing  license  granted  pursuant  to  the  Cable  Landing  License  Act  is  required  to  disclose  if  it  will  become  affiliated  with  a 
 foreign  carrier  as  a  result  of  the  transfer  of  control.  471  The  Commission  applies  competitive  safeguards  to  a  cable  landing  license  held  by  a  licensee  that  is,  or  is  affiliated  with,  a  carrier  with  market  power  in 
 relevant  input  markets  on  the  foreign  end  of  the  cable  that  could  result  in  harm  to  competition  in  the  U.  S.  market.  472  Neither  SBC  nor  AT&  T  is  currently  affiliated  with  any  foreign  carrier  that  has  market  power 


 469  47  U.  S.  C.    214(  a).  For  international  section  214  applicants,  the  terms  affiliated  and  foreign  carrier  are 
 defined  in  section  63.09  of  the  Commissions  rules.  47  C.  F.  R.    63.09. 
 470  Rules  and  Policies  on  Foreign  Participation  in  the  U.  S.  Telecommunications  Market,  Report  and  Order  and 
 Order  on  Reconsideration,  12  FCC  Rcd  23891,  23969-  70,  23987,  23991-  99,  paras.  177-  78,  215,  221-  39  (1997)  (Foreign  Participation  Order).  A  carrier  classified  as  dominant  on  a  particular  U.  S.  international  route  due  to  an 


 affiliation  with  a  foreign  carrier  that  has  market  power  on  the  foreign  end  of  the  route  is  subject  to  specific  international  dominant  carrier  safeguards  set  forth  in  section  63.10  of  the  rules.  See  47  C.  F.  R.    63.10(  c),  (e). 
 These  safeguards  are  designed  to  address  the  possibility  that  a  foreign  carrier  with  control  over  facilities  or  services  that  are  essential  inputs  for  the  provision  of  U.  S.  international  services  could  discriminate  against  rivals  of  its  U.  S. 
 affiliates.  In  the  Foreign  Participation  Order,  the  Commission  concluded  that  these  safeguards,  in  conjunction  with  generally  applicable  international  safeguards,  are  sufficient  to  protect  against  vertical  harms  by  carriers  from  World 
 Trade  Organization  (WTO)  Member  countries  in  virtually  all  circumstances.  In  the  exceptional  case  where  an  application  poses  a  very  high  risk  to  competition  in  the  U.  S.  market    where  the  standard  safeguards  and  additional 
 conditions  would  be  ineffective    the  Commission  reserves  the  right  to  deny  the  applications.  Foreign  Participation  Order,  12  FCC  Rcd  at  23913-  14,  para.  51. 


 471  47  C.  F.  R.    1.767(  a)(  8),  (a)(  11),  1.768;  see  also  47  U.  S.  C.    34-  39;  Exec.  Ord.  No.  10530    5(  a),  reprinted  as 
 amended  in  3  U.  S.  C.    301.  For  submarine  cable  applicants,  the  terms  affiliated  and  foreign  carrier  are  defined  as  in    63.09  of  the  Commissions  rules,  47  C.  F.  R.    63.09,  except  that  the  term  foreign  carrier  also  shall  include 


 any  entity  that  owns  or  controls  a  cable  landing  station  in  a  foreign  market.  See  Note  to    1.767,  47  C.  F.  R.    1.767. 
 472  47  C.  F.  R.    1.767(  l),  1.768(  f);  see  also  Submarine  Cable  Report  and  Order,  16  FCC  Rcd  at  22180,  para.  25. 
 Relevant  foreign  carrier  input  markets  include  those  facilities  or  services  for  the  landing,  connection,  or  operation  of  submarine  cables.  Submarine  Cable  Report  and  Order,  16  FCC  Rcd  at  22180,  para.  23.  The  Commission  found 


 that  these  competitive  safeguards  should  be  sufficient  in  all  but  the  most  exceptional  of  circumstances  to  detect  and  (continued.) 
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 on  the  foreign  end  of  a  U.  S.-  international  route.  473  We  therefore  need  not  impose  our  dominant  carrier  safeguards  as  part  of  our  approval  of  the  merger.  474 
 169.  Both  SBC  and  AT&  T  have  ownership  interests  in  foreign  carriers  that  compete  in  Mexico,  the  second  largest  U.  S.-  international  route.  475  SBC  has  an  ownership  interest  in,  and  a  close  working 
 relationship  with,  Telefonos  de  Mexico,  S.  A.  de  C.  V.  (Telmex)  and  its  affiliates.  476  AT&  T  has  an  ownership  interest  in  Alestra  S.  de  R.  L.  de  C.  V.  (Alestra),  which  provides  service  in  Mexico  under  the 
 AT&  T  brand  name,  and  also  has  two  indirect  subsidiaries  that  provide  service  in  Mexico    AT&  T  Global  Network  Services  Mexico  S.  de  R.  L.  de  C.  V.  (AGNS  Mexico)  and  AT&  T  de  Mexico  S.  A.  de  C.  V. 
 (AT&  T  Mexico).  477  Each  of  these  carriers  competes  directly  with  Telmex.  478  Neither  carrier  is  classified  as  dominant  on  the  U.  S.-  Mexico  route,  however.  Although  Telmex  is  the  incumbent  carrier  and  has 
 market  power  in  Mexico,  479  SBCs  ownership  interest  is  below  the  threshold  to  be  considered  an  affiliate  of  Telmex.  Alestra,  AGNS,  and  AT&  T  Mexico  do  not  have  market  power  in  Mexico.  Consequently,  the 
 dominant  carrier  safeguards  do  not  currently  apply  to  AT&  T  or  SBC  on  the  U.  S.-  Mexico  route.  SBCs  ownership  interest  in  Telmex  will  not  increase  due  to  the  merger  and  therefore  dominant  carrier  status 
 will  continue  not  to  be  applicable. 
 170.  We  do  not  find  any  evidence  in  the  record  that  demonstrates  that  this  merger  will  likely  have  anticompetitive  effects  for  U.  S.  consumers  on  the  U.  S.-  Mexico  route.  However,  if  in  the  future  we  find, 
 based  on  an  investigation  initiated  by  a  complaint  or  on  our  own  initiative,  that  the  combined  SBC/  AT&  T 


 (Continued  from  previous  page)  deter  any  anti-  competitive  behavior  associated  with  market  power  in  WTO  Member  markets  where  U.  S.-  licensed 
 cable  systems  land  and  operate.  Id. 
 473  See  SBC/  AT&  T  Application  at  115. 


 474  Under  the  rules,  the  carriers  must  notify  the  Commission  if  they  subsequently  become  affiliated  with  a  foreign 
 carrier.  47  C.  F.  R.    1.768,  63.11.  If  that  foreign  carrier  has  market  power  on  the  foreign  end  of  the  relevant  U.  S.  -international  route,  the  safeguards  will  apply.  See  47  C.  F.  R.    1.767(  l),  63.10(  c). 


 475  2003  Section  43.61  Report,  Table  A1  (in  2003  there  were  over  4.7  billion  minutes  of  service  on  the  U.  S.-  Mexico 
 route). 
 476  SBC  has  an  equity  and  voting  interest  in  Telmex.  SBCs  interest  in  Telmex  is  held  through  a  trust  and  under  the 
 Trust  agreement,  its  shares  must  be  voted  in  accordance  with  Carso  Global  Telecom,  the  controlling  stockholder  of  Telmex,  except  regarding  the  election  of  the  directors  and  the  members  of  the  Executive  Committee.  SBC  has  the 


 right  to  appoint  [REDACTED]  out  of  the  18  members  of  the  Telmex  board  of  directors,  and  one  member  of  the  Executive  Committee.  SBC  and  Telmex  have  also  entered  into  a  Management  Services  Agreement.  SBC  Info. 
 Req.  at  169  -70  (unredacted).  SBC  has  also  entered  into  a  Joint  Marketing  Agreement  with  Telmex  USA,  LLC,  a  wholly-  owned  subsidiary  of  Telmex,  pursuant  to  which  SBC  assists  Telmex  USA  in  marketing  two  types  of  Telmex 
 prepaid  calling  cards  that  bear  the  SBC  logo.  Id.  at  166-  67. 
 477  AT&  T  Info.  Req.  at  70-  73. 


 478  Id.  at  71-  72. 
 479  See  The  International  Bureau  Revises  and  Reissues  the  Commissions  List  of  Foreign  Telecommunications 
 Carriers  that  are  Presumed  to  Possess  Market  Power  in  Foreign  Telecommunications  Markets,  Public  Notice,  19  FCC  Rcd  20385  (IB  2004). 
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 is  acting  in  an  anti-  competitive  manner  on  the  U.  S.-  Mexico  route,  or  any  other  U.  S.-  international  route,  we  have  the  authority  to  take  appropriate  actions  to  protect  U.  S.  consumers.  480 
 H.  SBCs  Qualifications  to  Acquire  Control  of  AT&  Ts  Licenses 
 171.  As  previously  noted,  section  310(  d)  of  the  Communications  Act  provides  that  no  station  license  may  be  transferred,  assigned,  or  disposed  of  in  any  manner  except  upon  a  finding  by  the  Commission  that 
 the  public  interest,  convenience  and  necessity  will  be  served  thereby.  481  Among  the  factors  that  the  Commission  considers  in  its  public  interest  inquiry  is  whether  the  applicant  for  a  license  or  license 
 transfer  has  the  requisite  citizenship,  character,  financial,  technical,  and  other  qualifications.  482  Therefore,  as  a  threshold  matter,  the  Commission  must  determine  whether  the  parties  meet  the  requisite 
 qualifications  to  hold  and  transfer  licenses  under  section  310(  d)  of  the  Act  and  the  Commissions  rules.  483  In  making  this  determination,  the  Commission  does  not,  as  a  general  rule,  reevaluate  the  qualifications  of 
 transferors  unless  issues  related  to  basic  qualifications  have  been  designated  for  hearing  by  the  Commission  or  have  been  sufficiently  raised  in  petitions  to  warrant  the  designation  of  a  hearing.  In  this 
 proceeding,  no  issues  have  been  raised  with  respect  to  the  basic  qualifications  of  AT&  T,  and  we  thus  find  that  AT&  T  has  the  requisite  qualifications.  Conversely,  section  310(  d)  requires  the  Commission  to 
 consider  whether  SBC,  the  proposed  transferee,  is  qualified  to  hold  a  Commission  license.  484 
 172.  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.  485  With  respect  to  Commission-  related  conduct,  the  Commission  has  stated  that  it 
 would  treat  any  violation  of  any  provision  of  the  Act,  or  of  the  Commissions  rules,  as  predictive  of  an  applicants  future  truthfulness  and  reliability  and,  thus,  as  having  a  bearing  on  an  applicants  character 
 qualifications.  486  In  prior  merger  orders,  the  Commission  has  used  the  Commissions  character  policy  in  the  broadcast  area  as  guidance  in  resolving  similar  questions  in  transfer  of  licenses  proceedings.  487 


 480  See,  e.  g.,  47  U.  S.  C.    151,  201,  202,  203,  204,  205,  208,  214. 
 481  47  U.  S.  C.    310(  d). 
 482  SBC/  SNET  Order,  13  FCC  Rcd  at  21305,  para.  26. 
 483  See  47  U.  S.  C.    310(  d);  47  C.  F.  R.    1.948,  25.119. 
 484  See  SBC/  BellSouth  Order,  15  FCC  Rcd  at  25465,  para.  14. 
 485  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20092-  93,  para.  236. 
 486  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 


 Qualifications  Modification);  MCI  Telecommunications  Corp.,  Order  and  Notice  of  Apparent  Liability,  3  FCC  Rcd  509  (1988)  (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  Commissions  public  interest  analysis.  SBC/  SNET  Order, 
 13  FCC  Rcd  at  21306-  07,  paras.  28-  30. 
 487  See,  e.  g.,  SBC/  SNET  Order,  13  FCC  Rcd  at  21305,  para.  26;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20092- 
 93,  para.  236;  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21548-  51,  paras.  47-  56;  Sprint/  Nextel  Order,  FCC  05-  148  at  paras.  24-  25. 
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 173.  We  disagree  with  commenters  that  we  should  reevaluate  concerns  regarding  SBCs  character  qualifications  that  already  were  addressed  and  rejected  in  the  Cingular/  AT&  T  Wireless  Order.  488  We 
 likewise  disagree  with  commenters  who  question  SBCs  character  qualifications  by  pointing  to  the  fact  that  SBC  has  entered  into  consent  decrees  with  the  Commission  as  a  result  of  its  past  record  of  non-compliance 
 with  merger  conditions  and  other  rules  intended  to  prevent  anticompetitive  behavior.  489  The  Commission  has  previously  stated  that  consent  decrees  that  are  voluntarily  entered  into  do  not  call  into 
 question  a  carriers  authority  to  hold  Commission  licenses  and  authorizations.  490 
 174.  We  likewise  reject  the  claims  of  commenters  expressing  concerns  about  SBCs  character  qualifications  based  on  its  exercise  of  its  legal  rights,  such  as  petitioning  courts  and  regulatory  bodies.  491 
 As  the  Commission  previously  has  concluded,  an  applicants  lawful  exercise  of  its  rights  does  not  raise  character  concerns,  even  if  the  activity  arguably  has  the  effect  of  delaying  and  minimizing  the 
 emergence  of  competition.  492 
 175.  We  also  do  not  agree  with  commenters  alleged  character  concerns  based  upon  specific,  unresolved  disputes  with  the  Applicants.  493  Some  of  the  alleged  violations  of  the  Act  or  Commission 


 488  See,  e.  g.,  Cbeyond  et  al.  Comments  at  10-  19;  Cox  Comments  at  7-  8;  and  CompTel/  ALTS  Petition  at  50-  59,  61-69; 
 EarthLink  White  Paper,  Apps.  B1-  B6. 
 489  See  CompTel/  ALTS  Petition  at  65-  66  (raising  new  character  concerns  based  on  consent  decrees  that  were  not 
 previously  addressed  in  the  Cingular/  AT&  T  Wireless  Order). 
 490  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21550,  paras.  53-  54.  Furthermore,  we  disagree  with 
 CompTel/  ALTS  that  we  should  consider  the  conduct  leading  up  to  a  consent  decree  in  determining  an  applicants  fitness  to  hold  a  Commission  license.  CompTel/  ALTS  Petition  at  68-  69.  As  we  have  stated  before,  the 


 Commission  does  not  consider  matters  resolved  in  consent  decrees  adjudicated  misconduct  for  the  purposes  of  assessing  an  applicants  character  qualifications.  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21550,  para. 
 53  (citing  1986  Character  Qualifications  Policy  Statement,  102  FCC  2d  at  1205). 
 491  See,  e.  g.,  ACN  et  al.  Comments  at  36  n.  93  (petitioning  state  legislatures);  Cox  Comments  at  7-  8  (re-  arbitrating 
 issues  before  the  California  commission). 
 492  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14950,  para.  571. 


 493  See,  e.  g.,  ACN  et  al.  Comments  at  74-  75  (citing  SBCs  failure  to  negotiate  section  271  access  pursuant  to  the 
 section  252  process);  Broadwing  and  SAVVIS  Petition  at  32-  33  (citing  section  272  audit  reports  identifying  minor  differences  in  treatment);  CompTel/  ALTS  Petition  at  50-  59  (citing  SBCs  pricing  of  section  271  switching);  Global 


 Crossing  Comments  at  22  n.  55  (citing  SBCs  filing  a  voluntary  TIPTop  tariff  for  IP-  enabled  service  providers);  Telscape  Comments  at  6,  12  (citing  SBCs  offering  temporary  promotional  pricing  for  winback  purposes  and  its 
 implementation  of  the  Triennial  Review  Remand  Order);  Wisconsin  Local  Government  Telecommunications  Coalition  Comments  at  1-  2  (stating  that  SBC  has  overcharged,  misbilled,  and  used  questionable  business  tactics  in 
 dealing  with  Wisconsin  local  government  customers);  Letter  from  Joshua  H.  Seidemann,  Counsel  for  the  Rural  Alliance,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  5-  6  (filed  Sept.  22, 
 2005)  (asserting  that  the  Applicants  will  have  advantages  if  a  bill-  and-  keep  system  is  adopted  for  intercarrier  compensation);  Letter  from  John  M.  Ryan,  Assistant  General  Counsel/  Senior  Vice  President,  Level  3,  to  Marlene  H. 
 Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  1  (filed  Apr.  26,  2005)  (seeking  clarification  of  intercarrier  compensation  rules  applicable  to  VoIP  services);  Letter  from  Patrick  J.  Donovan,  Counsel  for  Neutral  Tandem,  to 
 Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  1-  3  (filed  Oct.  14,  2005)  (expressing  concern  that,  post-  merger,  AT&  T  might  terminate  its  direct  connections  with  Neutral  Tandem,  based  on  the  decision  of  a 
 current  SBC  affiliate  not  to  directly  connect  with  Neutral  Tandem);  see  also  Telecom  Consultants  Coalition  (AT&  T  reporting  of  its  enterprise  contract  prices,  terms,  and  conditions). 
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 rules  involve  legal  interpretations  that  would  apply  to  numerous  companies  in  the  industry.  The  Commission  has  previously  declined  to  address  in  merger  proceedings  matters  for  which  the  public 
 interest  would  be  better  served  by  addressing  the  matter  in  the  broader  proceeding  of  general  applicability.  494  Moreover,  we  also  note  that  many  allegations  concerning  the  Applicants  conduct  have 
 been  specifically  rebutted  by  evidence  proffered  by  the  Applicants.  495  We  conclude  that  none  of  the  foregoing  allegations  provides  a  basis  for  finding  that  SBC  lacks  the  fitness  to  acquire  licenses  and 
 authorizations  currently  held  by  AT&  T. 
 176.  We  also  do  not  believe  that  other,  isolated  adjudicated  decisions  against  SBC  are  indicative  of  character  concerns.  We  thus  disagree  that  character  concerns  are  raised  by  the  California  commissions 
 determination  that  SBCs  operations  support  system  (OSS)  did  not  meet  applicable  legal  requirements  or  the  section  271  violation  by  Ameritech.  496  Faced  with  claims  by  Telscape  that  viewed  as  a  whole,  the 
 OSS  structure  and  the  way  SBC-  CA  employs  it  create  anticompetitive  barriers,  the  California  commission  found  that  while  aspects  of  SBC  CAs  OSS  implementation  are  not  in  compliance  with  SBC 
 CAs  legal  obligations,  the  record  did  not  show  that  the  problems  are  .  .  .  pervasive  or  intractable,  and  thus  the  California  commission  required  only  modest  remedies.  497  Given  these  conclusions,  we  do  not 
 believe  that  this  decision  demonstrates  that  SBC  is  unfit  to  acquire  AT&  Ts  licenses.  While  a  concern  is  raised  by  the  section  271  violation,  in  which  Ameritech  partnered  with  interexchange  carriers  to  offer  a 
 combined  local  and  long  distance  service  prior  to  receiving  section  271  authority,  498  we  do  not  find  that  this  past  violation,  standing  alone,  renders  SBC  unqualified  to  acquire  AT&  Ts  licenses  or  raises  a 
 substantial  and  material  question  of  fact  warranting  further  inquiry. 


 494  See  SBC/  Ameritech  Order,  14  FCC  Rcd  14950,  para.  571;  see  also  SBC/  SNET  Order,  13  FCC  Rcd  at  21306, 
 para.  29. 
 495  See,  e.  g.,  SBC/  AT&  T  Reply  at  182-  83  (unredacted)  (noting  that  differences  in  treatment  identified  in  a  prior 
 SBC  section  272  audit  could  be  attributable  to  a  low  number  of  observations,  and  that  the  more  recent  section  272  audit  found  no  concerns  that  would  warrant  enforcement  actions);  id.  at  189  (noting  that  the  concerns  about  SBCs 


 TIPTop  tariff  cited  by  Global  Crossing  were  based  on  the  erroneous  assumption  that  the  tariffed  offering  was  mandatory,  rather  than  optional  for  IP-  enabled  service  providers);  id.  at  190-  91  (noting  that  the  California  Public 
 Utility  Commission  recently  rejected  claims  by  Telscape  that  SBCs  winback  promotional  prices  were  predatory). 
 496  Telscape  Comments  at  11  (citing  the  California  OSS  decision,  Telscape  Communications,  Inc.  v.  Pac.  Bell  Tel. 
 Co.,  Case  No.  02-  11.011,  Decision  No.  04-  12-  053,  slip  op.  (Cal.  P.  U.  C.  Dec.  16,  2004)  (Telscape  v.  Pac.  Bell));  CompTel/  ALTS  Petition  at  64  (citing  the  Ameritech  section  271  violation,  In  re  MCI  Telecomms.  Corp.  v.  Ill.  Bell 


 Tel.  Co.,  Memorandum  Opinion  and  Order,  15  FCC  Rcd  23184  (2000)).  We  note  that  Global  Crossing  also  expresses  concerns  about  SBCs  line  splitting  performance  in  Michigan,  based  on  an  article  in  Communications 
 Daily  noting  allegations  raised  in  the  section  271  proceeding.  Global  Crossing  Comments  at  22  n.  55.  As  SBC  notes,  the  Commission  subsequently  rejected  the  competitive  LECs  complaints,  and  granted  section  271  approval 
 for  Michigan.  SBC/  AT&  T  Reply  at  189-  90.  Given  the  Commissions  rejection  of  the  claims  underlying  the  article  cited  by  Global  Crossing,  we  do  not  believe  that  it  gives  rise  to  character  concerns. 


 497  Telscape  v.  Pac.  Bell  at  28. 
 498  SBC/  AT&  T  Reply  at  184-  85. 
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 I.  Other  Issues 
 177.  We  disagree  with  commenters  that  the  loss  of  AT&  T  as  an  advocate  for  competitive  LEC  viewpoints  in  state  and  federal  regulatory  proceedings  justifies  our  designating  this  merger  for  hearing.  499 
 As  the  Applicants  point  out,  there  will  continue  to  be  numerous  competing  carriers,  trade  associations,  and  other  interested  parties  that  remain  free  to  express  their  positions  in  regulatory  proceedings.  500 
 Indeed,  we  note  that  dozens  of  commenters  participated  in  the  present  proceeding,  representing  a  variety  of  viewpoints.  501  Thus,  we  do  not  find  that  the  loss  of  AT&  T  as  an  advocate  of  competitive  LEC  interests 
 will  unduly  weaken  the  ability  of  competitors  to  participate  and  express  their  views  in  Commission  and  state  proceedings. 


 178.  Commenters  similarly  express  concern  about  the  loss  of  AT&  T  and  SBC  as  carriers  with  significant  leverage  in  negotiations  for  interconnection  or  for  inputs  used  in  retail  services,  which  form 
 the  basis  for  agreements  with  smaller  carriers.  502  With  respect  to  interconnection  arrangements,  carriers  are  free  to  opt-  in  to  interconnection  agreements  of  other  carriers,  or  to  negotiate  their  own  interconnection 
 agreements  subject  to  the  right  of  arbitration  as  provided  for  by  the  Act.  503  To  the  extent  that  commenters  deem  these  procedures  inadequate  as  a  general  matter,  that  is  not  appropriately  addressed  in  the  context  of 
 this  merger  review.  With  respect  to  wholesale  inputs,  we  anticipate  there  continuing  to  be  multiple  purchasers  and  sellers,  and  reject  the  speculative  concerns  that  small  carriers  will  be  increasingly 
 disadvantaged  as  a  result  of  the  merger. 
 179.  We  reject  NASUCAs  claim  that  the  Applicants  should  not  only  be  required  to  comply  with  applicable  section  272  requirements,  but  also  that  additional  accounting,  non-  accounting,  and  auditing 
 safeguards  should  be  reinstated  or  imposed.  504  The  Applicants  state  that  AT&  T  will  become  a  subsidiary  of  SBC,  organized  as  a  section  272  affiliate  throughout  SBCs  region.  505  Thus,  the  merger  does  not 


 499  See,  e.  g.,  CompTel/  ALTS  Petition  at  41-  47;  NASUCA  Comments  at  16-  17;  New  Jersey  Ratepayer  Advocate 
 Comments  at  23-  34;  Texas  O.  P.  U.  C.  Comments  at  6;  Global  Crossing  Comments  at  22-  23,  25;  United  States  Cellular  Comments  at  2.  In  particular,  Global  Crossing  suggests  that  the  Commission  consider  adopting  a 


 baseball-  style,  alternative  dispute  resolution  process  in  this  proceeding  because  the  proposed  merger  will  diminish  the  diversity  of  voices  in  the  telecommunications  public  policy  arena  and  dramatically  widen  the  resource  gap 
 between  SBC  and  its  competitors.  Global  Crossing  Comments  at  25.  To  the  extent  that  the  resources  required  for  Global  Crossing  to  pursue  a  section  208  complaint  against  SBC  outweigh  the  possible  benefits  in  particular 
 instances,  this  is  not  a  merger-  specific  concern  to  be  addressed  in  this  proceeding.  Moreover,  as  the  Applicants  note,  it  is  not  clear  that  Global  Crossings  proposed  alternative  to  the  section  208  complaint  process  necessarily 
 would  be  superior.  SBC/  AT&  T  Reply  at  165-  66. 
 500  SBC/  AT&  T  Reply  at  160-  63. 


 501  See  Appendix  A. 
 502  See,  e.  g.,  Cox  Comments  at  3-  4  (interconnection  agreements);  Independent  Alliance  Comments  at  4  (wholesale 
 inputs);  Letter  from  Genevieve  Morelli,  Counsel  for  the  California  Association  of  Competitive  Telecommunications  Companies,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  4-  5  (filed  May  16, 


 2005)  (asserting  that  the  SBC/  AT&  T  and  Verizon/  MCI  mergers,  in  conjunction,  will  shift  the  balance  between  incumbent  LECs  and  the  competitive  industry). 


 503  47  U.  S.  C.    251,  252. 
 504  NASUCA  Comments,  Attach.  at  49-  51. 
 505  SBC/  AT&  T  Reply  at  166. 
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 appear  to  raise  concerns  about  compliance  with  SBCs  applicable  section  272  obligations.  506  With  respect  to  the  additional  safeguards,  NASUCA  cites  concerns  about  special  access  discrimination  as  the 
 underlying  theory  of  harm  to  support  such  obligations.  We  discussed  above  other  commenters  concerns  about  special  access  discrimination,  507  and  we  likewise  decline  to  impose  NASUCAs  proposed 
 requirements  in  this  proceeding.  508 
 180.  The  State  of  Alaska  expressed  concern  that  certain  federal  and  state  obligations  imposed  on  AT&  T  Alascom  should  continue  post-  merger.  509  In  response,  the  Applicants  made  the  following 
 commitments.  First,  they  acknowledged  that  the  merger  does  not  change  the  carrier  of  last  resort  obligations  imposed  by  the  State  of  Alaska  on  interexchange  services  provided  by  Alascom.  Second,  they 
 acknowledged  that  the  merger  will  not  alter  the  statutory  and  regulatory  geographic  rate  averaging  and  rate  integration  rules  that  apply  to  Alascom.  Finally,  they  committed  to  operate  Alascom  as  a  distinct, 
 though  not  structurally  separate,  corporate  entity  for  a  period  of  at  least  two  years.  510  Because  we  find  these  commitments  will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  conditions  of  our 
 approval  of  the  merger. 
 181.  Finally,  we  reject  the  claims  of  APCC  that  the  merger  will  harm  competitively-  owned  payphone  service  providers  (PSPs)  through  either  discrimination  against  competitive  PSPs  or  actions  that  will 
 negatively  affect  payments  to  all  payphone  owners.  511  We  find  these  concerns  speculative,  and  in  any  event  we  agree  with  the  Applicants  that  concerns  expressed  by  APCC  are  adequately  addressed  by 
 existing  law.  512  Competitive  payphone  owners  that  believe  the  merged  company  has  violated  these  rules 


 506  We  note  that  we  rejected  above  the  competitive  concerns  that  formed  the  basis  for  NASUCAs  request  for  the  re-imposition 
 of  section  271  or  272  requirements  no  longer  applicable  to  SBC.  See  supra  Part  V.  D  (Mass  Market  Competition). 


 507  See  infra  Part  V.  B.  2.  b  (Wholesale  Special  Access  Competition    Vertical  Issues). 
 508  See  NASUCA  Comments  at  49  (expressing  concern  about  possible  special  access  discrimination  against  retail 
 competitors). 
 509  Alaska  Comments  at  2-  3.  For  example,  these  obligations  include  certain  state  carrier  of  last  resort  obligations  for 
 interexchange  offerings  and  federal  geographic  rate  averaging  and  rate  integration  requirements  pursuant  to  section  254(  g)  of  the  Act.  SBC/  AT&  T  Reply  at  151. 


 510  See  SBC  Oct.  31  Ex  Parte  Letter,  Attach.  at  4;  see  also  Appendix  F. 
 511  See  generally  APCC  Petition,  Attach.  A  competitively-  owned  payphone  is  one  that  is  not  owned  by  a  LEC. 
 512  See,  e.  g.,  47  C.  F.  R.    64.1300  et  seq.;  Implementation  of  the  Pay  Telephone  Reclassification  and  Compensation 
 Provisions  of  the  Telecommunications  Act  of  1996,  CC  Docket  No.  96-  128,  Report  and  Order,  18  FCC  Rcd  19975  (2003);  Implementation  of  the  Pay  Telephone  Reclassification  and  Compensation  Provisions  of  the 


 Telecommunications  Act  of  1996,  CC  Docket  No.  96-  128,  Order  on  Reconsideration,  19  FCC  Rcd  21457  (2004);  see  also  47  U.  S.  C.    276(  2)  (stating  that  a  BOC  such  as  SBC  (  1)  shall  not  subsidize  its  payphone  service  directly 
 or  indirectly  from  its  telephone  exchange  service  operations  or  its  exchange  access  operations;  and  (2)  shall  not  prefer  or  discriminate  in  favor  of  its  payphone  service).  We  also  are  not  persuaded  by  APCC  that  the  merged 
 entity  could  use  completed  dial-  around  call  volume  information  to  provide  an  unwarranted  competitive  advantage  to  SBCs  payphone  affiliates.  We  note  that  to  the  extent  that  the  information  of  concern  to  APCC  constitutes 
 carrier  proprietary  information  within  the  meaning  of  section  222(  b),  or  to  the  extent  that  SBCs  conduct  would  have  the  effect  of  prefer[  ring]  its  payphone  service  within  the  meaning  of  section  276(  a)(  2),  the  Act  already 
 prohibits  the  behavior  about  which  APCC  is  concerned.  See  47  U.  S.  C.    222(  b),  276(  a)(  2).  Moreover,  we  conclude  that  the  likelihood  of  harm  expressed  by  APCC  is  remote.  For  example,  APCC  has  not  demonstrated  a 
 (continued.) 
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 or  statutory  requirements  can  avail  themselves  of  the  Commissions  complaint  process.  Regarding  APCCs  concern  that  the  combined  company  may  fail  to  pay  dial-  around  compensation  on  calls  that  are 
 routed  at  least  partially  in  IP  networks,  we  note  that  this  issue  is  the  subject  of  an  ongoing  proceeding,  and  is  properly  dealt  with  there.  513 


 VI.  POTENTIAL  PUBLIC  INTEREST  BENEFITS 
 A.  Introduction 
 182.  In  addition  to  assessing  the  potential  competitive  harms  of  the  proposed  transaction,  we  also  consider  whether  the  combination  of  these  companies  operations  is  likely  to  generate  verifiable,  merger-specific 
 public  interest  benefits.  514  In  doing  so,  we  ask  whether  the  combined  entity  will  be  able,  and  is  likely,  to  pursue  business  strategies  resulting  in  demonstrable  and  verifiable  benefits  that  could  not  be 
 pursued  but  for  the  combination.  As  discussed  below,  we  find  that  the  proposed  transaction  is  likely  to  generate  several  significant  merger-  specific  public  interest  benefits,  although  it  is  difficult  to  quantify 
 precisely  the  magnitude  of  some  of  these  benefits. 
 B.  Analytical  Framework 
 183.  The  Commission  has  recognized  that  [  e]  fficiencies  generated  through  a  merger  can  mitigate  competitive  harms  if  such  efficiencies  enhance  the  merged  firms  ability  and  incentive  to  compete  and 
 therefore  result  in  lower  prices,  improved  quality,  enhanced  service  or  new  products.  515  Under  Commission  precedent,  the  Applicants  bear  the  burden  of  demonstrating  that  the  potential  public  interest 
 benefits  of  the  proposed  transfer  outweigh  the  potential  public  interest  harms.  516 
 184.  There  are  several  criteria  the  Commission  applies  in  deciding  whether  a  claimed  benefit  is  cognizable.  First,  the  claimed  benefit  must  be  transaction-  or  merger-  specific.  This  means  that  the 
 claimed  benefit  must  be  likely  to  be  accomplished  as  a  result  of  the  merger  but  unlikely  to  be  realized  by  other  means  that  entail  fewer  anticompetitive  effects.  517  Second,  the  claimed  benefit  must  be  verifiable. 


 (Continued  from  previous  page)  factual  basis  for  its  concern  that  the  merged  company  would  have  the  specific  location  information  necessary  to  take 
 action  with  respect  to  the  call  volume  information. 
 513  See  Pleading  Cycle  Established  for  Comments  on  American  Public  Communications  Councils  Petition  For 
 Declaratory  Ruling  and  Rulemaking  Regarding  IP-  Enabled  Dial-  Around  Calls  From  Payphones,  Docket  No.  05-  176,  Public  Notice,  DA  05-  1106  (rel.  Apr.  21,  2005). 


 514  Bell  Atlantic  /GTE  Order,  15  FCC  Rcd  at  14130,  para.  209;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para. 
 255;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18134-  35,  para.  194. 
 515  See  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  188;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20063,  para.  158;  see  also  DOJ/  FTC  Guidelines    4. 
 516  See  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  188;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825, 
 para.  256;  see  also  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20063,  para.  157. 
 517  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  189;  see  also  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20063-  64,  para.  158  (  Pro-  competitive  efficiencies  include  only  those  efficiencies  that  are  merger-  specific,  i.  e.,  that  would  not  be  achievable  but  for  the  proposed  merger.  Efficiencies  that  can  be  achieved  through  means  less  harmful 


 to  competition  than  the  proposed  merger  .  .  .  cannot  be  considered  to  be  true  pro-  competitive  benefits  of  the  merger.)  (footnote  omitted);  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para.  255  (  Public  interest  benefits  also 
 include  any  cost  saving  efficiencies  arising  from  the  merger  if  such  efficiencies  are  achievable  only  as  a  result  of  the  (continued.) 
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 Because  much  of  the  information  relating  to  the  potential  benefits  of  a  merger  is  in  the  sole  possession  of  the  Applicants,  they  are  required  to  provide  sufficient  evidence  supporting  each  benefit  claim  so  that  the 
 Commission  can  verify  the  likelihood  and  magnitude  of  the  claimed  benefit.  518  In  addition,  as  the  Commission  has  noted,  the  magnitude  of  benefits  must  be  calculated  net  of  the  cost  of  achieving 
 them.  519  Furthermore,  speculative  benefits  that  cannot  be  verified  will  be  discounted  or  dismissed.  Thus,  as  the  Commission  explained  in  the  EchoStar/  DirecTV  Order,  benefits  that  are  to  occur  only  in  the 
 distant  future  may  be  discounted  or  dismissed  because,  among  other  things,  predictions  about  the  more  distant  future  are  inherently  more  speculative  than  predictions  about  events  that  are  expected  to  occur 
 closer  to  the  present.  520  Third,  the  Commission  has  stated  that  it  will  more  likely  find  marginal  cost  reductions  to  be  cognizable  than  reductions  in  fixed  cost.  521  The  Commission  has  justified  this  criterion 
 on  the  ground  that,  in  general,  reductions  in  marginal  cost  are  more  likely  to  result  in  lower  prices  for  consumers.  522 


 185.  Finally,  the  Commission  applies  a  sliding  scale  approach  to  evaluating  benefit  claims.  Under  this  sliding  scale  approach,  where  potential  harms  appear  both  substantial  and  likely,  the  Applicants 
 demonstration  of  claimed  benefits  also  must  reveal  a  higher  degree  of  magnitude  and  likelihood  than  we  would  otherwise  demand.  523  On  the  other  hand,  where  potential  harms  appear  less  likely  and  less 
 substantial,  as  in  this  case,  we  will  accept  a  lesser  showing  to  approve  the  merger. 
 C.  Enhancements  to  National  Security  and  Government  Services 
 186.  We  take  considerations  of  national  security  extremely  seriously,  and  we  find  that  the  merger  has  the  potential  to  generate  benefits  arising  from  more  efficient  routing.  Additionally,  we  believe  that  the 


 (Continued  from  previous  page)  merger.  .  .);  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23313,  para.  173  (Commission  considers  whether  benefits  are 
 merger-  specific);  cf.  DOJ/  FTC  Guidelines    4. 
 518  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  190;  see  also  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20063,  para.  157  (  These  pro-  competitive  benefits  include  any  efficiencies  arising  from  the  transaction  if  such  efficiencies  .  .  .  are  sufficiently  likely  and  verifiable  .  .  .  .);  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23313,  para.  173 


 (Commission  considers  whether  benefits  are  verifiable);  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para.  255;  DOJ/  FTC  Guidelines    4  ([  T]  he  merging  firms  must  substantiate  efficiency  claims  so  that  the  Agency  can  verify 
 by  reasonable  means  the  likelihood  and  magnitude  of  each  asserted  efficiency,  how  and  when  each  would  be  achieved  (and  any  costs  of  doing  so),  [and]  how  each  would  enhance  the  merged  firms  ability  to  compete.  .  .  .). 


 519  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  190. 
 520  Id. 
 521  Id.  at  20631,  para.  191;  see  also  DOJ/  FTC  Guidelines    4. 
 522  See  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20631,  para.  191;  see  also  DOJ/  FTC  Guidelines    4. 
 523  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20631,  para.  192  (quoting  SBC/  Ameritech  Order,  14  FCC  Rcd  at 
 14825);  cf.  DOJ/  FTC  Guidelines    4  (  The  greater  the  potential  adverse  competitive  effect  of  a  merger  .  .  .  the  greater  must  be  cognizable  efficiencies  in  order  for  the  Agency  to  conclude  that  the  merger  will  not  have  an 


 anticompetitive  effect  in  the  relevant  market.  When  the  potential  adverse  competitive  effect  of  a  merger  is  likely  to  be  particularly  large,  extraordinarily  great  cognizable  efficiencies  would  be  necessary  to  prevent  the  merger  from 
 being  anticompetitive.). 
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 combined,  nonoverlapping,  IP  networks  can  provide  the  government  with  additional  security  and  routing  efficiency  for  vital  and  sensitive  government  communications.  524 
 187.  We  agree  with  the  Applicants  that  the  merger  will  enhance  service  to  U.  S.  government  customers  and  strengthen  U.  S.  national  security.  Both  SBC  and  AT&  T  provide  substantial 
 telecommunications  and  technology  services  to  federal  and  state  government  agencies  involved  in  national  security.  We  find  that  the  merger  will  create  a  stable,  reliable,  U.  S.-  owned  company  that  will 
 provide  improved  service  to  government  customers.  525  The  Applicants  contend,  and  we  agree,  that  the  merger  will  strengthen  SBC  by  transforming  it  into  a  strong,  full-  service,  facilities-  based  provider  capable 
 of  delivering  integrated  end-  to-  end  services  to  the  government  on  a  national  or  international  basis.  526  Moreover,  we  find  that  the  merger  will  help  SBC  improve  communications  security  and  network 
 efficiency,  which  in  turn  should  benefit  national  defense  and  homeland  security.  527 
 188.  We  reject  commenters  arguments  that  the  merger  will  not  benefit  national  security  or  government  customers.  ACN  et  al.  argue  that  we  should  discount  the  benefits  of  a  unified  network 
 because  the  merger  will  bring  end-  to-  end  service  to  only  a  portion  of  the  United  States.  528  Cbeyond  et  al.  assert  that  AT&  T  is  capable  of  conducting  its  government  services  business  without  the  help  of  SBC,  and 
 that  the  merger  will  not  result  in  any  change  in  the  quality  of  service  provided  to  the  government.  529  Cbeyond  et  al.  further  argue  that  the  merger  will  result  in  SBCs  taking  over  AT&  Ts  government 
 contracts,  which  would  undermine  national  security  by  overriding  the  government  selection  process.  530  While  we  acknowledge  that  SBCs  claimed  benefits  relating  to  end-  to-  end  services  are  largely  limited  to 
 SBC  service  territories,  we  nevertheless  expect  that  benefits  will  result.  Moreover,  as  discussed  below,  we  find  significant  efficiencies  arising  from  vertical  integration,  which  are  likely  to  improve  the  quality  of 
 services  that  SBC  provides  to  government  customers.  531 
 189.  We  also  note  the  Applicants  commitments  532  in  the  IP-  Enabled  Services  proceeding  to  meet  the  Commissions  recently-  adopted  E911  obligations  for  interconnected  VoIP  services.  533  Those 


 524  Because  we  find  that  the  networks  of  SBC  and  AT&  T  largely  are  non-  overlapping,  see,  e.  g.,  SBC/  AT&  T  Reply 
 at  12  n.  42  (pointing  out  that  the  Applicants  networks  have  very  limited  overlap  on  the  East  Coast  and  especially  the  greater  Washington,  D.  C.  area  (where  security  needs  are  particularly  concentrated),  and  virtually  no  overlap  in 


 global  network  capabilities  used  by  many  of  AT&  Ts  national  security  customers),  we  reject  commenters  concerns  that  the  merger  could  reduce  network  redundancy.  See,  e.  g.,  CompTel/  ALTS  Petition  at  60;  EarthLink 
 White  Paper  at  29. 
 525  SBC/  AT&  T  Application  at  19. 


 526  Id.  at  19-  20. 
 527  SBC/  AT&  T  Reply  at  11-  12. 
 528  See,  e.  g.,  ACN  et  al.  Comments  at  66-  68. 
 529  Cbeyond  et  al.  Petition  at  63-  65. 
 530  Id.  at  64-  65. 
 531  See  infra  paras.  190-  83. 
 532  See  Letter  from  James  C.  Smith,  Senior  Vice  President,  SBC,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket 
 Nos.  04-  36,  05-  196  (filed  Oct.  17,  2005);  Letter  from  Robert  W.  Quinn,  Jr.,  Vice  President  -  Federal  Government  Affairs,  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  04-  36,  05-  196  (filed  Oct.  7,  2005). 
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 requirements  extend  our  longstanding  and  continuing  commitment  to  a  nationwide  communications  system  that  promotes  the  safety  and  welfare  of  all  Americans  by  serving  to  promote  cooperative  efforts 
 by  state  and  local  governments,  public  safety  answering  point  (PSAP)  administrators,  911  systems  service  providers,  and  interconnected  VoIP  providers  that  will  lead  to  improved  emergency  services.  534  The 
 Applicants  actions  thus  help  ensure  the  timely  deployment  of  E911  services  for  interconnected  VoIP  in  order  to  advance  the  safety  and  welfare  of  the  public. 


 D.  Efficiencies  Related  to  Vertical  Integration 
 190.  As  the  Commission  has  previously  recognized,  vertical  transactions  may  generate  significant  efficiencies.  535  For  example,  vertical  integration  may  produce  a  more  efficient  organizational  form,  which 
 can  reduce  transaction  costs,  limit  free-  riding  by  internalizing  incentives,  and  take  advantage  of  technological  economies.  536  Vertical  integration  also  may  reduce  prices  in  the  downstream  market 
 because  the  integrated  firm,  in  determining  the  costs  of  producing  the  downstream  product  and  consequently  the  final  price  charged  to  consumers,  may  consider  the  real  economic  cost  of  the  input 
 rather  than  the  higher  price  (including  the  upstream  profit  margin)  previously  charged  by  the  unintegrated  upstream  firm.  This  is  referred  to  as  the  elimination  of  double  marginalization.  537 


 191.  We  find  that  significant  benefits  are  likely  to  result  from  the  vertical  integration  of  the  largely  complementary  networks  and  facilities  of  SBC  and  AT&  T.  The  Applicants  assert  that  their  networks  are 
 complementary,  with  SBC  providing  an  extensive  network  with  substantial  local  fiber,  Cingular  having  an  advanced  and  extensive  wireless  network,  and  AT&  T  providing  a  global  fiber  optic  long  distance 
 network  and  global  data  capabilities.  They  claim  that  the  combined  company  will  be  able  to  offer  services  over  a  centrally  managed  network  and  provide  customers  with  end-  to-  end  communications  and 
 comprehensive  network  management  as  well.  538  The  Applicants  maintain  that  the  combination  of  their  services  will  benefit  large  enterprise  and  wholesale  customers  by  enhancing  the  merged  entitys  ability  to 


 (Continued  from  previous  page)  533  See  generally  IP-  Enabled  Services;  E911  Requirements  for  IP-  Enabled  Service  Providers,  WC  Docket  Nos.  04- 
 36,  05-  196,  First  Report  and  Order  and  Notice  of  Proposed  Rulemaking,  20  FCC  Rcd  10245  (2005)  (VoIP  911  Order). 


 534  Id.  at  10248,  para.  5. 
 535  News  Corp./  Hughes  Order,  19  FCC  Rcd  at  507-  08,  para.  70. 
 536  Id. 
 537  Id.  Double  marginalization  occurs  when  an  upstream  firm  sells  an  input  to  a  downstream  firm  at  a  price  that 
 exceeds  marginal  cost,  and  the  downstream  firm  then  sells  its  product  in  the  downstream  market  at  a  price  that  exceeds  its  marginal  cost.  The  margin  charged  by  the  upstream  firm  increases  the  marginal  cost  of  the  downstream 


 firm,  which  results  in  a  higher  end-  user  price  than  would  occur  if  the  input  had  been  priced  at  marginal  cost.  Vertical  integration  in  theory  reduces  the  problem  of  double  marginalization  because  the  integrated  firm,  in 
 determining  the  uniform  price  at  which  it  will  sell  the  downstream  product,  will  consider  the  real  economic  cost  of  producing  the  input.  Because  vertical  integration  effectively  reduces  the  marginal  cost  of  the  input,  it  is  likely  to 
 result  in  the  integrated  firms  setting  a  lower  price  for  the  downstream  products,  which  will  benefit  consumers.  The  extent  of  this  benefit,  however,  will  depend  crucially  on  the  elasticity  of  demand  for  the  downstream  product.  The 
 less  elastic  is  the  demand,  the  greater  is  the  benefit.  JEAN  TIROLE,  THE  THEORY  OF  INDUSTRIAL  ORGANIZATION  239  (1988)  at  174-  75;  Michael  H.  Riordan  and  Steven  Salop,  Evaluating  Vertical  Mergers:  A  Post-  Chicago  Approach, 
 63  ANTITRUST  L.  J.,  513,  523-  36  (1995). 
 538  SBC/  AT&  T  Application  at  15-  16;  SBC/  AT&  T  Reply  at  6-  7. 
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 make  available  the  broad  range  of  communications  services  and  global  reach  that  those  customers  demand.  539  We  find  that  the  merger  will  permit  the  integration  of  the  complementary  networks  and  assets 
 of  SBC  and  AT&  T,  giving  each  carrier  facilities  it  previously  lacked.  We  further  find  that  this  network  integration  will  permit  the  merged  entity  to  offer  a  wider  range  of  services  to  its  broad  range  of 
 customers.  Moreover,  customers  will  benefit  not  only  from  new  services,  but  also  from  the  improvements  in  performance  and  reliability  resulting  from  the  network  integration. 


 192.  We  reject  Cbeyond  et  al.  s  assertion  that  SBC  would  not  add  to  AT&  Ts  global  competitiveness,  and  that  a  unified  network  would  offer  no  new  public  interest  benefit.  540  We  find  that  the  combined 
 company  will  be  able  to  provide  network  management  services  more  efficiently  to  large  enterprise  and  wholesale  customers,  and  customers  will  value  the  merged  entitys  ability  to  provide  one-  stop  shopping. 


 E.  Economies  of  Scope  and  Scale 
 193.  We  find  that  the  merger  of  SBC  and  AT&  T  is  likely  to  give  rise  to  significant  economies  of  scope  and  scale,  as  well,  although  these  are  difficult  to  quantify.  While  SBC  and  AT&  T  compete  in  many 
 of  the  same  markets,  the  focus  and  success  of  their  efforts  has  often  come  in  different  segments  of  these  markets.  541  The  merger  thus  not  only  gives  the  combined  company  a  larger  total  customer  base,  but  also 
 significant  shares  of  customers  across  a  wider  range  of  communications  markets  than  either  carrier  had  before  the  merger.  The  Commission  has  recognized  in  the  past  that,  when  a  transaction  enables  the 
 parties  to  combine  their  R&  D  efforts  and  to  spread  the  cost  of  those  R&  D  efforts  over  a  more  extensive  customer  base,  this  could  result  in  new  products  and  services  that  would  not  have  been  introduced  absent 
 the  proposed  transaction.  542  Likewise,  the  Commission  has  found  that,  if  the  merged  entity  can  secure  larger  volume  discounts  from  suppliers,  and  then  pass  those  lower  costs  through  to  consumers  in  the  form 
 of  lower  end-  user  prices,  this  likewise  would  constitute  a  public  interest  benefit  that  should  be  considered  in  balancing  the  potential  harms  and  benefits  of  the  proposed  transaction.  543 


 194.  In  this  regard,  the  Applicants  stress  that  SBC  has  a  larger  base  of  mass  market  customers,  while  AT&  T  has  a  larger  base  of  large  enterprise  customers.  Similarly,  SBC  has  been  most  successful  in 
 offering  consumer  voice  and  broadband  services,  wireless  services,  and  local  connectivity,  equipment,  and  professional  services  to  local  or  regional  business  customers,  while  AT&  T  has  had  success  offering 
 large  enterprise  services,  especially  those  with  a  global  reach.  544  The  Applicants  further  contend  that  SBC  will  bring  its  investment-  oriented  focus  to  the  merged  firm  and  that  SBCs  deep  financial  resources  will 


 539  SBC/  AT&  T  Application  at  15-  17;  SBC/  AT&  T  Reply  at  6-  10;  Letter  from  Richard  L.  Rosen  and  David  L. 
 Lawson,  Counsel  for  SBC  and  AT&  T,  to  Gary  Remondino,  Wireline  Competition  Bureau,  FCC  at  1-  2  (filed  Aug.  3,  2005)  (SBC/  AT&  T  Aug.  3  Ex  Parte  Letter). 


 540  Cbeyond  et  al.  Petition  at  72;  ACN  et  al.  Comments  at  63.  We  disagree  with  ACN  et  al.  that  improving  service 
 quality  should  not  be  credited  as  a  merger-  specific  benefit.  Rather,  as  we  find  above,  the  vertical  integration  of  the  Applicants  largely  complementary  networks  is  likely  to  produce  just  such  merger-  specific  benefits. 


 541  For  example,  SBC  has  a  larger  base  of  mass  market  customers  than  AT&  T,  while  AT&  T  has  a  larger  base  of 
 large  enterprise  customers.  Likewise,  SBC  has  been  most  successful  offering  local  service  to  enterprise  customers,  while  AT&  T  has  had  success  for  a  wider  range  of  service  offerings.  See,  e.  g.,  SBC/  AT&  T  Application  at  6-  9. 


 542  News  Corp./  Hughes  Order,  19  FCC  Rcd  at  619,  para.  342. 
 543  Id.  at  620,  para.  343. 
 544  SBC/  AT&  T  Application  at  9-  10,  32;  SBC/  AT&  T  Reply  at  13-  17. 
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 ensure  that  its  networks,  including  critical  national  defense  networks,  remain  robust  and  technologically  advanced.  Finally,  they  claim  that  the  transaction  will  accelerate  service  innovations,  such  as  VoIP  and 
 advanced  IP  services.  545 
 195.  We  agree  with  the  Applicants  that,  by  broadening  its  customer  base,  the  merged  entity  will  have  an  increased  incentive  to  engage  in  basic  research  and  development.  We  further  find  that  continued 
 intense  competition  from  other  carriers  will  provide  sufficient  incentives  for  the  merged  company  to  continue  to  invest  in  more  applied  research  and  product  development.  As  SBC  points  out,  it  will  have 
 little  choice  but  to  continue  investment  and  innovation,  and  it  expects  the  combined  company  to  spend  at  least  as  much  on  innovation  and  investment  in  network  infrastructure  as  the  standalone  companies  did 
 prior  to  the  transaction.  546  Thus,  we  reject  commenters  claims  that  the  merged  firm  will  be  less  innovative.  547 


 F.  Cost  Synergies 
 196.  As  discussed  below,  we  credit  certain  cost  reductions  as  benefits  resulting  from  the  merger.  The  Applicants  assert  that  the  merger  will  result  in  over  $15  billion  in  savings  for  both  fixed  and  variable 
 operations  costs.  548  They  contend  that  the  cost  savings  would  come  from  the  elimination  of  duplicative  network  facilities,  staff,  and  information  and  operation  systems;  greater  utilization  of  network  assets  by 
 combining  the  companies  traffic  streams;  greater  scalability  from  business  process  improvements;  and  elimination  of  duplicative  information  technology  (IT)  development  projects.  549  The  Applicants  filed  a 
 synergies  model  in  the  record,  which  estimated  both  cost  and  revenue  synergies.  550 
 197.  No  commenter  discusses  the  synergy  model  itself.  Cbeyond  et  al.  argue  generally,  however,  that,  to  the  extent  much  of  the  cost  savings  are  reportedly  due  to  increased  elimination  of  personnel,  it  is 
 not  clear  that  they  should  be  counted  as  a  benefit  under  the  Commissions  public  interest  standard.  551 


 545  SBC/  AT&  T  Application  at  42-  43.  The  record  is  mixed  regarding  the  mergers  likely  effect  regarding  fiber 
 deployment.  Compare  ACN  et  al  Comments  at  57-  60  (asserting  that  SBC/  AT&  T  fail  to  show  their  claimed  benefit  of  an  increase  in  fiber  deployment  is  merger  specific)  with  Ad  Hoc  Telecom  Manufacturers  Comments  at  4-  5 


 (asserting  that  the  merger  will  promote  fiber  deployment).  We  are  not  identifying  a  particular  benefit  arising  from  increased  fiber  deployment  specifically,  except  to  the  extent  that  we  note  generally  above  that  the  merger  could 
 result  in  increased  incentives  to  invest  in  research  and  development  (in  which  case  such  benefit  would  be  merger-specific).  The  record  does  not  allow  us  to  identify  particular  technologies  toward  which  such  increased  investment 
 incentives  might  be  directed  (such  as  increased  fiber  deployment  or  elsewhere). 
 546  SBC/  AT&  T  Application  at  31-  33;  SBC  Info.  Req.  at  136-  37,  148-  52. 


 547  ACN  et  al.  Comments  at  60-  62,  65-  66;  see  also  Cbeyond  et  al.  Petition  at  68-  72;  Qwest  Petition  at  37-  39. 
 Although  Qwest  claims  that  AT&  T  offered  many  VoIP  innovations,  it  does  not  indicate  that  those  were  the  only  (or  even  the  majority)  of  innovations  in  VoIP.  Qwest  Petition  at  38. 


 548  SBC/  AT&  T  Application  at  44. 
 549  SBC/  AT&  T  Application  at  43-  44. 
 550  SBC  Info.  Req.,  SBC453019-  409  (hereinafter  Synergy  Model);  see  also  SBC  Info.  Req.  at  184-  191. 
 551  Cbeyond  et  al.  Wilkie  Decl.  at  para.  54  (arguing  that  marginal  cost  reductions  are  more  likely  to  be  cognizable 
 than  fixed  cost  reductions,  but  that  the  bulk  of  the  headcount  savings  will  be  fixed  cost  reductions);  see  also  NASUCA  Comments  at  20-  21  (asserting  that  the  purported  benefit  of  cost  savings  is  insignificant  and  that  such 


 benefits  did  not  accrue  after  the  Bell  Atlantic/  GTE  merger  was  approved). 
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 198.  After  careful  examination  of  the  Applicants  synergy  model,  we  find  that  we  cannot  credit  the  $15  billion  savings  in  its  entirety.  First,  the  models  calculations  assume  that  all  the  models  synergies 
 continue  in  perpetuity.  552  As  mentioned  above,  benefits  that  are  to  occur  in  the  distant  future  may  be  discounted  or  dismissed  because,  among  other  things,  predictions  about  the  more  distant  future  are 
 inherently  more  speculative  than  predictions  about  events  that  are  expected  to  occur  closer  to  the  present.  We  thus  evaluate  the  evidence  of  synergy  benefits  over  shorter  and  more  reasonable  timeframes  included 
 in  the  model. 
 199.  The  remaining  scenarios,  focusing  on  the  valuation  of  synergies  over  time,  calculate  the  value  of  the  synergies  as  if  they  lasted  to  [REDACTED].  553  According  to  the  Applicants  synergy  model,  the 
 merged  firm  will  enjoy  synergies  of  [REDACTED]  by  [REDACTED]  and  nearly  double  that  by  [REDACTED].  554  We  give  more  weight  to  the  nearer  timeframe  of  [REDACTED],  however,  because 
 we  expect  that  before  [REDACTED]  the  telecommunications  market  will  be  so  different  from  today  that  these  synergies  may  no  longer  be  realizable  or  relevant.  555 


 200.  We  are  skeptical  of  some  of  the  Applicants  cost-  savings  calculations.  For  instance,  SBC  claims  that  it  will  save  [REDACTED]  on  advertising  annually.  According  to  its  synergy  model  spreadsheet, 
 however,  its  own  advertising  is  [REDACTED]  annually  while  AT&  Ts  advertising  for  2005  is  [REDACTED].  556  Thus,  SBC  asserts  it  can  reduce  its  combined  advertising  by  many  times  the  amount 
 that  AT&  T  itself  spends  on  advertising.  We  are  also  skeptical  of  the  cited  advertising  savings,  because  there  is  no  information  on  the  record  supporting  SBCs  quantification  of  the  potential  reductions  in  its 
 advertising  expenditures.  Rather,  we  believe  that  the  combined  firm  will  face  largely  the  same  incentive  to  advertise  as  before. 


 201.  We  reject  commenters  assertions  that  the  costs  savings  of  headcount  reductions  will  produce  no  cognizable  benefits.  557  According  to  the  synergy  model,  much  of  the  cost  savings  are  from  headcount 


 552  The  synergy  model  calculates  the  synergies  as  the  present  value  of  the  infinitely-  lasting  stream  of  extra  income 
 and  reduced  costs.  The  Commission  does  not  dispute  the  use  of  the  net  present  value  concept  (to  quantify  future  incomes  and  cost  reductions)  itself. 


 553  The  synergy  model  allows  cost  savings  to  be  calculated  out  to  [REDACTED],  but  not  revenue  enhancements. 
 See  Synergy  Model  at  453029  ([  REDACTED]);  453241-  42  ([  REDACTED]). 
 554  As  noted  above,  the  Applicants  synergy  model  does  not  allow  revenue  figures  to  be  calculated  out  to 
 [REDACTED],  so  a  precise  synergy  benefit  for  [REDACTED]  cannot  be  calculated  from  the  model.  These  figures  include  [REDACTED]  of  unspecified  Other  Transactions  Costs.  Synergy  Model  at  453029 


 ([  REDACTED]). 
 555  Because  [REDACTED]  was  one  of  the  model  choices,  calculating  the  synergy  to  that  date  meant  relatively  few 
 calculations  were  necessary.  Using  any  date  other  than  one  for  which  the  model  was  designed  would  require  many  manual  calculations.  Thus,  although  we  ordinarily  discount  claimed  benefits  that  are  more  distant,  and  we  would 


 prefer  to  calculate  the  synergies  based  on  a  shorter  time  period,  using  the  [REDACTED]  date  in  the  model  was  more  administratively  practical. 


 556  See  SBC  Info.  Req.  at  190;  see  also  Synergy  Model  at  453132,  453137  ([  REDACTED]). 
 557  Cbeyond  et  al.  state  generally  that  for  many  of  the  jobs  that  SBC  has  stated  would  be  eliminated  as  a  result  of  the 
 merger,  reductions  in  personnel  and  overhead  would  reduce  the  merged  companys  fixed  costs,  not  its  marginal  costs,  and,  thus,  would  not  be  passed  on  as  a  benefit  to  consumers.  Cbeyond  et  al.  Petition  at  73-  74. 
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 reductions,  and  those  calculations  seem  reasonable.  558  We  have  no  reason  to  doubt  that  many  overhead  positions  can  be  eliminated  after  the  merger.  But  because  most  of  these  positions  are  overhead  and  thus 
 represent  savings  in  fixed  costs,  we  will  not  give  them  the  same  weight  as  savings  in  marginal  cost  (which  are  more  likely  to  flow  through  in  the  form  of  retail  price  reductions).  We  recognize,  however,  that  some 
 of  the  headcount  savings  are  likely  to  come  from  positions  where  compensation  is  based  primarily  on  commission;  savings  in  those  positions  should  reduce  variable  costs.  559 


 202.  The  net  present  value  of  the  savings  from  the  elimination  of  sales  jobs  out  to  [REDACTED]  is  about  [REDACTED],  which  the  Commission  fully  credits  toward  marginal  cost  reductions.  We  find  that 
 the  remainder  of  the  claimed  headcount  savings  represent  primarily  savings  in  overhead,  to  which  the  Commission  generally  has  given  less  weight  than  marginal  cost  reductions.  560 


 203.  Certain  other  claimed  cost  synergies  are  unexplained.  The  synergy  model  explains  very  little  of  the  nature  of  the  capital  expenditure  and  operations  expenditure  reductions.  561  SBC  adds  some 
 explanation  in  its  response  to  our  information  request,  but  in  most  cases,  the  synergy  amounts  are  simply  inserted  into  the  model  without  comment. 


 204.  In  summary,  we  find  that  the  proposed  transaction  is  likely  to  generate  several  significant  public  interest  benefits,  although  it  is  difficult  to  quantify  precisely  the  magnitude  of  some  of  these  benefits. 
 VII.  PROCESS  AND  ENFORCEMENT 
 205.  As  discussed  in  various  sections  above,  the  Applicants  have  offered  a  number  of  voluntary  commitments.  Because  we  find  these  commitments  serve  the  public  interest,  we  accept  them  and  adopt 
 them  as  express  conditions  of  our  merger  approval  order.  In  order  to  ensure  that  the  full  benefits  of  these  commitments  are  realized,  we  also  establish  certain  procedural  and  enforcement  rules.  First,  where 
 commitments  involve  the  filing  of  tariff  revisions,  we  require  the  Applicants  to  file  such  revisions  within  30  days  of  the  effective  date  of  the  Order.  Second,  we  require  the  Applicants  to  file  annually  a 
 declaration  by  an  officer  of  the  corporation  attesting  that  SBC/  AT&  T  has  substantially  complied  with  the  terms  of  the  conditions  in  all  material  respects.  Third,  the  term  of  each  condition  will  be  as  specified  in 
 Appendix  F. 
 206.  In  addition,  we  will  continue  to  monitor  the  markets  within  which  the  Applicants  compete.  If  the  Commission  determines  that  out-  of-  region  competition  is  failing  to  develop,  then  it  will  revisit  the  merger 
 conditions  on  its  own  motion  or  pursuant  to  a  petition  of  a  party.  Similarly,  if  the  Commission  determines  that  the  Applicants  are  acting  to  exclude  competitors,  it  will  revisit  the  merger  conditions  on 
 its  own  motion  or  pursuant  to  a  petition  of  a  party.  562 


 558  See  Synergy  Model  at  453022-  23  ([  REDACTED]);  453024  ([  REDACTED]);  453025  ([  REDACTED]). 
 559  Synergy  Model  at  453036-  37  ([  REDACTED]). 
 560  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20631,  para.  191;  see  also  DOJ/  FTC  Guidelines    4. 
 561  In  a  few  cases,  the  underlying  synergy  causes  are  identified,  such  as  the  other  Expense/  Capex  synergy,  which  is 
 described  as  [REDACTED].  See  Synergy  Model  at  SBC453047,  SBC453059  ([  REDACTED]);  see  also  SBC  Info.  Req.  at  184. 


 562  In  addition,  the  public  may  pursue  a  claim  in  accordance  with  either  section  207  or  section  208  of  the  Act.  See 
 47  U.  S.  C.    207,  208. 
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 207.  In  addition,  as  noted  above,  the  Applicants  have  made  a  voluntary  commitment  to  offer  stand-alone  DSL.  563  In  order  to  ensure  that  this  commitment  benefits  consumers,  we  will  monitor  all  consumer-related 
 problems  concerning  this  service,  including  reviewing  consumer  complaints  and  other  information.  We  expect  that  the  terms  and  conditions  for  these  services  will  reflect  the  underlying 
 competitiveness  of  the  market.  The  Commission  retains  its  historical  discretion  to  monitor  the  market  and  take  corrective  action  if  necessary  in  the  public  interest. 


 208.  More  generally,  due  to  the  Commissions  interest  in  widespread  broadband  availability,  the  Commission  commits  to  seek  comment  and  issue  an  annual  report  assessing  the  competitiveness  of  the 
 broadband  market  and  whether  there  is  evidence  of  anticompetitive  conduct  in  this  market. 
 VIII.  CONCLUSION 
 209.  We  find  that  public  interest  benefits  are  likely  to  result  from  the  proposed  transaction  and  that,  in  light  of  the  DOJ  Consent  Decree,  the  merger  is  not  likely  to  have  anticompetitive  effects  in  any  relevant 
 markets.  As  we  discuss  above,  we  recognize  that  there  will  be  an  increase  in  market  concentration  with  respect  to  certain  services,  including  special  access  services,  retail  enterprise  services,  mass  market 
 services,  and  Internet  backbone  services.  Nonetheless,  in  each  case  we  find  that  the  possible  harms  identified  by  commenters  do  not  justify  designating  this  application  for  hearing. 


 210.  We  also  find  potential  public  interest  benefits  from  the  proposed  merger  that,  taken  as  a  whole,  outweigh  the  relatively  limited  possible  public  interest  harms.  These  public  interest  benefits  relate  to 
 enhancements  to  national  security  and  government  services,  efficiencies  related  to  vertical  integration,  economies  of  scope  and  scale,  and  cost  savings. 


 211.  We  therefore  conclude  that  on  balance,  the  positive  public  interest  benefits  likely  to  arise  from  this  transaction  are  sufficient  to  support  the  Commissions  approval  of  SBCs  and  AT&  Ts  application 
 under  the  public  interest  test  of  sections  214  and  310(  d)  of  the  Communications  Act.  Finally,  we  note  that  the  Applicants  offered  certain  commitments  related  to  special  access,  stand-  alone  DSL,  the 
 Commissions  Internet  Policy  Statement,  and  Internet  backbone  services.  We  find  that  these  commitments  serve  the  public  interest,  and,  accordingly,  we  accept  them  and  adopt  them  as  express 
 conditions  of  our  merger  approval.  564 
 IX.  ORDERING  CLAUSES 
 212.  Accordingly,  having  reviewed  the  applications,  the  petitions,  and  the  record  in  this  matter,  IT  IS  ORDERED  that,  pursuant  to  sections  4(  i)  and  (j),  214,  309,  310(  d)  of  the  Communications  Act  of  1934, 
 as  amended,  47  U.  S.  C.    154(  i),  (j),  214,  309,  310(  d),  section  2  of  the  Cable  Landing  License  Act,  47  U.  S.  C.    35,  and  Executive  Order  No.  10530,  the  applications  for  the  transfer  of  control  of  licenses  and 
 authorizations  from  AT&  T  to  SBC  as  discussed  herein  and  set  forth  in  Appendix  B  ARE  GRANTED  subject  to  the  conditions  stated  below. 


 213.  IT  IS  FURTHER  ORDERED  that  as  a  condition  of  this  grant  SBC  and  AT&  T  shall  comply  with  the  conditions  set  forth  in  Appendix  F  of  this  Order. 


 563  See  SBC  Oct.  31  Ex  Parte  Letter,  Attach.  at  4;  see  also  Appendix  F. 
 564  See  generally  SBC  Oct.  31  Ex  Parte  Letter,  Attach.;  see  also  Appendix  F. 
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 214.  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),  (j),  309,  310(  d),  the  Petitions  to  Deny  the 
 transfer  of  control  of  licenses  and  authorizations  from  AT&  T  to  SBC  filed  by  American  Public  Communications  Council;  Broadwing  Communications,  LLC,  and  SAVVIS  Communications 
 Corporation;  Cbeyond  Communications,  et  al.;  CompTel/  ALTS;  Consumer  Federation  of  America,  et  al.;  EarthLink,  Inc.;  and  Qwest  Communications  International  Inc.  ARE  DENIED  for  the  reasons  stated 
 herein. 
 215.  IT  IS  FURTHER  ORDERED  that  this  Memorandum  Opinion  and  Order  SHALL  BE  EFFECTIVE  upon  release.  Petitions  for  reconsideration  under  section  1.106  of  the  Commissions  rules, 
 47  C.  F.  R.    1.106,  may  be  filed  within  30  days  of  the  date  of  public  notice  of  this  Order. 


 FEDERAL  COMMUNICATIONS  COMMISSION 


 Marlene  H.  Dortch  Secretary 
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 APPENDIX  A 
 List  of  Commenters 


 Commenters:  Abbreviation  ACN  Communications  Services,  Inc. 
 ATX  Communications  Inc.  Bullseye  Telecom,  Inc. 
 Cavalier  Telephone  Mid-  Atlantic,  LLC  CIMCO  Communications,  Inc. 
 CTC  Communications  Corp.  Gillette  Global  Network,  Inc.,  d/  b/  a  Eureka  Networks 
 Granite  Telecommunications,  LLC  Lightship  Communications,  LLC 
 Lightyear  Network  Solutions,  LLC  PAC-  WEST  Telecom,  Inc. 
 RCN  Telecom  Services  Inc.  USLEC  Corporation 
 U.  S.  TelePacific  Corp.  d/  b/  a  TelePacific  Communications 


 ACN  et  al. 


 Ad  Hoc  Telecom  Manufacturer  Coalition  Ad  Hoc  Telecom  Manufacturers  Alliance  for  Public  Technology  APT 
 American  Antitrust  Institute  AAI  Communications  Workers  of  America  CWA 
 Cox  Communications,  Inc.  Cox  Global  Crossing  North  America,  Inc.  Global  Crossing 
 Independent  Alliance  Independent  Alliance  Missouri  Public  Service  Commission  Missouri  Commission 
 New  Jersey  Board  of  Public  Utilities  New  Jersey  BPU  New  Jersey  Division  of  the  Ratepayer  Advocate  New  Jersey  Ratepayer  Advocate 
 National  Association  of  State  Utility  Consumer  Advocates  NASUCA 
 Nevada  Department  of  Justice,  Office  of  the  Attorney  General,  Bureau  of  Consumer  Protection  Nevada  BCP 
 Progress  and  Freedom  Foundation  PFF  Small  Business  and  Entrepreneurship  Council  SBE 
 State  of  Alaska  Alaska  Telecommunications  Consultants  Coalition  Telecom  Consultants 
 Telscape  Communications,  Inc.  Telscape  Texas  Office  of  Public  Utility  Counsel  Texas  OPC 
 United  States  Cellular  Corporation  United  States  Cellular  Vonage  Holdings  Corp.  Vonage 
 WilTel  Communications,  LLC  WilTel  Women  Impacting  Public  Policy  WIPP 
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 Petitioners:  Abbreviation  American  Public  Communications  Council  APCC 
 Broadwing  Communications  LLC  and  SAVVIS  Communications,  Inc.  Broadwing  and  SAVVIS 
 Cbeyond  Communications  Conversent  Communications 
 Eschelon  Communications  NuVox  Communications 
 TDS  Metrocom  XO  Communications 
 Xspedius  Communications 


 Cbeyond  et  al. 


 CompTel/  ALTS  CompTel/  ALTS  Consumer  Federation  of  America 
 Consumers  Union  Public  Research  Group  Consumer  Federation  et  al. 
 EarthLink,  Inc.  EarthLink  Qwest  Communications  International  Inc.  Qwest 


 Reply  Commenters:  Abbreviation  ACN  Communications  Services,  Inc. 
 ATX  Communications  Inc.  Bullseye  Telecom,  Inc. 
 Cavalier  Telephone  Mid-  Atlantic,  LLC  CIMCO  Communications,  Inc. 
 CTC  Communications  Corp.  Gillette  Global  Network,  Inc.,  d/  b/  a  Eureka  Networks 
 Granite  Telecommunications,  LLC  Lightship  Communications,  LLC 
 Lightyear  Network  Solutions,  LLC  McLeod  USA  Telecommunications  Services,  Inc. 
 PAC-  WEST  Telecom,  Inc.  RCN  Telecom  Services  Inc. 
 USLEC  Corporation  U.  S.  TelePacific  Corp.  d/  b/  a  TelePacific 
 Communications 


 ACN  et  al. 


 Ad  Hoc  Telecommunications  Users  Committee  Ad  Hoc  Telecom  Users  American  Public  Communications  Council  APCC 
 BT  Americas  Inc.  and  BT  Infonet  USA  BT  Americas  California  Small  Business  Association  and  California 
 Small  Business  Roundtable  CSBA  Competitive  Enterprise  Institute  CEI 
 CompTel/  ALTS  CompTel/  ALTS  Cox  Communications,  Inc.  Cox 
 EarthLink,  Inc.  EarthLink  Missouri  Office  of  the  Public  Counsel  Missouri  OPC 
 National  Association  of  State  Utility  Consumer  Advocates  NASUCA 
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 Reply  Commenters:  Abbreviation  New  Jersey  Division  of  the  Ratepayer  Advocate  New  Jersey  Ratepayer  Advocate 
 National  Telecommunications  Cooperative  Association  NTCA  Qwest  Communications  International  Inc.  Qwest 
 SBC  Communications  Inc.  and  AT&  T  Corp.  SBC/  AT&  T  Small  Business  and  Entrepreneurship  Council  SBE 
 Telecommunications  Consultants  Coalition  Telecom  Consultants  Coalition  Telecommunications  Consumers  Coalition  Telecom  Consumers  Coalition 
 TeleTruth  TeleTruth  T-  Mobile  USA,  Inc.  T-  Mobile 
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 APPENDIX  B 
 List  of  AT&  T  Licenses  and  Authorizations  Subject  to  Transfer  of  Control 


 Domestic  Section  214  Authority 
 AT&  T  Affiliates  and  Subsidiaries  Holding  Domestic  214  Authority 
 AT&  T  Interstate  Division  AT&  T  Communications  of  Illinois,  Inc. 
 AT&  T  Communications  of  Indiana,  Inc.  (now  AT&  T  Communications  of  Indiana,  GP)  AT&  T  Communications  of  Michigan,  Inc. 
 AT&  T  Communications  of  Ohio,  Inc.  AT&  T  Communications  of  Wisconsin,  Inc.  (now  AT&  T  Communications  of  Wisconsin  I,  LP  ) 
 AT&  T  Communications  of  New  England,  Inc.  AT&  T  Communications  of  New  York,  Inc. 
 AT&  T  Communications  of  Washington  D.  C.,  Inc.  (now  AT&  T  Communications  of  Washington  D.  C.,  LLC) 
 AT&  T  Communications  of  Delaware,  Inc.  (now  AT&  T  Communications  of  Delaware,  LLC)  AT&  T  Communications  of  Maryland,  Inc.  (now  AT&  T  Communications  of  Maryland,  LLC) 
 AT&  T  Communications  of  New  Jersey,  Inc.  (now  AT&  T  Communications  of  NJ,  LP)  AT&  T  Communications  of  Pennsylvania,  Inc.  (now  AT&  T  Communications  of  Pennsylvania,  LLC) 
 AT&  T  Communications  of  Virginia,  Inc.  (now  AT&  T  Communications  of  Virginia,  LLC)  AT&  T  Communications  of  West  Virginia,  Inc. 
 AT&  T  Communications  of  The  Midwest,  Inc.  AT&  T  Communications  of  the  Southwest,  Inc. 
 AT&  T  Communications  of  The  Southern  States,  Inc.  (now  AT&  T  Communications  of  The  Southern  States,  LLC) 
 AT&  T  Communications  of  The  South  Central  States,  Inc.  (now  AT&  T  Communications  of  The  South  Central  States,  LLC) 
 AT&  T  Communications  of  California,  Inc.  AT&  T  Communications  of  The  Mountain  States,  Inc. 
 AT&  T  Communications  of  Nevada,  Inc.  AT&  T  Communications  of  Pacific  Northwest,  Inc. 
 AT&  T  Communications  of  Puerto  Rico,  Inc.  and  AT&  T  Communications  of  The  Virgin  Islands,  Inc. 


 International  Section  214  Authorizations 
 File  No.  Authorization  Holder  Authorization  Number 
 ITC-  T/  C-  20050224-  00072  AT&  T  Corp.  ITC-  214-  19980209-  00085  et  al.  ITC-  T/  C-  20050224-  00071  Alascom,  Inc.  ITC-  214-  1997-  0421-  00221  et  al. 


 ITC-  T/  C-  20050224-  00073  TCG  America,  Inc.  ITC-  214-  1997-  0814-  00493  et  al.  ITC-  T/  C-  20050222-  00079  TCG  Delaware  Valley,  Inc.  ITC-  90-  003  et  al. 
 ITC-  T/  C-  20050222-  00080  AT&  T  of  the  Virgin  Islands,  Inc.  ITC-  89-  060  et  al.  ITC-  T/  C-  20050222-  00081  AT&  T  of  Puerto  Rico,  Inc.  ITC-  91-  034  et  al. 
 ITC-  T/  C-  20050222-  00082  TC  Systems,  Inc.  ITC-  96-  002  et  al.  ITC-  T/  C-  20050222-  00083  ACC  National  Long  Distance  Corp.  ITC-  93-  131  et  al. 
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 Cable  Landing  Licenses 
 File  No.  Authorization  Holder  Authorization  Number 
 SCL-  T/  C-  20050222-  00002  AT&  T  Corp.  SCL-  87-  004  et  al. 


 International  Public  Fixed  License  Application 
 File  No.  Licensee  Lead  Call  Sign 
 SES-  T/  C-  20050224-  00233  AT&  T  of  the  Virgin  Islands,  Inc.  WBH79 


 Satellite  Earth  Station  Authorization  Applications 
 File  No.  Licensee  Lead  Call  Sign 
 SES-  T/  C-  20050224-  00230  565  AT&  T  Corp.  E000037 


 SES-  T/  C-  20050224-  00231  566  AT&  T  Corp.  E930445 
 SES-  T/  C-  20050224-  00232  567  Alascom,  Inc.  E000650 


 Satellite  Space  Station  Authorization  Applications 
 File  No.  Licensee  Call  Sign 
 SES-  T/  C-  20050929-  00187  568  Alascom.  Inc.  S2379 


 565  See  Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC  (filed  Sept.  29, 
 2005)  (updating  File  Nos.  SES-  T/  C-  20050224-  00230  and  SES-  T/  C-  20050224-  00231  to  indicate  relinquished  or  assigned  earth  stations  (to  be  deleted)  and  new  applications  pending  (to  be  added)). 


 566  Id. 
 567  See  Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC  (filed  Sept.  29, 
 2005)  (updating  File  No.  SES-  T/  C-  20050224-  00232  to  indicate  relinquished  or  assigned  earth  stations  (to  be  deleted)  and  new  applications  pending  (to  be  added)). 


 568  Because  the  Commissions  IBFS  database  shows  that  this  space  station  license  is  issued  to  SES  Americom,  Inc., 
 and  does  not  reflect  that  the  license  is  jointly  licensed  to  SES  Americom,  Inc.  &  Alascom  ,  Inc.,  the  Applicants  inadvertently  omitted  this  authorization  from  the  initial  transaction  filing.  Id.  The  Applicants  also  state  that  SES 


 Americom,  Inc.  has  no  objection  to  this  transfer  of  control  filing  and  the  processing  of  this  application  by  the  Commission.  Id.  We  will  include  this  application  as  under  the  Applicants  request  in  its  initial  filing  to  include 
 any  authorizations  that  may  have  been  inadvertently  omitted.  SBC/  AT&  T  Application  at  118. 
109
 Federal  Communications  Commission  FCC  05-  183 
 110 
 Wireless  Radio  Services  Applications 
 File  No.  Licensee  Lead  Call  Sign 
 0002052427  569  AT&  T  Corp.  KAC58  0002052535  570  Alascom,  Inc.  KBK7 


 0002052424  AT&  T  of  the  Virgin  Islands,  Inc.  WLK648  0002052409  AT&  T  Communications  of  California,  Inc.  KMJ96 
 0002052528  AT&  T  Communications  of  Illinois,  Inc.  KSF30  0002052521  AT&  T  Communications  of  Maryland,  Inc.  WAD25 
 0002052513  AT&  T  Communications  of  Michigan,  Inc.  KQI61  0002052481  AT&  T  Communications  of  Pennsylvania,  Inc.  WCG308 
 0002052471  AT&  T  Communications  of  the  Midwest,  Inc.  KAS91  0002052450  AT&  T  Communications  of  the  Mountain  States,  Inc.  KAN28 
 0002052440  AT&  T  Communications  of  the  Pacific  Northwest,  Inc.  WHR380  0002052418  AT&  T  Communications  of  the  South  Central  States,  Inc.  KIV64 
 0002052444  AT&  T  Communications  of  the  Southern  States,  Inc.  KIA47  0002052419  AT&  T  Communications  of  the  Southwest,  Inc.  KPP57 
 0002052399  AT&  T  Communications  of  Virginia,  Inc.  KIA30  0002052431  AT&  T  Communications  of  West  Virginia,  Inc.  KXR62 
 0002052438  AT&  T  Communications  of  Wisconsin,  Inc.  WHO319  0002051267  Biztel,  Inc.  c/  o  AT&  T  Corp.  WMT548 


 569  See  Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC  (filed  Sept.  29, 
 2005)  (updating  File  No.  0002052427  to  indicate  relinquished  or  assigned  licenses  (to  be  deleted)  and  new  applications  pending  (to  be  added)). 


 570  See  Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC  (filed  Sept.  29, 
 2005)  (updating  File  No.  0002052535  to  indicate  relinquished  or  assigned  licenses  (to  be  deleted)  and  new  applications  pending  (to  be  added)). 
110
 Federal  Communications  Commission  FCC  05-  183 
 111 
 Experimental  Radio  Service  Applications 
 File  No.  Licensee  Call  Signs 
 0012-  EX-  TU-  2005  571  AT&  T  Corp.  WD2XDQ  WD2XPJ 
 WD2XSL 


 571  See  Letter  from  Mark  D.  Schneider,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC  (filed  Sept.  29, 
 2005)  (updating  File  No.  0012-  EX-  TU-  2005  to  indicate  relinquished  licenses  (to  be  deleted)  and  new  applications  pending  (to  be  added)). 
111
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 112  APPENDIX 
 C 


 Enterprise 
 Data 
 TABLE 
 1* 


 2004 
 LOCAL 


 VOICE 
 REVENUE 


 (% 
 SHARE) 


  
 MEDIUM/  LARGE 


 ENTERPRISE 
 CUSTOMERS 


 Midwest 
 West 
 Southwest 


 East 


 Carrier: 
 All 
 SBC  States 


 IL 
 IN 
 MI 
 OH 


 WI 
 CA 
 AR 
 KS 
 MO 


 OK 


 TX 


 CT 


 [REDACTED] 


 Post-  merger 
 (SBC+  AT& 
 T) 
 market 


 share 


 Median 
 Post-  merger 


 (SBC+  AT& 
 T) 
 market 


 share 


 Pre-  merger 
 HHI 
 Median 
 Pre-  merger 


 HHI 


 Post-  merger 
 HHI 
 Median 
 Post-  merger 


 HHI 


 Delta  *See  supra 
 note 
 200 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 medium 


 and 
 large 


 enterprise 


 data). 
112
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 113 
 APPENDIX 
 C 
 (CONTINUED)  TABLE  2* 


 2004 
 INTERLATA 


 VOICE 
 REVENUE 


 (% 
 SHARE) 


  
 MEDIUM/  LARGE 


 ENTERPRISE 
 CUSTOMERS 


 Midwest 
 West 
 Southwest 


 East 


 Carrier: 
 All 
 SBC  States 


 IL 


 IN 
 MI 
 OH 


 WI 
 CA 
 AR 
 KS 
 MO 


 OK 
 TX 
 CT 


 [REDACTED] 


 Post-  merger 
 (SBC+  AT& 
 T) 
 market 


 share 


 Median 
 Post-  Merger 


 (SBC+  AT& 
 T) 
 market 


 share  Pre-  merger 
 HHI 
 Median 
 Pre-  Merger 


 HHI 


 Post-  merger 
 HHI 
 Median 
 Pre-  Merger 


 HHI 


 Delta  *See  supra 
 note 
 200 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 medium 


 and 
 large 


 enterprise 


 data). 
113
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 114 
 APPENDIX 
 C 
 (CONTINUED)  TABLE  3* 


 2004 
 HIGH 


 CAP 
 SERVICE 


 REVENUE 


 (% 
 SHARE) 


 - 
 MEDIUM/  LARGE 


 ENTERPRISE 
 CUSTOMERS 


 Midwest 
 West 
 Southwest 


 East 


 Carrier: 
 All 
 SBC  States 


 IL 
 IN 
 MI 
 OH 


 WI 
 CA 
 AR 
 KS 
 MO 


 OK 
 TX 
 CT 


 [REDACTED] 
114
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 115 
 APPENDIX 
 C 
 (CONTINUED)  TABLE  3*  (CONTINUED) 


 2004 
 HIGH 


 CAP 
 SERVICE 


 REVENUE 


 (% 
 SHARE) 


  
 MEDIUM/  LARGE 


 ENTERPRISE 
 CUSTOMERS 


 Midwest 
 West 
 Southwest 


 East 


 All 
 SBC  States 


 IL 
 IN 
 MI 
 OH 


 WI 
 CA 
 AR 
 KS 
 MO 


 OK 
 TX 
 CT 


 Post-  merger 
 (SBC+  AT& 
 T) 
 market 


 share 


 Median 
 Post-  merger 


 (SBC+  AT& 
 T) 
 market 


 share 


 Pre-  merger 
 HHI 


 [REDACTED] 


 Median 
 Pre-  merger 


 HHI 


 Post-  merger 
 HHI 
 Median 
 Post-  merger 


 HHI 


 Delta  *See  supra 
 note 
 200 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 medium 


 and 
 large 


 enterprise 


 data). 
115
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 116 
 APPENDIX 
 C 
 (CONTINUED)  TABLE  4* 


 2004 
 BASIC 


 BUSINESS 


 LINE 
 ACCOUNT 


 (% 
 SHARE) 


 - 
 MEDIUM/  LARGE 


 ENTERPRISE 
 CUSTOMERS 


 Midwest 
 West 
 Southwest 


 East 


 Carrier: 
 All 
 SBC  States 


 IL 
 IN 
 MI 
 OH 


 WI 
 CA 
 AR 
 KS 
 MO 


 OK 
 TX 
 CT 


 [REDACTED] 


 Post-  merger 
 (SBC+  AT& 
 T) 
 market 


 share 


 Median 
 Post-  merger 


 (SBC+  AT& 
 T) 


 market 
 share 
 Pre-  merger 


 HHI 
 Median 
 Pre-  merger 


 HHI 


 Post-  merger 
 HHI 
 Median 
 Post-  merger 


 HHI 


 Delta  *See  supra 
 note 
 200 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 medium 


 and 
 large 


 enterprise 


 data). 
116
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 117 
 APPENDIX 
 C 
 (CONTINUED)  TABLE  5* 


 2004 
 LOCAL 


 ACCESS 
 CUSTOMER 


 SHARES 
 - 
 SMALL 


 ENTERPRISE 


 CUSTOMERS 


 Midwest 
 West 
 Southwest 


 East 


 All 
 SBC  States 


 IL 
 IN 
 MI 
 OH 


 WI 
 CA 
 NV 
 AR 
 KS 
 MO 


 OK 
 TX 
 CT 


 Pre-  merger 
 SBC 
 market 


 share 
 (%) 


 Median 
 pre- 
 merger 


 SBC 
 market 


 share 
 (%) 


 Post-  merger 
 (SBC+  AT& 
 T) 
 market 


 share 
 (%) 


 Median 
 Post-  merger 


 (SBC+  AT& 
 T) 
 market 


 share 
 (%) 


 [REDACTED] 


 Carriers 
 identified 


 in 
 the 


 survey 


 as 
 serving 


 customers 


 in 
 the 


 states 


 Pre-  merger 
 HHI 
 Median 
 Pre-  merger 


 HHI 


 Post-  merger 
 HHI 
 Median 
 Post-  merger 


 HHI 


 Delta  *Given 
 the 
 volume 


 of 
 small 


 enterprise 


 data 
 filed 


 by 
 SBC/ 


 AT&  T, 


 we 
 do 
 not 


 repeat 


 that 
 data 
 here. 


 See 
 supra 


 note 
 209 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 small 
 enterprise 


 data). 


 TABLE 
 6* 


 2004 
 LONG 


 DISTANCE 


 VOICE 
 CUSTOMER 


 SHARES 
 - 
 SMALL 


 ENTERPRISE 


 CUSTOMERS 


 Midwest 
 West 
 Southwest 


 East 


 All 
 SBC  States 


 IL 
 IN 
 MI 
 OH 


 WI 
 CA 
 NV 
 AR 
 KS 
 MO 


 OK 
 TX 


 CT 


 Pre-  merger 
 SBC 
 market 


 share 
 (%) 


 Median 
 pre- 
 merger 


 SBC 
 market 


 share 
 (%) 


 Post-  merger 
 (SBC+  AT& 
 T) 
 market 


 share 
 (%) 


 Median 
 Post-  merger 


 (SBC+  AT& 
 T) 
 market 


 share 
 (%) 


 [REDACTED] 


 Carriers 
 identified 


 in 
 the 


 survey 


 as 
 serving 


 customers 


 in 
 the 


 states 


 Pre-  merger 
 HHI 
 Median 
 Pre-  merger 


 HHI 


 Post-  merger 
 HHI 
 Median 
 Post-  merger 


 HHI 


 Delta  *Given 
 the 
 volume 


 of 
 small 


 enterprise 


 data 
 filed 


 by 
 SBC/ 


 AT&  T, 


 we 
 do 
 not 


 repeat 


 that 
 data 
 here. 


 See 
 supra 


 note 
 209 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 small 
 enterprise 


 data). 
117
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 118 
 APPENDIX 
 C 
 (CONTINUED)  TABLE  7* 


 2004 
 INTERNET 


 CUSTOMER 


 SHARES 
 - 
 SMALL 


 ENTERPRISE 


 CUSTOMERS 


 Midwest 


 West 
 Southwest 
 East 


 All 
 SBC  States 


 IL 
 IN 
 MI 
 OH 


 WI 
 CA 
 NV 
 AR 
 KS 
 MO 


 OK 
 TX 
 CT 


 Pre-  merger 
 SBC 
 market 


 share 
 (%) 


 Median 
 pre- 
 merger 


 SBC 
 market 


 share 
 (%) 


 Post-  merger 
 (SBC+  AT& 
 T) 
 market 


 share 
 (%) 


 Median 
 Post-  merger 


 (SBC+  AT& 
 T) 
 market 


 share 
 (%) 


 [REDACTED] 


 Carriers 
 identified 


 in 
 the 


 survey 


 as 
 serving 


 customers 


 in 
 the 


 states 


 Pre-  merger 
 HHI 
 Median 
 Pre-  merger 


 HHI 


 Post-  merger 
 HHI 
 Median 
 Post-  merger 


 HHI 


 Delta  *Given 
 the 
 volume 


 of 
 small 


 enterprise 


 data 
 filed 


 by 
 SBC/ 


 AT&  T, 


 we 
 do 
 not 


 repeat 


 that 
 data 
 here. 


 See 
 supra 


 note 
 209 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 small 
 enterprise 


 data). 
118
 Federal 
 Communications 


 Commission 


 FCC 
 05- 
 183 


 119 
 APPENDIX 
 C 
 (CONTINUED)  TABLE  8* 


 2004 
 LONG 


 DISTANCE 


 VOICE 
 NATIONAL 


 REVENUE 
 (% 
 SHARE) 


 - 
 ENTERPRISE 


 CUSTOMERS 
 WITH 
 OPERATIONS 


 BOTH 
 INSIDE 


 AND 
 OUTSIDE 


 THE 
 SBC 
 REGION 


 Carrier: 
 Share  [REDACTED] 
 Post-  Merger 
 SBC+  AT& 
 T 
 Share 


 Pre-  Merger 
 HHI 
 Post-  Merger 


 HHI 
 Delta  *See  supra 
 note 
 215 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 national 


 enterprise 


 data). 
 TABLE 


 9* 


 2004 
 LONG 


 DISTANCE 


 DATA 
 NATIONAL 


 REVENUE 
 (% 
 SHARE) 


 - 
 ENTERPRISE 


 CUSTOMERS 
 WITH 
 OPERATIONS 


 BOTH 
 INSIDE 


 AND 
 OUTSIDE 


 THE 
 SBC 
 REGION 


 Carrier: 
 Share  [REDACTED] 
 Post-  Merger 
 SBC+  AT& 
 T 
 Share 


 Pre-  Merger 
 HHI 
 Post-  Merger 


 HHI 
 Delta  *See  supra 
 note 
 215 
 (citing 


 source 
 of 
 SBC/ 


 AT&  T 


 national 


 enterprise 


 data). 
119
 Federal  Communications  Commission  FCC  05-  183 
 120 
 APPENDIX  D 
 Mass  Market  Data  (%  Share) 


 Local  Services*  Long  Distance  Services*  Local  and  Long  Distance  Bundle* 
 SBC  Pre-  Merger  SBC  Post-Merger  SBC  Pre-  Merger  SBC  Post-Merger  SBC  Pre-  Merger  SBC  Post-  Merger 


 AR 
 CA 
 CT 
 IL 
 IN 
 KS 
 MI  [REDACTED] 
 MO 
 NV 
 OH 
 OK 
 TX 
 WI 
 Minimum 
 Maximum 
 Median  *  See  supra  para.  102  and  accompanying  footnotes  for  the  underlying  assumptions.  Data  as  of  March 


 2005.  Sources:  SBC  Info.  Req.,  Exhs.  16(  a)(  1),  16(  a)(  2),  16(  a)(  4),  16(  b)(  1&  4);  Letter  from  Lawrence  J.  Lafaro,  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  Attach.  (June  13,  2005)  in 
 Letter  from  Nirali  Patel,  Counsel  for  AT&  T,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  (filed  July  21,  2005)  (Exh.  16(  b)(  iv)  Revised,  Exh.  SALD  Customer  Base  by  RBOC);  Numbering 
 Resource  Utilization  /  Forecast  (NRUF)  database. 
120
 Federal  Communications  Commission  FCC  05-  183 
 121 
 APPENDIX  E 
 Internet  Backbone  Data 
 Table  1:  Market  Shares  and  HHIs  of  Tier  1  Backbone  Providers* 
 Tier  1  Provider  Pre-  merger  Revenue  ($  M)  %  Share  (pre-  merger)  Post-  merger  Revenue  ($  M)  %  Share  (post-  merger) 


 [REDACTED] 
 Pre-  merger  HHI  Post-  merger  HHI 
 Change  in  HHI  *Market  shares  are  calculated  from  reported  revenues  for  dedicated  Internet  access  and  wholesale 
 upstream  transit.  Letter  from  Thomas  F.  Hughes,  Vice  President-  Federal  Regulatory,  SBC,  to  Gary  Remondino,  Wireline  Competition  Bureau,  FCC,  WC  Docket  No.  05-  65,  Attach.  (filed  July  22,  2005) 
 (providing  DIA  revenues  and  upstream  transit  revenues).  We  note  that  the  post-  merger  share  for  MCI  is  calculated  based  on  the  assumption  that  the  parallel  pending  merger  of  Verizon  and  MCI  will  be 
 consummated.  In  addition,  the  post-  merger  revenue  shares  of  Sprint,  Level  3,  and  Qwest  were  adjusted  based  on  available  data  regarding  transit  revenues  previously  paid  to  those  IBPs  by  SBC  and  Verizon. 
 See  SBC  Info.  Req.  at  97  (2004  transit  payments);  Letter  from  Dee  May,  Vice  President    Federal  Regulatory,  Verizon,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65,  Attach.  (filed  Oct. 
 13,  2005). 


 Table  2:  AT&  T  Pre-  Merger  Traffic  Ratios** 
 AT&  T  Peer  1/  2/  2004  Ratio  4/  2/  2004  Ratio  7/  2/  2004  Ratio  10/  1/  2004  Ratio  1/  1/  2005  Ratio  4/  2/  2005  Ratio 


 [REDACTED] 


 **  AT&  T  submitted  traffic  flows  with  its  peers  for  each  quarter  from  January  2004  to  April  2005.  SBC/  AT&  T  Martens  Reply  Decl.,  Exh.  I.  The  Applicants  then  calculated  the  corresponding  quarterly 
 traffic  ratios  for  April  2004  to  April  2005.  SBC/  AT&  T  Martens  Reply  Decl.,  Exh.  II. 
121
 Federal  Communications  Commission  FCC  05-  183 
 122 
 APPENDIX  F 
 Conditions 
 The  Applicants  have  offered  certain  voluntary  commitments,  enumerated  below.  Because  we  find  these  commitments  will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  Conditions  of 
 our  approval  of  the  merger.  Unless  otherwise  specified  herein,  the  Conditions  described  herein  shall  become  effective  10  business  days  after  the  Merger  Closing  Date.  The  Conditions  described  herein  shall 
 be  null  and  void  if  SBC  and  AT&  T  do  not  merge  and  there  is  no  Merger  Closing  Date. 
 It  is  not  the  intent  of  these  Conditions  to  restrict,  supersede,  or  otherwise  alter  state  or  local  jurisdiction  under  the  Communications  Act  of  1934,  as  amended,  or  over  the  matters  addressed  in  these 
 Conditions,  or  to  limit  state  authority  to  adopt  rules,  regulations,  performance  monitoring  programs,  or  other  policies  that  are  not  inconsistent  with  these  Conditions. 


 The  term  SBC/  AT&  T  as  used  in  this  letter  refers  to  SBC  Communications  Inc.  and  all  of  its  affiliates  whose  financial  results  on  the  day  following  the  Merger  Closing  Date  would  be  included  as 
 consolidated  subsidiaries  in  SBCs  consolidated  financial  statements  as  required  by  U.  S.  generally  accepted  accounting  principles. 


 For  the  purposes  of  these  Conditions,  the  term  Merger  Closing  Date  means  the  day  on  which,  pursuant  to  their  Merger  Agreement,  SBC  and  AT&  T  cause  a  Certificate  of  Merger  to  be  executed, 
 acknowledged,  and  filed  with  the  Secretary  of  State  of  New  York  as  provided  in  New  York  Corporation  Law. 


 Unbundled  Network  Elements 
 1.  For  a  period  of  two  years,  beginning  on  the  Merger  Closing  Date,  SBC/  AT&  T  shall  not  seek  any  increase  in  state-  approved  rates  for  unbundled  network  elements  (  UNEs)  that  are 
 currently  in  effect,  provided  that  this  restriction  shall  not  apply  to  the  extent  any  UNE  rate  currently  in  effect  is  subsequently  deemed  invalid  or  is  remanded  to  a  state  commission  by  a 
 court  of  competent  jurisdiction  in  connection  with  an  appeal  that  is  currently  pending  (i.  e.,  for  appeals  of  state  commission  decisions  in  Illinois,  Indiana  and  Texas).  In  the  event  of  a  UNE 
 rate  increase  in  Illinois,  Indiana  or  Texas  during  the  two  year  period,  following  a  court  decision  invalidating  or  remanding  a  UNE  rate,  SBC/  AT&  T  may  implement  that  UNE  rate 
 increase  but  shall  not  seek  any  further  increase  in  UNE  rates  in  that  state  during  the  two-  year  period.  This  condition  shall  not  limit  the  ability  of  SBC/  AT&  T  and  any  telecommunications 
 carrier  to  agree  voluntarily  to  any  UNE  rate  nor  does  it  supersede  any  current  agreement  on  UNE  rates. 


 2.  Within  thirty  days  after  the  Merger  Closing  Date,  SBC/  AT&  T  shall  exclude  fiber-  based  collocation  arrangements  established  by  AT&  T  or  its  affiliates  in  identifying  wire  centers  in 
 which  SBC  claims  there  is  no  impairment  pursuant  to  section  51.319(  a)  and  (e)  of  the  Commissions  rules.  SBC/  AT&  T  shall  file  with  the  Commission,  within  thirty  days  of  the 
 Merger  Closing  Date,  revised  data  or  lists  that  reflect  the  exclusion  of  AT&  T  collocation  arrangements,  as  required  by  this  condition. 
122
 Federal  Communications  Commission  FCC  05-  183 
 123 
 Special  Access 
 1.  SBC/  AT&  T  affiliates  that  meet  the  definition  of  a  Bell  operating  company  in  section  3(  4)(  A)  of  the  Act  (  SBC  BOCs)  572  will  implement,  in  the  SBC  Service  Area,  573  the  Service  Quality 
 Measurement  Plan  for  Interstate  Special  Access  Services  (  the  Plan),  as  described  herein  and  in  Attachment  A.  The  SBC  BOCs  shall  provide  the  Commission  with  performance 
 measurement  results  on  a  quarterly  basis,  which  shall  consist  of  data  collected  according  to  the  performance  measurements  listed  in  Attachment  A.  Such  reports  shall  be  provided  in  an 
 Excel  spreadsheet  format  and  shall  be  designed  to  demonstrate  the  SBC  BOCs  monthly  performance  in  delivering  interstate  special  access  services  within  each  of  the  states  in  the 
 SBC  Service  Area.  These  data  shall  be  reported  on  an  aggregated  basis  for  interstate  special  access  services  delivered  to  (i)  SBC/  AT&  Ts  section  272  affiliates,  (ii)  its  BOC  and  other 
 affiliates,  and  (iii)  non-  affiliates.  574  The  SBC  BOCs  shall  provide  performance  measurement  results  (broken  down  on  a  monthly  basis)  for  each  quarter  to  the  Commission  by  the  45  th  day 
 after  the  end  of  the  quarter.  The  SBC  BOCs  shall  implement  the  Plan  for  the  first  full  quarter  following  the  Merger  Closing  Date.  This  condition  shall  terminate  on  the  earlier  of  (i)  thirty 
 months  and  45  days  after  the  beginning  of  the  first  full  quarter  following  the  Merger  Closing  Date  (that  is,  when  SBC/  AT&  T  file  their  10  th  quarterly  report);  or  (ii)  the  effective  date  of  a 
 Commission  order  adopting  performance  measurement  requirements  for  interstate  special  access  services. 


 2.  For  a  period  of  thirty  months  after  the  Merger  Closing  Date,  SBC/  AT&  T  shall  not  increase  the  rates  paid  by  existing  customers  (as  of  the  Merger  Closing  Date)  of  the  DS1  and  DS3 
 local  private  line  services  that  AT&  T  provides  in  SBCs  in-  region  territory  575  pursuant,  or  referenced,  to  its  TCG  FCC  Tariff  No.  2  above  their  level  as  of  the  Merger  Closing  Date. 


 3.  For  a  period  of  thirty  months  after  the  Merger  Closing  Date,  SBC/  AT&  T  will  not  provide  special  access  offerings  to  its  wireline  affiliates  that  are  not  available  to  other  similarly 
 situated  special  access  customers  on  the  same  terms  and  conditions. 
 4.  To  ensure  that  SBC/  AT&  T  may  not  provide  special  access  offerings  to  its  affiliates  that  are  not  available  to  other  special  access  customers,  for  a  period  of  thirty  months  after  the  Merger 
 Closing  Date,  before  SBC/  AT&  T  provides  a  new  or  modified  contract  tariffed  service  under  section  69.727(  a)  of  the  Commissions  rules  to  its  own  section  272(  a)  affiliate(  s),  it  will 
 certify  to  the  Commission  that  it  provides  service  pursuant  to  that  contract  tariff  to  an  unaffiliated  customer  other  than  Verizon  Communications  Inc.,  or  its  wireline  affiliates. 


 572  For  purposes  of  these  conditions,  SBC  Advanced  Services,  Inc.  (  ASI)  shall  not  be  considered  an  SBC 
 BOC. 
 573  For  purposes  of  this  condition,  SBC  Service  Area  means  the  areas  within  SBCs  service  territory  in  which 
 SBCs  Bell  Operating  Company  subsidiaries,  as  defined  in  47  U.  S.  C.    153(  4)(  A),  are  incumbent  local  exchange  carriers. 


 574  BOC  data  shall  not  include  retail  data. 
 575  For  purposes  of  these  conditions,  SBCs  in-  region  territory  means  the  areas  within  SBCs  service  territory 
 in  which  an  SBC  operating  company  is  the  incumbent  local  exchange  carrier,  as  defined  in  47  U.  S.  C.    251(  h)(  1)(  A)  and  (B)(  i). 
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 SBC/  AT&  T  also  will  not  unreasonably  discriminate  in  favor  of  its  affiliates  in  establishing  the  terms  and  conditions  for  grooming  special  access  facilities. 
 5.  SBC/  AT&  T  shall  not  increase  the  rates  in  SBCs  interstate  tariffs,  including  contract  tariffs,  for  special  access  services  that  SBC  provides  in  its  in-  region  territory  and  that  are  set  forth  in 
 tariffs  on  file  at  the  Commission  on  the  Merger  Closing  Date.  This  condition  shall  terminate  thirty  months  from  the  Merger  Closing  Date. 


 Internet  Backbone 
 1.  For  a  period  of  three  years  after  the  Merger  Closing  Date,  SBC/  AT&  T  will  maintain  at  least  as  many  settlement-  free  U.  S.  peering  arrangements  for  Internet  backbone  services  with 
 domestic  operating  entities  as  they  did  in  combination  on  the  Merger  Closing  Date.  SBC/  AT&  T  may  waive  terms  of  its  published  peering  policy  to  the  extent  necessary  to 
 maintain  the  number  of  peering  arrangements  required  by  this  condition. 
 2.  Within  thirty  days  of  the  Merger  Closing  Date,  and  continuing  for  two  years  thereafter,  SBC/  AT&  T  will  post  its  peering  policy  on  a  publicly  accessible  website.  During  this  two-year 
 period,  SBC/  AT&  T  will  post  any  revisions  to  its  peering  policy  on  a  timely  basis  as  they  occur. 


 Alaska 
 1.  SBC/  AT&  T  acknowledges  that  the  merger  does  not  change  carrier  of  last  resort  obligations  imposed  by  the  State  of  Alaska  on  interexchange  services  provided  by  Alascom. 


 2.  SBC/  AT&  T  acknowledges  that  the  merger  will  not  alter  statutory  and  regulatory  geographic  rate  averaging  and  rate  integration  rules  that  apply  on  the  Merger  Closing  Date  to  Alascom. 
 3.  SBC/  AT&  T  agrees  that,  for  a  period  of  at  least  two  years  after  the  Merger  Closing  Date,  they  will  operate  Alascom  as  a  distinct,  though  not  structurally  separate,  corporate  entity. 
 ADSL  Service 
 1.  Within  twelve  months  of  the  Merger  Closing  Date,  SBC/  AT&  T  will  deploy  and  offer  within  its  in-  region  territory  ADSL  service  to  ADSL-  capable  customers  without  requiring  such 
 customers  to  also  purchase  circuit  switched  voice  grade  telephone  service.  SBC/  AT&  T  will  continue  to  offer  this  service  in  each  state  for  two  years  after  the  implementation  date  in 
 that  state.  For  purposes  of  this  condition,  the  implementation  date  for  a  state  shall  be  the  date  on  which  SBC/  AT&  T  can  offer  this  service  to  eighty  percent  of  the  ADSL-  capable 
 premises  in  SBCs  in-  region  territory  in  that  state.  576  Within  twenty  days  after  meeting  the  implementation  date  in  a  state,  SBC/  AT&  T  will  file  a  letter  with  the  Commission  certifying 
 to  that  effect.  In  any  event,  this  commitment  will  terminate  no  later  than  three  years  from  the  Merger  Closing  Date. 


 576  After  meeting  the  implementation  date  in  each  state,  SBC/  AT&  T  will  continue  deployment  so  that  it  can 
 offer  the  service  to  all  ADSL-  capable  premises  in  its  in-  region  territory  within  twelve  months  of  the  Merger  Closing  Date. 
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 Net  Neutrality 
 1.  Effective  on  the  Merger  Closing  Date,  and  continuing  for  two  years  thereafter,  SBC/  AT&  T  will  conduct  business  in  a  manner  that  comports  with  the  principles  set  forth  in  the  FCCs 
 Policy  Statement,  issued  September  23,  2005  (FCC  05-  151). 
 Annual  Certification 
 1.  For  three  years  following  the  Merger  Closing  Date,  SBC/  AT&  T  shall  file  annually  a  declaration  by  an  officer  of  the  corporation  attesting  that  SBC/  AT&  T  has  substantially 
 complied  with  the  terms  of  these  conditions  in  all  material  respects.  The  first  declaration  shall  be  filed  45  days  following  the  one-  year  anniversary  of  the  Merger  Closing  Date,  the 
 second  and  third  declaration  shall  be  filed  one  and  two  years  thereafter  respectively. 
 Sunset 
 1.  For  the  avoidance  of  doubt,  unless  otherwise  expressly  stated  to  the  contrary  above,  all  conditions  and  commitments  contained  in  this  letter  shall  end  on  the  second  anniversary  of 
 the  Merger  Closing  Date. 
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 Conditions  Attachment  A 
 Service  Quality  Measurement  Plan  For  Interstate  Special  Access 
 Contents  Section  1:  Ordering 
 FOCT:  Firm  Order  Confirmation  (FOC)  Timeliness 
 Section  2:  Provisioning  PIAM:  Percent  Installation  Appointments  Met 
 NITR:  New  Installation  Trouble  Report  Rate 
 Section  3:  Maintenance  and  Repair  CTRR:  Failure  Rate/  Trouble  Report  Rate 
 MAD:  Average  Repair  Interval/  Mean  Time  to  Restore 
 Section  4:  Glossary 
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 GLOSSARY 
 Access  Service  Request  (ASR)  A  request  to  the  RBOC  to  order  new  access  service,  or  request  a  change  to  existing  service,  which  provides  access  to  the  local  exchange  companys  network 
 under  terms  specified  in  the  local  exchange  companys  special  or  switched  access  tariffs. 


 RBOC  272  Affiliates  Aggregate  RBOC  Affiliate(  s)  authorized  to  provide  long  distance  service  as  a  result  of  the  Section  271  approval  process. 
 RBOC  Affiliates  Aggregate  RBOC  Telecommunications  and  all  RBOC  Affiliates  (including  the  272  Affiliate).  Post  sunset,  comparable  line  of  business  (e.  g.,  272  line  of  business) 
 will  be  included  in  this  category. 
 Business  Days  Monday  thru  Friday  (8AM  to  5PM)  excluding  holidays 
 CPE  Customer  Provided  or  Premises  Equipment 
 Customer  Not  Ready 


 (CNR) 
 A  verifiable  situation  beyond  the  normal  control  of  the  RBOC  that  prevents  the  RBOC  from  completing  an  order,  including  the  following:  CLEC  or  IXC  is  not 
 ready  to  receive  service;  end  user  is  not  ready  to  receive  service;  connecting  company  or  CPE  supplier  is  not  ready. 


 Firm  Order  Confirmation 
 (FOC) 
 The  notice  returned  from  the  RBOC,  in  response  to  an  Access  Service  Request  from  a  CLEC,  IXC  or  affiliate,  that  confirms  receipt  of  the  request  and  creation 
 of  a  service  order  with  an  assigned  due  date. 
 Unsolicited  FOC  An  Unsolicited  FOC  is  a  supplemental  FOC  issued  by  the  RBOC  to  change  the  due  date  or  for  other  reasons,  e.  g.,  request  for  a  second  copy  from  the 
 CLEC/  IXC,  although  no  change  to  the  ASR  was  requested  by  the  CLEC  or  IXC. 
 Project  or  ICB  Service  requests  that  exceed  the  line  size  and/  or  level  of  complexity  that  would  allow  the  use  of  standard  ordering  and  provisioning  interval  and  processes. 
 Service  requests  requiring  special  handling. 
 Repeat  Trouble  Trouble  that  reoccurs  on  the  same  telephone  number/  circuit  ID  within  30  calendar  days 


 Service  Orders  Refers  to  all  orders  for  new  or  additional  lines/  circuits.  For  change  order  types,  additional  lines/  circuits  consist  of  all  C  order  types  with  I  and  T  action  coded 
 line/  circuit  USOCs  that  represent  new  or  additional  lines/  circuits,  including  conversions  for  RBOC  to  Carrier  and  Carrier  to  Carrier. 
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 STATEMENT  OF  CHAIRMAN  KEVIN  J.  MARTIN 
 Re:  SBC  Communications  Inc.  and  AT&  T  Corp.  Applications  for  Approval  of  Transfer  of  Control,  Memorandum  Opinion  and  Order,  WC  Docket  No.  05-  65 
 Today,  we  vote  to  approve  the  mergers  of  SBC  and  AT&  T  as  well  as  Verizon  and  MCI.  These  mergers  will  create  national  facilities-  based  providers  of  telecommunications  services  that  will  provide 
 new  and  advanced  services  to  both  mass  market  and  enterprise  customers.  As  end-  to-  end  providers  of  communications  services,  these  companies  will  make  significant  investments  in  fiber-  optic  networks  and 
 use  these  networks  to  provide  customers  a  broad  array  of  voice,  data,  and  video  services. 
 I  believe  that  the  transactions  we  approve  today  are  consistent  with  and  will  further  many  of  the  Commissions  competition,  broadband,  and  public  safety  priorities.  For  example,  these  mergers  create 
 strong  global  carriers  that  will  vigorously  compete  both  internationally  and  domestically.  Further,  the  complement  of  the  local  and  long  distance  network  facilities  will  permit  the  merged  entities  to  offer  a 
 more  diverse  array  of  services  to  a  broader  range  of  customers.  It  is  my  expectation  that  these  mergers  will  only  increase  the  incentive  and  ability  of  the  merged  entities  to  invest  in  broadband  infrastructure  and 
 spread  the  deployment  of  advanced  services  to  all  Americans.  Of  particular  importance  to  me,  the  mergers  will  further  the  goal  of  public  safety  by  virtue  of  the  commitments  that  have  been  made  with 
 regard  to  compliance  with  the  Commissions  November  28  th  deadline  to  deploy  a  911  solution  for  VoIP  customers. 


 I  know  that  many  have  expressed  questions  about  these  mergers.  For  example,  some  are  concerned  that  these  transactions  will  adversely  affect  competing  providers  that  rely  on  the  merger 
 applicants  for  wholesale  inputs.  Others  have  been  concerned  about  the  effect  of  these  mergers  on  end  users    particularly  business  end  users  that  purchase  special  access  services.  I  believe  that  the  remedy 
 imposed  by  the  Department  of  Justice  should  adequately  address  any  concerns  in  this  regard.  Moreover,  I  note  that  under  the  commitments  made  by  the  Applicants,  UNE  rates  are  effectively  capped  for  two  years 
 and  special  access  prices  are  essentially  frozen  for  30  months  from  the  merger  closing  date. 
 Concerns  have  also  been  raised  about  the  impact  of  this  merger  on  the  Internet  backbone  market.  We  have  found  this  market,  which  has  never  been  regulated,  to  be  sufficiently  competitive.  It  is  the 
 Commissions  prediction  that  these  mergers  will  in  no  way  alter  this  dynamic.  In  any  event,  the  Applicants  have  committed  to  publicly  post  their  peering  criteria  and  to  continue  settlements-  free  peering 
 arrangements  with  the  same  number  of  providers  post-  merger  as  they  did,  in  combination,  pre-  merger. 
 Let  me  say  that  I  do  not  believe  that  all  of  the  conditions  imposed  today  are  necessary.  I  believe  that  the  affected  markets  would  remain  vibrantly  competitive  absent  these  conditions.  Nevertheless,  the 
 parties  involved  have  chosen  to  make  these  commitments  now  in  order  to  obtain  the  certainty  of  immediate  Commission  approval  for  their  mergers.  I  understand  their  desire  to  move  forward,  and  agree 
 that  the  public  interest  will  be  well  served  by  providing  certainty  sooner  rather  than  later. 
 The  fiber  optic  networks  of  today  that  are  capable  of  delivering  over  100  mbps  worth  of  capacity  have  come  a  long  way  from  the  microwave  transmission  technology  that  was  first  used  to  compete  several 
 decades  ago.  We  are  seeing  both  intermodal  and  intramodal  providers  aggressively  competing  for  customers  using  a  multitude  of  new  technologies  and  platforms.  The  telecommunications  industry  is  a 
 constantly  evolving  one,  and  the  consummation  of  these  mergers  represents  the  opening  of  a  new  chapter  in  communications  history.  I  look  forward  to  the  promise  of  continued  technological  innovation. 
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 Finally,  I  would  like  to  thank  my  colleagues  for  their  rigorous  review  of  these  transactions.  I  know  that  these  mergers  presented  difficult  issues  for  them  to  consider  and  I  appreciate,  as  always,  their 
 professionalism  and  willingness  to  always  do  what  it  is  in  the  public  interest. 
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 STATEMENT  OF  COMMISSIONER  KATHLEEN  Q.  ABERNATHY 
 Re:  SBC  Communications  Inc.  and  AT&  T  Corp.  Applications  for  Approval  of  Transfer  of  Control,  Memorandum  Opinion  and  Order,  WC  Docket  No.  05-  65 
 It  has  often  been  said  that  nothing  is  constant  except  for  change.  And  we  as  telecommunications  regulators  need  to  be  particularly  mindful  of  this  because  change  is  the  engine  that  drives  progress. 
 Unfortunately,  today  we  focus  too  much  on  micromanaging  the  growth  and  pace  of  change,  rather  than  how  to  harness  it  to  benefit  consumers. 


 During  my  time  as  a  Commissioner,  I  have  spoken  at  length  about  the  enormous  disruptions  in  the  telecommunications  marketplace  being  wrought  by  convergence  and  the  great  progress  it  has  brought. 
 We  now  have  competition  more  vibrant  than  has  ever  been  seen  in  the  telecommunications  industry,  and  this  has  dictated  a  significant  shift  in  the  business  strategies  of  the  companies  in  that  industry. 
 Technological  advances  that  spurred  competition  now  allow  us  to  consider  mergers  that  might  have  been  unthinkable  in  the  natural  monopoly  pre-  convergence  era.  Dramatic  changes  in  the  technology,  the 
 economics,  and  the  structure  of  the  market  have  mooted  prior  concerns. 
 The  principal  question  before  us  today  is  this:  whether  the  particular  convergence  of  SBC  and  AT&  T,  on  the  one  hand,  and  Verizon  and  MCI,  on  the  other,  is  compatible  with  the  public  interest  and, 
 more  specifically,  whether  the  two  mergers  further  innovation  and  the  growth  of  competition.  While  I  am  pleased  that  we  are  allowing  the  mergers  to  go  forward,  some  of  the  conditions  in  the  Orders  reflect  a 
 failure  to  appreciate  the  degree  to  which  the  market  has  changed  and  how  that  constrains  market  behavior  by  the  applicants. 


 As  the  applicants  know  only  too  well,  todays  market  for  telecommunications  is  vibrant  and  challenging  and  offers  no  guaranteed  rate  of  return  on  investment.  Perhaps  most  importantly,  the 
 economic  foundations  of  the  interexchange  market  have  shifted  dramatically  as  the  Bell  Operating  Companies  have  won  approval  to  offer  in-  region  long-  distance  services.  The  local  exchange  market  has 
 also  been  transformed  as  the  growing  demands  of  business  customers  have  emphasized  the  need  for  high-capacity  networks  with  global  reach.  The  market  for  data  services  and  Internet  access  -  -  something 
 barely  on  our  radar  screens  5  years  ago  -  -  has  exploded  as  individuals  and  businesses  alike  consume  more  and  more  high-  bandwidth  content  and  require  faster  and  faster  broadband  connections.  And  amidst  all  of 
 this,  the  rise  of  high-  capacity  next-  generation  networks  and  fierce  competition  from  wireless,  cable-  based,  and  VoIP  providers  has  drastically  undermined  the  rationale  for  extensive  regulation. 


 These  mergers  must  be  viewed  in  the  context  of  these  changes,  precisely  because  they  are  the  natural  outgrowth  of  these  changes.  As  proposed,  each  of  these  transactions  would  marry  a  Bell 
 Operating  Companys  extensive  local  residential  facilities  and  broadband  Internet  access  offerings  with  an  established  interexchange  carriers  business  service  offerings,  long-  distance  facilities,  and  Internet 
 backbone  assets.  The  combination  of  these  capabilities  expands  the  merged  companies  scope  and  scale  outside  their  own  regions,  improves  operational  efficiencies,  enlarges  the  companies  range  of  offerings, 
 and  reduces  prices  for  business  and  residential  consumers  alike.  In  short,  these  mergers  are  intended  to  give  birth  to  strong,  nimble  competitors,  able  to  meet  the  demands  placed  on  twenty-  first  century 
 providers  by  customers  with  widely  disparate  needs. 
 As  approved,  however,  I  fear  that  many  of  these  potential  gains  will  be  delayed  or  compromised.  In  my  judgment,  the  conditions  included  in  the  Orders  before  us  require  the  merged  companies  to  provide 
 offerings  that  the  market  might  not  demand,  to  sacrifice  synergies  by  needlessly  treating  their  affiliates  at 
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 arms  length,  and  to  maintain  business  relationships  based  on  current  assumptions  even  if  those  assumptions  cease  to  reflect  economic  reality.  Moreover,  the  companies  will  have  to  abide  by  these 
 conditions  while  their  most  aggressive  competitors    whether  they  use  wireline,  wireless,  cable,  or  other,  next-  generation  facilities    remain  exempt. 


 I  have  consistently  opposed  this  kind  of  micromanaged  regulatory  oversight  in  situations  where  competitive  forces  discipline  market  behavior.  In  addition,  it  is  difficult  for  me  to  understand  how  this 
 approach  is  consistent  with  this  Commissions  support  for  regulatory  parity  and  competitive  neutrality.  It  is  no  answer  to  say  that  the  applicants  have  agreed  to  accept  these  conditions,  and  therefore  they  must 
 certainly  be  good,  or  at  least  not  all  that  bad.  That  position  fails  to  take  into  account  that  such  conditions  are  the  quid  pro  quo  that  merger  applicants  must  accept  in  order  to  get  timely  approval. 


 I  would  perhaps  be  less  concerned  about  this  aspect  of  todays  decisions  if  either  (a)  the  Department  of  Justice  had  outlined  problems  arising  from  the  larger  competitive  impacts  of  these 
 mergers;  or  (b)  these  remedies  were  clearly  needed  to  cure  palpable  existing  problems.  But  neither  is  the  case  here.  While  I  recognize  that  the  Commissions  merger  review  mandate  implicates  a  broader  standard 
 of  review  than  that  of  DOJ,  it  remains  nevertheless  true  that  DOJs  review  was  focused  on  the  same  issues  we  are  asked  to  examine:  competition  in  the  various  markets  involved.  And  all  the  expert  economists, 
 lawyers,  and  other  professionals  reviewing  these  issues  for  DOJ  found  no  significant  cause  for  concern  in  most  of  the  areas  subject  to  the  conditions. 


 I  am  not  suggesting  that  DOJs  evaluation  is,  or  should  be,  co-  extensive  with  ours.  But  what  I  would  suggest  is  that  it  effectively  places  on  the  Commission  the  burden  of  showing  the  existence  of 
 other  problems  so  grave  and  immediate  that  conditioning  the  merger  agreement  is  the  only  effective  remedy.  It  should  not  be  standard  operating  procedure  to  craft  company-  specific  merger  conditions  to 
 address  unknown  and  hypothetical  competitive  threats.  After  all,  the  customary  administrative  weaponry  in  the  Commissions  arsenal    rulemaking,  enforcement,  and  so  on    does  not  suddenly  evaporate  once  a 
 merger  is  approved.  We  always  have  these  tools  and  we  can  always  use  them  when  and  if  necessary. 
 The  competition  unleashed  by  the  convergence  of  formerly  separate  lines  of  business  places  an  additional  premium  on  taking  a  more  circumspect  approach  to  conditioning  mergers.  Competition  is  a 
 process,  not  a  product.  This  new  competitive  market  is  still  developing,  and  it  needs  to  be  given  reasonable  regulatory  elbow-  room  to  do  so.  Imposing  ad  hoc  conditions  that  do  not  reflect  the  realities  of 
 todays  market  hamstrings  this  development  rather  than  helps  it  and  creates  market  distortions.  Therefore,  it  is  my  view  that  we  should  resort  to  imposing  such  conditions  only  first,  where  the  perceived 
 harm  is  an  obvious  consequence  of  the  merger,  not  merely  a  prediction  about  what  might  go  wrong;  and  second,  where  other  administrative  remedies  are  inadequate  to  address  this  harm.  That  simply  isnt  the 
 case  in  these  mergers,  with  these  conditions. 
 The  applicants  have  looked  at  their  business  plans  and  determined  that  change  is  not  only  inevitable,  but  necessary,  if  they  are  to  continue  to  respond  to  consumer  demand  for  lower  prices  and 
 better  technology.  I  agree.  They  argue  that  the  explosion  of  competition  has  rendered  extensive  conditions  unnecessary.  Again,  I  agree.  These  companies,  their  customers,  and  their  competitors  all 
 understand  that  we  no  longer  live  in  the  monopoly  world  of  years  past  and  that  our  job  as  regulators  is  to  keep  pace  with  change,  embrace  competition  and  focus  on  consumer  protection,  not  the  protection  of  the 
 status  quo. 
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 STATEMENT  OF  COMMISSIONER  MICHAEL  J.  COPPS, 
 CONCURRING 
 Re:  SBC  Communications  Inc.  and  AT&  T  Corp.  Applications  for  Approval  of  Transfer  of  Control,  Memorandum  Opinion  and  Order,  WC  Docket  No.  05-  65  (Concurring) 


 The  mergers  before  us  are  about  more  than  the  union  of  this  countrys  largest  telecommunications  carriers.  They  are  about  consumers  phone  bills,  the  availability  of  competitive  broadband  options  and 
 the  future  of  the  Internet.  But  in  a  sense,  these  mergers  can  also  be  seen  as  an  epitaph  for  the  competition  that  many  of  us  thought  we  would  enjoy  as  a  result  of  the  Telecommunications  Act  of  1996.  That 
 legislation,  I  am  convinced,  envisioned  a  vastly  different  communications  landscape  than  the  one  we  find  ourselves  living  in  today. 


 If  you  seek  the  reason  why  we  havent  arrived  at  that  happy  valley  of  competition  rife  with  consumer  benefits,  you  can  start  with  the  misdirected  policies  of  the  FCC  over  the  last  several  years.  On 
 too  many  fronts,  the  Commission  put  the  spear  to  the  pro-  competitive  policies  of  the  Telecommunications  Act  of  1996.  It  put  intra-  modal  competition  for  the  residential  market  pretty  much  beyond  reach  for  new 
 entrant  carriers  and  then  proceeded  to  inhibit  enterprise  competition,  too.  We  turned  our  eyes  away  when  enforcement  was  needed  to  keep  bottleneck  facilities  open.  And  all  the  while  we  kept  singing  confidently 
 Dont  Worry,  Be  Happy  inter-  modal  competition  is  going  to  save  us  with  all  its  new  options.  Maybe,  but  then  again  maybe  not  were  still  waiting.  I  think  we  ought  to  be  concerned.  Thanks  in  part  to  our 
 actions,  the  wireline  market  became  increasingly  the  province  of  the  few.  More  than  half  of  the  wireless  market  came  under  the  control  of  incumbent  wireline  providers.  New  services  like  VoIP  have  been  held 
 back  by  the  high  cost  of  broadband  in  this  country.  And  now  the  Internet  backbone  seems  headed  in  the  same  direction  of  control  by  a  favored  few. 


 This  state  of  affairs  is  not  of  my  making  or  choosing.  The  record  shows  that  I  objected  vociferously  to  many  of  these  changes.  I  would  have  chosen  a  very  different  path  than  the  one  we  travel 
 today.  But  in  the  end,  we  are  charged  with  considering  these  mergers  in  the  context  of  the  world  that  is,  not  the  one  that  might  have  been. 


 In  this  environment,  I  believe  my  responsibility  is  to  identify  and  fight  for  what  we  can  preserve,  so  that  American  consumers  can  still  enjoy  some  competition  in  telecom  services;  that  business 
 customers,  too,  can  benefit  from  competitive  rates  and  innovative  service  choices  and  lower  prices;  and  that,  when  it  comes  to  the  Internet,  we  can  all  go  where  we  want  to  go  and  do  what  we  want  to  do  with 
 this  dynamic  tool  that  is  so  critical  to  our  nations  future.  These  things  are  all  clearly  in  the  public  interest. 


 The  Order  the  Commission  adopts  today  falls  far  short  of  ideal.  Maybe  a  better  way  to  put  it  on  this  Halloween  Day  is  to  say:  Its  not  a  trick  or  much  of  a  treat,  but  its  all  you  get  if  you  come  knocking 
 at  the  Commissions  door  today.  Yet,  clearly,  this  is  better  than  approving  these  mergers  without  any  conditions.  There  have  been  difficult  discussions  here  in  recent  days,  but  they  have  been  substantive, 
 productive  and  fair.  And  while  I  wish  I  could  have  been  more  persuasive  on  a  number  of  issues,  we  should  keep  in  mind  that  this  outcome  is  far  from  a  rubber  stamp  approval  of  the  item  we  received.  I 
 would  not  could  not  support  an  unconditioned  approach.  Would  I  have  preferred  to  do  more?  Yes.  Am  I  entirely  satisfied?  No.  But  this  Order  is  now  conditioned  on  provisions  designed  to  address 
 numerous  possible  harms  to  competition  and  to  consumers,  as  well  as  to  protect  the  openness  and  innovation  that  must  always  characterize  the  Internet. 
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 for  phone  calls  or  swapping  video  files.  The  more  powerful  and  concentrated  our  facilities  providers  grow,  the  more  they  have  the  ability,  and  perhaps  even  the  incentive,  to  close  off  Internet  lanes  and  block 
 IP  byways.  Im  not  saying  this  is  part  of  their  business  plans  today;  I  am  saying  we  create  the  power  to  inflict  such  harms  only  at  great  risk  to  consumers,  innovation  and  our  nations  competitive  posture. 
 Because,  in  practice,  such  stratagems  can  mean  filtering  technologies  that  restrict  use  of  Internet-  calling  services  or  that  make  it  difficult  to  watch  videos  or  listen  to  music  over  the  web.  The  conditions  we  adopt 
 today  speak  directly  to  this  issue  before  increased  concentration  of  last  mile  facilities  and  the  Internet  backbone  make  it  intractable.  This  is  why  stand-  alone  DSL,  enforceable  net  neutrality  principles,  and 
 peering  in  the  Internet  backbone  are  so  vital. 
 I  also  am  pleased  that  these  conditions  now  express  a  measure  of  concern  for  the  effects  of  these  mergers  on  competitive  wireline  providers.  Competitive  carriers  will  benefit  from  the  reforms  we  put  in 
 place  for  special  access  and  UNEs.  This  will  provide  at  least  some  latitude  for  competitive  players  trying  to  crack  open  an  increasingly  concentrated  marketplace.  We  need  active  and  engaged  competitive 
 carriers  to  keep  rates  low.  This  is  especially  important  for  small  business  customers. 
 In  addition,  this  Order  takes  a  cautious  view  of  the  impact  of  these  mergers  on  rural  America.  We  share  a  concern  that  the  mergers  not  be  allowed  to  jeopardize  interconnection  for  small  and  rural 
 providers.  To  this  end,  the  Commission  commits  to  monitoring  the  situation  on  an  ongoing  basis.  This  is  important  because  the  wrong  policies  here  could  actually  put  rural  America  at  further  disadvantage 
 compared  to  the  rest  of  the  country.  I,  for  one,  will  be  vigilant  in  making  sure  this  never  happens. 
 Looking  beyond  the  transaction  before  us,  it  is  obvious  that  the  whole  telecommunications  landscape  continues  to  change  dramatically.  But  despite  all  of  the  advances  in  technology  and  efficiency 
 over  the  last  decade,  local  phone  rates  have  failed  to  decline.  Household  phone  penetration  is  at  the  lowest  rate  in  17  years.  Surely  being  16  th  in  the  world  in  broadband  penetration  is  nothing  to  crow  to 
 about.  And,  yes,  we  still  have  enormous  digital  gaps  from  the  inner  city  to  the  rural  village,  and  there  is  a  real  threat  that  current  policies  may  widen  rather  than  close  those  gaps.  So  there  are  already  ample 
 warning  signs  something  is  not  right.  And  it  is  long  past  time  for  the  Commission  to  pay  heed. 
 It  may  be  that  we  can  address  all  these  concerns  in  a  big  carrier  environment.  Conversely,  it  may  be  that  we  are  tacking  back  in  time  toward  an  era  when  concentrated  power  dictated  what  limited  services 
 we  could  and  could  not  have  and  we  had  no  recourse  but  to  accept  what  was  offered.  In  any  case,  I  am  mindful  that  there  are  large  and  portentous  questions  here  and  that  their  ultimate  resolutions  often  range 
 beyond  the  boundaries  of  FCC  jurisdiction.  The  Commission  important  as  its  work  is  does  not  design  the  legal  landscape  for  telecommunications.  Congress  is  looking  at  these  issues  and  will  hopefully  be 
 updating  our  telecommunications  statute  in  the  months  or  year  ahead  and  there  is  no  substitute  for  that  kind  of  guidance.  I  also  believe  we  need  some  real  national  dialogue  on  these  issues  regarding  consumer 
 rights,  Internet  openness,  broadband  deployment  and  many  more.  I  think  we  will  find  the  American  people  more  than  happy  to  engage  such  a  discussion.  They  understand  that  how  these  issues  are  decided 
 is  important  to  them.  The  bottom  line  here  is  that  these  issues  are  vitally  important  to  the  future  of  our  country.  Telecommunications  are  going  to  be  a  major  driver  of  our  economy  in  this  new  century.  We 
 just  have  to  get  the  legal  and  regulatory  landscape  right.  If  we  get  it  wrong,  American  consumers  will  pay  and  so  will  American  technology,  innovation  and  entrepreneurship.  No  less  than  our  global 
 competitiveness  in  the  new  information  age  is  at  stake. 
 Above  all,  we  must  have  some  humility  about  what  we  do.  There  are  honest  disagreements  over  these  issues  and  I  dont  believe  that  any  one  of  us  has  it  all  figured  out.  So  we  have  to  be  always  open  to 
 new  facts  and  always  follow  up  on  the  real-  world  consequences  of  our  actions.  If  rates  go  up  for  residential  and  business  users  as  a  result  of  our  decision  today,  if  our  broadband  penetration  rates  fall 
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 further  in  comparison  with  what  other  countries  with  different  policies  are  experiencing,  and  if  consumers  find  that  their  Internet  freedom  is  being  shackled  by  monopoly  or  duopoly  control,  then  we  have  a  clear 
 and  pressing  duty  to  revisit  what  we  have  done.  So  we  need  to  put  as  much  or  more  effort  and  resources  into  monitoring  the  consequences  of  our  actions  as  we  do  in  bringing  them  forward  for  a  vote.  I  have 
 worked  in  this  proceeding  to  protect  against  injurious  consequences,  as  best  I  can  under  the  circumstances,  and  while  I  would  have  liked  more,  I  will  concur  in  these  Orders  and  pledge  my  close 
 attention  to  their  unfolding  consequences. 
 We  at  this  table  are  all  indebted  to  the  work  of  the  Bureau  and  to  the  tireless  dedication  of  our  personal  staffs  as  these  items  matured  and  particularly  their  often  heroic  efforts  over  the  past  week.  For 
 my  part  I  want  to  extend  my  appreciation  and  admiration  to  Jessica  Rosenworcel.  Her  tenacity  and  creativity  through  all  of  this  have  been  an  inspiration. 
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 STATEMENT  OF  COMMISSIONER  JONATHAN  S.  ADELSTEIN, 
 CONCURRING 
 Re:  SBC  Communications  Inc.  and  AT&  T  Corp.  Applications  for  Approval  of  Transfer  of  Control,  Memorandum  Opinion  and  Order,  WC  Docket  No.  05-  65  (Concurring) 


 While  I  am  deeply  concerned  about  the  concentration  and  loss  of  wireline  competition  that  may  occur  as  a  result  of  these  mergers,  I  concur  in  these  Orders  because  they  each  include  a  minimum  set  of 
 conditions  that  tip  the  balance,  albeit  narrowly,  in  favor  of  approval. 
 In  these  proceedings,  we  consider  the  mergers  of  the  two  largest  incumbent  telephone  companies  in  the  United  States  with  the  two  largest  long  distance  telephone  companies.  My  job  is  to  determine 
 whether  these  proposed  combinations  will  advance  the  public  interest. 
 The  Applicants  have  argued  that  these  mergers  will  create  two  companies  that  are  stronger  competitors  in  the  global  marketplace  and  that  will  be  better  positioned  to  bring  broadband  and  video 
 services  to  American  consumers.  I  support  the  Applicants  efforts  to  promote  ubiquitous  broadband  and  competitive  video  services  and  look  forward  to  seeing  their  continued  commitment  to  these  goals. 


 At  the  same  time,  I  am  concerned  about  the  potential  harms  of  these  mergers.  AT&  T  and  MCI  are,  without  question,  two  of  the  leading  providers  of  competitive  choice  across  the  country,  and  these 
 combinations  will,  by  any  measure,  create  more  concentration  in  markets  that  are  already  highly  concentrated.  We  must  be  particularly  careful  where  a  proposed  merger  would  lead  to  less  competition 
 rather  than  more,  so  I  give  these  concerns  great  weight. 
 Based  on  my  weighing  of  these  potential  benefits  and  harms,  I  could  not  support  these  mergers  in  the  absence  of  reasonable  conditions.  Without  conditions,  there  is  a  real  possibility  that  these 
 combinations  would  increase  rates  for  both  residential  and  business  consumers  and  put  at  risk  the  continued  existence  of  the  open  and  robust  Internet.  So,  my  support  here  is  based  on  the  Applicants 
 offers  to  comply  with  a  minimum  set  of  conditions  that  will  help  promote  consumer  choice  and  the  development  competitive  alternatives.  Indeed,  I  would  have  preferred  additional  and  more  rigorous 
 safeguards  beyond  those  set  forth  in  these  Orders. 
 I  am  particularly  pleased  that  the  Applicants  have  agreed  to  offer  a  stand-  alone  DSL  broadband  product.  Consumer  advocates  strongly  supported  this  condition,  which  will  substantially  expand  the 
 options  available  to  residential  and  small  business  consumers.  By  conditioning  this  merger  on  the  offering  of  a  stand-  alone  DSL  broadband  offering,  we  create  an  opportunity  for  the  development  of 
 competitive  Voice  Over  Internet  Protocol  (VoIP)  and  help  spur  innovative  communications  technologies.  According  to  consumer  advocates,  many  consumers  will  want  bundled  services,  but  when  companies 
 unilaterally  mandate  that  broadband  and  phone  services  be  purchased  together,  they  diminish  the  incentive  of  consumers  to  purchase  VoIP  phone  service  from  competing  providers  or  to  rely  on  wireless 
 service  as  their  primary  option.  In  addition,  by  committing  to  do  annual  reports  that  assess  the  competitiveness  of  the  consumer  broadband  market,  we  also  will  have  the  ability  to  monitor  whether 
 these  services  are  being  made  available  to  consumers  at  reasonable  prices  and  under  fair  terms.  Consumers  deserve  the  option  of  choosing  the  combination  of  services  that  fits  their  needs,  and 
 encouraging  greater  purchasing  flexibility  through  stand-  alone  DSL  furthers  this  goal. 
 A  stand-  alone  DSL  offering  is  an  important  contribution  to  the  marketplace,  but  I  do  not  pretend  that  it  is  a  panacea.  It  will  not  provide  greater  choice  for  those  who  cannot  afford  DSL  or  who  do  not 
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 have  DSL  available  in  their  area.  Especially  vexing  is  that  the  stand-  alone  DSL  offering  outlined  in  this  Order  could  also  have  been  more  robust.  For  example,  we  could  have  done  more  to  enable  consumers  to 
 purchase  DSL  services  free  from  any  voice  service,  rather  than  just  traditional  circuit-  switched  voice  services. 


 Some  have  argued  that  AT&  T  and  MCI  had  already  made  irreversible  decisions  to  exit  the  entire  consumer  market,  but  it  is  worth  noting  that  this  exit  was  certainly  hastened,  if  not  precipitated,  by  the 
 actions  of  this  Commission  and  the  courts.  In  a  very  tangible  way,  we  reap  what  was  sown  in  prior  Commission  decisions  that  consistently  undercut  competitors  ability  to  offer  choice  to  American 
 consumers.  As  many  of  you  know,  I  was  a  frequent  dissenter  to  those  FCC  decisions,  which  form  the  prologue  for  todays  action.  I  predicted  then  that  those  decisions  would  lead  to  less  choice  for  consumers. 
 In  some  ways,  these  transactions  fulfill  that  prophecy.  So  while  I  am  pleased  that  we  are  able  to  take  some  meaningful  steps  in  these  Orders  to  promote  the  interests  of  consumers,  this  Commission  must 
 closely  monitor  the  affordability  and  availability  of  the  broadband  services  and  the  intermodal  competition  that  we  count  on  to  fill  the  gaps. 


 I  also  find  compelling  that  the  Applicants  have  agreed  to  comply  with  the  Commissions  Internet  Policy  Statement  as  an  enforceable  condition  of  these  mergers.  Commenters  have  voiced  concern  that  the 
 horizontal  and  vertical  integration  of  the  Applicants  Internet  backbone  networks,  particularly  considering  the  two  mergers  together,  may  create  an  incentive  and  ability  to  discriminate  against  other  providers  in 
 what  has  heretofore  been  a  competitive  market.  Maintaining  an  open  and  robust  Internet  is  absolutely  critical.  Just  two  months  ago,  the  Commission  set  out  in  this  Policy  Statement  a  basic  set  of  consumer 
 expectations  for  broadband  providers  and  the  Internet.  With  this  Statement,  we  sought  to  ensure  that  consumers  are  entitled  to  access  the  lawful  Internet  content  of  their  choice,  to  run  applications  and  use 
 services  of  their  choice,  subject  to  the  needs  of  law  enforcement,  and  to  connect  their  choice  of  legal  devices  that  do  not  harm  the  network.  While  I  applaud  the  Applicants  for  agreeing  to  comply  with  this 
 statement  of  principles  as  an  enforceable  condition  of  their  mergers,  I  must  admit  a  deep  foreboding  that  this  commitment  is  only  for  two  years.  Given  that  it  is  Halloween,  I  hope  that  there  are  no  tricks  up 
 anyones  sleeve.  If  any  attempt  to  disrupt  consumers  ability  to  unfettered  access  to  the  content  of  their  choice  occurs  before  or  after  the  conditions  expire,  I  expect  the  Commission  will  treat  such  a  violation  of 
 the  public  trust  and  our  policy  with  the  seriousness  it  deserves. 
 The  Applicants  have  also  made  notable  commitments  to  protect  against  concentration  in  the  Internet  backbone  market.  In  the  face  of  concern  over  their  Internet  backbone  practices,  the  Applicants 
 argued  that  there  are  sufficient  incentives  to  facilitate  a  competitive  market  and  that  concerns  about  anticompetitive  practices  in  the  Internet  backbone  peering  arrangements  are  ill-  founded.  By  agreeing  to 
 publicly  release  their  peering  policies  and  by  committing  to  maintain  settlement-  free  peering  with  at  least  as  many  backbone  providers  as  they  peered  with  pre-  merger,  we  give  competitors  important  tools  to 
 assess  and  monitor  the  accuracy  of  these  claims. 
 For  American  business  customers,  these  mega-  combinations  may  present  the  greatest  risks.  Although  business  users  tend  to  have  more  options  than  residential  users,  the  Commission  concludes  that 
 there  is  still  a  high  level  of  concentration  in  the  enterprise  market  in  most  areas  of  the  country  today,  and  the  record  makes  clear  that  AT&  T  and  MCI  are  two  of  the  largest  sources  of  choice  for  business  users  and 
 largest  suppliers  of  wholesale  special  access  services  to  competitive  carriers.  Indeed,  the  record  suggests  that  even  the  mere  presence  of  AT&  T  or  MCI  in  the  competitive  bidding  process  results  in  lower 
 wholesale  prices.  Based  on  these  competitors  national  positions  and  ability  to  apply  competitive  pressure  to  wholesale  prices,  I  believe  that  a  more  substantial  divestiture  of  overlapping  facilities  would 
 have  been  appropriate  with  this  merger.  I  am  not  convinced  that  the  relatively  minor  number  of  facilities  where  the  Applicants  are  required  to  lease  high-  capacity  lines    representing  far  less  than  one  percent  of 
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 their  commercial  buildings    is  sufficient  by  itself  to  remedy  this  significant  loss  of  actual  and  potential  competition.  The  Department  of  Justices  action  leaves  99.9%  of  commercial  buildings  in  SBC  and 
 Verizon  territory  wholly  unprotected  from  the  loss  of  competition  that  AT&  T  and  MCI  brought  to  bear. 
 In  the  absence  of  more  thorough  protections,  I  believe  it  is  imperative  that  this  Commission  adopt  safeguards  to  protect  against  the  loss  of  competition.  So,  I  am  pleased  that  these  Orders  include  price 
 freezes  for  all  four  companies  current  special  access  offerings.  The  Orders  also  include  anti-discrimination  provisions,  which  will  help  ensure  that  the  combined  companies  do  not  discriminate  in 
 favor  of  their  own  affiliates  or  in  favor  of  each  other.  I  also  commend  the  Applicants  for  including  provisions  to  ensure  against  unreasonable  grooming  restrictions,  which  might  otherwise  prevent 
 competitors  from  choosing  the  least  cost  option  for  providing  service.  While  I  would  have  gone  further  to  ensure  fair  pricing  of  services  to  retail  and  wholesale  customers,  and  done  so  for  a  longer  period  than 
 thirty  months,  we  do  afford  some  modest  protection  from  price  hikes  that  could  otherwise  occur  after  the  loss  of  such  formidable  competitors. 


 I  also  am  pleased  that  the  Applicants  have  agreed  to  freeze  rates  for  the  wholesale  network  elements  used  by  competitors  and  to  recalculate  the  impairment  triggers  for  determining  the  availability 
 of  these  elements.  This  later  point  was  particularly  critical  for  my  support. 
 In  approving  these  mergers,  I  rely  specifically  on  the  companies  assurances  that  they  will  fully  implement  the  commitments  they  have  made  both  in  their  applications  and  in  their  more  recent  filings.  In 
 these  Orders,  we  state  our  expectation  for  increased  competition  among  a  broad  array  of  intermodal  and  intramodal  competitors.  We  also  state  our  expectation  for  vigorous  out-  of-  region  competition  by  the 
 Applicants.  Unfortunately,  the  record  on  meeting  past  commitments  on  out-  of-  region  competition  is  not  what  it  could  be.  So,  it  is  imperative  that  this  Commission  commit  to  monitor  and  vigorously  enforce  the 
 terms  of  these  merger  orders. 
 The  market  changes  approved  in  these  Orders  are  historic  in  scope,  but  they  are  also  part  of  a  larger  industry  restructuring  that  is  quickly  changing  the  landscape  for  consumers  of  telephone,  Internet 
 and  video  services.  The  opportunities  from  these  technologies  are  greater  than  ever,  but  so  is  the  penalty  for  those  left  without  options.  We  consider  these  mergers  in  light  of  these  larger  industry  trends,  but  I 
 must  note  that  there  is  much  analysis  in  these  Orders  that  I  find  lacking  or  downright  troubling.  The  Orders  sweeping  conclusions  about  the  lack  of  impact  of  these  combinations  requires  us  to  take  a  lot  on 
 faith:  more  than  consumers  should  expect.  But  given  the  willingness  of  my  colleagues  and  the  parties  to  compromise,  we  strike  a  reasonable  balance.  So,  while  I  can  agree  to  support  the  package  of  conditions 
 agreed  to  by  the  Applicants  and  my  colleagues,  I  can  only  concur  to  the  Orders  given  my  concern  with  the  overall  analysis  in  these  items. 


 I  would  like  to  commend  my  colleagues  for  their  cooperation  and  willingness  to  accommodate  many  of  my  concerns  here.  I  also  commend  the  staff  of  the  Wireline  Competition  Bureau  for  their  hard 
 work  on  this  item  right  down  to  the  wire.  These  fine  public  servants  have  been  willing  to  stay  many  late  nights  and  weekends  to  move  the  business  of  the  Commission  forward  and  I  thank  them  for  their  efforts. 
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