In Re:
                              )
ILEC MERGER                   )
EN BANC HEARING               )
                         
Volume:   1
Pages:    1 through 231
Place:    Washington, D.C.
Date:     December 14, 1998
                              Before the
                   FEDERAL COMMUNICATIONS COMMISSION
                        Washington, D.C.  20554
     In Re:                            )  
                    )
     ILEC MERGER                       )  
     EN BANC HEARING                             )
                                       
                                       
                                       
                    Suite 856201
                    FCC Building
                    1919 M Street, N.W.
                    Washington, D.C.  20554
       
                    Monday,
                    December 14, 1998
               The parties met, pursuant to the notice, at 
     9:30 a.m.
               BEFORE:  WILLIAM E. KENNARD, Chairman
                        SUSAN NESS, Commissioner
                        MICHAEL K. POWELL, Commissioner
                         HAROLD FURCHTGOTT-ROTH, Commissioner
                        GLORIA TRISTANI, Commissioner
                               I N D E X
     Session 1:  ILEC Mergers - Introductory Comments           5
         Chairman William E. Kennard                            5
         Commissioner Ness                                      8
         Commissioner Furchtgott-Roth                           9
         Commissioner Powell                                   11
         Commissioner Tristani                                 12
         Prof. Thomas Krattenmaker                             13
         Public Interest Panel                                 21
               Rev. Jesse L. Jackson, Sr.                      22
               Founder, President and CEO
               Rainbow/PUSH Coalition
               Regina Costa                                    30
               Telecommunications Research Director
               The Utility Reform Network (California)
               Jolynn Barry Butler, Commissioner               36
               Public Utilities Commission of Ohio
               Timothy S. Carey,                               40
               Chairman and Executive Director
               New York State Consumer Protection Board
               Martha S. Hogerty                               44
               Office of the Public Counsel, Missouri
               Chair, Telecommunications Committee 
               National Assoc. of State  Utility Consumer       Advocates (NASUCA)
               Richard Jose Bela, Esq., President and CEO      46
               Hispanic Assoc. on Corporate Responsibility
               William E. Kovacic, Visiting Professor          49
               The George Washington University Law School
               Questions and Answers                           52
         SBC/Ameritech Panel                                   71
         
               Robert Taylor, President and CEO                71
               Focal Communications Corporation
               J. Richard Devlin                               74
               Executive Vice President, General Counsel and         External Affairs
               Sprint Corporation
         
               Stephen M. Carter, President-Strategic Markets  77
               SBC Operations, Inc.
               Questions and Answers                           81
         Bell Atlantic/GTE Panel                              112
               
               Michael J. Mahoney, President and COO          112
               RCN Corporation
               Jonathan Sallet, Chief Policy Counsel          117
               MCI WorldCom
               
               James R. Young                                 120
               Executive Vice President and General Counsel
               Bell Atlantic
               Questions and Answers                          124
     Session 2:  AT&T-TCI                                     156
         Chairman William E. Kennard                          156
         Prof. Thomas Krattenmaker                            157
         AT&T-TCI Panel                                       162
               John C. Gamboa, Executive Director             162
               Greenlining Institute/Latino Issues Forum
               Joni Inman, President                          167
               Greater Metro Telecommunications
               Consortium (Denver)
               Charles M. Brewer, Chairman & CEO              171
               Mindspring Enterprises
               
               Mark Roellig                                   175
               General Counsel and Vice President for Law,
               Policy and Human Resources
               U S West, Inc.
               Gene Kimmelman, Codirector                     179
               Consumers Union, Washington Office
                        James W. Cicconi                               182
               Senior Vice President for Government Affairs and           Federal Policy
               AT&T
               Questions and Answers                          185
     Closing Remarks                                          228
     Hearing Began:  9:00 a.m.           Hearing Ended:  4:06 p.m.                         P R O C E E D I N G S
        Agenda Item:  Session 1:  ILEC Mergers -      Introductory Comments
        CHAIRMAN KENNARD:  Good morning and welcome.       Today the FCC will hold the second of two public hearings to      examine mergers that are pending before this agency.
        We are examining three mergers:  the proposed      merger of SBC Communications and Ameritech; the proposed      merger of Bell Atlantic and GTE; and the proposed merger of      AT&T and TCI.  These mergers are historic.  If approved they      will have an immediate and profound effect on the structure      of the telecommunications marketplace.  
        I am very proud that the Commission is holding      these hearings today.  Never in recent history has the      Commission held public hearings on mergers before, inviting      members of the public and many interested parties to appear      before the Commission and address these pending proceedings.
        Why is this important?  It is important because      the public has a huge stake in the outcome of our decisions.       The outcome of FCC decisions on these mergers will affect      the pace of competition, service quality issues, the rates      that consumers pay, and it will affect millions of American      consumers.
        The public has a right to know who will benefit      from these proposed combinations.  The public has a right to      know how the FCC is going to decide these mergers.  The      public has a right to know who are the interested parties,      what arguments they are presenting before the Commission,      what issues we deem important as we consider these mergers.
        I absolutely reject the notion that these      decisions should be made by bureaucrats working in silence      and only talking to lawyers and lobbyists and corporate      executives.  We must have an open process.  We need to hear      from everybody.  The public must know the major questions      before us.  We must have a robust, open, and comprehensive      debate about these important questions and advocates for the      public interest must be heard.  That is why we are here      today.
        For me the single most important question on my      mind is really quite simple and that is, "How will each of      these mergers benefit American consumers?"  That is the most      important question before us.
        We know that these mergers create compelling      benefits for the companies proposing them and their      shareholders and executives but we need to know how average      American consumers will be benefited from these combinations      because it is our job to ensure that the public interest is      served.  No one else has that obligation but this agency, to      ensure that the public interest is served.
        So, I, for one, will be listening to hear answers      to the following questions:  How will these mergers affect      our national policy to promote competition in      telecommunications markets so that consumers have choice?       How will these mergers affect the quality of service for      consumers?  How will they affect the rates that consumers      pay?  How can we ensure that our poorest consumers and those      in underserved communities will get service, quality      service?  
        Two of the merger proponents before us, Bell      Atlantic and SBC, have already acquired significant      telephone companies through merger in the past few years.       SBC acquired Pacific Telesis, Bell Atlantic acquired NYNEX.
        I want to know how those mergers affected      competition and service quality for consumers in those      areas.  Have promises that were made to regulators been      kept?  Are consumers better off as a result of those      mergers?  Because those questions will implicate the       pending mergers that are before us today.
        Are the companies that propose to merge complying      with the law and FCC regulations?  We are living in a new      regime in telecommunications today, as a result of the 1996      Telecommunications Act.  It is now our national policy to      promote competition in all telecommunications markets.  Will      these mergers  promote competition or inhibit competition?
        Now, before we begin let me say one thing, I      approach these mergers with a completely open mind.  These      are very difficult issues.  We are still gathering all of      the facts and hearing arguments from many people.  My mind      is not made up.  We still have a lot of fact gathering to      do.  So, I am looking forward to learning a lot today and      also hearing from all of the witnesses and my colleagues up      here.  Commissioner Ness.
        COMMISSIONER NESS:  Thank you very much, Mr.      Chairman.  I would like to extend a very warm welcome to all      of our distinguished panelists today.  This is a second in a      series of en banc discussions we are going to be having on      the mergers.  The first we heard from the proponents of the      mergers, what their plans were, what their vision was at the      future and a merged entity.  
        Today we hear both from the proponents as well as      the opponents of the proposed mergers.  I am looking forward      to hearing -- each of you has a very different perspective      on what these mergers will mean to the American consumer and      to our economy.  I am really looking forward to hearing from      each of you about that and to have a spirited dialogue as to      what all of this means.  
        I don't want to repeat the questions that the      Chairman has raised.  I thought he raised some excellent      questions.  I share many of those interest in finding out      the answers to many of those questions.  I want to      reiterate, however, that it is essential that we do keep an      open mind on this.  There is a wealth of information that       is being presented, both today and in the record, all of      that will be reviewed, assessed, and will help us as we try      to come to a conclusion as to whether the proposed merger or      mergers are in the public interest.
        At the end of the day we have to vote as to      whether or not it does in fact serve the public interest to      approve these mergers and that is a question that deserves a       lot of thought and careful review.  So, without further      adieu I want to again welcome everyone and plan to ask tough      questions on both sides to see if we can get at some of the      answers to these issues.  Thank you, Mr. Chairman.  
        CHAIRMAN KENNARD:  Thank you, Commissioner.       Commissioner Furchtgott-Roth.
        COMMISSIONER FURCHTGOTT-ROTH:  Thank you, Mr.      Chairman.  Thank you for holding these hearings that we've      been having on mergers.  I too would like to welcome our      distinguished guests to the FCC.
        One of the most cherished principles in America is      equal protection before the law, that individuals can come      before the law and know they will be treated no differently      from any other American, that companies can before agencies      and before the law and know that they will be treated no      differently from any other company.
        The Commission has been reviewing mergers under a      public interest standard, under Sections 310 and 214 of the      Communications Act, a public interest standard that applies      to the transfer of licenses, not specifically mergers but      mergers often involve transfer of licenses.
        License transfers before the FCC are not an      uncommon event.  Last year there were more than 14,000      license transfers.  Some of these received very close      scrutiny, some did not.  Those that received close scrutiny      were not necessarily different in any meaningful way from      the licenses, license transfers that did not.
        Some small companies received close scrutiny, some      did not.  Some large companies received close scrutiny, some      did not.  We have no clear rules in place as of yet to give      clear guidance to the public as to which license transfers      will receive the closest of scrutiny and those that will      not.  We have no clear rules in place that describe what the      public interest standard is for those that will receive the      closest of scrutiny and those that will not.
        Indeed, we have before us today three of the      largest mergers currently in the United States,      SBC/Ameritech, Bell Atlantic/GTE, AT&T/TCI.  I cannot help      but note the irony though that the largest merger in      America, the one that involves more telecommunication      licenses before this Commission than are currently held by      all but one of those telecommunications companies is not      likely to receive closest of scrutiny.  I am referring to      Exxon/Mobil.
        This Commission has very clear authority to review      mergers under the Clayton Act, very well known procedures      before the public about how that will be implemented but we      had not been doing that.  At some point in the future I hope      we will get to some greater clarity, a clarity that will      benefit the public, a clarity that will provide equal      protection for all Americans and for all American businesses      to know precisely how they will be treated by the law. 
        I hope that this hearing today will help shed      light on these specific transactions and also how we may      look at mergers in general at the FCC.  Thank you, Mr.      Chairman.
        CHAIRMAN KENNARD:  Thank you, Commissioner.       Commissioner Powell.
        COMMISSIONER POWELL:  Thank you, Mr. Chairman.  I      will commend you for conducting a hearing in this area that      creates a great deal of optimism and anxiety for a      significant amount of the communities with interest in these      mergers.      
        In the interest of time, with such a robust panel,      I will reserve most of my comments for questioning.  I would      merely, in advance, thank all of the participants for the      time and effort and preparation that was involved in their      participation today.  It is invaluable assistance to those      of us who will have to wrestle through a number of very      difficult issues.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Commissioner.       Commissioner Tristani.
        COMMISSIONER TRISTANI:  Thank you, Mr. Chairman.       Good morning.  We have a full day ahead of us so I will keep      these remarks brief.  Just three points.  
        First, I am very pleased that we finally get to      hear the other side to these mergers.  Looking over the list      of panelists I am impressed by the diversity of entities and      the quality of their spokesmen.  I know they will add a      great deal to my understanding of these mergers.
        Second, I would underscore that my focus in all of      this is on the consumer.  It can be easy to lose sight of      the consumer as we think about market structures and      economic theories.  In my view, the best advocates in      communications are the ones who tie their arguments to the      impact on the average consumer.  I hope today's session will      give me a greater understanding of how the proposed mergers      impact consumers.
        Third, it is important to remember that the burden      of proof in these mergers is on the applicants.  Congress      long ago recognized that corporate self-interest is not      synonymous with the public interest, that is why they set up      a careful set of checks and balances for telecommunication      mergers.  At bottom, the applicants must prove that the      merger would serve the public interest.
        I have already noted my initial skepticism      regarding the notion that a $25 million company -- excuse      me, $25 billion company must get bigger before it can      compete out of region.  As I also noted, however, I have not      yet made up my mind on any of the three mergers we are      discussing today.  
        I hope today's session will help me advance my      thinking on these very important and very difficult      questions.
        CHAIRMAN KENNARD:  Thank you, Commissioner.       Before we turn to our panelists I wanted to hear from Tom      Krattenmaker, who is the FCC's Director of Research in our      Office of Plans and Policy.  
        Tom Krattenmaker is former Dean of the William and      Mary Law School.  He, together with Dr. Bill Rogerson, our      chief economist, head up the FCC's Internal Mergers Task      Force, which oversees our staff evaluation of      recommendations concerning these mergers.  Tom.
        MR. KRATTENMAKER:  Thank you, Mr. Chairman,      Commissioners.  I too get confused about this millions and      billions but I think it is millions for Ricky Henderson and      billions for the mergers.  
        If I might follow Commissioner Tristani's lead, I      thought I'd just talk about three points, apologizing in      advance to you, Mr. Chairman and the Commissioners, you know      what I want to review.  What I thought I would do is review      the basics of these transactions for the witnesses and other      participants in the hearings.  
        Following Commissioner Tristani's lead I thought      I'd talk about three things:  the parties, the standard the      Commission uses, and some of the issues that have been      raised to date.  
        I think most important to understand would be the      parties.  Now, the first panel is going to dwell on two of      the proposed mergers that the Chairman referred to,      SBC/Ameritech and GTE/Bell Atlantic.
        With respect to SBC and Ameritech there are three      things that you need to know about these firms.  One is that      within its region each is the dominant or entrenched local      phone company.  In the vernacular of the 1996      Telecommunications Act they are each incumbent local      exchange carriers or ILEC.  In their regions these are the      dominant phone companies.
        Secondly, each of them is what is sometimes called      a "Baby Bell."  They each trace to the breakup of AT&T.       Both Ameritech and SBC were spun off from the overall      corporation that was the Bell system in the early 1980s.
        Third, their locations.  They are located in      different parts of the country.  SBC is largely based in the      western part of the South and up in the northern part of the      West of America.  It is basically a southwestern based      company.  Ameritech is based essentially in the middle and      the north of the country, think Illinois, Indiana, Michigan.       So, they are in geographically distinct areas.
        With respect to GTE and Bell Atlantic, the parties      are similar.  Bell Atlantic is also a "Baby Bell."  GTE is      not, GTE is not part of the old AT&T system but, rather is      the largest independent phone company.  Each of them,      however, in its own area is an ILEC, that is an incumbent      local exchange carrier, a dominant firm in its own area.       They are in different parts of the country.  
        We see the Bell Atlantic largely on the East      Coast, from Maine down through Virginia.  GTE is a little      harder to describe but, essentially, it kind of cuts a swoop      from the middle of the East Coast down around down to      Florida and across the southern tier of the country and back      up toward California.  GTE is more scattered across the      country in its locations.
        These are the parties that want to merge.  As the      Chairman stated and others of you noted, what the Commission      applies is a public interest standard.  What this means is      that the issue is the welfare of consumers of      telecommunication services.  It also means the Commission      applies a balancing test, that is it considers both the pros      and the cons of any merger that comes before us.
        "Public interest" is a general phrase and is      likely to encompass many specific subissue.  Again, I think      they have largely been mentioned here but for example, an      inquiry into the public interest can entail an inquiry, "Are      the parties complying with the law?"  Or, another type of      inquiry that comes up is, "Will the merger increase or      decrease efficient interaction between the parties and      between the firms and their customers?"  Or, another kind of      question that comes up under the public interest test is      whether the merger will further or retard the achievement of      the goals of the Communications Act, especially the      deregulatory pro-competitive goals of the 1996      Telecommunications Act.
        So, the Commission is looking at obedience to its      rules, whether the merger is going to increase or decrease      the efficient interaction between the firms or between the      firms and their customers and whether it will further the      goals of the Communications Act, among other things under      the public interest standard.
        Now, what are the issues that these mergers have      raised to date?  Well, that's what these people are here to      talk about today, that is what our panelists and guests are      here.  I don't want to presume to say, "Here are the issues      and there is nothing more to be added."  Let me try to      highlight some of the principle issues that have been raised      so far in the many filings that have come before the      Commission, both pro and con.
        With respect to the positive aspects of the      mergers, there is a common thread to both the SBC/Ameritech      and to the GTE/Bell Atlantic application in that each assert      that the principle benefit of the merger will be the ability      to compete outside their territories.
        SBC and Ameritech assert that once merged they      will have the resources, the ability, the know how, and the      personnel to move into the territories of other phone      companies.  They will invade Atlanta, the province of Bell      South; they will invade Denver, the province of US West and      offer competitive phone service, thereby bringing      extraordinary benefits to consumers in those and other      areas.  
        Similarly, GTE and Bell Atlantic emphasize the fit      of their companies, with Bell Atlantic more or less flowing      into GTE.  And, as these companies are combined it      essentially enables Bell Atlantic and GTE to act as a dual      force in all of these areas in which you see either one of      the companies presently operating.
        Now, each also raises other specific claims about      the validity of the merger.  These are not Tweedle      Dum/Tweedle Dee, these are two separate cases.  For example,      GTE and Bell Atlantic assert that as a result of their      merger there will be a significant strengthening of GTE's      internet backbone service and will prevent that service from      being eroded by competition with other larger backbone      providers.    
        SBC/Ameritech assert that the kind of competition      they will stimulate outside their territories is going to      lead others to invade their territories and, therefore, we      will have a kind of a ping pong or double effect, both      stimulating competition outside their territories and inside      their territories.
        Now, with respect to these claimed benefits of the      mergers the issues that the parties have raised is whether      these benefits are credible and whether they are merger      specific.  That is, are these benefits likely to occur as a      result of the merger?  Those are the kinds of questions that      I hope people will address today and that the documents have      addressed in some details.
        With respect to the other side, the cons,      opponents -- I emphasize these are people who have opposed      the merger -- have raised a variety of questions.  In the      interest of time I'd emphasize four.
        One is what I would call the "efficient oversight"      of the incumbent phone companies.  The 1996 Telecom Act      requires that these firms cooperate with new entrants.       Ameritech is required to open up its markets to new      entrants, sometimes called "competitive local exchange" or      "CLEC" carriers to come in and compete with it in Michigan,      Illinois, Indiana and this applies to all of these      companies.
        This requires, for example, that they permit other      firms to co-locate, where their wires cross to resell the      services of the firm, to use the numbers that had been      assigned so if one were an Ameritech customer and one      switched over to Krattenmaker Telephone Company one could      keep one's same telephone number.
        The question is that has been raised by some      opponents of the merger is whether a diminution in the      number of large ILECs from six to five or four will      frustrate or impede the ability of states and of this      Commission to regulate that process of opening markets.
        Second kind of question I would lump under the      phrase "predation", questions have been raised as to whether      the merged parties will have the clout and the incentives to      use that clout after the merger to discriminate against new      entrant phone companies and against long distance companies.
        A third type of question that has been raised is      whether these mergers will end or restrict competition      between the merging firms.  Absent the merger would      consumers have benefitted from rivalry between the merging      parties?  For example, might SBC have gone into Chicago      while Ameritech attacked St. Louis?  Might GTE and Bell      Atlantic have clashed in Pennsylvania and Virginia?  We      don't know what the answer to these questions are but we      know that if the merger goes through these kinds of      competition will not occur.
        Fourth, I would mention the service quality.       People have asked the question of whether the merged firms      will open their markets and provide better services to all      customers, business and residential or whether some will      suffer a reduction in service quality.
        Now, I have suggested four kinds of issues:       efficient oversight of incumbent local exchange carriers;      predation; restricting competition between the merging      firms; and service quality.
        I want to emphasize that the merging parties not      only proclaim the benefits of their mergers but deny that      each of these is a real issue and assert, very positively,      that the merger will in fact be beneficial, that we will not      need to have as much oversight over the phone companies      because thee will be more competition so the markets will      provide oversight, that they are not in a position to engage      in predatory tactics against either other local phone      companies or interexchange carriers because of Commission      rules that they were under no circumstances going to be able      to compete with each other because of regulatory burdens and      because of financial restrictions and that these mergers      will permit them to improve service quality, not to degrade      it.
        These are some of the issues that have been raised      so far.  What I am hoping is that these will not only be      fleshed out but other kinds of questions, if they were on      people's minds, will come up as a result of today's panel.       Thank you.
        Agenda Item:  Public Interest Panel
        CHAIRMAN KENNARD:  Thank you very much, Tom.  I      will invite now the first panelist to come forward.  While      you are doing so let me mention a few of our ground rules      today.  We will ask each of the panelists to limit their      opening statement to three minutes time.  We have a very      able time-keeper with us today, Lavera Marshall who is very      experienced in these matters.  She and I have the      responsibility to keep this moving so I will ask all of you      to try to limit your comments.  
        After your opening statements you will have an      opportunity to respond to questioning from the Commissioners      here.  After the first session we will take a brief break      before our second panel.  As you begin your presentations I      will ask that each of the panelists introduce yourself and      also give us a little bit of background of the organizations      that you represent and why you are here today.
        Our first panelist is Reverend Jesse Jackson.       Reverend.
        Agenda Item:  Rev. Jesse L. Jackson, Sr. -      Founder, President, and CEO, Rainbow/PUSH Coalition
        REV. JACKSON:  Thank you, Mr. Chairman.  I want to      open with a protest on the time limit.
        (Laughter.)
        Because we have too much to discuss, too much      ground to cover over a life time proposition not to be able      to give some adequate expression to our concerns.  I hope      that it will be accepted and if some case modified.
        I want to thank all of you for this opportunity to      participate in this historic hearing.  They come at a day of      the critical junction in the history of the FCC, corporate      expansion and America. 
        The FCC has an historic opportunity to enforce      standards of fairness, inclusion and competition.  The      burden is on the applicants to show that these mergers are      in the public interest.  In some instances these applicants      have not yet met their burden and that is why oversight and      enforcement are critical to the public interest.
        We come here today not to destroy the mergers but      to enforce the Telecommunications Act of 1996 and its intent      and to protect the covenants between the people and the FCC.       We are also here to help the FCC set standards and time      tables, to open doors and expand opportunities for      customers, workers, and those who have been historically      left behind.
        The concern that the recent deluge of      telecommunications mergers will likely cause consolidation      of wealth, consolidation of ownership, and a resegregation      of the telecommunications industry.
        Mergers in the local exchange market and      consolidation among cable companies and long distance      companies should concern the Commission because they would      put the control of our public lives in the hands of a very      few.
        The Commission must consider whether these      companies are willing to extend their telephone lines, offer      lower prices, and more opportunities to our nation's rural      and inner city areas.  I was in a town in Kentucky, for      example, in Appalachia, 30 percent of the residents have no      telephones to date.
        Displaced people must have the same access to      telephone service as those living in affluent suburbs, that      is the spirit of a true democracy.  Thus, democratic values      must guide your review of these mergers.
        The Bell companies, the GTE and AT&T, TCI, have      expressed confidence that their mergers will pass muster of      the Commission because the mergers will help them compete on      a global basis and perform service outside their home      regions.  
        On the other hand, consumers are concerned about      lower prices, workers are concerned about the elimination of      their jobs with downsizing and outsourcing, and the      historically disadvantaged are concerned with inclusion,      opportunity, and access to information.
        We are here to promote inclusion.  The FCC must      enforce the law to ensure inclusion.  The FCC must no longer      bless segregation and exclusion, as it has historically.
        There are numerous egregious examples of how the      industry has been exclusive rather than inclusive.       Historically the Commission has been a co-conspirator in      this practice of excluding by awarding licenses to a select      small group of communications companies.  As the century      ends there are no minority owned wire line telephone      companies, no minority owned cellular system, no truly      diverse boards of directors, no minority merger advisors on      Wall Street, and very few minority owned cable TV      franchises.  These facts make an ugly statement about      America.  These laws must change.
        Competition among a small group of companies,      targeted at a small segment of our society is not real      competition.  Competition is meaningful only when it breaks      down barriers to enter and expand the market. 
        Commissioners, I urge you to dig beneath the      surface of each merger application, discover who of these      companies are joining forces to improve customer service and      the role of the workers or merely protect their territories      and make larger profits.  In addition, to evaluating the      comparative effects of the proposed mergers the Commission      must consider other factors.  Discrimination is a factor      fundamental to FCC's public interest review.  Minorities and      rural Americans pay taxes, contribute to the Social Security      system, vote, and are customers.  The public interest is our      interest.  
        Some at the FCC argue that a merger analysis is      not an appropriate forum in which to access broader social      public questions.  I disagree.  The public interest demands      more than a quick cursory review, more than a brief look.  I      believe it is in the public interest to eliminate all forms      of discrimination.                
        In reviewing a merger the Commission should not      determine that some discrimination is objectionable while      turning a blind eye to other forms.  The public interest      clearly demands and deserves no less.  For example, some      mergers, some of the companies propose to merge red line,      video, dial tone, pay phone, and cable television service in      the past.
        Inclusion means the end of red lining, a practice      which is altogether unfair, unproductive, and illegal.       While these companies now have developed anti-red lining      policies departures from company policy occur on a regular      basis, therefore, the Commission should not act on these      mergers without receiving commitments against red lining      subject to supervision by the FCC.
        Irrespective of its decision on these mergers, the      Commission should undertake a comprehensive study of red      lining in the long distance, long exchange, and cable TV      industries, develop strong, specific, and enforceable      standards to prevent these companies from marketing or      providing enhanced service on the basis of race, geography,      or income.  
        There are bad mergers and there are good ones.       All mergers are not inherently bad.  Merger executives are      necessary led by greed or selfishness.  Bad mergers preempt      the competition with neighboring service providers.  Bad      mergers create spin offs and advantage only large companies      and international firms.  Bad mergers generate layoffs for      thousands of hard working employees.  Bad mergers use      combined resources to enter over developed, not under      developed, markets. 
        Historically, MCI and WorldCom committed these      acts, that's why we opposed the merger.  After the closing      of their merger they have done little to persuade us to      change our position. MCI/WorldCom, through its internet      company to a large foreign based firm, has planned to sell      its satellite system without a commitment to diversity.       Furthermore, MCI/WorldCom last week announced the lay-off of      3,000 workers.  They also continue to be cited by the FCC      for imposing casual rates charged to their long distance      customers.
        For nearly a year Rainbow/PUSH Coalition has      chosen research, education, and negotiation over      confrontation.  We, however, reserve the right to protect      the public interest through legislation, agitation, and      demonstration.   Our protest and opposition to MCI/WorldCom      will continue until an enforceable specific plan of      inclusion is executed.
        Lastly, on the other hand, good people with good      intentions, along with enforced public policy, make good      mergers.  Good mergers create new opportunities for      consumers and for entrepreneurs.  Good mergers offer new      innovative services to everyone at comparative prices.  When      good companies emerge they spin-off facilities to new market      interest at a reasonable price.  Good mergers benefit the      public interest and do not result in thousands of layoffs.
        The three pending mergers offer potential to be      good mergers, but only if they continue to make enforceable      commitments to the FCC and the Department of Justice to      promote inclusion and protect consumer groups and labor      organizations.
        First, there was a possibility that these mergers      will increase competition among local telephone providers.       For example, GTE has facilities in Santa Monica, San      Bernadino, and Thousand Oaks, California, to serve as a      foundation for Bell Atlantic/GTE to compete for local      service in Los Angeles.  This facilities base presence will      permit Bell Atlantic/GTE to bill out and compete with      SBC/Ameritech and other local foreign providers outside the      Bell Atlantic region.  Also, GTE is exploring ways to create      the nation's first minority owned independent telephone      company.
        Second, GTE internet backbone puts the new company      in a position to offer enhanced services to residential      lower and rural subscribers.  However, the Bell Atlantic/GTE      plan must include a stronger commitment to internet and      technology training targeted to the minority community.  We      must not leave anyone behind as we move into this new      technology.
        SBC and Ameritech have good internal EEO and      minority procurement programs and also consider ways to      provide minority ownership through spinoffs.  SBC has also      shown global leadership with a strong commitment to develop      telecommunications systems in South Africa.  These are      positive steps, however, SBC and Ameritech have outstanding      challenges as well.  Initially, their proposed merger plan      red lines residential consumers by emphasizing the need to      serve their large and mid-size business customers.  They      must do more to serve rural Appalachia for some inhabitants      do not have basic telephone lines and many Native Americans      in the Southwest region are without access.
        AT&T's proposed acquisition of TCI raises key      issues.  AT&T has strong programs that provide training to      urban and rural areas and promote minority and women owned      enterprise.   However, the proposed merger must still be      reviewed closely by the FCC because of AT&T's recent tax on      low volume long distance customers and TCI's repeated rate      increases, questionable employment record, and poor level of      customer service.  
        Fortunately, these come as of late by men of      integrity with excellent track records of community service.       Good men, however, and good women, must be directed by good      public policy to lead to good results.  
        In closing, we need to develop a new covenant      between the government, the private sector, and our      communities.  We need to create a new approach to evaluate      mergers to foster a policy of inclusion and opportunity for      consumers, workers, and those who have been historically      left behind.  Let's work together to build a new large tent,      large enough to include all segments of society and forge an      alliance between the FCC and the telecommunications industry      to heal the breach of the American dream.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Rev. Jackson.  Ms.      Costa.
        Agenda Item:  Regina Costa, Telecommunications      Research Director, The Utility Reform Network (California)
        MS. COSTA:  Good morning and thank you for the      opportunity to appear.  I am Regina Costa.  I'm the      Telecommunications Research Director for The Utility Reform      Network (TURN).  We are a statewide consumer group in      California.  For the past 25 years we have represented the      interests of California's utility consumers.
        Pacific Bell provides service to approximately 95      percent of California's customers, residential customers and      the vast majority of our small businesses.  Since the      acquisition in 1997 there has been a marked change in the      behavior of the company towards its customers and that is      what I want to focus on today, although we are also very      concerned about competitive issues.
        Specifically, customers have been directly      affected in four areas.   The first is quality of service.       The second is there have been proposed rate increases for      essential services.  Service has been diminished.  And the      fourth area is the introduction of aggressive and misleading      marketing tactics.
        On customer complaints, in June 1997 the      California Public Utilities Commission noticed that there      was a marked increase in the volume of calls the Commission      was receiving on customer quality of service issues.  The      majority of these and the most serious involved significant      delays in service installations and miscommitments for      installations and repairs.  These service quality problems      were the subject of great debate at the Commission and in      part prompted the Commission to institute a quality of      service rule making and investigation.
        While precise statistics on the number of      complaints are not available from the PUC, due to anomalies      in their data collection process, they did cite their      concern with customer frustration in their order as one of      the reasons for instituting this investigation.
        Now, the Commission's Office of Rate Pair      Advocates has conducted a separate analysis of service      quality complaints.  The analysis is due to be released      publicly very soon.  What I have been authorized to say is      that their analysis shows a significant problem in the      Silicon Valley area where customers there have longer      outages and it takes longer to repair the problems than in      other areas of the state.  We are very concerned about this      because that is really the economic engine of California.
        One area where service quality has been very      thoroughly documented is the provision of ISDN.  The reason      for this is that the company asked for a rate increase and      their quality of service came up in this proceeding.  One      September 17, 1998 Pacific was fined $309,000 because they      did not comply with a Commission order instructing the      company to file reports showing customer satisfaction with      their service.
        One of the questions the Commission asked was why      the company did not follow the Commission's order.  The      Commission decision on this matter stated that the company      provided no satisfactory explanation of why the order was      not complied with and that apparently no one in the company      had assumed responsibility for ensuring that the      Commission's order was met.  
        The second issue that was addressed in a decision      that was actually issued September 17, 1998 was that the      ISDN service had actually deteriorated following the initial      CPCU order which was intended to improve service.  The order      that was directing the company to improve its service was      issued right about the time SBC required Pacific Telesis.       So, the service quality deteriorated while SBC owned      Telesis.
        This raises at least three questions in our mind.       Number one, if service quality for a service like ISDN      deteriorates what is the likelihood that this company will      attempt to provide good service quality for less lucrative      services. 
        Pacific claims it faces intense competition in the      local exchange market and, presumably, this competition is      for what people would consider higher end customers and more      lucrative services, yet that service quality declined.
        Second question is the issue of infrastructure.       The Commission decision, which I have cited and quoted from      extensively in my prepared statement, says that the service      quality was very bad through most of 1997.  This again was      during the time period after SBC acquired Telesis.  
        The third question is we are very disturbed that      the company did not comply with a Commission order.  They      did not provide the information that was requested and they      could offer no good explanation for doing so.  We think this      raises questions about the company's interpretation of its      public service obligations.
        The second area is proposed rate increases.  I      have a very detailed description of these increases in my      statement.  There is not time to go into all of them,      however, I have cited to the applications, I have cited to      advice letters if you are interested in that.
        One of the most important services was directory      assistance.  Currently the rate in California is 25 cents.       SBC proposes to raise the rate immediately to 50 cents.  In      California we have a price cap mechanism where there is a      price ceiling and a price floor.  At the price ceiling you      can raise a price to that level with parties having no      opportunity to protest.  The decision states, "We will not      entertain protests for price increases up to the price      ceiling."
        They have proposed a price ceiling of $1.10.  So,      in essence they are asking for a blank check to raise the      price to $1.10.  In all of their public statements they      insist we are wrong on this and that they are requesting an      increase to 50 cents.  They have requested similar increases      to what we believe are essential services which are busy      line verification and emergency interrupt, very high request      for price increases there.  These issues have met with      substantial public opposition.  There have been a series of      hearings.
        The third point is the diminishment of service.       Public offices have been closed.  There has been a proposal      to charge to allow alternate payment locations to charge      fees to customers who pay their bills in person.  There is a      proposal to reduce the directories that are available to      customers by eliminating yellow pages, yet charging the same      price that someone currently pays for a yellow and white      pages directory.  This effects rural customers because these      directories are cobound.  We protested this and the      Commission staff agrees with us and have recommended that      that be rejected, that is due to be voted on Thursday.
        There are five complaints currently pending on      aggressive misleading marketing.  They were filed by Latino      Issues Forum and Greenlighting, the Utility Consumers Action      Network, and the Commission staff, the Office of Rate Pair      Advocates.
        Very briefly, quoting from the description of      Latino Issues Forum, they allege that "Pacific has      instructed service representatives to use deceptive names      for packages of expensive optional services to pressure      customers into removing complete caller ID blocking so they      can market more caller ID and to withhold information      critical for consumers to make informed purchasing choices.          The other point in this area was there was a      proposal from SBC to engage in direct telemarketing to      Pacific customers with unlisted telephone numbers.  They      tried to do this through an advice letter tariff revision.       They withdrew it after a state senator pledged to introduce      legislation blocking it.  This was after they said our      concerns on privacy had no merit.
        In conclusion, to date, Pacific Bell customers      have not benefited in any readily apparent way from the      performance of Pacific following the acquisition by SBC.       The volume of calls about service quality problems has      risen.  The company has proposed significant rate increases      for essential services, public offices have been closed,      there is a proposed fee for customers paying their bill in      person, and the company's marketing tactics have raised      substantial concern on the part of consumer advocates and      Commission staff.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Ms. Costa.       Commissioner Butler,  welcome.
        Agenda Item:  Jolynn Barry Butler, Commissioner,      Public Utility Commission of Ohio.
        COMMISSIONER BUTLER:  I am Jolynn Barry Butler.  I      am a Commissioner on the Public Utility Commission of Ohio.          I'd like to start today by thanking you for once      again including states regulatory commissions on panels      before this Commission.  I believe that under your      leadership, Chairman Kennard, and with the current panel of      commissioners we have today that the states and the Federal      Communications Commission have never enjoyed such a close      working relationship and I really commend you for that.
        I am here today not as an advocate, not as a      proponent, nor as an opponent of any of the mergers before      you.  I can't be because I am a judge in these very same      mergers.
        In Ohio, for example, we have cases pending on      GTE/Bell Atlantic and on Ameritech/SBC.  Therefore, what I      am here to do today is to report to you on the issues and      the process but not to take a position, it would be      inappropriate for me to do so.
        With regard to state authority and what the states      are doing on these mergers, it depends on the legislative      background and the legislative authority of each of the      state commissions.  In Ohio we have clear authority to      review the mergers of incumbent telecommunications      companies.  
        In other states they use their general supervisory      authority to undertake such reviews but in some states there      is no authority and the commissions feel that they are not      able to undertake any review of these mergers at all.  So,      it depends on where you are, in which state, as to what      level and form of review of mergers will take place.
        Let me use Ohio as an example because we do have      clear authority and that is not at issue.  In Ohio both of      the incumbent local exchange company mergers are under      review.  We started our process by not allowing those      mergers to be approved automatically, which our statute      provides for.  If we do not take action as a commission      within 30 days of the filing of a merger then it is approved      by operation of law by our saying nothing.
        We suspended the approval automatically and turned      our staffs loose to do an investigation.  We issued issues      lists so that the parties would know what we were going to      look at as we reviewed the mergers. 
        The Ameritech/SBC merger is the farthest along in      Ohio.  We have issued our issues list.  The staff has done a      preliminary report of investigation and the record hearings      are to start on January 5 of next year, just a few weeks a      way.
        Our standard of review is the public interest      standard, much as yours is.  However, my message to you is      that each state has a very different level of review and      different level of authority to review.
        I won't go into the issues in detail because in      Ohio, at least with regard to the SBC/Ameritech merger, we      have identified the same list of issues that both you and      Mr. Krattenmaker have mentioned today.  But, again, how      those issues play out on a state-by-state basis will be very      different.  I will cite one example without naming any      names.
        A company that has a very very good service record      in one state may have a not so good service record in      another state and each state's commission will be looking      either to maintain a level of service which is good or      improve a level of service which is bad as we review      mergers.
        In Ohio, just speaking as one commissioner, my      main goal is to make sure that these mergers further the      public interest.  First of all, that their effect on      competition is to increase the level of competition that we      have in our state, particularly for residential and small      commercial customers; that quality of service is maintained      or enhanced; that carrier-to-carrier issues that have arisen      since the enactment of the 1996 Telecommunications Act are      resolved; and that we have the ability to do post-merger      oversight because we don't have a lack of access to books      and records.
        To sum up, I commend you for your dedication to      enhancing the relationship between state regulators and      federal regulators.  I encourage a continued dialogue on      this and other issues and, in particular, I would encourage      you to convene a meeting, much like this Commission convened      when Bell Atlantic and NYNEX were proposing to merge, to      discuss state and federal issues on a one-to-one basis with      state regulators.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Commissioner Butler,      and thank you for those kind words.  Mr. Carey.
        Agenda Item:  Timothy S. Carey, Chairman and      Executive Director, New York State Consumer Protection      Board.
        MR. CAREY:  Good morning, Mr. Chairman,      Commissioners, and distinguished colleagues.  Thank you for      the opportunity to discuss the impact of proposed mergers      involving the regional Bell operating companies on the goals      and objectives of the Telecommunications Act of 1996.
        I am Chairman and Executive Director of the New      York State Consumer Protection Board, an agency in the      Executive Department of the New York State government and I      am charged with representing the interests of all New      Yorkers.
        Our belief is that mergers are not necessarily      consistent nor inconsistent with competition in      telecommunications markets or the public interest.  All      mergers are not created equal and each potential merger must      be analyzed thoroughly by considering the facts and      circumstances of each proposal, not only at the federal      level but, as the Commissioner said, at the state level.
        In general, consumer advocates are skeptical of      mergers, since tangible consumer benefits are not always      easily identified.  Merger proponents must demonstrate how      they will bring more competition to telecommunications      markets and how the public interest and the average American      will benefit.
        Regulators must ensure that the advertised      benefits from the mergers are in fact realized in the      marketplace.  I would like to share with you our experiences      that we have had in New York with recent merger of NYNEX and      Bell Atlantic.  It is a good example of how consumers have      been well served by a merger when regulators provide      appropriate oversight. 
        Shortly after NYNEX/Bell Atlantic announced their      proposed merger in the spring of 1996 on a direction of      Governor Pataki, former Chairman of the State Public Service      Commission, John O'Meara, stated the PSC would not approve      the merger unless the quality of New York State Telephones      local service improved substantially.  I am glad to report      that over the past year the company service quality has      improved dramatically.  
        To ensure that the company service quality did not      deteriorate after the merger was approved the company was      required to hire at least 750 additional employees to      address service quality and to invest an additional 
     $1 billion in service related infrastructure.  The company      service quality standards were also made more rigorous.
        The New Yorkers also obtained other benefits from      the merger.  One, the cost savings from the merger are      essentially funding the cost of opening of local markets to      competition.  Such as, substantial cost of developing the      OSS.
        Local rates in New York have not increased to fund      these costs.  Those cost savings have also partially funded      a reduction in New York's intrastate carrier access charge      and the NYNEX/Bell Atlantic merger benefitted New York's      economy since the merging companies established their      headquarters in New York City and committed to maintain all      existing work functions in the state.  Overall, more than      one year after the merger was initially approved, subject to      conditions there is no doubt that the average New Yorker is      better off than had the merger not occurred because New York      PSC ensured the Bell Atlantic status satisfied each of those      conditions.
        If local markets are to be open and competition      expanded the FCC must ensure that conditions imposed on      mergers are implemented in a timely fashion. Unfortunately,      in the Bell Atlantic/NYNEX merger some of the conditions      imposed by the Commission, particularly the requirement for      uniform OSS interface has yet to be satisfied.
        Meanwhile, in New York, we are continuing the hard      work to fully open Bell Atlantic's markets to competition.       Tests by an independent audit of the ability of the      company's OSS to handle commercial volumes are now      beginning.  Under the guidance of the New York State PSC      substantial progress has been made, although more work needs      to be done.  
        Based on progress to date, I fully expect New York      State to be among the first states in which you will find      that an RBOCs market is fully open to competition.       Accordingly, while a merger could eliminate one would be      potential competitor to Bell Atlantic in New York, GTE is      not well known in New York and has no particular advantage      over the literally dozens of companies that are already      serving customers in New York.  
        Since New York's local market is expected to be      open to competition in the near future the merger would not      materially harm local competition in New York.  Overall, we      are looking for verifiable and enforceable conditions to be      imposed on these mergers at the state and federal levels.
        At the state level we are working for similar      conditions as the ones we obtained in a previous merger      involving Bell Atlantic.  At the federal level we recommend      that Bell Atlantic be required to satisfy the conditions      imposed by the FCC on its previous merger and those      conditions should be extended to GTE's territory as well.       Two, the proponents demonstrate that mergers will enhance      local telephone competition, and three, to proponents      demonstrate that the public interest will be better served.
        Thank you, again.  I look forward to your      questions.
        CHAIRMAN KENNARD:  Thank you, Mr. Carey.  Ms.      Hogerty.
        Agenda Item:  Martha S. Hogerty, Office of the      Public Counsel, Missouri; Chair, Telecommunications      Committee, National Association of State Utility Consumer      Advocates (NASUCA)
        MS. HOGERTY:  Thank you for inviting me to be here      today.  I am Martha Hogerty.  I am the Public Counsel for      the state of Missouri and as such am the rate payer advocate      for the citizens of Missouri before the regulators.
        I have filed comments jointly with 5 similar      consumer advocate organizations in the Southwestern      Bell/Ameritech case and with 14 other organizations in the      GTE/Bell Atlantic case.
        I have provided for you a statement.  I will not      read it today but I will simply highlight my major concerns.
        Our concern, first and foremost, is that these      mergers will continue and enhance the monopoly control of      the local exchange network.  If these mergers are permitted      SBC and Ameritech will have control of 56 million access      lines, that is 35 percent of the total access lines      nationwide.  GTE/Bell Atlantic will have 63 million access      lines, 39 percent nationwide.  This, we believe, will result      in a duopoloy with control over 74 percent of the nation's      access lines.
        There is no dispute that still today local      exchange is a monopoly controlled by the incumbents.  Our      development of competition, thus far, has been very slow.       With respect to these two companies combined I believe      approximately .81 percent of their access lines have been      lost to facilities based UNEs.
        In order to garner control these companies are      willing to invest a significant market premium.  Based on      December 3 stock prices, they are willing to pay an      additional $154 per access line in the Southwestern Bell      case and $47.50 per access line in the GTE case.
        It is our belief that these companies will      certainly find a way to recover this premium from their most      captive customers, our clients.  Moreover, there is no      commitment to pass through any merger savings or estimated      synergies to the bulk of their customers.  
        Because of the current regulatory structures,      essentially limited regulation in most of the states we do      not expect savings to be passed through.  Indeed, as far as      we can determine, there have been no significant savings      passed through to consumers with the other mergers that have      taken place to date.  
        In our opinion monopoly rents will continue and      will be used to finance out-of-region strategies.  Recall      that these companies are currently earning return on      equities ranging from the high 20 percent to the low 40s.
        Mergers are not necessary to enable entry into      out-of-region markets and there is nothing in these      applications that supports that claim.  These companies      currently have the wherewithal to compete.  They are not      willing to compete through the interconnection provisions of      the act or through investments in new networks, rather they      would further monopolize the local exchange and finance.
        It is important that the Commission continue to      forge the course that it has forged with the      Telecommunications Act.  The companies are in a position      where they must open their markets to competition.  Not one      company has done so to date, no 271 application has been      granted.  It is important that this Commission deny these      mergers, encourage these companies, hold their feet to the      fire and ensure that they open their markets to competition      so that competition can truly develop and benefit all the      consumers of this nation.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Ms. Hogerty.  Rick.
        Agenda Item;  Richard Jose Bela, Esq., President      and CEO, Hispanic Association on Corporate Responsibility.
        MR. BELA:  Honorable Commissioners, my name is      Richard Jose Bela.  I am the President of the Hispanic      Association on Corporate Responsibility.  It is a coalition      of the most prominent national hispanic community      organizations in the United States.  It serves as a watchman      agency for the hispanic immunity.  We monitor the inclusion      of Hispanics in corporate America in the areas of      employment, procurement, philanthropy, governance, and      service, and we compare that inclusion to our community's      contributions to that company's revenue.  We call this      concept "market reciprocity."  
        In regards to the telecommunications industry      today we believe that freedom of speech in the 21st Century      will require interconnectivity to our evolving national      telecommunication network.  To ensure this freedom HACR      supports seven telecommunication principles referred to in      the industry as "universal service, public access, open      competition, community reinvestment, equal employment      opportunity, service diversity, and market reciprocity."  We      believe these seven principles are an essential part of the      1996 Telecommunications Act and that this Commission serves      as its guardian.  
        Our community is growing in a dynamic and dramatic      manner.  By the Year 2050 we will represent 1/5 of all      Americans.  Already this year Hispanic school age children      surpassed all other ethnic minority groups in the country.       We are a vital part of our nation's future.  
        Upon the public announcement of the three pending      mergers, HACR contacted the CEOs of each of the companies      involved.  We sought to ascertain each company's commitment      to these seven principles.
        HACR is pleased to support any company that shares      this vision and this commitment.  To date we have met with      the CEOs from SBC/Ameritech and Bell Atlantic/GTE.  Our      experience regarding the past mergers have shown us that      there have been reasonable increases in the employment of      minority and women in the inclusion in the areas of      executives, board membership, procurements, and particularly      in philanthropy where both companies have provided funds to      underserved communities at the rate of $50 million.
        We are greatly encouraged by their expressed      commitment to the underlying HACR telecom principles and to      their commitment to continue working with us to establish      and implement programs to achieve these goals.  We commend      the Commission on its stewardship over our public airways      and for the expressed commitment from leading media      companies to abide by EEO principles, whether or not      required by law. 
        We ask that this Commission, likewise, ask the      telecom companies about their commitment to these same      principles.  We further commend the Commission for calling      these hearings that afford all citizens, not just the rich      and the powerful or the opposing competitors, the right to      have their voices heard in an open and democratic manner.       These hearings certainly serve that purpose.  We greatly      appreciate the opportunity to present these comments and      look forward to keeping the Commission informed of our      future progress.  Thank you.
        CHAIRMAN KENNARD:  Thank you very much.  Professor      Kovacic.
        Agenda Item:  William E. Kovacic, Visiting      Professor, The George Washington University Law School.
        PROF. KOVACIC:  My thanks to the Commission for      the privilege of participating in this hearing.  My name is      William Kovacic and I am a Visiting Professor at The George      Washington University Law School where I teach anti-trust.
        I want to inform the Commission that my wife is a      partner in one of the law firms that represents TCI in the      AT&T/TCI transaction before this body and that the views I      express today are mine alone.
        I want to discuss the process by which federal      authorities review the competition policy effects of      telecommunications mergers.  Since 1992 I have worked with a      number of transition economy governments on competition      policy issues.  
        One of the most urgent issues before the      transition competition and sectoral regulators is, "How      should competition policy issues be resolved in basic      infrastructure industries?"  Many of them have spent a great      deal of time studying the U.S. system and a basic question      they ask is, "Should we do what you do?"  I think the      general advice that American advisors give is, "No, you      should not do it the way we do it."  
        One feature that amuses them is the fact that we      have, both in our sectoral regulators and in our anti-trust      agencies, in effect, overlapping review of mergers on      competition policy issues.  Between the Department of      Justice and the FCC, for example, we have two federal      institutions, which I would suggest end up looking at many      of the same issues, though perhaps with a different legal      standard but the substantive focus of the analysis in many      instances is the same.
        What are the consequences of having two federal      institutions review the same competition policy issues?  Let      me mention three basic concerns.  The first is that having a      multiplicity of federal competition policy agents      complicates the efforts of any single agent to develop      consistent enforcement policies.  Inconsistent enforcement      policies increase the cost of executing transactions and      limit the clarity of federal policy.
        A second basic concern is that it weakens      accountability.  By having two institutions responsible for      carrying out a specific task neither might feel the urgency      to get the issues right the first time, out of concern or      perhaps comforted by the possibility that someone else will      back stop them.
        The third concern deals with the international      arena.  Having a multiplicity of competition policy agents      limits the ability of the country to establish consistent      procedural rules and substantive requirements which, in      turn, increases the difficulty of devising widely accepted      international principles.  As you are quite well aware, many      of the transactions you review have international      consequences.
        What are some policy options for dealing with this      concern?  Well, the least desirable outcome, I would      suggest, is the status quo where we have parallel or      sequential review of the same issues by a sectoral regulator      and an anti-trust regulator.  
        What options might we consider as alternatives?       The first would be that the anti-trust agency makes the      basic competition policy decision with advise from the      sectoral regulator.  An alternative is that the sectoral      regulator, the FCC, makes the basic competition policy      decision, with advise from the anti-trust agency.  In      neither instance would we have parallel overlapping review      of the same issues.  
        If we don't go that far what interim solution      might we adopt if we leave the basic allocation of authority      in place?  Where the sectoral regulator imposes competition      policy remedies beyond those ordered by the anti-trust      agencies I would suggest that the identity and purpose of      these additional controls be clearly specified to make the      process as transparent as possible.  Thank you.
        Agenda Item:  Questions and Answers.
        CHAIRMAN KENNARD:  Thank you, Professor.  We will      now go to a brief question and answer period.  I will begin      with a question for Mr. Carey. 
        Mr. Carey, I was very interested in your      experience in the state of New York in the wake of the Bell      Atlantic/NYNEX merger.  You seem to be saying that the      conditions that this Commission imposed on that merger to      open the market for competition seemed to be working.  I'm      curious if you can suggest to us or give us a little bit      more detail as to why you think they have worked, areas      where they might be improved and your assessment as to the      state of competition in New York State.
        MR. CAREY:  Mr. Chairman, as I stated in my      testimony, one thing that concerns us is that as far as the      implementation of the OSS in a timely fashion, your time      table has not been met.  It is important to us in New York      State to take a look at what the goals are for the public       policy.  Of those goals one of the things we have tried to      work at, we have partnered with the Public Service      Commission and Governor Pataki is in completing the process      on the 271 proceeding so that we can open up those markets      to the local carriers. 
        The problems that we have had are continually the      inability of the incumbent LEC to provide the types of      services necessary for the competitors to achieve the kind      of success that they want in marketing their products and      completing their sales orders.  This is the kind of activity      that we believe that you can bring to the table from the      federal level.  At the local level we have been very very      effective in working with the company and the company has      been very effective in meeting the goals that we have      established in order to improve service quality and      infrastructure.  
        The Rev. Jackson made some comments about      infrastructure and service and quality in underserved areas.       Part of our position in achieving the $1 billion investment      in infrastructure was to improve infrastructure that the      previous company, NYNEX, had allowed to deteriorate in      places like Harlem and Yonkers.  On top of that we also      created a diffusion fund.  
        The diffusion fund allows us to use $50 million      over 5 years to target areas such as New Rochelle and      Buffalo, Yonkers, areas in Brooklyn and the South Bronx      where we can develop internet rings so that we can bring the      new technology, the combined bundled technology of not only      telephonics but data process and television to areas that      have been underserved.  So, these are the kinds of things      that we have done in New York State.
        The bottom line is that the company has actually      done it.  They have hired the workers.  They have put in the      infrastructure.  They have done what they said they would do      because the PSC in New York State has held their feet to the      fire and that's what we are asking you to do at your level      of government.
        CHAIRMAN KENNARD:  Thank you, Mr. Carey.  Other      questions from the bench?  Commissioner Furchtgott-Roth.  
        COMMISSIONER FURCHTGOTT-ROTH:  Prof. Kovacic, you      described a parallel or sequential process for the review of      mergers.  The FCC actually has two distinct bases to review      mergers, one is a public interest standard, which is      actually not for the review of mergers but merely for the      transfer of licenses under Section 310 of the Communications      Act or for the transfer of permits under Section 214.  We      have separate and distinct authority for Clayton Act review      of telecommunications carrier mergers.  Yet, we have not      exercised that.  
        We have heard today about many issues, both from      Prof. Krattenmaker and from our distinguished panel, of      issues that the Commission ought to consider in reviewing      this merger.  
        My question to you is could many, if not all, of      these issues be considered under a Clayton Act review as      opposed to the public interest review of Section 310?
        PROF. KOVACIC:  I think most of the competition      policy issues do fit within a Clayton Act framework.  They      do involve extremely idiosyncratic industry circumstances      that might very will benefit from the advice and guidance of      the Commission but what I would contemplate in that instance      is that the Department of Justice performs that kind of      analysis with the advice, with the recommendations of the      Commission.
        If you are not comfortable with the Department of      Justice then I would be perfectly comfortable putting that      function in the FCC with the advice and guidance of the      Department of Justice.  I simply wouldn't have two windows      to which the parties have to go in many respects to get the      same review of the same issues where the issues could easily      be addressed under one window or the other.
        COMMISSIONER TRISTANI:  If I could follow up on      that.  Are you saying that DOJ looks at service quality      issues?
        PROF. KOVACIC:  They look at the competition      policy issues that in many instances affect service.
        COMMISSIONER TRISTANI:  But do they look at      service quality?
        PROF. KOVACIC:  In what sense?
        COMMISSIONER TRISTANI:  A company's service      quality record.
        PROF. KOVACIC:  It would certainly be important in      their evaluation of the efficacy of remedial controls.  That      is, if you have firms that are saying, "Let the deal go      ahead because we are willing to make performance      commitments."  The past performance and reputation of the      firm would be quite important.  To the extent that you sense      that service quality was not encompassed in the review that      the Department of Justice would do, I would be quite      comfortable having that be a discreet and separate focal      point of Commission attention because the Commission's      jurisdiction is certainly broader.     My concern would be that the same policy issues not      receive sequential review by two different agencies.
        CHAIRMAN KENNARD:  Well Prof. Kovacic, if I could      just follow up on that.  Yes, would you like to address      that, Reverend?
        REV. JACKSON:  Yes, in some sense that the      Department of Justice is a broad stroke on the nature of      relationships, not on content and service.  That is what      makes this agency different than the Department of Justice,      is that particulars of quality of service and relationships      is here.  With all of the arrangements, you can have      competition behind the walls, you can have good rates behind      the walls, you can have oversight behind the walls, you can      have good and secure jobs behind the walls, you can have      limited entrepreneurship behind the walls but the walls must      come down and bridges built for those locked out to be part      of the American dream.
        When you have these walls you lock out market and      money and talent, opportunity, justice, and citizenship      protection.  So, I want to make sure that in all of our      deliberations that we see this in big tent terms, not just      traditional terms.  The Department of Justice will not      suffice on the content and character of these relationships.
        CHAIRMAN KENNARD:  Thank you.  I also wanted to      follow up on your point, Professor, because we heard from      Ms. Costa about her experience in California.  She mentioned      four areas where there has been a diminution in service      since these mergers went through.  She talked about rate      increases, she talked about decrease in service quality, she      talked about misleading marketing practices.  In my      experience as a lawyer and having studied these issues for      many years, these are not the issues that the Department of      Justice typically has ongoing oversight to ensure that      consumers are protected and that is why I am a little bit      concerned when you suggest that the Department of Justice      alone could take care of all of those issues under its      jurisdiction.
        PROF. KOVACIC:  Let me suggest first that I'm not      convinced that all of these would fall under the umbrella of      its review under the Clayton Act, although I do want to      suggest that a number of these issues would.  Notice that a      fundamental issue in the transactions you have before you      and that you have already reviewed involve promises about      efficiencies, commitments about the improvements in services      that will result from competition and from the transaction.  
        To the extent that past performance provides a      guide to evaluating the credibility of commitments about      remedies in a Clayton Act proceeding that is enormously      important evidence for the Department of Justice.  In short,      we are more interested in what you have done before than in      what you say you are going to do.  So, I think the past      behavior is a very important lens through which the      Department of Justice would evaluate efficiency arguments.
        But, let's assume that there is not a perfect      overlap, and I don't suggest that there is, I am proposing      that where the Commission does examine other issues that it      feels falls outside of the Department of Justice purview      that the Commission's review not be an opportunity simply to      re-examine issues that the Department of Justice has      reviewed.  
        My reading of the Bell Atlantic/NYNEX decision by      the Commission suggests that, yes, the Commission was      looking at some different things but I find it hard to      believe after reading the opinion that the Commission did      not review the same concerns about potential competition as      the Department of Justice yet reached fundamentally      different conclusions.  In that instance I see two agencies      looking significantly overlapping issues but coming to      different conclusions.
        CHAIRMAN KENNARD:  Commissioner Ness.
        COMMISSIONER NESS:  Thank you.  If I can follow up      on this issue also.  Professor, did Congress address the      jurisdictional question in the 1996 Telecom Act?
        PROF. KOVACIC:  In fact, no, in fact I --
        COMMISSIONER NESS:  In fact, it did.  In fact, it      did.  Go ahead, please.
        PROF. KOVACIC:  Well, give me your sense of how it      did resolve this issue.
        COMMISSIONER NESS:  We had originally Clayton Act      jurisdiction which could have, if we had exercised it as      such, precluded the Department of Justice from evaluating      the merger.  The Congress in the 1996 Telecom Act changed      that provision and eliminated the exclusivity on the part of      the Commission, thus, one could conclude that Congress, in      fact, looked at this issue.
        PROF. KOVACIC:  Well, I don't dispute that.  I      suspect -- how would we take my policy recommendation into      account in dealing with that overlap?  One approach is for      the Commission to say, "The Department of Justice has      examined the anti-trust issues, the competition policy      issues and we are satisfied with the results that they have      reached."  That is the extent of our competition policy      review, to accept that as being the definitive review of      those issues and then perhaps to define the additional areas      and the bases on which the Commission would address those      additional areas.
        To the extent that you perceive the 1996 statute      to mandate parallel review then I suspect that the      implication of what I'm saying is that it is time to go back      up the street and to ask them to address whether or not in      fact we want as a matter of practice to have parallel      overlapping review of these issues.
        COMMISSIONER NESS:  As a practical matter in the      Bell Atlantic/NYNEX decision the Department of Justice      believed that it could not, in its very limited review of      whether or not there is a diminution of competition, it      could not give the weight that we could give to the issue of      whether or not there was precluded competition.  It has a      very different standard.  It has to present a case to a jury      that has to prove beyond a reasonable doubt that there is a      violation of the Clayton Act.  We have very different      authority, we have very different ability to look at some of      these issues and the two are not necessarily preclusive of      one another.
        PROF. KOVACIC:  Well, actually, the Department of      Justice doesn't try the merger cases to juries and it is not      a "beyond a reasonable doubt" standard, it is simply      substantial evidence.  It is a preponderance of the evidence      standard.  I think the Justice Department's hesitation on      the potential competition theories reflects the facts that      the federal courts, in examining these issues in great      detail, have been doubtful about the strength of the      underlying policy foundations for that view.  So, the      inference I might draw from that is whether or not the      potential competition doctrine, as such, is a suitable      vehicle for making policy choices.  
        I'm willing to fall back, though, on the position      again that if we want a broader charter for examining the      competition policy issues perhaps it is time for the      Department of Justice to come here and say, "We will advise      you on what the issues are but we will not exercise our own      independent review which has constraining influence      regardless of what the Commission does."
        CHAIRMAN KENNARD:  Well, Professor, let's just      come back to the real world for just a second and let's      focus on what really happened in the Bell Atlantic/NYNEX      transaction.  As you recall, the Justice Department      extensively looked at this transaction, as Commissioner Ness      pointed out, and determined that they would not impose the      market opening conditions that this agency decided to impose      in its review.  We just heard testimony from Mr. Carey that      it was those very conditions that are serving to benefit      consumers in the state of New York.  So, I submit to you,      sir, that if we had undertaken your proposal, consumers in      New York would be worse off today than they are.
        Commissioner Tristani.
        COMMISSIONER TRISTANI:  I'd like to follow up with      Ms. Costa because you have brought up some real concerns      about service quality and prices going up.  I have a couple      of comments and questions.
        First, I'm looking at the emergency interrupt      proposed price.  I guess it is at a dollar right now and the      proposal is $4.  Do you know what other companies like      Ameritech are currently charging for emergency interrupt, or      does anybody know?
        MS. COSTA:  I personally don't know what rate      Ameritech is currently charging.  What I do know is that we      hired expert consultants with a great deal of experience      with SBC and Pacific Bell cost studies, and they have said      that those prices -- there is no way they are remotely close      to cost, they don't need those increases.
        COMMISSIONER TRISTANI:  And is that the same for      the busy line verification which would go up from 50 cents      to $2, another 400 percent increase?
        MS. COSTA:  Yes, the analysis was the same for      directory assistance, busy line verification, and emergency      interrupt.
        COMMISSIONER TRISTANI:  I'm going to ask a pretty      pointed question here.  You have made some very serious      allegations of service quality, as I understood it, going      down ever since PacTel merged with SBC.
        MS. COSTA:  Yes.
        COMMISSIONER TRISTANI:  Prices going up, ISDN --      which at one time was kind of the -- PacTel was the showcase      for, as I recall -- service going down.  What would you      suggest we do with the information you give us?   I mean,      should we say we should stop this merger because maybe      that's what's going to happen in Ameritech?  Should you say      we should condition this merger?
        MS. COSTA:  I would say you should stop it.  I      mean, we are one of the parties that was a signatory to the      filing that Ms. Hogerty referred to because we are very      concerned about this.  We have our own selfish concerns, we      are concerned about now a multi-state company, we are      concerned about sufficient regulatory oversight but we are      also concerned about the effects of this company's      performance on our customers and we really don't want      anybody else to have to go through the same thing.  What we      have seen since SBC took over this company is wave after      wave of proposals that are designed to get more money out of      Californians.  We are very disturbed that they didn't comply      with the ISDN order.  We wish the Commission kept better      service quality data but it is undisputable that the volume      of complaints increased and a Commission representative      recently made that statement at a forum sponsored by Rand      and the Annenberg School of Communications.
        The reason I typed this up, I did 11 single spaced      pages and I quoted extensively from a Commission decision, I      cited to Pacific's application and I cited to advice      letters, is because this is very serious.  We have a good      reputation as consumer advocates, we are members of NASUCA,      we are not blowing smoke here.  People have suffered since      this company took over.
        COMMISSIONER POWELL:  May I?
        CHAIRMAN KENNARD:  Yes, please, Commissioner.
        COMMISSIONER POWELL:  Seems we are having a heated      debate about institutional competence.  It seems to me one      question I would ask or at least occurs to me, Ms. Costa,      and it is really to everyone, but these companies are      heavily regulated by state commissions as well.  The data      you are referring to is kept largely by state commissions.       Prices can't be unilaterally raised at the local level by      most of these companies without the acquiescence of state      utility commissions.  I am particularly troubled because Ms.      Butler seems to suggest, which I think is probably right,      that even a single company can have a variation in its      quality of service record from state-to-state and its      different regions.
        So, rather than fighting over the Department of      Justice my question would be, "Why wouldn't those concerns      most acutely be addressed by state utility commissions      rather than in a grand federal way?"
        MS. COSTA:  I think it would be a mistake to      ignore those issues because you are the Federal      Communications Commission and you make broad policy and your      rulings are important and they have an impact at the state      level.  It is an important message to states that these      issues are taken seriously.  We know that the FCC has      increased its efforts to monitor complaints and to pay      attention to these issues.  We think they should be taken      seriously and considered by all regulators when they are      looking at these mergers.
        COMMISSIONER POWELL:  I think that is fair.  I am      certainly not suggesting ignoring it but there is sort of a      question about -- and I think part of the concern that I'm      raising is raised by Commissioner Tristani, which is there      is something predictive and speculative about what the      future conduct of quality service changes will be,      particularly the number of states involved in SBC/Ameritech,      for example, there is a significant number and it seems to      me at least a difficult judgement to make about what will be      the uniform affect on service quality in each and every one      of those states, depending on different variables.
        First of all, I am not even entertaining the      notion that these aren't legitimate and worrisome concerns      on the part of regulators.  I'm just asking whether -- and      maybe Ms. Butler would want to comment about your confidence      that the Federal Communications Commission is able and      resourced and focused to address this rather than state      commissions.
        MS. COSTAS:  First of all, state commissions have      different levels of resources.  California is a big state,      at least as big as New York, I think.  But, we have so many      proceedings going on with telecommunication that our      commission is not able to adequately monitor.
        COMMISSIONER POWELL:  We have a similar problem.
        MS. COSTAS:  And if California can't do it it is      questionable as to whether other states can.  Second, the      only way you learn about what is likely to happen is to look      at what happened in the past.  In our case we were asked to      comment on the performance of SBC in California and we've      done that.  Other states who have had experience with SBC,      like Missouri, like Texas, share our views.  They have had      serious problems.
        So, I think that there is no easy answer.  There      is not a neat little diagram that will show you how the      jurisdiction or the consideration of these issues should      take place.  But as a rate pair advocate and somebody who      has worked in this stuff for about 14 years I would say      nobody has the resources to do all of it and so we better be      asking everyone, everyone should be asking these questions.
        REV. JACKSON:  Mr. Powell, consistent with the      American dream of one big tent, where we include the all and      leave none behind, with some assurances of equal protection      under the law, equal access and fair share we at states'      rights regulatory commissions on voting before 1965 and they      varied according to the politics of that state.  We finally      had to have a federal oversight on a right so basic as      voting.  Voting is right basic, but no more basic than      access to the lines, access to communications.  And, so, the      standards that states must honor must be determined and      enforced by you .
        What these companies do, they manipulate, they      maneuver state-to-state, they play state off against state.       There must be some place to say, "Here are the standards."       The reason why Alabama and Mississippi must comply today      with New York and California is because there are national      standards, there is an even playing field and there are      consequences for violating those standards.  I appeal to you      to be the source of uniformity where California or in L.A.      or in Paducha, Kentucky that there is the same basic      protection assured.
        CHAIRMAN KENNARD:  Commissioner Butler, did you      want to address that question?
        COMMISSIONER BUTLER:  Thank you, Mr. Chairman.       Commissioner Powell, I would give three reasons for why the      FCC should continue to be interested in these issues, even      though I do believe the states do have a very significant      interest and concern about them.  First of all is what I      mentioned in my opening remarks, that we each have different      levels of authority, as well as different levels of      resources and there are states that will be affected heavily      by the proposed mergers that have no authority to review      them.
        I think the FCC has got to step up to the plate      and make sure that the rate payers and customers,      particularly residential and small business customers in      those states are not left behind.
        Second, as we increase the size and the complexity      of telecommunications companies and all other companies it      becomes increasingly hard for one individual state to track      dollar flows, to track investments.  If we don't have good      cooperation and a good working relationship with, and shared      jurisdiction and authority between the states and the      Federal Government then we really lose the ability to make      sure that we can enforce the conditions that we place on      these mergers, if that is the road that we go down.
        The third is the FCC does have a national      perspective.  You have been through this before.  You have      the ability to take the lessons learned, for example, in the      Bell Atlantic/NYNEX merger, and make sure we don't make the      same mistakes, make sure we take the good parts from those      mergers and apply them in future mergers.  I think that is      really why the states rely on you to have a hand in these      issues that at first blush may be state issues.
        CHAIRMAN KENNARD:  Commissioner, thank you.  I      think that will have to be the last word because we are      running over.  I want to thank the panelists for this first      session.  Yes, Reverend?  Very quickly, please.
        REV. JACKSON:  May I beg this of you, I'm very      concerned about ending the apartheid system in      communications and that the FCC makes some fundamental      adjustments in the errors of its historical ways to comply      with the laws of '64-'65 to include the excluded.  You can      have a North/South discussion about quality and workers and      consumers and rates that still leave a significant body of      people excluded from participation.  
        Removing the East/West barrier for inclusion is      very fundamental.  After all, when our government came up      the science of radio it gave away all of the licenses to      white males exclusively, blessed by your antecedent.  Before      the TV, all licenses issued on that same basis, blessed by      FCC.  In a sense cable television,more or less, blessed by      the same deal.  Digital, blessed by the same deal.  Then      they remove for a moment in time the tax certificate.  Now      here we are again.  My appeal is that a condition while      these big  companies speak of efficiency, service, and      competition for size.  The mergers must meet standards of      inclusion and opportunity to be American, to be legal and to      be fair.  I appeal to you, just like with your counterpart,      the Department of Justice, to make inclusion and opportunity      that all America might be included -- 
        (Technical difficulty.)
        -- legal standard for passing these new      arrangements.  Thank you.
        CHAIRMAN KENNARD:  Thank you.  Thank you very much      for being here.  We will reconvene with our next panel at      11:15.  Thank you.
        (Whereupon a brief recess was taken.)
        Agenda Item:  SBC/Ameritech Panel
        CHAIRMAN KENNARD:  The second panel this morning      will focus in now on the proposed merger of SBC and      Ameritech.  I want to extend a welcome to our second group      of panelists and our thanks to you for being here.  
        Again, each panelist will have three minutes to      present an opening statement.  The statement will then be      followed by questioning from the bench.  We will hear from      everyone and then we will have some questioning from the      bench, then we will go to our third panel, which will focus      in on the proposed merger between Bell Atlantic and GTE. 
        We will begin now with Mr. Taylor.
        Agenda Item:  Robert Taylor, President and CEO,      Focal Communications Corporation
        MR. TAYLOR:  Good morning, Chairman Kennard and      Commissioners.  I appreciate the opportunity to speak here      today concerning the proposed merger of SBC and Ameritech,      in particular, and the issues of mergers among incumbent      telecommunications providers in general.
        As we approach the third anniversary of the Act,      the Commission and various interested parties have gained      important real world information that can and should assist      in the evaluation of proposed mergers such as Ameritech's      and SBC's.
        Earlier mergers, such as those among SBC and PAC      Bell and NYNEX and Bell Atlantic were necessarily approved      without much experience about the competitive consequences      of these combinations.  The advocates of these mergers      claimed each would enhance the ability and motivation of the      merged entity to compete out of region when compared to the      incentives and resources of the individual entities.
        Now with the experiences that have been gained      since the NYNEX/Bell Atlantic and SBC/PacBell mergers we can      evaluate the claim that bigger incumbents means more out-of-region competition against reality.  And the harsh reality      is that neither of these merged mega-corporations, among the      largest in the world, are currently engaged in any sort of      meaningful land line competition outside of their region.  
        Given that the addition of PacBell apparently had      no appreciable effect on SBC's ability or desire to compete      out of region there is no rational basis for concluding that      adding Ameritech to its assets portfolio will alter the      situation one bit.
        Although SBC's recent statements to the press were      intended to counteract this real world evidence they      actually confirm it.  According to SBC it requires capital      in excess of $3 billion, over 8,000 employees, and in-region      long distance in order to compete out of region.  Such      claims are clearly unlinked to reality.  
        MFS Communications successfully raised a similar      amount of capital and created a global competitive network      greater than the one anticipated by SBC without SBC's AAA      credit rating, it's huge imbedded customer base and its      employee base.  Focal Communications itself provides a more      recent example that competitive entry is not limited to the      form envisioned by SBC.  Focal will be serving over 20 major      metropolitan areas by the end of 1999, using less than $200      million in invested capital.  Even though we started last      year and have none of the advantages enjoyed by SBC and      currently employ less than 300 people.      As far as in-region long distance authority, Focal does      not need to provide long distance.
        In short, the absence of any out-of-region      competition from the ILECs that have already merged,      combined with the ability of CLECs to enter the markets      demonstrates that SBC's promises are entirely pointless as a      policy matter and should play no role in the Commission's      evaluation of this proposal.
        What should be factored into the Commission's      analysis is the fact that an attempted creation of Bell      System East and Bell System West is clearly anti-competitive      and bad public policy.
        My goal this morning is to simply direct your      attention to three undisputed facts that require the merger      to be rejected.  The absence of any need for a merger in      order for either RBAC to participate in out of region      competition, the existence of actual potential cross-border      competition between adjacent ILECs and the need to benchmark      behavior among incumbents.
        So long as mega-ILECs have the potential      opportunity to meld into one big nationwide incumbent and      therefore permanently avoid any risk of competition among      themselves why would they ever start competing out-of-region      and thereby preclude themselves from ultimately merging with      incumbents in those out of region markets?  With all due      respect, the Commission should just say no to the      SBC/Ameritech merger.
        CHAIRMAN KENNARD:  Thank you, Mr. Taylor.  Mr.      Devlin.
        Agenda Item:  J. Richard Devlin, Executive Vice      President, General Counsel and External Affairs - Sprint      Corporation.
        MR. DEVLIN:  Thank you very much, Mr. Chairman and      Commissioners.  My name is Richard Devlin.  I'm Executive      Vice President and General Counsel for Sprint Corporation.       We very much appreciate the opportunity today to present our      views on the pending SBC/Ameritech merger.
        This merger would create a massive telephone      company that controls about a third of the nation's      telephone lines.  I'm not saying that big is bad but I am      saying that this particular merger and the merger of      GTE/Bell Atlantic will harm consumers.  
        These marriages of monopolies would, one,      eliminate substantial actual and potential competition,      particularly in the St. Louis market where Ameritech had      concrete plans to enter.  Two, it would decrease the number      and comparability of benchmark firms, which thus increases      the regulatory and anti-trust challenges.  Three, it would      decrease rivalry and innovation.  
        Moreover and most significantly, the aggregation      of local monopoly markets, the bigger footprint as noted      economists have called it, would give SBC and Ameritech an      increased ability and incentive to discriminate unfairly      against rivals.  
        Just as the former Bell system leveraged its      monopoly power to distort competition in other markets, a      combined SBC and Ameritech would predictably impede      competition in local markets, long distance markets, and      markets for new innovative services.
        This country has spent many years and many      billions of dollars to breakup telecom monopolies and to      have competition, we simply cannot afford to go back to the      days of "Ma Bell" where prices were high and consumer      choices were virtually non-existent.
        These serious problems are not offset in any way      by the claimed benefits of the merger.  The claim benefit is      that the merged companies would plan to enter 30 local      markets outside their monopoly territories.  This plan has      to be viewed with skepticism.  First, there are no firm      commitments but even if there were commitments it would be      dubious because these companies today can engage in out of      region competition, they just choose not to do so.
        Their original attempts to tie the 30 city market      plan to the merger did not hold up well under scrutiny so in      the reply comments last months SBC and Ameritech now      explained that the real reason that they can't each go it      alone is that they are afraid their investors would not be      happy with the resulting earnings dilution.
        But, I've got to say, if a massive company like      SBC and Ameritech, with each having vast local telephony      experience and resources, all the technology, if they cannot      profitably compete in local telephone service regulators      need to redouble their efforts to eliminate barriers to      local competition.  The answer is not to allow this merger      to go forward.
        This merger, along with the Bell atlantic/GTE      merger implicates nothing less than the future structure of      this critical industry and its ability to perform      efficiently.  If the FCC does not exercise its authority now      to ensure an efficient market structure surely we will all      pay the price in the future.
        The Telecom Act of 1996 was supposed to open up      local telephone monopolies.  What we got instead was      stonewalling, incessant legal challenges, and greater      concentration.  The mergers of large regional monopolies can      only take us further away from the goal of local      competition, thus, these merger applications should be      denied.  Thank you.
        CHAIRMAN KENNARD:  Thank you.  Mr. Carter.
        Agenda Item:  Stephen M. Carter, President -      Strategic Markets, SBC Operations, Inc.
        MR. CARTER:  Thank you, Commissioners.  My name is      Stephen Carter and I'm the President of Strategic Markets      for SBC.  I've been made responsible for taking the combined      SBC/Ameritech into the nation's biggest 30 markets out of      our region.  Together, with the 20 markets the 2 companies      would already serve on a combined basis, the national local      strategy will make us a national competitor and establish      our position as a global provider. 
        I'd like to begin by acknowledging that the merger      has or soon will meet two key tests.  First, I don't think      there is any question today that SBC is fully qualified with      respect to the necessary financial, technical, and      managerial expertise and requisite character to obtain the      Commission's approval of this transaction.  In addition, the      Department of Justice is conducting an extremely thorough      review of this merger for any anti-competitive's concerns.       We are confident that we will receive the Department's      approval.
        That said, I would like to spend a few minutes      explaining why we believe this merger is in the public      interest and will be good for consumers nationwide, good for      employees of both companies, good for our shareowners, and      good for America's place in the global telecommunications      arena.
        This merger is our effort to shorten the distance      to the future for our current customers and consumers in      markets from coast-to-coast.  This merger is about enhanced      economic growth, improved customer service and increased      competition around the corner and around the world.
        there are some who pace the perimeter of the      status quo, nervously guarding the way things are.  Change      is their enemy.  We believe the time for change has arrived,      and with this merger we have put our resources behind our      commitment to the future.
        Once this merger is complete, we will jump start      national competition through our National Local strategy for      business and residential customers liken thing else has      since the passage of the Telecommunications Act of 1996.  We      will become a new telecommunications alternative for another      70 million people.  In the process, we will bring new      products and services to consumers in and out of region      faster and more efficiently.  And, our entry in those      markets will force a competitive response from incumbent       phone companies, long distance giants and others.
        I can't overstate this point:  We're not pursuing      National Local in order to win regulatory approval for the      merger.  It's exactly the opposite.  the merger with      Ameritech is a means to achieving the goals of the National      Local strategy.  It's a decision that both companies made      based on our mutual desire to take advantage of growth      opportunities in a dynamic telecommunications marketplace.
        The SBC/Ameritech merger is all about growth.  For      example, we will need 8,000 plus employees to serve      customers in these new markets, which is just one reason why      the Communications Workers of America support us.
        Others have speculated about what this merger will      do.  I'd rather talk about real results.  In the 18 months      since our merger with Pacific Telesis, the situation in      California is much improved.  Ms. Costa could not be more      wrong.  The full facts show that in the competitive arena      when we took over there were almost 20,000 orders backlogged      from our competitive customers.  There have been no back      orders since the middle of last year, there are none now.
        Service and repair times are better.  We are      introducing products and services, including the nation's      biggest roll out of high-speed Internet access through DSL.       Our prices are regulated.  DA is below cost.  Don't ask      about what DA is being charged in other areas, ask about      what our competitors charge for DA in California.  The truth      is that we are too low.  We are below cost.
        Our charitable contributions and community giving      have more than doubled.  We have created more than twice the      number of new jobs that we anticipated.  We fully expect      that the Ameritech merger will allow us to achieve similar      results.
        If the Commission has any doubts on this matter, I      would encourage you to consult with the Commission in      California to obtain the full facts, and not to listen to      any ill-informed or heavily biased advocacy groups.  
        We know this Commission wants to promote      competition and so do we.  Our merger is a product of      competition -- competition for our most profitable customers      requires us to become a national and global carrier, which      will allow us to then compete for business and residential      customers nationwide.  If you have any doubts, just look at      how much the competition is doing to stop this merger.
        The race is on among SBC, Ameritech, AT&T/TCI,      MCI/WorldCom, Bell Atlantic-NYNEX-GTE and others --
        CHAIRMAN KENNARD:  Mr. Carter, you will have to      wrap up, please.
        MR. CARTER:  -- to achieve the size, scale,      customer base, and employee talent to become a national      provider.  In the end the consumers will win.  I hope you      will give them the opportunity to choose and give us the      privilege of competing for them.  Thank you.
        Agenda Item:  Questions and Answers.
        CHAIRMAN KENNARD:  Thank you, Mr. Carter.  Mr.      Carter, you made a statement in your presentation about your      confidence that the Commission will find that your company      has the requisite character to get approval for this merger.       Character, of course, is a term of art in FCC parlance      because the FCC must find, as a matter of law, that anyone      who comes before us and asks for the approval of a license      transfer be deemed to have the requisite character.
        Historically, the FCC in making this evaluation      has looked to see whether the applicant has complied with      all significant FCC rules and regulations.  Now, I know that      your company has a dispute with this Commission about the      way that we have implemented the 1996 Act and, in fact, so      much so that you have now gone to the United States Supreme      Court and asked that the highest court in the land rule      unconstitutional certain key provisions of the Act, Section      271.
        Now, putting that aside, because everyone has      their opportunity for full legal redress in the courts, I      want to ask you this question about compliance with the law      and then I want to ask the other panelist to address it.       Can you tell us today that SBC has complied with the rules      and regulations of this commission implementing the market      opening provisions of the 1996 Act, in particular, Sections      251 and 252, which I believe are the heart and soul of the      act because they require that the incumbent local exchange      carriers open up their markets for competition?  Can you      address that question for me, please?
        MR. CARTER:  I can say unequivocally that I      believe our company has done as much or more than any other      to open up our markets.  We have, on record, more than
     2 million access lines have now moved over to be served by      other companies.  We have established OSS systems that I      believe most people believe are the best in the industry. 
        We've got no backlog of orders from CLEC      customers.  Although, we have reserved our right to appeal      certain issues we have never not -- we have never taken the      position that we wouldn't enact orders until the appeal was      finished and finalized.  So, I can't think of any issue at      the moment where we are out of step.  We are in disagreement      but not out of line with your orders or, indeed, any state      orders.
        The ISDN issue that was mentioned earlier, I will      admit, that we had an error.  We file a lot of responses and      in California we did respond to the ISDN request,      regrettably the response was not complete.  We admitted it      wasn't complete and, indeed, have said that we would      complete it.  It was not that we were not interested or      didn't do it on time but it was incomplete, we made a      mistake.  Frankly, I'm amazed that we do as many on time and      as soon completely as we do.  As you can imagine there are a      lot of orders.
        CHAIRMAN KENNARD:  Thank you, Mr. Carter.  Would      Mr. Devlin or Mr. Taylor like to address that question?
        MR. DEVLIN:  Yes, I would, Mr. Chairman.  Thank      you very much.  I took a note down on my pad when Mr. Carter      said, "The time for change has arrived."   
        In the notes that I made were, "Does this mean the      baseless lawsuits will be dropped?  Does that mean SBC will      stop fighting in region competition?"  Mr. Carter talks      about his company's compliance with the Commission's market      opening rules, yet I believe it is now five states in SBC      territory that have denied or states or Commission staff's      that have recommended denial of 271 application in SBC's      territory for multiple failures to implement the checklist.
        MR. TAYLOR:  And I'd like to comment.  Focal      Communications is both a customer of Pacific Bell,      Ameritech, and Bell Atlantic.  Looking at those three      incumbents to date there is a big difference between the      best and the worst and I'm not going to say that the best is      complying with the letter of the law but I would not put      PacBell's cooperation with competitive telephone companies      anywhere close to the best.  As a customer, most of our      orders have been late.
        CHAIRMAN KENNARD:  Thank you.  Other questions      from the bench?
        COMMISSIONER NESS:  Mr. Carter, you indicate that      if this merger is approved that you would go into 30 markets      around the country.  Is there a reason why you would not      pursue the same strategy if the merger were not approved?
        MR. CARTER:  I think we've put on record our      reasons why we believe we have to be a national and a global      provider and to do that we have to service more than just      one or two markets outside of our region.  The Ameritech      merger brings, of course, certain cities within our region      and thus reduces the burden of building outside of the      region.  It is our belief that to do a build out in the      proper way, to give full facility based competition, we need      the scale and scope, the talent pool that Ameritech gives      us.
        COMMISSIONER NESS:  The inference, however, is      that other major local operating companies would also then      compete in your region, your expanded region, and there      would be more competition, more fierce competition than      exists today.  Indeed, that is the concept behind the public      interest offering that you are making.
        What would make one conclude that that competition      would exist in your region if you are telling us that it      would be extremely difficult for you to compete outside your      region but for a much more expanded geographic area?
        MR. CARTER:  Well, I can't say how our future      competitors would give themselves up to do the competing.       They may do it alone, they may do it with others in      partnership or alliances but I am certain that by attacking      the very heart of their economic base they would have to      find ways to spread their overhead load and to compete back      in our region would seem sensible.  They may not have      ambitions to be one of the national competitors.  They may      believe that they can survive as a more localized entity.
        Certainly, the AT&Ts and MCIs and Sprints of this      world are fully capable of competing around the country      today.  Those people, I believe, will be prompted to more      aggressively pursue competition in our own territories when      we are attacking their own bases.  In fact, it is, I think,      apparent that Sprint's interest in this merger has sharpened      considerably since we announced that we would be planning      certain of their key markets where they are the local      player.
        COMMISSIONER NESS:  Would Mr. Devlin or Mr. Taylor      like to respond to that?
        MR. DEVLIN:  Yes.  Thank you, Commissioner Ness.       I think, first of all, we need to establish why Sprint is      here today.  We are not here as a competitor of SBC, we are      here as a customer of SBC.  We are one of SBC's largest      customers.  We are a captive customer.  If we want to      complete long distance calls in the South area of the United      States we must use SBC.  
        There are competitive alternatives that are      starting but I think everyone would agree that virtually 98      percent plus of calls use the incumbent local telephone      company.  We would love alternatives to SBC, we want to see      local competition because that will drive our largest single      cost down, which is the cost of access.  So, we are here not      as a competitor but as a customer.
        Addressing the specific question, this notion that      you have to be a mega-corporation to compete or that you      need a large captive customer base to compete, just a few      thoughts for you.  We have heard already from Mr. Taylor      about how CLEC's are doing at a fraction of the size but      think back in the old days, the long distance days.  Sprint      was the first one to construct a high capacity fiber optic      digital network.  We didn't have a single customer, yes it      cost billions of dollars, yes for the short term our      shareholders got nervous but we did it and we are doing it      again now without a single wireless customer when we      started.  We bid and we paid the government over 
     $2.5 billion for the right to build a national fiber system.
        We are a smaller company than SBC.  If you are      going to succeed in the marketplace you need to take risks,      you need to make investments, and if SBC believes that it      needs to be global it should be opening up its local markets      so it can get into the long distance business and it should      be competing right now.  It shouldn't be waiting for a      merger, it is large enough to compete.
        MR. TAYLOR:  Just a quick comment.  It appears      that the logic just doesn't seem to make sense.  If the      merger, as Mr. Carter explains, is the means to achieve the      strategy, and he also indicated that the company will sort      of pass the benchmark test of qualifications on the      managerial, technical, and financial side, how come every      other competitive entity who has chosen to do this has done      it with far fewer people, far less money, and far faster and      in more markets than the combined SBC/Ameritech indicates      they will?  It doesn't seem to make sense from a common      sense perspective.
        CHAIRMAN KENNARD:  Go ahead, Commissioner Powell.
        COMMISSIONER POWELL:  Mr. Carter, I want to get      something clear, because people are debating the same thing,      perhaps with different terms.  Is your statement that it is      impossible to do or it is just plain harder to do?
        MR. CARTER:  It is a lot harder to do but not      impossible to do.   It depends on the criteria that your      business sets as its goals.  I believe if you want to be a      niche player, a CLEC that picks off the ripe business      customers, the people that are paying the higher rates of      service, if you want to ignore the residential customer, if      you don't want to serve a broad base of consumers across a      wide range of markets then surely you can enter almost any      city you want to pick off that kind of business.
        But, we believe that if you are to enter a market      with a full fledged wide product range, innovative services,      your own product range that consumers demand, we believe you      have to have the scale that we are talking about.  We      believe it is only with that kind of scale that you will get      sort of competition that was envisaged by the Act.
        COMMISSIONER POWELL:  I want to come back to that      in a second but, Mr. Taylor, one of the things I also want      to try get straight in my mind, and maybe it is a question      of both of you, if someone is talking about a national local      strategy -- and I understand they are talking about 30      markets and that might be a qualifier -- is it an      appropriate analog to look at the aggregation of CLEC      experiences at significantly smaller scales or is the      analog, the ones that come to my mind, the large IXCs that      are pursing a more comparable national local strategy, that      is an attempt to enter the United States in a single      significant way at the local level, as opposed to companies      such as yourself who may be in 13 states at the moment or so      many regions at the moment. 
        I just wanted to get your comment on the notion of      national strategies, not really the community of CLECs, like      yourself, the smaller midsize CLECs, but, indeed, the      similarly situated global carriers like AT&T and      MCI/WorldCom and how they are faring with respect to      national local strategy.
        MR. TAYLOR:  Well, I think, the short answer to      your question is the AT&Ts in the local telephone area      aren't faring any better or worse than the Focal      Communications.  We're certainly able to compete head-to-head with the large global carriers, as well as we are with      the incumbents.  Size does not appear to be a criteria that      favors or hinders.  It may hinder more.
        COMMISSIONER POWELL:  I guess what I am exploring,      and maybe I'm off base, but would you concede that there may      be a difference in difficulty between whether you are      pursuing a national local strategy than it would be to      pursue on the sort of more market-by-market or discreet      market basis?  Are there things that an AT&T or an      MCI/WorldCom would insist on or need that are consistent      with a national strategy that would not necessarily be      concomitant with interests of companies like your own?
        MR. TAYLOR:  No, there is nothing that would be      different between the two.  Focal Communications serves      residential customers, we serve the largest corporations.       We believe we have a national local strategy as well.  We      wouldn't phrase it that way but we are coast-to-coast and      north to south and we don't see how whether you are a      regional player or a national player that is doing local      telecommunications how the national local strategy gives you      any advantage or differentiates you from anybody else.       Local phone service is still local, like politics.
        COMMISSIONER POWELL:  The last thing I wanted to      ask, going back to Mr. Carter, and I think I have asked you      this question before -- I'm still somewhat at a loss at the      suggestion that the global competitive marketplace is      demanding a local presence in each and every city to be      competitive with the customers that you describe.  
        It seems to me, in the absence of the ability to      connect those cities across lattice or internationally you      have nothing, that is other than 30 local presence that you      -- then you can't go to customers with and make any greater      representations about your service abilities than you could      now because you really don't have the interlateral relief      that is going to be essential.  
        Would you say a little bit about essentiality of      being able to connect those local entries that you purport      to make on the importance of the interlateral relief as a      component of that?   Because someone might say your merger      might make sense but not now.
        MR. CARTER:  There is no doubt that without the      benefit of interlateral relief our national strategy is      stranded.  However, perhaps the fact that we have been      rejected in part in a number of our states shows that we      have been early to the party in trying to fulfill a somewhat      murky checklist.  We thought we had finished, it is apparent      that others think we haven't but we are working very closely      with our states to try and work out what it is that is      required to obtain 271 relief.
        Certainly in the time scale that we are talking      about for the completion of the merger and the launch of      national local we would anticipate that we have long      distance relief.  If we haven't, some four years or so after      the Act, then something has gone dreadfully wrong.
        So, we do believe that is a part of the strategy      but we see those as being two separate tracks that we have      to take on.  It gives us an added incentive, perhaps, to      work just a little harder to make sure that we do comply and      fulfill 271 appropriately.
        COMMISSIONER POWELL:  Just to understand, is your      suggestion that in the combined number of states that would      be represented by SBC/Ameritech you would anticipate long      distance approval in everyone of them over the course of the      next year?
        MR. CARTER:  We would certainly hope that once we      have achieved one of the states it would give us a very good      guideline as to how to achieve all of them.  I can't speak      to Ameritech's systems at all, I'm afraid, but certainly as      far as SBC is concerned I would expect that once we have the      blue print for the one we would be able to achieve an      approval for all of them.
        CHAIRMAN KENNARD:  Commissioner Furchtgott-Roth.
        COMMISSIONER FURCHTGOTT-ROTH:  Thank you, Mr.      Chairman.  Mr. Carter, I have two questions for you.  The      first is, is the information that you have been asked to      provide to the Department of Justice substantially different      from the information that you have been asked to provide to      the FCC?  
        Second, of the 14,000 or so licenses that were      transferred under Section 310 last year the vast majority      were handled in a fairly simple ministerial way without a      lot of fanfare.  Before SBC contemplated a merger with      either PacBell, a couple years ago, or now Ameritech, did      you have in your possession or did anyone suggest to you      there might be some document that would describe how certain      license transfers would be handled in a certain way with a      fairly ministerial process and how certain other license      transfers would be subject to intense scrutiny?  Was there      ever in your possession a clear road map of precisely how      this Commission would handle your merger and the license      transfers involved, as opposed to other license transfers?
        MR. CARTER:  I am not one of the experts that      submit all of the information but my impression is that      substantially the sort of information that we have supplied      to the Department is very similar to that that we are      supplying to the Commission.  Indeed, from the sort of      questions we are receiving it may even be that the      Commission is more interested in our detailed business plans      than the Department but we will see how that plays out.
        Certainly, before the Pacific merger I don't think      any of us in SBC management talked about knowing what the      blue print was.  We had a very clear idea about what the DOJ      would be wanting.  I think since the Pacific merger we're,      in contemplating this merger, I don't believe we had any      firm idea about what would be required from the Commission.       Again, we do have a fairly clear idea about what the DOJ      will be using as their standard.
        CHAIRMAN KENNARD:  Commissioner Tristani.
        COMMISSIONER TRISTANI:  Mr. Chairman, thank you.       I have two questions for Mr. Devlin and Mr. Taylor.  
        The first one is -- well, you've been speaking      from the competitor's point of view but I know you also want      to gain and serve new customers but I'd like you to tell me      whether you think the FCC should be looking at these      allegations of deteriorating service quality in California.       That is one question.
        A broader question is if we say "yea" to these      mergers, which is something you oppose, are there any      meaningful conditions that the FCC should and can apply?
        MR. DEVLIN:  Commissioner Tristani, I think the      two questions are very much related and it is, "Can this      Commission rely on promises and conditions and get      comfortable that this merger is going to serve the public      interest?"  I think the answer to that is clearly "no."  
        If we look at the mergers that have taken place,      the commitments that were made there or the statements of      intent that were made and the conditions that weren't      satisfied, the road is littered.  But, let's even assume      that the conditions can be faithfully executed.  I still      don't think it fixes the problem. 
        Let's take an example.  Someone is hitting you      over the head with a hammer, you call the police, the police      send their crack negotiator team and they negotiate      conditions.  The conditions are the guy can keep hitting you      over the head with the hammer but he must give you an      aspirin every four hours.  Let's assume the guy actually      faithfully executes that and gives you the aspirin every      four hours, you still haven't fixed the problem and that is      the problem with conditions here.
        What we are talking about is the two most likely      competitors agreeing not to compete against each other,      merging into one big happy family and once that is done you      can never unwind it.  Those competitors are lost forever and      consumers that were relying on innovation and lower prices      and long distance companies that hoped to have lower access      prices all that is gone forever.  So, we don't think      conditions work.
        MR. TAYLOR:  In response to your question of      should you be looking at what is happening in California,      absolutely.  Because it sets a pattern of believe ability in      what they are going to tell you they will do.  Clearly, I      think, everybody has said and there have been a number of      opinions about what has happened in California.  You guys      have the information to determine what you believe has      happened in California as well.
        We think it is important because what they have      done in California will likely be what they do in other      areas.  It appears, as a CLEC in California, that we have      not seen better service by the merger of SBC and PacBell, we      have seen worse service there.  So, in our narrow view as a      proponent of more competition and bringing service to      residential and business customers it has been more      difficult for us since the merger.
        What conditions should you apply?  The conditions      should have, in Mr. Devlin's analogy, a really big stick so      that you have the hammer in your hand and you are hitting      the opponent on the top of the head so that when they don't      comply, because we don't believe they will, that you have      the means to force them and force them painfully into      compliance.  I think that is the one clear message, if we      could send is, should you approve this and we don't think      that is in the best interest, you need to ensure that your      stick will cause a headache bigger than one aspirin.
        COMMISSIONER TRISTANI:  Mr. Carter, do you want to      respond to any of that?
        MR. CARTER:  Thank you very much.  I would      heartily agree that you look at California because I think      it will be a model of what you actually want in terms of      promises kept.  I would point out that Focal Communications      was not trading with Pacific Bell pre-merger so Mr. Taylor      has no experience pre-SBC, indeed, we have only been trading      at a very limited way in the latter part of this year.     To my knowledge, as perhaps you know I was in charge of      wholesale before, but I have had no complaints in that      capacity from that company.
        I think, also, on the service side, Sprint awarded      SBC no less than 26 awards for service, including "Best in      Class" in 1998, 24 individual awards for provisioning,      network maintenance, installation, and have declared us a      model of what they call their "B Man" strategy, which I      understand helps their eye on product.
        The other thing I would say, again, we've created      more than 2,200 jobs, we promised a thousand.  We committed      to improve service, we have.  The Silicon Valley had      terrible troubles before we took over.  We also had the      strange effects of El Nino this year, despite that service      in the Silicon Valley is still 80 percent better than it was      before.  I will agree we still have some room to go but we      are making huge improvements in that area and overall      service in the state is much improved.
        Basic service prices have not changed.  As I have      said before, they are regulated, they have not changed.       Competition has been promoted.  We have no backlogs.  We      have committed to giving more to communities, invested more      in facilities, we've expanded products and services and I      think ADSL is a preferred product over ISDN.  We are going      to roll that out in a very large way.
        I would encourage that you look at California      extremely carefully.
        CHAIRMAN KENNARD:  If I could just have a couple      of follow-up questions to some of your earlier testimony,      Mr. Carter.  If I could take the liberty of paraphrasing      what I think you said, which is that if you were to be able      to do this merger you would have a greater incentive to get      interlateral relief so that you can make the synergies of      the merger even more powerful.  Is that right?
        MR. CARTER:  Well, I think I was responding to      Commissioner Powell's questions --
        CHAIRMAN KENNARD:  You were.
        MR. CARTER:  -- about the national strategy.       Perhaps you could imply by that the merger but in terms of      the national strategy I think certainly that requires      interlateral relief to work.
        CHAIRMAN KENNARD:  Okay, well, let me just pose      the following question then to Mr. Devlin and Mr. Taylor.       If it is true that the national strategy is more attractive      to a combined SBC/Ameritech because they can get      interlateral relief do you think that increased incentive      gives you any sense of hope that these markets within the      SBC/Ameritech region will be opened up faster if this merger      goes through?
        MR. TAYLOR:  No, it doesn't.  What would give me      comfort is if it happened the other way around, if the      merger could not go through until they received interlateral      relief, thereby having opened up the markets.  In that case      we are very comfortable with this process going forward.  We      are very comfortable and support companies like SBC getting      interlateral relief but they first need to follow the rules      that you all have laid out.  We will believe that that will      make a great hurdle for them to get the merger approved, get      interlateral relief, comply by the rules outlined by you all      and we would support that kind of merger.
        CHAIRMAN KENNARD:  Mr. Devlin.
        MR. DEVLIN:  Mr. Chairman, Mr. Carter discussed      earlier in this context that perhaps SBC was early to the      party.  I think the implication there was maybe SBC was in      some way innovative in getting to the state commissions      first.  I think what we saw, however, was SBC's attempt to      get 271 authority without doing any meaningful upgrades. 
        If SBC really believes that the world is going to      one-stop shopping its number one priority should be opening      up its local markets so it can offer long distance in its      local markets.  The incentive is so strong already to let      the merger go through, which will distort competition I      think would be a very big mistake and will not lead us to      local competition at all.
        CHAIRMAN KENNARD:  Thank you.  I had a follow-up      question to Mr. Carter's comments in response to      Commissioner Furchtgott-Roth about the filing procedure here      at the FCC.  Now, you filed a Hartscott Redino filing at      Department of Justice, didn't you?
        MR. CARTER:  I presume so but I can't claim that      that's an area that I'm involved in.
        CHAIRMAN KENNARD:  But you are aware that the      Department of Justice would require a Hartscott Redino      filing in connection with a merger of this size, isn't that      right?
        MR. CARTER:  Yes, speaking as an operations guy I      am aware of that.
        CHAIRMAN KENNARD:  Okay.  And the FCC doesn't      require a Hartscott Redino filing, do we?
        MR. CARTER:  I believe you only need to do one.
        CHAIRMAN KENNARD:  That's right.  And it is only      with the Department of Justice.  Now, in the information      that I have here it indicates that a combined SBC Ameritech      company would serve approximately 55.5 million lines,      representing approximately 40 percent of the nation's total      access lines.  Does that seem right to you, Mr. Carter?
        MR. CARTER:  I heard the number earlier that said      it was thirty some percent but...
        CHAIRMAN KENNARD:  Okay, let's stipulate it's over      30 percent of the country.
        MR. CARTER:  It's a lot of lines.
        CHAIRMAN KENNARD:  Let's stipulate to that.  Now,      certainly you wouldn't expect that a merger of this      magnitude would be treated by this Commission in the same      manner as, say, the transfer of one AM radio station license      in Poughkeepsie or New York or Los Angeles or perhaps one      private radio station license in any other community in the      country?
        MR. CARTER:  You are really in an area that I am      ill-equipped to answer.  The gentleman here who was the      professor seemed much more in line to answer those sort of      questions.
        CHAIRMAN KENNARD:  Okay, I'll let you off the      hook.  Thank you.
        MR. CARTER:  I appreciate it.
        COMMISSIONER FURCHTGOTT-ROTH:  A follow-up though,      Mr. Chairman.  I must note that there is a proposed merger      that I'm not sure that this commission is going to be taking      up, which is Exxon/Mobil which involves more licenses issued      by this Commission than is held by Ameritech and that is      held by several of the companies that we are looking at      today.  If the issue is sort of size of merger, if the issue      is number of licenses that this Commission issues I'm just      not sure how a company such as SBC knows how it is going to      be treated versus another company such as Exxon or Mobil.
        Now, if the issue is we're only going to look at      those companies that we traditionally regulate intensely      that is fine but I think we ought to put it down on paper.       As far as I am aware there is no paper that gives guidance      to a company such as SBC as to how they will be treated      versus Joe's Taxi Company that may, unbeknownst to itself,      wind up in the same position where they are being reviewed      in great detail.
        We certainly have had several C Block licensees      that have had licenses that have had a great deal of trouble      getting some issues resolved there in the recent past.  I      would just like to get some clarity to how parties before      this Commission will be treated when they come in on 310      issues.
        CHAIRMAN KENNARD:  Well, if there is anyone here      that thinks that the Exxon/Mobil merger will affect the      future structure of the telecommunications marketplace I      hope you will come forward because I would like to know      whether that is the case.
        Do we have any other questions from the bench?
        COMMISSIONER POWELL:  Mr. Carter said something      earlier that I feel obliged either to give confirmation or      disagreement from the two of you on.  Quality has been a      significant element raised and clearly we are going to have      to sort through a lot of conflicting viewpoints about the      California experience.  But, is he right in saying, Mr.      Devlin, that Sprint has indeed awarded awards for quality to      SBC in California with respect to the service that they      provided to you in your company?
        MR. DEVLIN:  I don't know the answer to that,      Commissioner Powell.  
        COMMISSIONER POWELL:  Could we find out?
        MR. DEVLIN:  I will.  But it is not uncommon.  We      have different groups in the company.  In dealing with      suppliers try and encourage them to do more, to do better.       It wouldn't surprise me if Mr. Taylor got the "Best Looking"      award for SBC or something like that.  I will follow up but      I can assure you that is nothing that ever reached the      executive levels of Sprint.  There is some group in the      bowels of the organization --
        COMMISSIONER POWELL:  You don't get off that way,      Mr. Devlin.
        (Laughter.)
        MR. CARTER:   That's a very risky assertion.
        COMMISSIONER POWELL:  Mr. Taylor, if you could      comment as well, because just in the interest of full      disclosure it is important to know, as a factual matter,      whether you really are able to opine about the benchmark and      whether the services deteriorated if you were not a customer      of SBC or PacBell previously and/or if your relationship is      relatively infantile.  I am not disputing any of your      observations but I just think it is only fair that we really      know whether that is an accurate statement.
        MR. TAYLOR:  Prior to starting Focal I was a      senior executive at MFS Communications where I was      responsible for building a lot of the MFS network around the      United States and dealt specifically with PacBell prior to      the merger.  So, I am familiar with PacBell's operating      experience for a number of years prior to the merger.
        More importantly, I am also the Vice Chairman of      ALTS.  One of the things we are going to begin doing is      grading the incumbents.  Since we are talking about      essentially several carriers here today, just among PacBell,      Ameritech, and SBC, PacBell and SBC would be at the bottom      end of that scale, Ameritech would be at the middle and the      incumbent provider on the East Coast would be significantly      higher.  So, when we are looking at comparing good actors      versus bad actors and not necessarily saying the good actors      have complied yet, PacBell is at the bottom of that list.
        COMMISSIONER POWELL:  If I could just, again in      the interest of clarity, get some distinctions.  When Ms.      Costa was testifying her focus on quality seemed to me to      emanate from that that would be experienced by individual      users of consumers of telecommunications services of SBC      versus yours, which I take to mean largely the quality of      your relationship with respect to interconnection.
        MR. TAYLOR:  Well, but we buy a lot of services.       We pay tariff rates for private lines, for construction, for      installation of services, just like any other consumer does      in the state of California.  So, we are right there buying      T1s and DS3s and OC48s, along the same lines as Bank of      America is.  Quite frankly, the way we look at ourselves      being served by a customer, it is not a very customer      friendly focus. 
        We also buy lines from WorldCom.  They call us up,      they ask us, "Hey, how you doing?  Are you happy?  Can we do      more for you?"  The folks at PacBell don't act that way.  We      are not treated like customers.  We'd like to be, we'd like      to be just treated like everybody else. 
        The competitive side will happen.  We're      comfortable that that is in our hands.
        COMMISSIONER POWELL:  That is fair enough but you      would concede that in our granularity there is a distinction      between evaluating "quality considerations" in commercial      competitive relationships versus evaluating quality      considerations with respect to families taking      telecommunications services at their homes?
        MR. TAYLOR:  I think that --
        COMMISSIONER POWELL:  There is no implication by      this.  It is not a trap, it is just --
        MR. TAYLOR:  Oh, I know.  No, I know.  I think      that both are buying services from the same company, so the      person in San Mateo buying a home phone line from PacBell      and Focal Communications or Bank of America or the city of      San Francisco are all customers of PacBell and I think you      should look at all of them.  I don't think you should      necessarily look at Focal's experience over the consumer's      experience but I think we are a business consumer of      services from PacBell.
        COMMISSIONER POWELL:  And a competitor.
        MR. TAYLOR:  And a competitor, and that is what      makes it more difficult.
        MR. DEVLIN:  Commissioner Powell, if I may, I      think when you look at the relationship here and consider      the merger you need to look at more than just California.       You need to look at SBC and how open and inviting they have      been to competition.  I think you should consider their      litigation strategy as part of that file, making everything      go to arbitrations, appealing Commission orders, and so      forth.  It is a whole part of the calculus as to how      inviting SBC is to competition.
        Frankly, as a customer, I wouldn't want to have to      face that same approach in Ameritech.  In other words, once      Ameritech gets bought out by SBC and SBC replaces the      Ameritech managers that is not a very enlightening prospect      for Sprint.
        CHAIRMAN KENNARD:  Folks, we are really going to      have to wrap up.  We are behind schedule.  Did you have one      other question?
        COMMISSIONER TRISTANI:  Mr. Chairman, I would,      after Commissioner Ness, like to make a comment, if I may.
        CHAIRMAN KENNARD:  Okay.  Commissioner Ness and      then Commissioner Tristani then we will wrap pup.
        COMMISSIONER NESS:  I wanted to get back to the      benchmarking question.  Assuming that we were to grant the      merger and assuming that 271 approval were achieved and      assuming that SBC fulfilled its statements that it is going      to be actively pursuing competition in at least 30 markets      around the country, would their pursuit of those markets,      competition in those markets, against other local exchange      companies not generate the kind of market opening activity      that would be helpful for Focal or that would be helpful for      Sprint?  In other words, would that not stir up the mix, as      has been suggested?  Can you comment on that?   I put that      against the notion of -- or the concept of four major      companies competing vigorously versus six companies that      might be staying within their own regions.
        MR. DEVLIN:  Commissioner Ness, keep in mind,      first of all, that SBC and Ameritech are very large      companies.  They are very capable of competing today, they      have just chosen not to do it.  This notion that you have to      be some mega-size I think is put to rest by the Sprint/PCS      experience where we spent billions of dollars without a      single customer to build a new high quality wireless service      and we are running with that.  So, keep that in mind.
        My second point escapes me so I'll defer.
        MR. TAYLOR:  Certainly more competition in more      markets is good.  We think that would happen if this merger      didn't go through, that Ameritech prior to the merger was      poised to go into places like St. Louis.  So, we think that      those benefits would have occurred, were on the verge of      occurring, and the SBC and Ameritech folks have documented      that they were going to occur prior to this merger.
        We think that's the ultimate answer, have SBC,      have Ameritech compete against each other and that will help      open the markets.  there is nothing that is going to help      open -- you know, Ameritech is not going to be in a position      to help open up Texas if this merger goes through and they      are certified in Texas and that is an area where we could      use a lot of help because Texas isn't as good as California.
        MR. DEVLIN:  Commissioner, the second point, and I      apologize, it is the "big foot print" argument.  the      monopoly is extended to include this now very large      geographic region, a third of the lines in the United      States.  The impact on competition is going to be within      that region.  It is going to be very hard to compete against      a very large monopoly, this marriage of monopolies, because      we need their interconnection and we need their access to      compete.
        MR. CARTER:  May I just comment?
        COMMISSIONER NESS:  Please.
        MR. CARTER:  I cannot see how our merger will      effect in-region competition, except in the most beneficial      way.  Certainly I'm not aware of any outstanding complaints      from Sprint on our interconnection, in fact, I'm not really      aware of very much that Sprint is doing to compete in our      region locally, especially amongst residential customers.
        I go back to the point that we want to be a full      facility based competitor across the nation, serving not      only big customers, and we have to spread across the nation      to service big customers, but also consumers because we do      believe that there is a strong market for an alternative      competitor in the residential sector.
        COMMISSIONER NESS:  Would you have to have 271      approval prior to engaging in your competitive strategy?
        MR. CARTER:  Well, as I said earlier, I believe      that the national strategy and 271 are in some way link,      otherwise we would  end up with 30 stranded cities, or 50      stranded cities.  We believe it's a plan that can be made to      work.
        CHAIRMAN KENNARD:  What about Mr. Taylor's      suggestion that you get 271 relief and then as a condition      to merger?  Can you respond to that?
        MR. CARTER:  I don't really see how they are      connected, other than in the sense that it is hard for us to      make the national plan without 271 but I think suddenly      making 271 and mergers connected together seems wrong to me.       I speak as a lay person but I don't see that as being hand-in-hand.
        I would also say that as Ameritech/SBC without 271      relief I think even without 271 relief that the merger would      benefit those two companies from giving it additional      synergy which perhaps could defray its losses from the      business customers that are being taken right now by CLECs      and the larger long distance companies.
        CHAIRMAN KENNARD:  Thank you.  Commissioner      Tristani.
        COMMISSIONER TRISTANI:  I will make my comments      after the next panel.
        CHAIRMAN KENNARD:  All right.  Thank you.  Thank      you very much -- Commissioner Powell, did you have one?
        COMMISSIONER POWELL:  I just couldn't resist one      last question.
        (Laughter.)
        COMMISSIONER POWELL:  Not because I'm convinced of      this but...  At a local level, Mr. Devlin, what is merger      specific about the evils of monopoly you describe?  That is      you have a single monopoly you are facing in Ameritech      region, you have a single monopoly you are facing in the SBC      region, the fact that they are under joint ownership it is      not immediately evident to me why the experience immediately      is negative to you as a consequence of aggregate market      power.  That is, If I flip their regions, if they made some      weird deal where Ameritech took over in the Southwest and      they took over in the Midwest, you would have the same -- at      the local level it is the same monopoly so unless what you      are saying, which is what I have taken from most of the      comments, that you think that SBC is bad and that badness is      going to come to Ameritech.
        MR. DEVLIN:  No, I think it is actually a      different point.  It is a difficult point.  We do have      economic analysis that we submitted, expert testimony, but      it goes like this:  When SBC engages in any competitive      behavior it not only hurts the entrant in SBC's territory      but in other territories around the country.  They are less      sufficient throughout the country.  That is what economists      would call "spill over" effects.  That is, the SBC, bad act,      actually benefits other LECs.  If SBC and Ameritech merge      SBC is able to internalize those spill over effects.  In      other words, capture the benefit internally of their acts in      Texas, for example.
        COMMISSIONER POWELL:   I understand.
        CHAIRMAN KENNARD:  Again, thank you very much.
        MR. DEVLIN:  Thank you.
        CHAIRMAN KENNARD:  We will take a five minute      recess and then we will come back with the next panel.
        (Whereupon, a brief recess was taken.)
        Agenda Item:  Bell Atlantic/GTE Panel
        CHAIRMAN KENNARD:  We will reconvene our      panelists.  We will now turn to the proposed merger of Bell      Atlantic and GTE.
        Just one housekeeping matter on scheduling.  We      are running behind schedule so what we will do is go for 45      minutes on this panel, until 1:15 p.m, then we will take a      lunch break from 1:15 to 2:00, then we will reconvene at      2:00 for the AT&T/TCI discussion.
        Again, the panelists will have three minutes to      give an opening statement and then there will be question      and answer from the bench.  We will begin remarks by Mr.      Mahoney of RCN.  Mr. Mahoney.
        Agenda Item:  Michael J. Mahoney, President and      COO, RCN Corporation
        MR. MAHONEY:  Mr. Chairman and Commissioners, my      name is Michael J. Mahoney.  I am President and Chief      Operating Officer of RCN Corporation.  Thank you for giving      our RCN the privilege of appearing before you today to      address the proposed merger of Bell Atlantic and GTE.
        Given the size of the merger applicants and the      markets served by them today this is one of the most      important decisions to come before the Commission since the      passage of the 1996 Act.  Despite the pro-merger tenor of      the times, we urge you to find that it is not in the public      interest.
        RCN is one of the largest CLECs primarily      dedicated to serving residential markets.  We currently      operate in the Northeast, from Virginia to Massachusetts,      offering bundled local exchange and intralateral services,      high speed internet access, and video services, both as a      franchised cable operator and as an open video system      operator. 
        You may have seen our recent advertisements in the      Washington Post and elsewhere announcing that we are      bringing these services to Washington, D.C. and the      surrounding areas through our local affiliate, Star Power      Communications.  We like to think that RCN is the poster      child of the 1996 Act because we are doing exactly what      Congress hoped the Act would do in bringing about      competition.
        In the Washington area, for example, we are      providing the first alternative to Bell Atlantic's local      telephone service and the first serious alternative to the      incumbent cable companies.  Through our ownership of Erols      we are also competing for high speed internet access with      both telephone and cable companies.  
        My remarks today are not oriented towards the      legal issues.   Our recently filed comments opposing the      merger do that.  Instead, I want to approach the issue as a      down in the trenches businessman trying to develop and offer      services to the residential public.
        As a CLEC we necessarily devote a great deal of      our time and energy to working with the local ILEC,      principally in our case Bell Atlantic.  On the basis of      almost three years of such experience we are compelled to      impose the proposed merger.  Our opposition is based on      facts, not on theory.
        The applicants have not carried out their      obligations under Section 251 and 252 of the Communications      Act of 1934.  As detailed in our recent formal comments,      both of them have failed to discharge in good faith their      legal obligations to CLECs, such as RCN.  This failure to      discharge in good faith their legal obligations arising from      the Act is pervasive, covering interconnection agreements,      co-location, offering of unbundled network elements,      optinagrangements [ph], access to OSS, access to poles and      conduit, payment of reciprocal compensation, account      management and similar aspect of the CLEC/ILEC relationship.          Although both entities are proficient and prolific      in touting their pro-competitive efforts in their public      relations and regulatory filings I am here to tell you, as a      businessman trying to establish a toehold in the      telecommunications market place, that their by-word is      "delay" in anyway possible.
        Bell Atlantic and GTE have consistently, with rare      exception here and there, demonstrated a pattern of non-responsiveness, including slowness to cooperate, discovery      of numerous inhibiting and delaying complications and      difficulties and insistence on mindless reargument of      issues. 
        Their behavior covers the gamut from the simple      failure to return telephone calls to active resistance to      pragmatic compromise solutions to practical problems,      whether it is waiting an excessively long time for access to      conduit space or being denied access to such space so as to      preserve its own growth, Bell Atlantic has consistently been      uncooperative.  Only rarely do we encounter outright      refusals.  The ILECs understand perfectly well that such      outright refusals would be too easy to challenge.   
        While Bell Atlantic is guilty of these stratagems      GTE's performance is even worse.  I would encourage the      Commission to initiate a full scale review of GTE's      competitive record, going back to passage of the 1996 Act.
        As set forth in detail on our recent comments,      this performance is so  poor that it must proceed not from      mere incompetence or even inattention but, rather, from a      clear deliberate and consistent corporate philosophy to      fight the pro-competitive provisions of the Act.
        It would be contrary to common sense, let alone      sophisticated legal analysis to reward the unlawful behavior      of these two companies by allowing them to merge.  No doubt      they can save money by combining their operations but it is      the public whose interest is harder to quantify but also far      more important that will pay the price.
        For these reasons RCN urges the Commission to      reject the proposed merger application.  However, in the      event that the Commission decides to approve the merger it      should adopt the conditions, including performance criteria,      set forth in RCN's prior written submission.  Moreover, if      you conclude that the merger can be approved only with the      imposition of conditions we strongly urge you require the      fulfillment of the conditions prior to the consummation of      the merger.
        Sad experience has taught us that when conditions      are to be met subsequent to approval the industry finds      itself mired in costly delay and unproductive arguments      about whether the merged entity has adequately fulfilled      those conditions.  A much sounder course would be to set the      achievement of the goals or certain performance criteria a      condition precedent to the merger, even if preceding in this      fashion delays ultimate consummation of the merger.  Thank      you very much.
        CHAIRMAN KENNARD:  Thank you, Mr. Mahoney.  Mr.      Sallet.
        Agenda Item:  Jonathan Sallet, Chief Policy      Counsel, MCI WorldCom.
        MR. SALLET:  Thank you, Mr. Chairman,      Commissioners.  I'm Jonathan Sallet, Chief Policy Counsel,      MCI WorldCom. 
        MCI looks at this merger from the perspective of a      company that was born in competition, a company whose track      record includes bringing competition for the first time to      closed telecommunications markets with the concomitant      benefits of higher quality, better service and lower prices      to consumers, a tradition that continues now.  
        Even since our merger in September of this year      our customers have seen new advertisements about our      residential services, an announcement of a roll out of new      DSL services for residential and business customers, new      services for business customers who can use our network      exclusively.  From that perspective, from the perspective of      competition, it is our belief that there is no public      interest benefit from the proposed Bell Atlantic/GTE merger      that would even come close to our weighing the anti-competitive and anti-consumer consequences of such a      combination.
        In the few minutes I have this morning let me note      five points.  First, there is no support for the proposition      that Bell Atlantic and GTE are too small to be successful in      entering out of region local markets.  These companies are      contiguous in two states, Virginia and Pennsylvania.  GTE      has been planning its desire to expand into Bell Atlantic      states, including, for example, West Virginia.  GTE  has      filed for competitive status in other Bell Atlantic states.
        The fact is that if much smaller competitive      companies can make the effort then there is no reason that      Bell Atlantic and GTE cannot.  Indeed, if the theory of this      merger were correct I wouldn't be here today because MCI      WorldCom could not exist.  But, the fact that it does      demonstrates that incumbent monopoly launching pads are not      necessary to enter local markets.
        Secondly, the Commission in its Bell      Atlantic/NYNEX order noted the importance of benchmarking  a      point Commissioner Ness noted in the earlier panel -- the      importance of benchmarking two regulatory efforts. 
        But, the two pending mergers that we discussed      this morning would dramatically lessen the ability of the      FCC to compare the practices of incumbent local monopolies.       Let me give just one example, out of the current debate      about reciprocal compensation.  We went to GTE and Bell      Atlantic and said, "We want to use bill and keep."  In our      MCI Interconnection agreements.  GTE agreed, and we have      build and keep.  Bell Atlanta said, "No." and demanded the      very system reciprocal compensation about which they now      complain.  It is the diversity of these companies that      allows the Commission to understand different practices and      how they affect competition.
        Third, and a point that has not been raised yet      this morning, I think you must consider the threat to the      internet and data markets.  Incumbent monopolies already      discriminate in favor of the affiliated internet service      providers, ISPs.  For example, Bell Atlantic charges three      times as much for ADSL equipment if its own affiliated ISP      is not used.  The ability to carry out such discrimination      and to move it into internet content providers, affecting      internet content providers, would be dramatically heightened      if the nation were not dominated by two mega-RBOCs, each      controlling about one third of the nation's access lines.
        Mr. Chairman, with your indulgence, let me briefly      note the last two points.
        CHAIRMAN KENNARD:  Please.
        MR. SALLET:  Fourth, a merged company will only      have greater incentives to delay local competition in both      the local and the exchange access markets, in particular,      inflated access charges offer an easy and illegitimate means      of raising rivals costs in an artificial and unfair manor      and the merged entity would have additional incentives to      delay competitive entry that would eat into those inflated      access charges.
        Fifth and finally, Bell Atlantic is right now in      violation of the conditions of the Bell Atlantic/ NYNEX      merger order.  For example, Bell Atlantic has failed to      offer uniform OSS interfaces across its region.  There are      complaints pending in front of the Commission on other      aspects of that merger order.   Simply put, it is      unthinkable that such flouting of FCC requirements could be      rewarded by approval of yet another merger.  For all of      these points we oppose the granting of this merger      application.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Mr. Sallet.  Mr.      Young.
        Agenda Item:  James R. Young, Executive Vice      President and General Counsel, Bell Atlantic.
        MR. YOUNG:  Thank you, Mr. Chairman.  I will be      brief.  
        The discussion this morning has already touched on      a number of the very important pro-competitive benefits that      the Bell Atlantic/GTE merger will offer.  In the national      market for bundled services, a market that is now dominated      by a handful of firms, a market where the old distinctions      based on geography and types of service are rapidly eroding.
        The combinations of AT&T, BTE, TCG, TCI, and now      throw in the IBM network on top, together with Sprint -- Mr.      Devlin was very modest, he never talked about his partners      Deutsches Telecom and France Telecom, which together are      larger than Bell Atlantic and GTE -- and of course MCI and      WorldCom have all recognized that no single company, no      matter how large or well funded, can go it alone and still      hope to compete in this market.
        The major element in the national market for      bundled services is advanced data services.  When you look      at the comments in this preceding none of the commentors      dispute that the merger will allow GTE/Bell Atlantic to      provide a range of advanced data services to many more      markets than either could alone.  By affording GTE access to      Bell Atlantic's concentrated Northeast customer base and the      out-of-franchise affiliates of those customers the merger      will allow the combined company to build out on a national      facilities based network that will increase competition.
        We have also heard about internet services and I      won't belabor those.  But the point is, Bell Atlantic and      GTE have important complimentary skills that will help bring      forward a new range of internet services that will benefit a      whole range of customers, including consumers.  We have      listed those in our application, some of those.  One of the      most interesting is internet telephony, where the      complimentary skills of the two companies will offer an      important new service to consumers.
        Yes, there have been a number of objections lodged      against the merger.  First is the claim that this will      create a Bell East and a Bell West.  I think the simple      answer to that claim, at least as it is directed to Bell      Atlantic/GTE,  is look at the map that we attached to our      application.  We did the merger with GTE because it offers      us the opportunity to go national.  If we had been      interested in creating a super regional fortress we wouldn't      have done this deal, we would have done another deal.  
        A number of other objections have been raised.       Let me just touch on those briefly.  As for the argument      that we are not meeting the merger commitments, that is just      flatly wrong.  In our reply we will walk through those      merger commitments one-by-one.  MCI likes to say it is not      true but it is true, we have met the requirement for      standardized OSS interfaces.  Oh, it is true that in every      state you don't input exactly the same information because      the services are different from state to state but the      statement that we have not implemented uniform interfaces is      wrong and I would be happy to talk about that.
        As far as the benchmarking issue, I think the      important thing to recognize is that after the Telecom Act      benchmarking takes on a whole new meaning.  Benchmarking      should be done operating company by operating company.  You      have detailed statistics, company by company that will show      you how benchmarking should work.
        Let me add, that insofar as thee is a claim that      losing GTE somehow interferes with benchmarking -- I have      been around this industry long enough to remember the day      several years ago when companies like mine said we should be      benchmarked against companies like GTE and companies like      MCI, together with the Justice Department and almost anybody      else involved said, "GTE is not a good comparison.  You      can't benchmark GTE against Bell Atlantic."  So, at least as      for us there are at least two good reasons why that      benchmarking argument doesn't make any sense.
        Before my time is done, we have had a lot of      discussion about procedure this morning and I would like to      end, if I could, on a positive note.  Regardless of what      differences we might have on the Commission's review      authority, one of the things I would like to congratulate      the Commission on is the fact that in this merger, unlike      the Bell Atlantic/NYNEX merger, the Commission has seized      the initiative, is moving ahead promptly in parallel with      what the Justice Department is doing.
        I have to tell you that I think this has expedited      the process and I want you to know that we appreciate it      greatly.  You have listened to a lot this morning so even      though the red light hasn't come on I'd be happy to answer      your questions.
        CHAIRMAN KENNARD:  Thank you very much, Mr. Young.
        Agenda Item:  Questions and Answers.
        CHAIRMAN KENNARD:  There are some pretty serious      allegations flying around here this morning.  Mr. Sallet,      you've alleged that Bell Atlantic is not complying with      conditions imposed by this agency in connection with the      Bell Atlantic/NYNEX merger.  Mr. Mahoney, you allege, I      think, that Bell Atlantic is not complying with the very      important market opening provisions of the law.  These are      serious allegations and we must take them seriously.
        I think that it is incumbent on anyone making      these allegations to be specific so that we can have a basis      for understanding what these allegations are.  So, I'm going      to ask you, Mr. Mahoney, if you can be more specific in      outlining for us how you believe Bell Atlantic is not in      compliance with the law.
        MR. MAHONEY:  Yes, Chairman, sure.  I really think      the best way to do that might be to frame our experience in      dealing with Bell Atlantic.  Let's take in the state of      Pennsylvania.  The state of pennsylvania we were granted our      CLEC certification in 1996, in February.  We began      negotiations with Bell Atlantic in September of that year on      our co-location interconnection agreement.  We signed it on      October 29, 1996 and shortly thereafter began the actual      technical negotiations for interconnecting, collocating into      their central offices, meet points for handing off traffic,      the unbundled rates that we were going to be offered and how      the elements were going to be unbundled.  
        That process which began in late 1996 stretched      through 1997 and into 1998, to the point where in the spring      of 1998 when we threatened to initiate a formal complaint we      began to get some cooperation from Bell Atlantic.  In June      of that year we actually filed the formal complaint with the      Commission about their unresponsiveness.  
        It wasn't until that time that of the 9 issues or      11 issues -- and they are detailed in our comments -- that      of those 9 issues about 5 of them were resolved, 4 of them      remain open to this day.  Bell Atlantic's insistence at the      time was that the only way they would continue to negotiate      and make concessions was if we withdrew our complaint, which      we agreed to do.  We withdrew our complaint because entry to      the market is much more important to us.  So, that is one      example I can provide you.
        Another one, and I guess one that is very      important to us as a local competitor to the residential      marketplace is access to conduit and right of way that we      try to obtain from Bell Atlantic in certain areas in      Massachusetts where we are building our own plant.  We are      attaching to the utility poles that are owned, primarily, by      the power company, however, there are certain segments of      the plan which require, by necessity, access to Bell      Atlantic poles.
        In some cases we have been eight months in the      process of attempting to obtain pole clearance and      attachments.  By not being able to obtain that clearance we      have effectively cold spots in our plant where we can do      most of the construction but because we can't interconnect      from one point to the other our plant is still idle today      waiting for that clearance.  That process also involves      access to conduit in the state of New York and particularly      in the City.  We have waited upwards of six months, at      times, to get access to conduit from Bell Atlantic in New      York.
        So, that gives you a flavor for the types of      obstacles that we're encountering in order to bring      competition to the area.
        CHAIRMAN KENNARD:  Mr. Young.
        MR. YOUNG:  Yes, I'd like to respond to that.
     Let's take the conduit first.  I must admit I never thought      that my first opportunity to talk to the Commission, rather      than being the potted plant next to Mr. Sidenberg at the      last hearing, would get into issues like conduit.  But,      let's take conduit in New York.
        Conduit in New York is provided by a subsidiary of      ours called "Empire City."  We keep detailed records of how      long it takes to provide conduit to ourselves and to others.       The average time it takes to provide conduit to Bell      Atlantic in New York is 112 days.  It is a shorter period of      time for our competitors and we will lay that out for you in      detail in the complaint.
        Does it take time to get conduit in New York?       Yes, it does.  Getting conduit under the streets of      Manhattan is a complicated matter but we are completely non-discriminatory in this matter.
        In terms of access to the other pole and conduit      matters, I must admit, when I read that in the pleading I      called our people in Massachusetts.  They told me they      didn't know anything about it so it is hard to respond to      that.
        To step back from the details, to give you a      flavor of the big picture here, two weeks ago RCN's CEO, in      an interview with TR Weekly said that RCN was expanding --      remember RCN's presence is in the Northeast, in my footprint      -- he said that RCN was expanding beyond his wildest      expectations and the principle problems it had encountered      was because their growth was so rapid they were having      internal operational problems.
        I think when you here a lawyer's list of conduit      here, pole there, a little thing over here you have to look      at that and take that into perspective.  I would also ask      you to think about the remarks that Royce Holland made a the      ALTS Convention a couple of weeks ago where he singled out      Bell Atlantic for its efforts in opening its markets to      competition.  I think when you look at those, you look at      the fact that people like AT&T have paid top dollar for      CLECs in our footprint, you put all those market facts      together I think they tell a pretty compelling story that we      have opened our markets to competition.
        CHAIRMAN KENNARD:  Mr. Young, these complaints are      always somewhat difficult because they often involve      disputed issues of fact, sometimes disputed issues of law.       Of course, our job is to sort all that out and come to a      determination.  Let me just pose this question to you,      assuming that this Commission were to find that there was a      pattern of non-compliance by Bell Atlantic with these very      important market opening provisions in the law and in our      rules, then why should we grant the merger?  If the company      is not in compliance and if there is a pattern of abuse here      why should we grant the merger?  I'm not saying that there      is, I'm just saying assuming that there were to be such a      finding.  And, I would like the other panelists to address      that question also.
        MR. YOUNG:  I think the good thing is that, at      least in the context of Bell Atlantic/GTE merger, you don't      have to address that because there is no pattern.  Mr.      Chairman, I do think that when it comes to the issue that      has been brooded about this morning about what the      appropriate standard for review of FCC in mergers, there is      no question that you and I have a difference there but I      guess I would like to leave it with you this way, I don't      think there is a need for us to go legal on you, in terms of      what the standard is, because we are very confident that our      merger meets your standard.
        So, I don't want to seem evasive but I want to be      clear that I think I do have a difference with you on the      merger standard.  What we are trying to do on our papers is      show that we meet the public interest standard as you have      laid it out.
        CHAIRMAN KENNARD:  I guess my question though is      if there is a pattern that is demonstrated, adjudicated, of      violations of the market opening provisions in our rules      could a company still meet the public interest standard?
        MR. YOUNG:  Well, I suppose it is like asking,      "Should you have approved the MCI WorldCom merger in view of      MCI's long pattern of slamming which is an abuse of the      customer marketplace?"  I guess my view is if you found that      the pattern was so substantial I guess I'd have to concede      you could take it into account but, as I say, in our case      that is not the case.
        CHAIRMAN KENNARD:  Okay.  Would the other      panelists like to address this question?  Mr. Sallet.
        MR. SALLET:  Mr. Chairman, just on one point.  It      is not surprising to hear a response to your question that      attacks us because that is a typical strategy we see.  Just      for the record let me make plain that MCI has a long history      of seeking ways to combat slamming.  We've been an industry      leader in seeking third-party verification so that there      would not be slamming because we are the company that is      hurt when unethical slamming takes customers away from us.
        It is not a surprise that this goes on because in      the last three years, since the passage of the Telecom Act,      what we have heard from Bell Atlantic consistently is      blaming everybody else for its problems.  Most recently,      even last week, with a Bell Atlantic executive starting to      criticize the third-party testing process in New York State      that it designed precisely so you will not be face, Mr.      Chairman, with factual questions that are difficult to      unwind but so that a neutral party will judge the efficacy      of operating support systems.  That test has not even begun      because of delays attributable to Bell Atlantic and it is a      disappointment that Bell Atlantic is now criticizing the      process.
        Mr. Chairman, you asked for specifics.  If I might      just give you one on the suggestions we made that the merger      conditions were not being met.  As you know, in November of      this year it was incumbent upon Bell Atlantic to have a      uniform interface within its region, its whole region.  
        The purpose of that being included in the merger      order was very obvious, so that we would be able to train      our people once to use the same system for entering orders      in all of Bell Atlantic region but, in fact, if we want to      purchase a simple unbundled parts line with one feature, say      call waiting, for a new customer, of the 48 fields, computer      fields that need to get filled in that are listed in the      CLEC hand point, Bell Atlantic North and Bell Atlantic South      share only 9 of them.  
        There are only 9, in other words, that are going      to be filled in the same way in both regions.  This is not      just a difference between regions, within the state of New      York, to give one example, in Massapequa Park if we want to      enter an order for residential service and someone lives on      45th Street, we must put in the abbreviation for street      "ST." or else the order is rejected but in Yonkers, in the      same state, if we use that same abbreviation the order is      rejected, it is not in conformity with the ordering      function.  That is not a uniform interface.
        When Bell Atlantic says its interface is uniform I      suppose it means they all use the same English language but      the fact that James Joyce and Mark Twain both wrote in      English did not mean they wrote the same book.  The purpose      of the FCC's merger order was to ensure that the same book      was in use whenever our people had to enter orders and it is      demonstrably not.
        CHAIRMAN KENNARD:  Thank you.  Mr. Mahoney.
        MR. MAHONEY:  Mr. Chairman, first of all, we don't      think the merger should be approved.  We do think that the      pattern in terms of compliance with the 1996 Act has not      been met.  We would encourage the Commission to hold some      hearings and have it demonstrated.  We will provide our      evidence and let Bell Atlantic enter evidence on the record      as well to see whether or not they have in fact been      compliant because we think that is the cornerstone to this      whole issue.
        We have been dealing with Bell Atlantic now for      three years in terms of trying to gain competition and we      have made in roads and we have made inroads through      persistent negotiations, through threats, through filing of      complaints.  Our concern, quite frankly, we have also had      some dealings with GTE in Pennsylvania and in Virginia and      they have been far worse.  
        Bell Atlantic has at least had the desire to get      271 clearance, encouraging them to be somewhat cooperative.       GTE, on the other hand, does not have the same kind of      incentive and so just getting interconnection agreements out      of GTE has been like pulling teeth.
        So, our concern is that you put the two entities      together and an affiliate then of Bell Atlantic already has      271 clearance or did not clearance because they didn't need      it and is able to provide intralateral calling, we are      concerned that the cooperation level is just going to become      that much more difficult.
        CHAIRMAN KENNARD:  Thank you.  Other questions      from the bench?
        COMMISSIONER NESS:  I want to return to the      concept of benchmarking.  Mr. Young talked about      benchmarking from state to state.  I assume you meant that      the state commissions, by virtue of their regulation and      oversight, provide the benchmarking capability.  Is that      right?
        MR. YOUNG:  What I meant, Commissioner Ness, was      operating characteristics company-by-company.  I mean, we      already see it happening in our region.  Other commissions,      like the Pennsylvania commission, the Massachusetts      commission look at the operating results of our company in      New York and then ask, "Well, why shouldn't we see the same      thing in Pennsylvania and Massachusetts?"  And, of course,      they can also look to the operating capabilities of what is      going on in Wisconsin or Illinois or Michigan or Ohio. 
        My point to you, simply, is the 1996 Act, I think      that is one of the most important sources of benchmarking      information, which is all still there regardless whether the      merger occurs.
        COMMISSIONER NESS:  Mr. Sallet, did you want to      address that or Mr. Mahoney?
        MR. SALLET:   Yes, if I might, Commissioner Ness.       The suggestion was made earlier that somehow GTE is not      relevant to benchmarking.  I would read the following      sentence form the Commission's order in Bell Atlantic/NYNEX      where the Commission said, "Further reductions in the number      of Bell companies or comparable incumbent LECs would present      serious public interest concerns."  
        I can't think of anything else that qualifies as a      comparable incumbent LEC more than GTE.  So, it seems to me      clear that within the Commission's own precedent the      Commission very much is looking at GTE, along with the      Bells, to establish what it said in that order to meet the      additional burden in establishing that a proposed merger      will on balance be pro-competitive. 
        The fact of the matter is we will see the number      of companies coming be cut in half from eight to four at the      time of the Telecommunications Act to the point of the two       mergers we are discussing this morning are approved and we      will see, and I gave just one example in my own opening      statement, a series of ways in which the ability of the      Commission to assess how best to regulate until a      competitive market takes away the need for that regulation.       The Commission's efforts will be thwarted by having such a      few number of companies that, frankly, can eliminate      diversity that exists even today in the regulatory      marketplace.
        COMMISSIONER NESS:  Mr. Mahoney?
        MR. MAHONEY:  Just one quick comment, and that is      that when you talk about benchmarking and to the point of      whether GTE is an appropriate company to be compared in      those benchmarks, I would urge the Commission to look at the      statistics and results of GTE to date in terms of opening up      their markets to competition.  The numbers are incredibly      low in terms of access lines that they have lost to      competition so if the Commission looks at benchmarking we      would encourage them to look at the elements that will make      up the merged entity going forward.
        COMMISSIONER NESS:  Mr. Young.
        MR. YOUNG:  Might I respond very briefly to that?
        COMMISSIONER NESS:  Sure.
        MR. YOUNG:  One of the reasons that GTE has never      been considered a benchmark is because the service      territories that they have are very much different than the      traditional Bell company service territories.  We tend to      serve more urban concentrated areas.  GTE serves places like      Paw Paw, Michigan, where I grew up.  That is reflected in      these numbers of unbundled elements.  You can play the same      game with Sprint.  
        Sprint, you know, is a local telephone company,      serves more than 8 million lines.  They have yet, despite --      I'm sure Mr. Devlin's commitment to the principles of the      Act -- Sprint has yet to provide a single unbundled network      element.  They have at least six states where they have yet      to provide a resale line.  When you look at their      percentages based on lines of UNIs and of resale elements      compared to GTE, GTE looks great, about three times the      competitive development of Sprint.  Now, I don't say that to      necessarily tweak Mr. Devlin, the point is that service      territories are different and the results are different.  
              COMMISSIONER NESS:  Thank you.
              CHAIRMAN KENNARD:  Commissioner Powell.
        COMMISSIONER POWELL:  It is important to me that      some of these broad reaching and generic comments get      tailored to the question of merger specificity, which I      think is important.  
        Mr. Sallet, if I can with you, you mentioned a      number of things that don't seem to me immediately evident      as concerns that should be -- not necessarily not that they      are not concerns but that they really flow from the      specificity of the merger.  For example, the well worn and      understood dissatisfaction that companies like yours have      with access charges seems to be legitimate but I question      what specifically about the merger makes that a source of      legitimate concern for us in this context, rather than      through our normal regulatory process which is addressing      access charges.  There will be other questions.
        MR. SALLET:  Commissioner Powell, I think that is      clearly a critical question in your separate opinion and the      MCI WorldCom order.  In a speech last week you outlined      criteria for how the Commission ought to look at mergers.       Last week, if I understood it, words that there be a strong      nexus between the complaints of people like me and the      circumstances of the merger.  So, I appreciate the      opportunity to address that head on.
        The difficulty with inflated access charges is      that when and if 271 approval is granted the incumbent LEC      will have the ability to artificially price squeeze      competitors, will have the ability to raise rival's costs by      forcing us to pay real money in access charges while it      internalizes the costs, basically becoming indifferent      whether the money goes from one pocket to another.
        This is not a theoretical concern.  A few years      ago NYNEX did precisely this.
        COMMISSIONER POWELL:  That's right but that's not      true today, as you have argued frequently in my office,      without the consequence of the merger.
        MR. SALLET:  And the consequence of the merger is      it gives them more access charges with which to price      squeeze.  By one calculation in the record after the merger      42 percent of long distance calls that originate in Bell      Atlantic territory will terminate in Bell Atlantic      territory.  As they capture both ends of more calls their      ability to price squeeze goes up dramatically because now      they -- there is no independent LEC to which at least, say,      the terminating charges must be paid and, so, for this      reason capturing both ends of the access charges makes a      significant qualitative difference in their ability to      execute a price squeeze regime.
        COMMISSIONER POWELL:  I want to follow up -- and      I've read your statement with respect to internet      discrimination.  As I recall, this was a significant issue      with respect to your own merger in MCI WorldCom.  Though I'm      not familiar with the statistics UUNet and some of the      backbone structures under the control of your own company      are as significant, if not significantly more significant,      than what might be at issue with BBN and then GTE.  I just      ask you an open ended question with respect to that because      I was somewhat surprised the emphasis placed on it in your      statement when there are many who make similar complaints,      including GTE, about your own dominant position with respect      to backbone infrastructure.
        MR. SALLET:  The backbone market is a competitive      market.  I want to be very precise on this.  Our complaint      about the merger is not a complaint about BBN as a backbone      provider.  BBN is relevant to the merger, it is relevant to      what the effect of applying 271 to the merged company will      be.  It is relevant to demonstrate that GTE can easily      penetrate the Northeast because it has got 200 points of      presence off the BBN network, a majority of which are in      Bell Atlantic territory.
        But, our internet point does not rest on the      backbone, it rests on the bottleneck.  The bottleneck is the      copper.  The local loop is the bottleneck to internet access      right now.  What we are seeing with Bell Atlantic, with US      West, with other Bells, is an attempt to roll out xDXL      Services and then use those services to affect adversely the      now competitive market among internet service providers.
        So, for example, both PacBell and Bell Atlantic,      if you want to buy ADSL service would charge you more if you      wanted to go to an independent ISP, say one that RCN owns.       Now, that is an attempt to use their bottleneck power over      the last mile for data to distort and influence the internet      services marker which to date has been very competitive.
        COMMISSIONER POWELL:  But before using loaded      terms, I mean another economist might say that is an      efficiency, that is companies are dragging through our      office singing the praises of bundled offerings and the      ability for aggregate pricing values to be increased by the      combination of these things.  I'm not saying that this isn't      a legitimate concern but I'm pushing back a little bit on      the quick jump to it being market monopolistic      discriminatory pressures versus simply a valued economic      efficiency for customers.
        MR. SALLET:   Yes, Commissioner, and so I will      point back, as you have done, to the MCI WorldCom merger.       In that merger the theory which caused the FCC to order us      as a condition to devest one of the internet backbone      markets was a concern not that we had a majority of internet      traffic but that because of network externalities and      possible tipping of the leader into a position of unfair      dominance in the internet market it was necessary to order      divestiture.  
        That logic applied to these two Bell mergers, each      of which would control one third of the access lines in the      nation, each of which are aggressively rolling out wide band      width in which they are trying to attempt in various ways to      tie it to an independent internet service provider market.       That theory applied to these facts, we believe,      Commissioner, demonstrates that the effect on the internet      market would be against the public interest.
        COMMISSIONER POWELL:  Does MCI WorldCom offer      internet service?
        MR. SALLET:  Yes, sir.
        COMMISSIONER POWELL:  Does it have networks over      which it provides those services, at least to large      significant business customers?
        MR. SALLET:  Yes.
        COMMISSIONER POWELL:  Does it take advantage of      the efficiencies of that combined offer?
        MR. SALLET:  Yes.  And the difference is, if I      might, Commissioner, is that we built those networks      competitively.  We didn't come to you and say, "We have to      merge with a large monopoly in order to be able to build out      those networks."  We built those in a competitive      marketplace.  We do not, and never have, exercised      bottleneck control.  We are not failing to live up to the      Telecom Act as, I must say, Bell Atlantic is when it fails      to offer conditioned loops of the kind that would allow us      or RCN or anyone else fair opportunity to access internet      customers.
        So, absolutely right, Commissioner, I am trying to      be careful, it is not efficiencies that I am noting, it is      the possibility of tipping into a position of dominance of      the kind that the MCI WorldCom merger order focused upon.
        COMMISSIONER POWELL:  I had another question but      I'll get to you later.  I'll let me colleagues.
        CHAIRMAN KENNARD:  I wanted to jump in there on      the internet access issue.  I am wondering, Mr. Sallet, you      made a very interesting argument about the bottleneck but      I'm wondering if you are stuck in a 1998 marketplace and      whether if the internet access market develops as we all      would hope and there would be alternative networks providing      internet access like the cable networks that are emerging to      do this, whether that will in effect cure this problem that      you are concerned about.
        MR. SALLET:  We have been all waiting for the      technological leap frog that makes copper obsolete.  If and      when that comes, obviously, concerns about the control of      copper from a consumers vantage point will be very different      but at the moment copper remains the dominant means of      providing voice service and, frankly, data service.
        Many more home internet connections today go over      the copper, even at 56k, than over cable modems.  That is      why the Telecommunications Act unbundles the copper for both      voice and data and that's why we believe so strongly that      that market must be open and competitive before it is, we      believe, possibly worsened by the consummation of this      merger.
        CHAIRMAN KENNARD:  Commissioner Powell, I didn't      mean to cut off your last question if you had one.
        COMMISSIONER POWELL:  I just wanted to yield to      others but I was going to ask a question about benchmarking.       It seems to me that it is easy to throw that around as well      but what has to be focused on is benchmarking for what      purposes.  The thing that occurred to me in response to the      question about benchmarking, whether GTE is legitimate, is      whether anyone's opinion changes if you think that the      greatest value of benchmarking is in the context of 271      application in which GTE will never be a party by virtue of      historical accident, more than anything else.
        Professor Krattenmaker started his introduction by      saying what is important to note is their box.  I meant to      ask him what the significance of that observation is but, it      seems to me, in benchmarking one might ask if what is really      driving your anxiety is local marketing opening measures      that are a component of that process, whether you would      still say that GTE plays a valuable process.
        I can't help but to chuckle that all of you think      they are so horrible which means to me that they are a      horrible benchmark by which to measure anything by.  But,      leave that one out in the interest of time.
        MR. SALLET:  Well, Commissioner, two points.       First of all benchmarking is not important solely in the 271      process.  I refer here the Commission to the Sprint comments      which includes an affidavit from, I believe, Joseph Farrell,      in which Dr. Farrell points out the use of benchmarking in      two different ways in the Commission's price caps regime,      just one example of its use outside the 271 process.
        Secondly, GTE can be of relevance even within the      271 process, although 271 does not apply to it.  Why?  If      for example, something is said to be not technically      feasible as part of the satisfaction of a checklist item      then if hypothetically GTE were doing it, were engaged in      it, that would be relevant evidence within the 271 process,      even though GTE was not itself governed by that section of      the statute.
        CHAIRMAN KENNARD:  Commissioner Furchtgott-Roth.
        COMMISSIONER FURCHTGOTT-ROTH:  Thank you, Mr.      Chairman.  I have a question for all the panelists.  Two      years ago the Commission approved Bell Atlantic/NYNEX      merger, a merger that ultimately involved combined entity      with roughly a thousand licenses.  
        Today, outside of this Commission, there is a      proposed merger between Exxon and Mobil that will lead to a      combined entity with nearly 1,600 licenses from this      commission.  Can any of you point, in the statutory language      of the Communications Act, specific language that guides      this commission about which types of license transfers to      review?  I should also note that each of you, perhaps, have      in the past few years had routine license transfers from      your company, to your company, that have been handled in an      administerial manner, even though you were large      telecommunications companies.  Is there language in the Act      that instructs this commission about which license transfers      to review with great scrutiny and which ones not to?  If      there is such language is there specific guidelines that      this commission has issued for parties outside of the      Commission to understand how best to proceed with license      transfers?
        MR. MAHONEY:  Commissioner, we don't profess to be      a communications law expert so I am really ill-equipped to      answer that question.  I am not aware of any specific      guidelines, per se, that would discriminate the way you      handle one license against the other but I'm not really an      expert in that field.
        MR. YOUNG:  I may regret answering this question.       The way I have read the Communications Act I think the      important language is actually -- I mean it is actually      Section 7 of the Clayton Act that sets out procedures for      this commission to review mergers and in one particular      subparagraph, Subparagraph 4, of that lays out very      particular rules to be applied to regulated company mergers.       That, to me, has always been the starting point.
        COMMISSIONER FURCHTGOTT-ROTH:  But is there a      public interest standard in the Clayton Act?
        MR. YOUNG:  That's a competition standard, that's      a Clayton Act standard.
        COMMISSIONER FURCHTGOTT-ROTH:  But it's not public      interest per se?
        MR. YOUNG:  This goes back to my point a little      while ago.  I know that I have a difference with some      members of the Commission about what we think the standard      is but it seems to me that's a point we may come down to      down the road, I hope we don't have to, because of what I      can show you about the benefits of the merger, including      benefits, just to touch on Mr. Sallet's point, benefits to      making the internet backbones, which is the real place where      there are competitive problems in the internet, not the      handful of DSL services that we are selling in a few      isolated markets but it is the internet backbone that is      dangerously concentrated and needs more competition and this      merger will make more competitive.
        COMMISSIONER TRISTANI:  I have to interject that      it may be some isolated markets but you are marketing pretty      heavily in this area, DSL.
        MR. YOUNG:  Oh, yes.  
        COMMISSIONER TRISTANI:  Including to my home.
        MR. YOUNG:  I hope you'll buy it.
        (Laughter.)
        COMMISSIONER TRISTANI:  It may be too expensive.
        (Laughter.)
        MR. YOUNG:  But my only point is that when you      talk about something as big as the internet -- Commissioner      Powell talked about using loaded words like "leverage" -- it      is inconceivable to me to say that a service like this that      is just being rolled out that reaches now a very small      number of homes, which as the Chairman has pointed out, is      being marketed in competition with cable modem -- the idea      that you could use that relatively small piece of the      business to leverage market position in the internet is      unthinkable.
        COMMISSIONER TRISTANI:  I may follow up on that.       Excuse me for interrupting.  
        CHAIRMAN KENNARD:  Mr. Sallet.
        MR. SALLET:  Commissioner, obviously the public      interest convenience and necessity test contained rather      broad language.  It may not be as specific as matters of      process, for example, as your question suggests is possible.       But, I will say, Commissioner, as somebody who had some      responsibility for two large telecommunications mergers, one      of which was closed, in the last two years, I do not believe      that we are seeking this commission's scrutiny on these      mergers in any manner that is more severe, more strict, or      more searching than the scrutiny that the BT MCI and then      the successful MCI WorldCom mergers received.
        CHAIRMAN KENNARD:  Commissioner Tristani.
        COMMISSIONER TRISTANI:  Actually, I'd like to      follow-up on your difference in legal opinion on what our      review should encompass because you have alluded to it      several times today and I'd like to hear it.
        MR. YOUNG:  Well, if I might -- and I'll be very      brief about this.  We have indicated in our pleadings our      view that this commission does have the option of reviewing      the merger under the Clayton Act, there are certain      procedures the Commission has to go through to do that.  I      believe, as Commissioner Furchtgott-Roth noted before, the      Commission hasn't taken that route.  
        So, we have preserved in the filing that we made      with you the notion that I know some Commissioners object to      that in that case the Commission standard is very very      narrow.  It is character and fitness. 
        But, as I said, I don't think this is the place to      have that argument because we are very much trying to      demonstrate to you that we meet the standard that the      Chairman has outlined.
        COMMISSIONER TRISTANI:  So, I guess you have an      alternative that -- I guess I don't quite get it.  You're      kind of questioning, are you really questioning, or are you      saying that public interest doesn't matter?
        MR. YOUNG:  Forgive me, I guess I'm being a      lawyer.  
        COMMISSIONER TRISTANI:  You sure are.
        MR. YOUNG:  But what is important to us, what is      most important to us -- and let me put a very dark underline      under this -- what is important to us is to try to convince      you that under whatever standard that you are going to apply      that we pass.
        COMMISSIONER TRISTANI:  I have one question to all      of you.  We have talked about benchmarking.  It seems to me      we are talking about many different things.  I hear more      answers attuned to benchmarking that the companies do a mark      themselves.  I'm thinking about benchmarking for the      regulator, how it aids the regulator, whether it is a      federal regulator or the state regulator or state consumer      advocates, to compare performance.
        I know that there are many differences between,      let's say, GTE and Bell Atlantic and territories but GTE      does serve some sizeable urban areas, at least that's what      I'd heard.  So, I would think there might be some comparence      there.  But, leaving aside specifically just GTE and  Bell      Atlantic, what are the values for regulators of having not       -- if we end up with four companies to compare against each      other as to eight?
        MR. MAHONEY:  What are the values?  I think the      way I'd answer that, Commissioner is --
        COMMISSIONER TRISTANI:  Well, how is it valuable?
        MR. MAHONEY:  I think the potential value, of      course, in all benchmarking is to give he regulators, you      the Commission, an opportunity to determine how a particular      company is doing in terms of opening up their network, in      terms of complying with the act.  The danger of limiting the      number of companies within the benchmark to four RBOCs, if      you will if all these mergers take place is the ability -- I      should say how you look at the data.  Do you look at the      data on a company wide basis which has the ability for such      huge numbers to lose some of the impact on how a particular      competitor is doing in an area in a particular state.
        I think the key should be to come up with      meaningful information that can be used by the regulators in      determining compliance with the Act.
        COMMISSIONER TRISTANI:  Am I correct that you're      still looking at it under a more narrow perspective of how      competitors benefit from this?  I guess I'm thinking of      service quality of all these other issues that are very      important to regulators.  Also, technology, I mean, some      companies say, "We can never do that." and then some      companies all of a sudden they are doing it already.  I      don't know if anybody can address those.
        MR. SALLET:  In the Bell Atlantic/NYNEX order the      Commission noted that benchmarking allows it to "ensure just      and reasonable rates, constrain market power, establish and      enforce the pro-competition rules necessary to achieve      competition and deregulation."  In a world that is still      dominated by monopoly providers we believe that benchmarking      is a very important tool for regulators in order to test the      otherwise untestable veracity of assertions about what is or      is not feasible.  
        Often times, Commissioner, in debates before state      commissions or in proceedings before this commission a new      entrant such as us will say, "We need an electronic      interface, we need performance in a certain time frame."        An incumbent will likely say, "Well, that's not possible to      do."  
        It is the experience of other companies that      helps, so long as there is enough to actually provide a      diverse set of experiences that helps the regulators decide      who is right in a debate about feasibility.
        COMMISSIONER TRISTANI:  Mr. Young.
        MR. YOUNG:  IF I could bring this down to      practice.  If you assumed that the Bell companies were the      only ones who were knowledgeable about systems technology      maybe that argument would hold some water.
        In the way the telecom marketplace has evolved, we      are not the only ones who come to the regulators with ideas.       If you look at how the collaborative process has worked out      in New York, the New York Commission has made a number of      decisions about detailed technical issues with MCI on one      side, AT&T on that side, Sprint -- lots of sophisticated      people.
        That mix of sophistication is still at the table      for the state regulators and the federal regulators, even if      this merger goes through.
        COMMISSIONER TRISTANI:  In every state?
        MR. YOUNG:  Well, every state where people are      seeking interconnection,.
        COMMISSIONER NESS:  Mr. Young, you argued earlier      that look at the operating company level as a method for      benchmarking.
        MR. YOUNG:  Yes.
        COMMISSIONER NESS:  Would it be likely, in your      experience, that one Bell Atlantic operating company would      say that something is technically feasible, whereas another      Bell operating company would say that it is not feasible?
        MR. YOUNG:  Well, the truth is we have done that.
        (Laughter.)
        I don't mean to be flip with you.  The point is --
        COMMISSIONER NESS:  I'm delighted to hear that      you've done that.  That's fascinating.
        MR. YOUNG:  Well, we do a lot of things.
        COMMISSIONER NESS:  Was anyone reprimanded for      having said so?
        MR. YOUNG:  Not as much as those people at Sprint      are going to be reprimanded, I think.
        (Laughter.)
        But I think the important thing is that source of      technical information that is available to the Commission,      the real source of the diversity comes not from one Bell      company differing from another Bell company, it is somebody      else like an RCN or an MCI, somebody else coming to the      table saying, "We're sophisticated about these networks.       We're sophisticated about these systems.  We think this can      be done."  I think that is the real answer to the question.
        CHAIRMAN KENNARD:  Commissioner Ness, you had      something else?
        COMMISSIONER NESS:  You state in your joint      application that if you do not have the necessary 271      approval by the time the merger closes you'd request the      transitional relief, rather, from the Commission.  What      transitional relief would you be requesting and what is the      legal basis for that?
        MR. YOUNG:  Let me be very clear about this.  Our      principle approach here is to get 271 relief in our states      as quickly as possible.  You will be seeing an application      for New York after we go through the Baldridge-level OSS      testing requirements that we have been through, the mother      of all OSS tests.  You will be seeing that very promptly and      then you are going to be seeing us after that come in with      Pennsylvania, Massachusetts, applying that template in every      other state.  We are the one Bell company that has been      committed to this process, as I think you know.  And, we      remain very committed to it.
        Now, the interim relief --
        COMMISSIONER NESS:  See, that's benchmarking      against other companies but go ahead.
        (Laughter.)
        COMMISSIONER NESS:  I couldn't resist.
        MR. YOUNG:  I better shut up while I'm ahead.  The      point is that -- let me give you a hypothetical.  Let's say      we get to a point where we've got New York, we've got      Massachusetts but there are some states in New England that      we don't have.  We may very well at that point be coming      back to you, under your 706 order where you indicated your      ability, your authority to create different data boundaries.       I think the sense was that that was going to be limited in      scope and also our sense would be that would be limited in      time because we are going to continue to push the 271      applications, that's what we have in mind.                 I apologize for any lack of clarity.
        COMMISSIONER NESS:  Now, for example, in Virginia      and Pennsylvania, which are two states where GTE presently      operates, how would long distance or other 271 issues be      resolved there?
        MR. YOUNG:  Again, our principle approach,      Pennsylvania and Virginia are very high on our list for      getting 271 relief and one of the reasons is when you look      at GTE's internet working business, they have significant      numbers of customers in Pennsylvania and Virginia so you are      going to see those very very high on our list.  I hope we      don't get to the situation where we are trying to close the      merger and not have 271 in Pennsylvania and Virginia      because, as I said, when you look at the list those are in      the top 5.
        CHAIRMAN KENNARD:  If there are no further      questions from the bench we will adjourn for 45 minutes      until 2:15 p.m. sharp.  Commissioner Tristani, did you have      something else?  Okay.  I wanted to again express our      appreciation for this excellent panel of panelists.  Thank      you very much.
        (Whereupon, at 1:30 p.m., the proceeding was      recessed to reconvene at 2:15 p.m. this same day, Monday,      December 14, 1998.)                    A F T E R N O O N  S E S S I O N
        Agenda Item:  Session 2:  AT&T-TCI
        CHAIRMAN KENNARD:  Good afternoon.  This panel      will address another major merger that is pending before      this agency, the proposed merger of the largest long      distance carrier in the country, AT&T, and the nation's      largest cable television operator, TCI.
        These companies have come before this agency and      proposed to marry.  They have proposed some very attractive      features for the American public.  They proposed a bundled      offering of services of local and long distance telephone      service, high speed internet access, multi-channel video,      things that every American would love to have in his or her      home for the right price.
        It is a very attractive offering but it leaves a      number of questions unanswered, which we are here to explore      today.  First and foremost again we must consider how will      average Americans benefit from this combination.  Will all      Americans have the opportunity to get the benefits of these      wonderful services that are being proffered by these      companies or will only some Americans benefit?  When AT&T      makes the investment to upgrade these cable networks in      order to roll out these services will they roll them out to      all Americans or just some Americans?  Will the poorest and      underserved communities in our country get service?
        We also have some important issues to consider      about the internet and whether this combination will help      advance competition for internet service or not.
        We also need to know when these services will be      deployed.  These companies have proffered this combination      as a way of accelerating facilities-based competition in the      telephone networks.  
        We all know that we desperately want all Americans      to have choice in local telephone service.  We need to know      when Americans will get the benefit of local phone service      from this proposed combination, when will these networks be      up graded to provide that service?
        Those are a lot of questions.  We have a very      distinguished group of panelists here to address them.       Before we get to our visiting panelists I would like to turn      again to Tom Krattenmaker, our Director of Research, so he      can sort of set the stage.  Although, before I do that, Tom,      I did want to ask if my colleagues on the Commission had any      comments.  Tom.
        MR. KRATTENMAKER:  Mr. Chairman, there must be      some confusion, I think you just gave my talk.
        CHAIRMAN KENNARD:  I'm sorry.
        (Laughter.)
        MR. KRATTENMAKER:  When your folks asked if they      could have a copy of my remarks I didn't realize it was      for...  Well anyway.
        (Laughter.)
        CHAIRMAN KENNARD:  I never saw them, Tom.  Believe      me, I never saw them.
        (Laughter.)
        PROF. KRATTENMAKER:  Since I just work here I need      to justify my salary.  I will try to explain, although      really this does remarkably echo what the Chairman just      said, to try to set the parties and the issues as it has      been with respect to this merger. 
        I think maybe the key thing to note is that the      parties are different and the issues are different in this      merger than they were in the mergers that we discussed in      the morning.  Here the parties are TCI and AT&T.  
        TCI is the largest cable operator in the country,      it serves about 25 to 30 percent of all cable subscribers.       It is a major investor in various cable networks.  So, it is      also interested in cable programming.  It is a 20 to 25      percent shareholder in the Sprint Cellular nationwide      cellular operation.
        AT&T is the largest long distance provider in      America.  It has some, but not many, local wired local      exchange telephone operations and it also operates a      nationwide wireless cellular network. 
        These two firms are proposing to merge.  Those are      the parties.  The standard is the same as we talked about      this morning, that is the standard is a public interest      standard that asks, "Will the merger on balance probably      further consumer welfare?" 
        The issues, however, are really quite different      from any of those that were explored this morning.  
        In support of the merger, as the Chairman has      reported, AT&T says that what it is going to do after the      merger is to upgrade TCI's cable plant and then AT&T will      use that cable plant for two important purposes.  
        One, is to provide local telephone service,      provide local telephone service over the cable, service that      would be in competition with whoever the local incumbent      telephone company is.  Secondly, AT&T says will also upgrade      the TCI facilities in order to provide high speed internet      access for homes and for businesses.     
        The question with respect to these pro-merger      assertions is the same as we saw with respect to the ILECs,      that is how credible and how merger specific are these      claims.  Will these benefits be realized and are these      benefits that require a merger between the firms?
        With respect to questions that have been raised by      opponents of the merger I think it is best simply to say      that a number of legal questions have been raised.  It is      hard to characterize them with a single slogan.  Indeed, I      was going to say that the opponents have raised a congeries      of issues but then I realized I wasn't sure how to pronounce      congeries or what it meant so I am going to say they raise a      heap of issues.  I'm pretty sure about that one.
        Here are, I think, the four that recur most      frequently in the filings so far but I want to indicate that      that is not without prejudice to the ability of the people      here on the panel to raise other issues, perhaps issues that      are more significant or more to their concern.
        One, wireless.  The merged firm, if it were put      together today, would violate our rules regarding      aggregation of wireless licenses.  The parties know that and      they will come in compliance with what we call our "spectrum      cap rules" but the question is how to remedy that, how to      avoid creating another problem, say, with respect to the      value of Sprint stock as a divestiture remedy is fashioned.
        Second issue that is written about frequently in      the comments so far is the issue of program access.  There      is a federal statute and our rules implementing that statute      that require that dominant cable firms not be allowed to      deny cable programming to their rivals, such as direct      broadcast satellites or fledgling cable upstarts.          Commentors have raised the question of how these rules      will be applied to a post-merger AT&T as it enters the cable      industry.
        Third is what I call the "internet access service"      issue.  TCI already provides an internet access service,      which is known as "At Home" which AT&T will acquire and      proposes to extend as part of this merger.
        "At Home" is not an open ended pipeline to the      world, as is a telephone line, but it is rather a single      path pipeline to the internet, just as a cable channel is a      single path pipeline to ESPN or HBO or BET.  "Would it be      lawful for AT&T to provide such a service?" is a question      that is being much debated in the comments.
        Final one I would mention is the question of      service quality.  A number of people have filed and asked      whether AT&T will upgrade TCI facilities and if that is an      issue whether it is an issue that is within our jurisdiction      or something that is left to the local franchising      authorities.
        So, again, without meaning to be comprehensive      what I meant to indicate was how varied, how disparate these      issues are and how strictly legal they often seem to be.       But, we've got issues about wireless, about program access,      about internet access, and about service quality.  Again, I      mean to say not that these are necessarily problems with the      merger.  Again, AT&T and TCI intend to come into compliance      with our wireless rules, vigorously defend that they will      after this merger be compliant with the program access      purposes of federal rules, that their internet access      service is specifically permitted by the 1996 Communications      Act and that as a result of the purchase of TCI they will      substantially improve and upgrade the facilities of TCI.
        So, these are the kinds of issues that so far have      been predominating in the staff's analysis of the merger to      date.
        Agenda Item:  AT&T-TCI Pane
        CHAIRMAN KENNARD:  Thank you very much, Tom.  We      will now begin with our panelists.  I will remind our      panelists to please keep your statements short and please      introduce yourself and also state your affiliation.  Mr.      Gamboa.
        Agenda Item:  John C. Gamboa, Executive Director,      Greenlining Institute/Latino Issues Forum.
        MR. GAMBOA:  Thank you.  My name is John Gamboa      and I'm the Director of the Greenlining Institute, a      coalition of 36 community organizations in California.       Membership includes the Chambers of Commerce of the      Hispanic, the Asian, and the African American Chambers of      Commerce.  We also have the two largest business      associations, Latin Business Association and the Asian      Business Association, as well as the largest African      American church west of the Mississippi.
        Before I begin I would like to state that if you      see me get up and run out of the room it is not a statement      of how I feel about how these hearings are going but simply      that I have an 11 year old daughter who has a piano recital      in San Francisco tonight.
        (Laughter.)
        With that, I hate to start my statement, but we      have a different opinion than your staff does.  The      constituency that I represent are the most at risk      consumers, the limited English-speaking, the poor, the      recent immigrants, and the minority community.
        This merger, we believe, should be looked at in      the context of all the mergers.  The parties are different      but the issues, to us, are not so different.
        Historically we have seen we have opposed mergers      because mergers have not produced for our constituency the      promises the competition was supposed to bring, better      services and new services at lower cost.  On the contrary,      our communities have been victims, if you will, of the      mergers that have happened, in particular in California.
        You had asked earlier, Mr. Kennard, this morning      to address what has happened in California and, Commissioner      Tristani, you had also asked what were the conditions that      should be imposed when a merger takes place.  I'll try to      address those.
        In California in the SBC/PacTel merger, since that      merger, telephone penetration of the poor has decreased      dramatically.  We enjoyed at one time a penetration above 91      percent, we are now in some communities down to 85.7      percent.  The Mung community, a 50,000 member community in      Fresno, less than half have telephone service, basic      telephone service.
        In addition, our communities have been victims of      marketing fraud, in a large large way.  Our communities,      even the few that stay on the system, have been targeted by      most of the Teleco companies on it.  What seems like what is      happening is as mergers take place and the companies come      the regulatory oversight has lessened for our communities.       We are the victims of slamming and cramming.  
        In fact, there was one company here today, the      largest company in California, who is -- if you can believe      this -- on calls, inward calls, from poor people asking for      payment arrangements to keep on the service are met with,      "We can provide you those payment arrangements, however, I      also want to talk to you about Caller ID."  Do you know the      impact that makes on that poor person?  That says, "I feel I      have to buy Caller ID to make payment arrangements.
        They have also targeted the limited English-speaking communities, who we feel are marketing fraud.  They      have what they call "basic services" that are not basic at      all.  Every custom calling service available is on that.       That is what is marketed and promoted to below income and in      particular limited English-speaking communities in      California.
        The other company in California is recently      settling a marketing abuse case to the Hispanic community      and to their credit they have set goals of increasing      penetration and in the last two years working with community      organizations they have increased penetration in their      particular area -- I'm talking about GTE -- to 95.7.
        This is not to say that we believe all mergers are      bad.  Mergers can be good if the right conditions are done.       There are two cases when mergers can be good.  One is when a      corporation that has a positive record and a social      commitment to communities merges and is a dominant party      with another corporation, such as CTI, who has a poor record      and a poor social contract with the community, when that      merger comes it could have a positive impact to our      community but it can only have a positive impact on our      community if there are conditions.  I think Commissioner      Tristani had earlier asked what kind of conditions should we      impose on mergers.
        These are the conditions that we feel make a      merger positive to our community:  first of all, a      commitment to universal service, that everybody in every      community will have equal access to basic telephone service;      second, a strong commitment to narrowing the digital divide      between the have and have nots.  I have seen studies that      you have done, our community is falling further and further      behind.
        A commitment to minority businesses, that is the      economic engine for our communities.  Most critical for      absentee type mergers like the GTE/Bell Atlantic merger a      commitment of investment in our communities, a marketing      outreach to minority communities, the development of new      products and services that meet low income communities'      needs that also provide a profit for the companies, a      philanthropic contribution that at least matches the pre-tax      earnings of the five top executive's compensation packages -- I don't think that is too much to ask, and a diversity      goal at all levels of management.
        The three mergers in question today offer no      public benefits, instead they accelerate the concentration      that the Department of Justice sought to break at AT&T less      than two decades ago.  Only a very strong public interest      commitment should tilt the balance in favor of a merger,      even then these commitments must be clear, dramatic and      enforceable.  We feel the only way that can be done is if      they are filed with you.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Mr. Gamboa.  Ms.      Inman.
        Agenda Item:  Joni Inman, Director, Citizen      Relations for the City of Lakewood, Colorado and President,      Greater Metro Telecommunications Consortium (Denver).
        MS. INMAN:  Thank you.  I'm Joni Inman.  I'm the      Director of Citizen Relations for the City of Lakewood,      Colorado and I am the President of the Greater Metro      Telecommunications Consortium, representing 25 franchising      authorities in the Denver Metro Area, 2.2 million people in      the Denver Metro Area.
        I'd like to thank you for the opportunity to be      here today.  With roughly 5,000 local franchising      authorities representing 12.5 million cable subscribers      affected by this merger it is critical that the local voice      be heard.
        I'd like to address three issues that directly      impact citizens.  The first being the possibility of cross-subsidization of products offered by AT&T.  The second being      the access to TCI's cable network by other internet      providers.  Third, the preservation of local authority for      the protection of public property and quick responsiveness      and resolution to citizen problems.
        The cross-subsidization issues are perhaps the      easiest to understand, yet the most difficult to address.       It is clear that AT&T is spending a great deal of money to      acquire the TCI system but how will AT&T recoup this      investment?  It is also understood that AT&T wants to get      into the local phone market.  How can this occur in a      competitively priced manner?  One possibility could be      through increased cable rates.
        As you are aware, regulation of all but basic      cable rates goes away in April 1999.  This opens the door      for AT&T to increase individual cable rates in order to use      the revenue to subsidize below market rates on telephone      services, thus allowing AT&T to break into the local markets      using the extra revenue from the cable side. 
        TCI representatives have said that they won't do      this.  They have questioned why they would do this.  They      have told me that it would reduce their cable market share      but when we have a parent company offering many different      services it is the overall market share that really matters.       In addition to that I would like to point out that in my      community over the past weekend I just received information      that a provision that we were including in our transfer      resolution that would ensure no cross-subsidization was      rejected by TCI and AT&T.  I have the document here.  This      does give me great concern, by the way.
        Let me talk briefly about open network provisions.       Cable broad band systems are an important part of the race      for speed and internet service providers.  Many of them have      asked the local franchising authorities condition approval      of transfers on a requirement that AT&T offer access to      cable modem platforms. 
        There is not much debate about whether access to      the system by other providers is a good idea, it probably is      a good idea.  There is not much debate about whether it is      in the best interest of competition, I believe that it is.       But different jurisdictions have varying views on whether      this is something that we should compel as part of our      transfer.
        In markets where there is only one cable provider,      in fact, it could be anti-competitive not to require it.       Having no open network policy could be bad for customers,      causing unreasonably high rates for customers who want      higher speed broad band access.  
        On the other hand, the cable plant was costly to      build and acquiring it is costly.  Perhaps some reasonable      price for use of that system is appropriate.  This issue      deserves more debate.  The local franchising authorities'      concerns about effective competition, protection of public's      interest in this area and the impact that it could have on      rates needs to be addressed and it needs to be addressed      after much more dialogue with a larger number of      communities, with the FCC and with the providers themselves.
        Finally, let me address local authority.  Our      primary concerns, as are yours I'm sure, are two-fold:       access to services by all of our citizens and continued      enforcement authority over customer service standards.
        Cable customers and other citizens are comfortable      today calling the local franchising authority when there is      a problem and this can range from the very serious severing      of gas lines, which occurred in my community during a      rebuild, to just simply trampling over tulip gardens.
        In order to address specific issues in individual      communities some of our communities have in fact enacted      stricter customer service standards than the FCC has issued.
        The merger of a cable company and a      telecommunications company with merged services presents      some new challenges in this area.  AT&T will, of course,      have ultimate legal authority to determine the management      structure and operational structure of the parent company      and its subsidiaries.  We urge that local authority to      resolve issues at the local level not be lost in this      restructuring and that at a minimum existing levels of      technical and customer service employees be maintained.
        We urge that any discussion of the definition of      cable versus telecommunications services be held in a way      that maximizes local authority to directly protect citizen      interests.  
        Finally, we ask the Commissioners and industry      leaders here today to keep in mind that what we are really      looking at is a for-profit company that wants to use public      property, paid for with your tax dollars and mine, and as      such we urge that all services be made available at a      reasonable cost to all of our citizens.  We would oppose any      attempt to redline our communities.  We have a      responsibility to the citizens that paid for this public      property to ensure that we are not allowing services to be      offered in only profitable areas, thereby creating a system      of telecommunications have and have nots that my colleague      addressed earlier.
        With the proper public protections, the local      franchising authorities look forward to the opportunities      that this merger can present to us.
        CHAIRMAN KENNARD:  Thank you very much, Ms. Inman.       Mr. Brewer.
        Agenda Item:  Charles M. Brewer, Chairman and CEO,      Mindspring Enterprises.
        MR. BREWER:  Hi everyone.  I am Charles Brewer.  I      am the Founder, Chairman and CEO of Mindspring Enterprises.       Mindspring is, I think, the fifth largest internet service      provider, as measured by number of customers who operate      nationwide.  Headquarters is in Atlanta.  I want to thank      you very much for letting me participate today.
        In late 1993 when I was trying to get started with      Mindspring there were essentially zero internet access      customers in the grand scheme of things.  Now, 5 years      later, something over 25 million households use the internet      at home and it really is rapidly reshaping the way many of      us live our lives.
        This phenomenon never could have happened if it      were not for one crucial fact and that is today's internet      access is a wonderfully open system.  The last mile      connection in the narrow band world of today is a phone call      and because of regulatory supervision the local telephone      company can do nothing to block that call and, therefore, as      a result consumers in most American cities have a choice of      literally dozens, maybe even hundreds, of ISPs.  
        We ISPs do compete very fiercely on price,      customer service, ease of use, network performance,      reliability, and many other factors.  Together we have      really driven the incredible growth of the net.
        I'd like to ask a hypothetical question which is,      "What if local telephone companies had not allowed consumers      to connect to the ISP of their choice?"  I think it is      pretty clear that the internet revolution that we are seeing      today would not have happened at all.  Even now, which is      years after the critical importance of the internet has been      clear to all these last mile owner companies, the last mile      owners are essentially non-players in the internet access      field and of 25 million plus customers, residential      customers in the United States for internet access last mile      owner companies, both cable companies and local telephone      companies, have just over maybe 1 million of that 25 million      plus.
        So, simply put, if we were waiting for the last      mile owners to bring us the internet revolution we would      still be waiting.  It would not have happened.  So, I would      like to repeat what I see is the crucial lesson from this,      that is if last mile owners did not allow consumers access      to the ISP of their choice the internet phenomenon that we      are seeing today would not be happening.
        Now I'd like to shift attention to the future.  I      think some things about the future are pretty clear.  First,      it is clear to me that the core telecom offering of the      future will be connectivity to the broad band always on      packet switched internet.  This is not a radical prediction.       I think it is shared by most of my telecom industry      colleagues.
        Second, for the large majority of residential and      small business customers the only economically viable way to      deliver this connectivity for many years to come is going to      be through a wire and there are really only two realistic      choices, there is the telephone company wire and the cable      company wire.
        Third, it does not make economic sense to      repetitively rip up neighborhoods to install a new wire for      each new competitor. 
        Fourth, I think is proven by the experience in the      ISP world, the benefits of having a competitive market for      the core telecom service of the future are just huge.  
        So, if you accept those four points, and I really      think that one must, there is only one conclusion and that      is if we are going to have a competitive residential market      for the core telecom service of the future then we must have      an effective way for competitive service providers to share      the broad band wires that lead to homes.  For many homes the      cable company wire is likely to be the only one capable of      delivering this high band width two-way service for many      years to come.
        Unfortunately, it is the expressed intention of      TCI and of most of the cable industry, to not offer access      to their last mile networks on any terms at all to      competitive service providers.  So, I urge you to condition      approval of this merger on a commitment from AT&T and TCI to      make the underlying data transport service of their last      mile networks available to competitive service providers on      a non-discriminatory basis.
        I would further urge you to promptly require other      cable operators to meet these same open system requirements.       There really are not significant technical issues that would      make this requirement overly difficult to implement.  Open      networks would encourage investment, not retard it.  There      are thousands of ISPs, both large and small, that stand      waiting to proactively drive our millions of subscribers to      broad band last mile connections.  We can drive traffic,      revenue, and profit for the last mile owners.
        The FCC does not need to regulate the internet and      please don't confuse what I'm saying to mean that.  But the      country emphatically does need competitive open access to      last mile broad band facilities or we will not have the      vibrant thriving broad band internet that we all want.
        Competitive access to the broad band last mile      connectivity is the single most important issue of the      telecom future for residential customers.  This is the core      service of the future.
        This merger provides a crucial opportunity for the      Commission to speak to this issue and I urge you to grab it.       Thank you very much for the opportunity to participate      today.
        CHAIRMAN KENNARD:  Thank you, Mr. Brewer.  Mr.      Roellig.
        Agenda Item:  Mark Roellig, General Counsel and      Vice President for Law, Policy, and Human Resources, 
     U S West, Inc.
        MR. ROELLIG:  Good afternoon, Mr. Chairman and      Commissioners.  I appreciate the opportunity to present the      points of view of U S West at this en banc.
        As you know, U S West has a significant interest      in this proceeding.  U S West filed comments on the AT&T/TCI      merger, focusing most of its discussion on the public      interest benefits of requiring AT&T/TCI to provide capacity      on its local broad band transmission facilities to other      carriers at cost based rates.  In addition, we have stated      that the merged entity should be required with Sections 251      A, B, and C of the Telecommunications Act for its broad band      services to the extent those provisions apply to the      incumbent local exchange carriers.
        I think it is important that we put the proposed      merger into context.  The combined entity will be the      largest domestic long distance wireless, cable and      competitive access provider in the world and one of the      largest internet service providers.  The Commission has a      statutory obligation to examine the public interest and to      impose conditions on a merger, as is done in the past, that      are necessary to prevent anti-competitive harm and promote      competition.  
        The communications industry is in a state of      constant change.  It is, therefore, critical that the      Commission focus on the whole pie and not just a small slice      of residential voice telephony.  As this proposed merger and      the 706 proceeding made clear, broad band and data are the      technology and services of the future. 
        AT&T-TCI has acknowledged there are two primary      ways for a customer to get broad band access to the      internet, cable and DSL.  AT&T-TCI wants regulators to treat      these modes of access differently.  Why?  Because it is a      lot easier to win in the marketplace if your competitors are      hamstrung with a lot of regulations and separate      subsidiaries while you are free to provide the same type of      services -- in this case high speed access - free of      regulation, integrated, proprietary, and unencumbered.
        As I see it, the delivery of broad band services      to the customer can be divided into four simple parts,      access to the customer, co-location, choice of internet      services, and backbone network.
        U S West recognizes that access to loops and co-location are essential to getting new services to customers.       AT&T, however, wants to keep access to its high speed data      network closed while at the same time demanding that 
     U S West DSL network be unbundled.
        AT&T-TCI argues that it will not be a monopoly      provider of broad band services.  I disagree.  Today there      are alternatives to wire line service and the Communications      Act specifically opens the local exchange to competition.       There are yet no realistic choices to cable.
        There have been reports in the press that the      Commission will not consider placing conditions on the AT&T-TCI merger.  While I understand the Commission's desire to      examine these issues in a broader context the fact is that      the Commission now must statutorily address them, to not do      so will, from the very beginning, result in a lopsided      marketplace for high speed broad band services.  
        Once the merger is approved AT&T will invest in a      platform that is proprietary and argue in subsequent rule      making proceedings that it's too late, costly, or difficult      to mandate open access to the local broad band network.       And, in addition, and I would probably say "more      importantly," AT&T has made it clear that it believes this      commission has no legal authority to impose access      conditions over its broad band network, therefore, if the      Commission does want to consider delaying a decision on this      issue for a later rule making it should make absolutely sure      that AT&T agrees and will be bound by any decision in that      rule making.
        The Commission should realize that government      imposed rules and regulations necessarily affect the      business incentives of companies and, hence, the      marketplace.  Parity of regulation -- let me be really      clear, we're not talking about traditional voice telephony,      we are talking about the new competitive broad band services      that AT&T-TCI, others, including U S West are currently      providing -- it is absolutely essential to ensure rapid      broad deployment of those services and we need to have      parity of regulation in order to do so.  Thank you very      much.
        CHAIRMAN KENNARD:  Thank you.  Mr. Kimmelman.
        Agenda Item:  Gene Kimmelman, Codirector,      Consumers Union, Washington Office.
        MR. KIMMELMAN:  Thank you, Mr. Chairman,      Commissioners.  On behalf of Consumers Union, publisher of      Consumer Reports Magazine, I truly appreciate the      opportunity to appear today. 
        I have been listening to my colleagues.  I would      like to associate myself with the thrust of much of what      they are saying.   It is one happy opportunity to say that I      probably actually would encourage you to do a little less      regulating than U S West but I think the general thrust of      all the comments are right on point.  I don't want to repeat      them and I don't want to repeat what we have filed with you.
        I want to take up the average consumer      perspective.  I think, Mr. Chairman, you hit the nail right      on the head of what is a critical basis for looking at these      issues.  Commissioner Furchtgott-Roth, I think you are      absolutely right, it is incumbent on the Commission to      develop a clear standard for license transfers and I think,      looking at it from a consumer perspective, you can come up      with a standard for license transfers in highly concentrated      telecommunications markets that clearly distinguishes      certain transactions with licenses from others.  
        Here is how I would suggest you look at it.  Think      about what happens if the Commission does nothing to these      mergers, nothing.  What does it mean for the consumer?  We      go from a world at the Telecom Act of eight almost equally      sized local exchange telephone companies, supposedly      entering new markets various to entry broken down.  We end      up with six companies shrunk to two enormous monopolies, two      companies each with about a third of all access lines still      almost exclusively monopoly going into the home.  This could      be the final nail in the coffin to local telephone      competition in a broad based consumer market, for the      average consumer.
        AT&T-TCI comes along and promises a solution.       They promise to enter new markets but everyone of the Bells      promised to enter new markets.  The promises aren't enough.       We urge you, from a consumer perspective, to look at the      market forces and the technology and the conditions to see      what will happen.
        Here is what we fear.  Based on the behavior of      these companies in the past and the model of the satellite      market where open entry satellite into cable has brought      entry at the high end of the market has not brought      competitive pricing.
        The market forces indicate that AT&T and its own      behavior, state of Florida, has said local rates maybe      should double in order for them to come in and compete for      the residential consumer market.  A $10 increase is what      they suggested as a price point to enter to compete.  That      is the form of local telephone competition for the      residential market.
        AT&T will be inheriting cable systems, systems      with more than 20 percent rate increases since passage of      the Telecommunications Act, 3 to 4 times the rate of      inflation.  With the opportunity to leverage substantial      ownership in some of the most popular programming, a network      where high speed data internet access can be controlled      without public responsibility to open access rules, as is      the case on telephone networks.  It would give AT&T the      perfect opportunity to expand market, expand market at the      high end, expand market not for local telephone service but      for other very highly profitable telecommunications services      for consumers who want them, who at this point in time tend      to be 10, 20, 30 percent of the market, the most wealthy,      the high end of the market.
        Importantly, in its own core market, AT&T has      recently begun pricing policies where almost half of their      consumers pay up to $5 a month before they ever place a long      distance interexchange call.  Small volume users getting hit      with substantial rate increases.
        So, if you fail to assert a strong public interest      vision, a strong standard, identifiable for highly      concentrated telecommunications markets consistent with the      goals of the 1996 Telecommunications Act consumers are      likely to face entrenched monopolists, possibly expanding      monopolists into new markets like high speed internet      access, and higher prices without more choice except at the      high end of the market, not the market the average consumer      faces.
        So, consumers want a very strong clear rejection      of the two Bell company mergers that expand local monopolies      and at least a significant conditioning of the AT&T-TCI deal      or we fear the Telecommunications Act will remain an abysmal      failure at meeting its goal of broad based competition for      the average consumer.  Thank you.
        CHAIRMAN KENNARD:  Thank you, Mr. Kimmelman.  Mr.      Cicconi.
        Agenda Item:  James W. Cicconi, Senior Vice      President for Government Affairs and Federal Policy, AT&T.
        MR. CICCONI:  Thank you, Commissioners.  Jim      Cicconi, Senior Vice President with AT&T.  I want to thank      the Commission for the opportunity to talk to you about our      proposed merger with TCI today.
        Simply put, this merger represents AT&T's      tremendous commitment to residential customers, and I would      emphasize the "residential", in its leadership in bringing      local phone competition and its benefits to them.  This      merger is a big part of the future of AT&T.  We believe it      will be a driving force behind some very important positive      changes in the telecommunications industry.  
        I would like to make two points about the merger      today.  The first is that it will move us all much closer to      achieving one of the primary goals of the Telecommunications      Act, that is facilities-based local telephone competition      for residential customers.  I know I emphasized that word      "residential".  The Commission has heard a number of      statements by the Bell operating companies and others,      allegations that AT&T and other potential competitors are      only interested in business customers and skimming the      cream, things of that nature.  This is a $48 billion      statement of proof by AT&T that this allegation is false.
        This merger represents the most widespread      significant effort being undertaken to get local competition      and broad band to residential customers.  It is already      delivering significant benefits in the form of increased      investment and interest in the cable plant and other efforts      to deploy broad band.  In fact, I would suggest that a good      part of the debate that we are having today about how      quickly to deploy broad band has been spurred in part by      this investment by AT&T.
        As the upgrades to TCI's systems are made      consumers in the areas served by TCI will begin to see the      benefits of the merger more directly, first in the form of      new and faster internet services and in the form of a new      facilities-based alternative for local telephone service.
        With this competition will come more, better, and      cheaper services for customers, consumers, just as the      authors of the Telecom Act had hoped.
        The other point I want to make today is that after      this merger is approved consumers will have more choices      than they have today.  They will have the choice of      obtaining local exchange services from a carrier that does      not use the facilities of the incumbent LEC.  They will also      have access to broad band services and all of its advantages      in their home, not just at work.
        The will be able to access the internet more      quickly, enjoy the benefits of At Home's always on, always      accessible services, and discover new content being      developed for broad band and much more.
        AT&T's local telephone services, as well as the      other services that AT&T will offer over TCI's facilities      will have the quality and reliability that people have come      to expect from the name "AT&T".
        Of course consumers will still have all of the      choices they have today when they subscribe to the local      services of an incumbent LEC and receive their cable      services from TCI.  Any consumer who selects AT&T-TCI's      local telephone services will continue to be free to pre-subscribe to MCI, Sprint, or any other long distance company      of his or her choice.
        Any consumer will be free to use the AT&T-TCI      exchange to dial up any internet service provider or any      online service provider.  Similarly, the merger will have no      effect on the provision of any service to any cable      subscriber.  These consumers will continue to be able to      obtain content from providers of online services and video      programming in the same way as they do today.  They will be      free to obtain these new local services, either by      themselves or in bundles and include other services as well.
        In closing, I'd like to say that the AT&T-TCI      merger passes, we hope, with flying colors any test you      would apply.  The merger will enhance competition and raises      no, we feel, contravailing concerns.  More importantly,      consumers will be better off as a result of the merger.       Thank you and I look forward to hearing the statements of      the other panelists and answering your questions.
        Agenda Item:  Questions and Answers
        CHAIRMAN KENNARD:  Thank you, Mr. Cicconi.  Mr.      Cicconi, the other panelists have really piled the plate      high of issues that unfortunately you are the only person      here to respond to but I know you are able enough to handle      the situation.
        Let me go back to some public statements that I      have been reading recently from the CEO of TCI, Mr. Hindery,      and also from you, Mr. Cicconi, where you have said that if      the FCC were to impose a condition on the AT&T-TCI merger      which would require you to provide non-discriminatory access      to ISPs you would just walk away from this transaction, you      would just throw in the towel.
        On the other hand, I read statements by you and      others at your company that the Commission shouldn't be      concerned about open access because you are going to have      capacity for everyone and everybody is going to be happy,      basically, and you are going to negotiate deals with all the      ISPs.  We should, basically, don't worry, be happy.
        There is a contradiction there and I am hoping      that you will be able to resolve this issue for us a little      bit today.
        MR. CICCONI:  Well, I can certainly try, Mr.      Chairman.  First of all, I think what we said or tried to      say is that this would seriously jeopardize the merger if      the Commission were to impose the type of unbundling and      other conditions that have been suggested in some of the      comments.  We wanted to stress first of all that this is an      industry issue, not just an issue connected with this merger      and that it wouldn't be appropriate to consider things that      disadvantage one company in a competitive industry.
        Secondly, in responding to some of the suggestions      about conditions, what we would emphasize is that these      things are really based on a series of hypotheticals.  These      areas are very difficult to judge.  First of all, they're      hypotheticals with regard to consumer demand for high speed      internet services.  
        I know what Mr. Brewer has said but I dare say if      five years ago when he started Mindspring he probably      couldn't have projected himself the growth of the internet      and I don't see how any of us can say with any degree of      reliability what consumer demand will be two to five years      from now.  In fact, Steve Case of America On Line said      earlier this year that he fully expects that five years from      now that 75 percent of people accessing the internet will      still be doing through narrow band dial up method.  So, even      within the industry there is a good bit of disagreement.
        I would stress that in this area it is still in      its nascent stages.  There are subscribers only in the      hundreds of thousands to the existing high speed broad band      offerings out there versus the tens of millions that are      using other forms of internet access.
        There are hypotheticals in terms of the problems      and projections of bottlenecks and things of this nature.       These are all built upon each other, the projections based      on consumer demand and projections as to how we would      respond to that and if that creates a projected bottleneck      and we are supposed to, according to the conditions,      consider essentially rebuilding or redesigning a good part      of the cable system that is set up for this access in order      to accommodate a capacity that even the ISP industry doesn't      have today.  By the time we finish that, who knows what      capacity they would have in fact needed at the end of that.
        What I am trying to say, Mr. Chairman is that      there is a great deal of uncertainty in this area.  We      haven't even made the investment yet.  The capacity to      deliver these services, broadly speaking, is not yet there      and already we are being asked to consider additional      investments which could seriously jeopardize the calculus      that went into this particular one.  
        I dare say that if others come along and consider      investments in cable for the delivery of telephone service      which is -- remember what this is really all about -- they      would have to think twice if conditions had been imposed on      some merger to that point that would make that investment      less than economical.
        CHAIRMAN KENNARD:  I understand your point about      uncertainty but is it your testimony that there is no set of      conditions here, even incremental conditions, taking into      account some of the uncertainties of demand in the      marketplace, that would not cause you to abandon this      transaction?  Is that what you are saying?
        MR. CICCONI:  I wouldn't use the word "abandon",      Mr. Chairman, but I'd like to stick with "seriously      jeopardize", which is -- I know it sounds close but I think      there is a judgement that goes in there in terms of any      conditions that the Commission would put on but I think      there is a risk there.  There is a calculus in any      investment as to the dollars and the rate of return and in      many investments it is -- especially ones of this size and      magnitude -- that is a very close calculus and if conditions      are imposed that affect the way the revenue flows were      projected that could have a concern.  
        In terms of the Commission's authority in this      area I would argue that the Commission certainly is      justified in watching this very closely and exercising its      oversight, exercising its responsibility to watch out for      consumers and make certain the problems of this nature don't      arise, make certain that bottlenecks don't arise, and it      would certainly be able to act or attempt to act or seek      authority from the Congress to act if problems indeed arose      but to act based on projections on the part of some parties      that problems should arise and require additional      investments and expenditure of funds before any problems      have in fact arise strikes us as unjustified, Mr. Chairman.
        CHAIRMAN KENNARD:  Mr. Cicconi, I want to get a      response from you to Mr. Kimmelman's point about his concern      that you are really only interested in the high end      consumers, the 20 or 30 percent of the market that is      willing to pay for high speed internet access.
        It is my view that the Communications Act -- and I      think it is one of our core responsibilities is that we      ensure that all Americans have access to technology and to      advanced technology in particular.  Can you address Mr.      Kimmelman's concern about the way you are going to deploy      and market these new services?
        MR. CICCONI:  Sure.  I have a great deal of      respect for Mr. Kimmelman but on this issue I think he is      just dead wrong.  The entire transaction is geared at       volume of residential customers.  When we go into a city and      build out this system the build out will be for the entire      city.  It would be extremely foolish of us to leave out any      customer, just from an economic standpoint.  
        Keep in mind that this platform that we are      constructing there and we are investing and expanding is      designed, from our standpoint, to offer an array of new      services, particularly telephone service.  We want to      attract as many people as possible to that platform.  So,      there is really no incentive for us, in fact quite the      contrary, for us to simply go after one end of the market.
        I think that when one looks at the broad reaches      of territory that TCI is currently servicing we are going to      building out in all of those areas over the coming years and      providing these services.
        CHAIRMAN KENNARD:  Mr. Kimmelman, would you like      to respond?
        Mr. KIMMELMAN:  I would just like to respond.  I      am not raising a question about the motives of AT&T, and      certainly not Mr. Cicconi.  I will accept at face value that      they would like to serve everyone.  I am pleased that they      would.
        I want you to look at the hard economics of these      markets and how competition unfolds and the nature of the      services.  These network upgrades are enormously expensive.       AT&T itself has projected as much as $750 per household.       The market has frowned on this.  The market, not me, the      market has said, "We're not sure this is feasible, doable."       Possibly with the Bell mergers I don't know that it makes      sense but there certainly is a lot of money to be made at      the high end of the market.  It's not just a build out, it's      a set top box.  It is a variety of costs for consumers that,      from what I see today in usage patterns and demand, more      than half of the public isn't there, either not wanting or      can't afford.  It is not a question of motive, it is a      question of what's the likely result of this transaction.
        It is not in isolation whether they are offering      some potential benefits.  If 10 or 15 years from now some of      this occurs it would be wonderful.  In the foreseeable      future, though, there are substantial dangers to the      development of competition in core markets that are      extremely monopolistic, in emerging markets where -- I'm      totally confused by Mr. Cicconi's answer.  If they are going      to be fair to everyone and open up to everyone and      conditions will drive the economics of the deal south and it      is gone then how can they voluntarily be fair and open to      everybody?  It just doesn't make sense.  There is something      missing here.
        So, I just urge the Commission to set a standard      that truly is based, Mr. Chairman as you said, on the      average consumer and get a straight response about how these      services in the foreseeable future are there at a reasonable      price.
        CHAIRMAN KENNARD:  Anyone else on the panel like      to address that?  Commissioner Ness.
        COMMISSIONER NESS:  Than you, Mr. Chairman.  Just      following up on this line of questioning.  I believe that      AT&T's proposal would include competition for telephony in      the local marketplace.  I don't know what telephony would be      priced at but presumably it would not be well in excess of      what the local telephone company would be offering or you      wouldn't get very many subscribers.  Certainly we have seem      a broad where there has been a combination of cable and      telephony that the telephony has been attractively priced.  
        Mr. Kimmelman, the question goes to you.  Is this      a tangible benefit that the consumer would have based on the      development of that infrastructure?
        MR. KIMMELMAN:  If we really were talking about      that price I think it would be.  The problem is AT&T told us      two years ago they could do this wireless.  First they told      us they could do it through resale and they were going to      have a third of the market by 1999.  This was about the time      of the Telecom Act.  Then it was wireless.  Then it was, "We      can't do it at all without acquiring a local exchange      carrier like, for example, an SBC."  Now all of a sudden it      is TCI.
        I'm sure there is a tremendous amount of      uncertainty in a very vibrant marketplace.  Again, I'm not      questioning motive here.  I just don't see the economics.  I      think Wall Street's reaction indicates that the economics      aren't there.  Again, I'm not making a statement that they      shouldn't be allowed to try, try under fair conditions so      there is not a cross-subsidy.
        A number of years ago -- I'll finish this -- it      was the cable industry itself that came to this commission,      to the NCTA, and through member companies like TCI and said,      "You should not allow a telephone company to raise local      telephone prices one penny, one penny, to cross-subsidize      entry into the cable business, overcharging telephone      customers in order to provide what?  Competition for video      services.  The excitement of more competition."  Why      shouldn't the same principle apply to the cable industry?
        COMMISSIONER NESS:  Mr. Cicconi, would you like to      respond?
        MR. CICCONI:  Certain, Commissioner.  I respect      Gene, I think it is hard to have it both ways.  On the one      hand you can't make the point about how much this      transaction costs and how difficult the economics are to      justify it.  On the other hand, solve it by imposing      conditions that levy even more costs on the transaction. I      think that is really a non-sequitur and for us it is a non-starter.  
        In terms of telephone service, which was really      the original premise for your question, Commissioner, you      really phrased it in a way that answers it.  The fact is,      that is a competitive market and if we are going to hope to      break into that monopoly market, if we are hoping to take      away the 99 percent plus share, even a few percentage points      of U S West market share in their territory and local phone      service we are going to have to price it competitively with      theirs.  That is just a simple fact and we're not going into      this transaction with our eyes shut in terms of that fact.        We are going to have to do that and we feel we can.
        CHAIRMAN KENNARD:  Please.
        COMMISSIONER NESS:  If I can continue.  We have      talked extensively in the last go round about the unbundling      issue and I'd like to pursue that a little further.  
        The argument is that the unbundling of the access      to the internet and the provision of broad band service      would make it impossible for you to provide that service. 
        Now, can anyone on the panel address the -- would      anyone like, on the panel, to address the question as to the      availability of capital to be able to build out broad band      infrastructure in an unbundled basis?  Then, I would also      like for Mr. Cicconi to answer the specific question, do you      feel that the same opportunity ought to be provided to 
     U S West to be able to bundle its ISP services as it rolls      out broad band?  
        So, first the question, Mr. Brewer.
        MR. BREWER:  Yes, I'd love to respond to that.       Mr. Cicconi mentioned some additional investment that would      be required or additional capacity that would be required to      support multiple ISPs for the broad band cable facilities.       I think the additional investment part is minimal, I mean      almost zero.  We have a working arrangement with a      competitive cable company -- actually that is doing over      builds, frequently of TCI systems, oddly enough, in the      Southeast.  
        Here is the way it works:  Mindspring plugs in its      network into a router in the cable company's head end -- the      company is called "Knowledge-E" -- transports the bits from      there to the customers residence, through their hybrid fiber      coax network, their cable network.  We do the sales and      marketing.  We do the service and support.  We do the      installation.  We do the billing.  Mindspring does all that      and Knowledge-E provides us with that local data transport      service. 
        The cable modem infrastructure is at its heart an      ethernet.  There are many different approaches that are very      workable for providing that basic data transport service and      there is in fact a -- there have been a couple of meetings      underway here at the FCC which your staff has been      participating in with representatives from At Home and      Mindspring and other companies, which I think has already      shown quite conclusively that the basic data transport's      function is eminently doable and is not difficult.
        COMMISSIONER NESS:  Let's go back to Mr. Cicconi's      point in terms of the incentive to be able to provide the      internet service, including content, in fact, it looks at it      from a content perspective, as a content provider, and not      distinguishing that from internet service provider.  Is      there incentive for it to be building out its plant if, in      fact, it would not get the benefits of a bundled product by      virtue of having others have access to the network?
        MR.BREWER:  We, and I don't think anyone else that      I'm familiar with in the proceeding, we are not saying AT&T      could not have a bundled product.  What we are saying is      that we need to have access to the basic local transport      services ourselves. 
        It is very very clear that Mindspring and AOL and      all of the other thousands of ISPs have many many customers      who we could very successfully migrate to broad band      connectivity were it available to us.  We don't want this      connectivity for free, we want to pay a fair price.  I      personally very strongly believe that the cable industry in      particular has taken a risk in investing in the upgrades to      provide the two-way data transport functionality and they      deserve a good return on that investment.  
        They took a risk, they deserve the reward but the      form that reward should take cannot be the granting of a      monopoly or duopoloy control of the core telecom service of      the future for residential subscribers.  The cost of that      are just too great.  The return needs to come in the form of      profitably carrying traffic for a variety of service      providers that will serve those end user customers.
        COMMISSIONER NESS:  Would anyone else like to      address that issue?  Mr. Roellig.
        MR. ROELLIG:  Commissioner Ness, a couple of      comments.  First of all, we are doing that today.  We are      incented, we are providing what we call a "mega central      service" where an ISP can basically connect up directly with      a customer and not go through our At Home like they are      going to try to require all customers to do.  We don't      require that you go through the USWest.net. You can choose      to use the DSL service and go to your provider of choice.
        Second of all, I believe that if you look at the      comments that AT&T has made in the past, in the 706      proceeding these stated that advance services are more      likely to reach all Americans if incumbents are subject to      unbundling obligations to permit additional competitors to      provide service.  So, what they have done in the 706      proceeding is say that it is appropriate to have everybody      be unbundled.  They have also said in the 706 proceeding      that you ought to be in separate subsidiaries and frankly      somebody even ought to own a percentage of your separate      subsidiary, then when it comes to them coming before this      commission and talking about the public interest they say we      ought to have a closed system, we ought to have a      proprietary system from beginning to end.
        In order ensure that we have true competition in      this marketplace we need parity of regulation.  We need to      be able to compete with them effectively and we can't do it      if there are different rules for the various providers. 
        COMMISSIONER NESS:  Mr. Cicconi, would you like to      respond to that?
        MR. CICCONI:  I'm pleased to hear U S West's      commitment to competition in their territory there because      we are going to be, hoping to take them on it when it comes      to local telephone service which is, again, what this is all      about.
        If these investments are conditioned, if there are      restrictions placed on them people aren't going to make      them.  There is a tremendous commitment of capital that is      required to bring about facilities-based competition to      these local monopolies.  The reason it hasn't happened in      the scale that people had hoped over the past three years is      because it is darn difficult to do.  The monopolies do not      yield easily, one would expect that, I would suppose.  In      point of fact, they have resisted every step of the way, 
     U S West among them.
        They have actually been fined in Iowa for failure      to comply with internet interconnection agreements between      AT&T and MCI.  These are not isolated instances.  I know I      am not telling the Commission anything it hasn't heard many      many times on a daily basis.  The fact is that this      investment by AT&T is a $48 billion commitment providing      that competition at all levels.
        When it comes to the question about the unbundling      for internet access I would make a couple of points.  Again,      I would stress that if there is an issue here it is an      industry wide issue and it is not something that should be      addressed just in the context of the merger or even      considered in the context of a merger just involving this      particular company.  It really does affect the entire      industry.
        In terms of Mindspring and other ISPs, I would      stress again that on this system any consumer will have all      of the internet access options they have today, plus more.       If they want to access Mindspring they are able to do so.       There will be dial up telephony connections possible with      any internet service provider.  I would remind you again of      the projections that some people in the industry have made      that narrow band is going to persist for quite a long time      as a means of accessing the internet for the majority of      Americans, not only that but we fully expect that it will be      able to compete fairly well for their business with the      RBOCs.
        Over cable we feel it is quite possible, at least      our engineers tell us, that you are much more likely to get      the rated speed of your modem than you are over a twisted      pair of phone lines.  So, if you've got a 56k modem you are      much more likely to achieve speeds of 56k, which we again      will be making that type of offering that Mindspring could      make, over the cable system much more attractive.
        When it goes beyond that to high speed connections      of the type that At Home provides the simple fact is At Home      arrived in this market a number of years ago and made the      type of investment many other people could have made in      order to provide this type of capability.  In fact, the      system that TCI has was co-engineered with At Home to      provide this service.  It would be very difficult to break      that apart in some manner.
        I think the overbuilder that was cited by Mr.      Brewer is in fact somebody that, at least on their website,      indicates that they are an affiliate of Mindspring.  I'm not      sure what that means but I think it does make a point that      high speed internet over cable is not exactly the same thing      as over a phone line.  There is a technology involved, there      is a great deal more engineering involved, it is just very      different and it requires a great deal of cooperation in      order to build a system that delivers that product.  That      was, in fact, the case here.
        COMMISSIONER NESS:  So, you have now twice      suggested perhaps -- and I'm reading into your answer a      little bit -- that instead of having this be the focus of a      particular merger that instead perhaps this is an      appropriate thing for us to be addressing in a rule making      proceeding.  Am I correct that you would not object to that?
        MR. CICCONI:  I would agree with the first part      but not the second, Commissioner.
        (Laughter.)
        What I would say is this, the Commission has ample      authority to monitor these things on an ongoing basis.  If      there are problems that develop of course you have the      obligation to act.  The point I'm making here is that all of      these problems that are being cited are simply hypotheticals      that are being cited by a number of people, they are not      actual problems affecting consumers, in fact, far from it.
        As a result of this transaction consumers will not      only have, continue to have, all the choices they have today      even enhanced but additional choices.
        COMMISSIONER NESS:  So, basically, the Commission      should recognize its authority in this area but perhaps      forebear from exercising the authority to see what happens.
        (Laughter.)
        Thank you, I have no other questions.
        CHAIRMAN KENNARD:  Commissioner Tristani.
        COMMISSIONER TRISTANI:  Thank you, Mr. Chairman.       Ms. Inman, you raised three concerns:  cross-subsidies; the      internet access, which has been explored a bit here; and,      local authority.  I'm not quite sure what your concern was      about the local authorities.  I'd like you to expand on      that.
        MS. INMAN:  Of course.  As we are looking at a      merged company with merged services and possibly merged      customer service centers and the like, right now local      franchising authorities have the authority to resolve issues      directly with the company, directly with TCI's local      government entity.  We fear that perhaps with the merged      services that some of those services that the cable company      currently provides will be combined and we won't have that      direct contact anymore, we won't have that direct impact. 
        Now, we wouldn't lose our franchising authority      over cable services but as the services themselves merge it      could get murky so we just ask that as you are looking at      telecommunications services versus cable services that that      authority be preserved in those issues.
        COMMISSIONER TRISTANI:  Earlier, and I'm tired so      I've forgotten what the piece of paper that you waived was      about, but you said we requested this.  Could you talk a      little bit more about this piece of paper and also if you      could give us a copy and staff.
        MS. INMAN:  I will get a copy to you.  This is in      the cross-subsidization concern.  We had drafted a      resolution in the Denver Metropolitan Area on behalf of our      25 communities that conditioned the merger approval on,      among other things, this one phrase that simply says, and I      will read it to you, it is very short, that "neither      franchisee, TCI, and/or AT&T will increase rates for cable      services within the franchise area in order to cross-subsidize non-cable services."
        They told us over the weekend that they will not      approve it, they will not accept that, but what they will      agree to do is simply adhere to basic cable rate regulation.       So, my contention is if they are not planning on cross-subsidizing why would this be a problem in the approval of      the merger?
        COMMISSIONER TRISTANI:  You asked at the end of      your testimony that we implement the proper protections.       You didn't call them conditions but you talked about      protections.  What would you suggest the Commission could do      to address this concern?
        MS. INMAN:  Well, keep in mind that we're, at the      local level, we're looking at the same things that you are      looking at.  We are looking at the same internet access      conditions and the cross-subsidization issues but we have      120 days to do it and that 120 days is expiring mid-January      for most of our communities.  You have unlimited time to      look at these issues.
        One of the things that I would suggest is perhaps      that the FCC issue, a notice of proposed rule making on both      of those issues, allowing us at the local level to condition      our approvals on the outcome of that rule making.  That then      would allow the local communities and others to provide      input into that rule making procedure.  It in essence, buys      us a little bit more time to have input into those issues as      well.  As it stands now, we have a few weeks left in our      approval process.
        COMMISSIONER TRISTANI:  Mr. Chairman, I have one      more question for Mr. Kimmelman.
        You also talked about conditions, proper      conditions, what would those be?
        MR. KIMMELMAN:  These are conditions -- I'm going      to agree with Mr. Cicconi, this is a very expensive      transaction and getting local competition has been extremely      difficult, if not impossible in most instances.
        The conditions that we are looking at, we urge you      to look at, are conditions that make the promises come true      without cross-subsidy, without overcharging consumers,      without expanding monopoly.  You have authority, under the      1992 Cable Act, to look at cable.  Structurally, after March      1999, for upper tier even though rate regulation disappears,      up until March 1999 you have the authority to look at it in      a price regulation fashion.  
        I'm not suggesting that doing that for a few      months is meaningful here.  I am suggesting, though, that      you look at structural protections that prevent the evasion      of the principles of the Act, the evasions of the rate      regulation section of the 1992 Act, not repealed by the 1996      Telecommunications Act.  I suggest that you look at the      broad language on prevention of discrimination, use of      horizontal concentration, use of coercion, both in the      programming market and in this fast emerging high speed      internet access market. 
        I would suggest that if it is appropriate for AT&T      to come in with streamlining proposals, proposals to ensure      that these promises can be carried out, to suggest that it      be done through a rule making rather than the merger.  I      think that is all really appropriate, if they really are      suggesting that, across the industry.
        I think the purpose of conditions should be      exclusively to make sure that a $48 billion transaction      either will accomplish the promises that are made or, to the      extent the market cannot bear that, and I don't hold them to      it, I don't think anyone can promise broad based      competition, we have yet to see whether it is feasible, but      all that they do they not abuse other bottlenecks, other      monopoly customers under your jurisdiction in their efforts      to do so.
        CHAIRMAN KENNARD:  Commissioner Powell.
        COMMISSIONER POWELL:  As much as one might commend      or applaud AT&T's interest in cable for telephony services I      think it is important to point out that they aren't the      first to try.  I am a little astonished at how speculative      we are being about cross-subsidies and price bundles when      there are people out there doing it quite effectively as we      speak, unfortunately not represented on the panel.
        Cox Communications in California has had, to my      understanding, a relatively successful run with respect to      the provision of basic bundled telephony and cable services,      as well as other companies, I think in the New York area,      Cable Vision and others.  It seems to me to be responsible      here we would look at what is going on in those experiences.          If I am being correctly informed, the telephony      offerings are relatively significantly lower than that being      provided by local exchange companies.  If I am being      correctly informed, their take rates are significant, that      is customers of all stripes seem very interested in the      potential for that bundle. 
        Indeed, as I understand it, and again I am more      than willing to be correct on these points but I'd rather      them be used rather than speculate about these things, that      we have not seen a significant amount of evidence of      dramatic cross-subsidy, that is, cable rate increases that      are being flowed to the telephony side for the purposes of      the efficiencies to lower the rates, not that the rates are      not increasing but anymore dramatically than they are      increasing in cable companies that are not providing the      telephone services.
        So, I would sort of encourage everyone who is      going to enter this debate to try to flesh out some of those      issues.  I have visited a good number of those companies      because of my interest in cable telephony and at least this      is the story that I've been told.  I think that is important      evidence for the concerns that Mr. Kimmelman rightly raises      about cross-subsidy, and Ms. Inman, and the concerns about      whether there are significant public benefits in the cost of      the telephony option.
        I would note, too, that I think this is important      that you cannot read the 1996 Telecommunication Act without      leaving it convinced that one of the bases for Congressional      optimism about the pace of local telecommunication was that      it envisioned that cable telephony was going to be a      significant ingrowth in that.  That is not to say that that      answers the question but I think some of these concerns      being raised about whether it works economically or at what      cost and stuff can't be read outside the context of      Congress's optimism about this as an alternate provision of      local telephone service.  So, I put that on the table.
        The other thing that I might ask Mr. Brewer this      question.  It has been explained to me by AT&T and some that      one of the difficulties of making the transport provision      available to other people is that there is an enormous      dynamic engineering function going on that allows them,      through their collective management, to keep prices at a      point at which they can sell them to residents.
        I think AT&T has suggested -- is it proprietary --      I shouldn't tell what your rates might be but $49.99.  I      mean, we always hear magic numbers about $40, $40 to $50.       Some have suggested that without the ability to have some      level of control, with respect to the full range of the      transport and the content, that yes you could do it but the      rates would be significantly higher than the acceptable      price point and, indeed, the benefits Mr. Kimmelman is      concerned about indeed are pushed even further toward higher      end customers, rather than kept down.  Why don't I ask that      question before I ask another one.  Are you the right one to      ask?
        MR. BREWER:  Yes, and I'm glad you asked because I      was dying to get a chance to respond to an earlier comment      about a claim of technical difficulties and expense in      supporting multiple ISPs on the cable plan.
        I would very very strongly submit that those      technical difficulties do not exist and that the issues      involved in successfully serving customers with this last      mile transport capability are essentially the same in a one      provider environment or in a multi-provider environment. 
        We at Mindspring and others, I know, would be      eager to proceed in that into any depth of technical detail      that is required but I would very strongly assert that those      issues are not real, that the technical issues are      essentially the same be it a one provider environment or a      multi-provider environment.
        COMMISSIONER POWELL:  I guess the question I would      really want to know is -- I though you suggested you have      had one experience with this.
        MR. BREWER:  Yes.
        COMMISSIONER POWELL:  Are you confident that you      could offer service at a price point competitive with the      $40 to $50 range or that that would be accessible to the      vast majority of residents?  That is, some have made the      argument that, yes, maybe technically you could do it but      that the expense to you wold result in prices for cable      modem services that were sort of beyond the pale of most      average consumers or what marketers say are acceptable.
        MR. BREWER:  What our price would be would be      largely a function of what we paid for that last mile      transport.  Right now our local loop cost per customer for a      $20 per month revenue customer is in the vicinity of $5 to      $7 and I am anticipating that in the broad band scenario      that would be higher.  We are able to generate a reasonable      profit on a $20 customer with local loop cost in the $5 to      $7 range.  So, there is that $13 to $15 of additional      revenue above and beyond what we pay for the local loop,      works for us.  
        I would submit that we are going to be much more      economic in operating the rest of the business than a cable      company or their new ISP partner that is sort of fresh to      the game.  We have more scale, more experience and we, the      industry collectively, have vastly more and will be able to      operate more economically, not less.
        Again, what the appropriate price for that last      mile transport is should be no different in a one provider      versus a multi-provider environment.  
        If I could just add one more thing, there is so      much more to providing a service that customers actually      find appealing than just speed, there is so much more.       There is user interface, making it easy to use, making it      easy to have a good experience.  
        Technical support is so critically important in      the ISP business and will only become more so as we move to      an environment where there is an always on connection and      multiple devices hooked up to that connection.  Technical      support, in my opinion, really will become the primary thing      that a telecom provider gets paid for at the retail level.       To be forced to pick all of those other important customer      choice criteria based just on who can deliver the bits into      your house is a horrible unacceptable outcome.
        COMMISSIONER POWELL:  I would just submit that I      think one of the things that has to be examined and someone      has to put meat on it, it is fine, I think, theoretically,      to accept that there should be -- and I think it is a      defensible proposition that there would have to be some      reward for the return on an investment that I do think      companies took at their own great risks but the question I'm      struggling with, and I won't ask for follow up is, that that      price might lead to a retail price that is pretty      significant in terms of what customers are used.  I don't      know the answer to how that comes out but it is at least a      subject of inquiry.
        I thought I would also ask -- a lot of people have      discussed the concern about access as well as other context      -- I want to ask each of you to answer this question.       Irrespective of the merits of those arguments I understand      everyone wants presentation to suggest that it would be      equally true of any and every cable company that was      attempting to offer broad band service in this way and not      specifically TCI.  Is that right, Mr. Brewer?
        MR. BREWER:  Yes.  That is correct but I -- and I      am obviously not a legal scholar -- but as I understand the      jurisdiction which the FCC holds the context of an important      merger like this is one of the times when you have the most      latitude to address important consumer issues and this is,      to me, the most important consumer issue for telecom people.
        COMMISSIONER POWELL:  Let me follow up.  Here is      what I'm worried about fundamentally, even if we did as you      asked what would you do about the other two-thirds of      America?  Wouldn't you just need to turn around and ask us      to do the same thing in a broader more comprehensive way      with respect to everybody else?
        MR. BREWER:  Yes, absolutely.
        COMMISSIONER POWELL:  And so does anybody offer      the explanation as to why then we should take such a      comprehensive issue with as many complex issues on the plate      as people have described and attempt to address it      specifically in a merger context?
        MR. ROELLIG:  I guess I can try to respond to      that.  I think the reason you should do it is because the      law requires that you do it.
        COMMISSIONER POWELL:  Where does --
        MR. ROELLIG:  The law requires that you look at      whether this is in the public interest.  Clearly, it will      not be in the public interest if in fact you are taking a      company that due to its unique and really unique size and      also the various segments of the market that it has --
        COMMISSIONER POWELL:  Public interest doesn't      require with respect to the other two-thirds of the nation?
        MR. ROELLIG:  Well, public interest may require      with respect to the other two-thirds but you've got this      issue before you now and you have to look at whether it is      appropriate in the public interest.
        COMMISSIONER POWELL:  No, no, no.  We have any      number of tools and institutional mechanisms available to us      for the consideration of the public interest standard and      its broad applicability and some seem to me more appropriate      than others.  While I don't dispute the leverage point,      which I think is legitimately before us, the suggestion that      the public interest requires one tool over another I find to      be insupportable.
        MR. ROELLIG:  I guess my response is, number one,      that because this matter is before you you need to look at      the public interest.  Number two, I think the fact, due to      the size of the entity, and what is being put together      requires that you look at what is going to happen in this      broad band marketplace if this merger is allowed to go      through in its current form.  If it is, due to the size, due      to the speed to market, due to the unique advantages it is      going to have, in essence it will really sort of tilt the      marketplace for broad band services.
        As far as trying to address it in some later rule      making that goes broader, again, looking at the pleadings of      AT&T they are basically taking the position that you don't      have the authority to do that.  So, if you don't take the      opportunity now and if you don't deal with the issue now --
        COMMISSIONER POWELL:  Let me tell you, if you      don't have the authority in that context you don't have it      now.  Okay.  That is just the truth.  I mean, we haven't      reached that question but I don't understand the argument      that the same authority that you are point to is the same      authority we would use in that context as we would have to      rely on in this context, I think.
        MR. ROELLIG:  Commissioner, my view, and I believe      the law support its is that in looking at a merger like this      you, in order to do the license transfers, you have to      determine whether it is in the public interest and that you      can, if you see a problem in the marketplace it will create      you can put conditions on the merger that will ensure that      it is in the public interest.  I am positive that it would      make appropriate sense to put those conditions on to ensure      that we do not have a marketplace where there really is only      one player that has a clear competitive advantage and      basically is able to put together a proprietary network that      nobody else can.
        COMMISSIONER POWELL:  My last question, and I will      leave it at that because I don't want it to get too late      because I'm exhausted.  There is a lot to be said about the      worrying about the tipping effect.  We have heard it in the      last panel in network industry.  That is, someone has an      advantage to the point that the network effect is that they      then gain a monopoly so that customers wouldn't substitute      for a new provider, even if one were to come along.
        I do find it somewhat strained to suggest that the      tipping effect would occur at this stage in the development      of broad band in the context of, say, the next year which      would be at most the amount of time before the Commission      would undertake a rule making and, certainly, in light of      the AT&T case.  I mean, Mr. Kimmelman suggested the      substantial financial investment and raw work that has to      happen before there is even a network, at least in TCI's      case.
        I just ask for a sincere answer because I      seriously accept the risks of tipping effects in network      externalities.  I just am not so sure that anyone has made a      credible case that we are at that moment, that that moment      is so imminent with respect to broad band capability that      not to do this in this context would result in the tipping      effect in the foreseeable future.
        MR. ROELLIG:  The way I would respond to that is      your question assumes that you can deal with it in a rule      making.  Again, I think if you look at the AT&T pleading it      would be our view that you could not do that.  So, the only      way you would be able to deal with it would be some      Congressional change.  By the time there is a Congressional      change or by the time we work through our legal process      about the authority to do it in a rule making we aren't      talking about a year.  My guess is you are talking two or      three years out and during that time period with what is      happening in the internet and the broad band market I      believe it would significantly tip the competitive      marketplace.
        MR. KIMMELMAN:  Commissioner Powell, if I could      just jump in.  I think your questioning is very important.       I think you are actually right about legal authority.  But,      I think the issue here is if this is a truly important      problem of open networks that the Commission has the      authority to look at, I believe it does, this is an      appropriate place to start to look.  I'm not suggesting it      is the appropriate place to end the look.  I'm not      suggesting it is different from the other players in the      industry.  
        I do think on some of the other issues, the      horizontal size and vertical strength of the TCI networks      and programming are significant towards the market plan that      AT&T has laid out and is different than just an incremental      few community approach by Cox, a very different kind of      company.
        It has been presented in the license transfer as a      broad based investment approach.  I think, given that that      is what they want you to look at is the public interest on      the positive side, it is appropriate to look at the danger      on the other side.
        This particular, I think, you are absolutely      right, can be done -- can be looked at in a variety of      contexts but using Mr. Cicconi's own reasoning, if it is      within your jurisdiction to do this, and I believe it is, he      has made a very strong important point that the more      investment that is made the more that has to be undone if      you are changing the rules of the road.
        If there is a legitimate problem here it is best      to deal with early on.  I think it probably can be dealt      with cooperatively with a company that seeks to do so many      other things with a $48 billion transaction, that is a      matter of convenience, not leverage, a matter that ought to      be dealt with broadly throughout the industry though.  I do      not think it is a one company problem. 
        MR. CICCONI:  Might I respond, Mr. Chairman?
        CHAIRMAN KENNARD:  Please.
        MR. CICCONI:  Just very briefly, Commissioner.  I      think it is important to recognize that the practical effect      if there was a conditioned imposed just on this one merger      is that you would end up with a company in this industry      that was hobbled by conditions that the rest of the industry      would not have.  I think if that was your point -- that was      certainly the point I was trying to make earlier when I      mentioned that this was an industry wide issue.
        Obviously, we don't think conditions of that      nature are appropriate in either context but they are      certainly not appropriate from a legal standpoint to be      going in and picking out one company in an industry and      imposing conditions on that that are not imposed industry      wide.
        I would just like to make one other comment too      because I think we should be flattered by the fact that 
     U S West regards us as such a potent competitor here in all      of these areas where right now we have zero market share and      they have got about 99 percent.  I think it is important to      keep in mind that when one talks about conditions of this      nature and hears from an RBOC discussions about anti-competitive effect and the competitive threat and things of      this nature we are talking about a competitive threat from      somebody with zero market share in these areas from somebody      that has got in excess of 90 percent.  I think that is an      important point to keep in mind.  
        MS. INMAN:  If I might...  We were approached,      local franchising authorities were approached by the      internet service providers and asked to include these as      conditions of our mergers.  I'm not a lawyer.  I'm probably      one of the few non-lawyers on the panel here today, yet I've      heard legal arguments on both sides of this issue provided      to us by the industry.
        I think that, to answer your question,      Commissioner, I think it is just an opportunity to look at      that now.  This is the first opportunity presenting itself.       In my comments I simply urged that if you apply this type of      condition that it simply be applied in a fair manner at a      reasonable price. So, the local franchising authorities      certainly wouldn't be that that type of access be provided      at no cost but in a reasonable manner.
        CHAIRMAN KENNARD:  Commissioner Furchtgott-Roth.
        COMMISSIONER FURCHTGOTT-ROTH:  Thank you, Mr.      Chairman.  I would like to just note for the record my deep      admiration and respect for Mr. Gamboa who obviously came to      this hearing at great expense and great disruption to his      personal schedule and left early to go to his 11 year-old      daughter's recital in San Francisco.  I believe that any      father with that dedication to his daughter is a man to be      respected.
        COMMISSIONER POWELL:  I think he's an expert.
        COMMISSIONER FURCHTGOTT-ROTH:  Yes, I'm only sorry      that --
        COMMISSIONER NESS:  Or mother, I would add in      passing.
        COMMISSIONER FURCHTGOTT-ROTH:  Absolutely.  Mr.      Cicconi, I would like to extend my admiration to you for      being a good sport today, for putting up on a panel where      you had not just two people suggesting lots of things you      may have found a little distasteful but a few more than      that.
        I'm intrigued.  I would like to follow-up some      comments by Mr. Roellig about the public interest standard      in the transfer of licenses.  I simply would like to note      that in Section 310 it makes no reference to mergers, the      same standard by statute would apply to most routine of      license transfers, frankly, Mr. Roellig, many of which 
     U S West may have bee on the giving and receiving end in      recent years.
        I would like to ask you, Mr. Roellig, and you, Mr.      Cicconi, if you think, since you all have had many license      transfers in recent years, if you all have any clear      indication of whether or not the Commission would apply a      higher public interest standard to one type of license      transfer than another and, particularly for you Mr. Roellig,      why you think that it should -- where in the statute you      think it should apply based on a merger in particular.
        MR. ROELLIG:  To respond to your question,      Commissioner, I believe that, first of all, why would you      look at this one as compared to maybe a transfer of a      license in Des Moines?  The reason you do is that this is      clearly a unique situation of license transfer.
        COMMISSIONER FURCHTGOTT-ROTH:  Where in the      statute does it say that?
        MR. ROELLIG:  Well, you have to look overall in      what is in the public interest.  I would say that when it      is, frankly, something that may be pretty minor under those      circumstances you may say, "It is easy for me to see this in      the public interest."  I think when you are dealing with a      major merger then you look at the license transfers relating      to those and you could say, "This may have a big public      interest affect and it may not."  So, I think you have to      look --
        COMMISSIONER FURCHTGOTT-ROTH:  Is there anything      bigger than Exxon/Mobil?
        MR. ROELLIG:  We'll wait and find out.  I don't      know.  But, I believe when you look at the transfer that is      occurring the statute requires that you look at the public      interest of standard and --
        COMMISSIONER FURCHTGOTT-ROTH:  But does it ask for      a different public interest standard for one license      transfer versus another?
        MR. ROELLIG:  I would say, "No."  I would say you      have to to look at all the facts, look at the impact on the      market.  Again, a license transfer for a small community in      Des Moines may have very small impact on the market but what      we are looking at here has the potential to dramatically      impact a growing market, which is the broad band market.  We      heard comments about this being an issue about telephony.       It is not an issue about a voice-grade telephony.
        As a matter of fact, if you go through AT&T's      pleadings you don't even find commitments as to when they      are going to be in the telephony market, you do find in      their announcements commitments about when they are going to      be in the broad band digital market.  They plan to be, I      think, 90 percent by the end of the Year 2000.  So, that is      the market we ought to be looking at and seeing whether this      transfer will be in the public interest but for some      conditions that could be placed on it.
        COMMISSIONER FURCHTGOTT-ROTH:  Could the      Commission do the same thing to U S West on a routine      license transfer?
        MR. ROELLIG:  I believe it could.
        COMMISSIONER FURCHTGOTT-ROTH:  And request 
     U S West to do all sorts of things that may be completely      unrelated to that transfer in Des Moines, could the      Commission go to U S West and say, "We would like to see      unbundled network elements in pricing in Washington State      and if you don't do that we will hold up the license      transfer in Des Moines?
        MR. ROELLIG:  I would have to talk to the lawyers      to find out exactly whether it could be totally unrelated      but I guess what I'm saying is with respect to the      conditions we are talking about today they are totally and      integrally related to the issues before the Commission.
        COMMISSIONER FURCHTGOTT-ROTH:  Is that your      position, Mr. Cicconi?
        MR. CICCONI:  Will, let me at least try and state      it, Commissioner.  First of all, I wouldn't want to be in a      position here of suggesting to the Commission how it ought      to interpret the statutes and authorities that govern its      role in these areas.  What I would say, though, is that to      me public interest speaks much more in terms of impact on      consumers, not impact on Mindspring, not impact on
     U S West's competitive position but impact on consumers.
        I think that is consistent with much of the other      authorities vested in the Commission and, in fact, the whole      reason for being of the Commission.  We certainly don't      dispute the Commission in anyway, the Commission's authority      to take a look at this merger.
        Having said that, I think when one gets into      conditions one can have different views depending on what      conditions are being discussed.  I wouldn't suggest that      consistent with that authority the Commission could not      impose conditions on certain mergers.  What I would suggest      is that the type of conditions that have been discussed in      this merger would not be appropriate, they would not be wise      from a public policy standpoint, they would certainly not be      wise from the standpoint of consumers.  We feel that they      would have a discriminatory effect in terms of singling out      one company in the industry for special conditions that      would not bind others.            
        COMMISSIONER FURCHTGOTT-ROTH:  Thank you.  Thank      you, Mr. Chairman.
        CHAIRMAN KENNARD:  Thank you.  I just had a couple      of clean-up questions in the interest of making sure we have      a complete record here.  Mr. Cicconi, I was listening to you      very carefully today and I didn't hear you respond to the      request from Commissioner Ness that you respond to Mr.      Roellig's request that you somehow reconcile the arguments      that you have made on behalf of AT&T in the Section 706      proceedings where you have requested that this Commission      require full-unbundling of the telco networks with your      position here on behalf of AT&T today that we should not      look at unbundling as a remedy in the cable context.
        I heard you bash U S West in response to that      question but I didn't hear you specifically reconcile those      two arguments and I'd really like to hear that.
        MR. CICCONI:  I apologize, Commissioner, if I      skipped over that a little quickly.  Our position is, as we      stated in a number of filings, the fact is we feel the      Telecom Act distinguished between these two areas of      telecommunications and cable.  It does not distinguish      between voice and data, we feel, in its definition of      telecom services.  As such, we felt pretty strongly, as we      have stated, that they have to meet the requirements of      Section 251.  
        Our feeling is that by breaking one out from the      other that that is simply a dodge by U S West and others in      an attempt to get around requirements in the      Telecommunications Act. 
        CHAIRMAN KENNARD:  Another question that I think      was not asked to you specifically but I think the record      would be incomplete if I didn't pose this to you.  As you      may recall, shortly after you announced this merger I made a      public statement in which I said that if this merger      represents a serious commitment to facilities-based      competition in telephony it is something that we should      certainly entertain and perhaps welcome.
        What I have not heard from AT&T is specifically      when consumers are going to see the AT&T-TCI combination      actually deploy local competition in telephony for      consumers.  I want to know your plans for doing that, when      we can say that consumers are going to get the benefit of      that service.
        MR. CICCONI:  We hope over the next couple of      years, Mr. Chairman.  Obviously, there is a great deal of      money involved in this.  TCI has already begun some of the      upgrades, nearly $2 billion of upgrades are underway there      right now.
        As Mr. Kimmelman has acknowledged, there is a      great deal of cost involved in that.  We are hoping that      despite those rather daunting costs, assuming you get a      timely approval, that we will be on track to be at roughly      60 percent build out by the end of 1999 and upwards of 90 by      the end of 2000 and beyond that we hope to be completely      built out.
        CHAIRMAN KENNARD:  Further questions?
        COMMISSIONER NESS:  Just following up on that.  Is      that co-terminus with offering telephony?
        MR. CICCONI:  Yes, Ma'am.  The internet,      obviously, would come first because of the stages of the      build out but that would be involved in telephony, yes.
        COMMISSIONER NESS:  Co-terminus.  In other words,      by the end of 1999 60 percent of the TCI systems would offer      telephony?
        MR. CICCONI:  I think that's right.  I may have to      get back to you in terms of exactly where the overlaps are      there because there are two stages to the build out.  I      believe the 60 percent does speak to a complete build out      though.
        COMMISSIONER NESS:  Is there still time for me to      ask a slightly different question?
        CHAIRMAN KENNARD:  Certainly.  Go right ahead.
        COMMISSIONER NESS:  I just wanted -- I didn't --      in the idea of wrap up and cleanup here -- one aspect of the      AT&T-TCI merger is the disrobing, if you will, of Liberty      Media, putting it into another entity.  There will, however,      be the chairman of that operation serving on the board of      AT&T, et cetera.  And some of the relationships there raise      the question of whether in your, the view of AT&T-TCI,      Liberty Media would continue to be a vertically integrated      provider of programming and, as such, would continue to be      required to make its product available to satellite      companies and others.
        MR. CICCONI:  Commissioner, they would be      continued to be vertically integrated and they would be      subject to the program access rules.
        COMMISSIONER NESS:  Thank you.
        Agenda Item:  Closing Remarks
        CHAIRMAN KENNARD:  Are there any closing      statements from the bench?  Commissioner Ness.
        COMMISSIONER NESS:  If I can do so, please.  I      first want to thank all of the panelists from today.  I know      it has been a very long day.  Your schedules have been      discombobulated by virtue of our asking questions on what is      an absolutely fascinating series of topics and very      important ones for the American consumer.  So, for me, this      has been an extremely helpful debate.   My mind is and      continues to be very open to the arguments that have been      presented and the arguments that will continue to evolve as      we review the record in these proceedings.
        We had a very good and robust discussion about the      public interest standard that would be employed here.       Obviously, much of what we do today and what we decide as we      review these mergers will depend on what that public      interest standard entails.
        I would note that Congress, in entrusting us with      the public interest standard, expected that it would be      exercised carefully with discretion.  Such discretion, for      example, was exhibited in our recent decision on MCI      WorldCom.  If folks were to read our WorldCom MCI order you      would see that there were an awful lot of issues that had      been raised where we declined to include them in our merger      analysis.  For example, there were issues that we thought      were better addressed by the NLRB, issues that we thought      would be better addressed by the EOC, issues we thought      could be better addressed by some of the state commissions,      issues that we thought could better be addressed in rule      makings, and issues we thought could better be addressed in      pending adjudicatory proceedings.
        As we look at these issues, certainly there have      been a lot of issues that were raised and where and how we      address those issues will certainly be a part of our      deliberations.
        Some might prefer, perhaps as a matter of econmity      that we hold en banc hearings on other topics like oil      company mergers -- only kidding -- but indeed, we take the      issue of public interest very seriously, in my view, will      review such matters for the benefit of the consumer.  
        Thank you very much, Mr. Chairman, for holding      this timely hearing.  I want to thank the bureaus for all of      their hard work in preparing us for today.  
        CHAIRMAN KENNARD:  Thank you, Commissioner.       Commissioner Powell, any closing remarks?  Commissioner      Furchtgott-Roth?
        MR. CICCONI:  Mr. Chairman, I just wonder if I      could correct the record and Commissioner Ness here on the      60/90.  I have checked with one of our experts here.  The      60/90 build out is for two-way broadband.  The trials are      going on to see how much, how quickly we can do the      telephony build out on top of that.  We hopefully can get      back to you soon with some more precise figures on that.  We      are hoping it is, obviously, quickly, but it is a two-stage      build out.
        CHAIRMAN KENNARD:  We do need that information,      Mr. Cicconi.
        MR. CICCONI:  We will get it to you, sir.
        CHAIRMAN KENNARD:  Thank you.  With that, I will      adjourn by thanking our panelists and apologizing that we      are now almost -- well, actually over two hours over the      schedule today but I think that is a testament to the      quality of the witnesses and the complexity of these issues.       Just for the record, lest there be any concern out there in      the marketplace, this commission will not be holding public      hearings on the Exxon/Mobil merger.
        (Laughter.)
        Thank you all very much and thanks, especially, to      Tom Krattenmaker, Bill Rogerson, Michael Kende, Radhika      Karmarkar, Quyen Truong, and Royce Dickens of the FCC who      put all this together.  Thank you all.
        (Whereupon, at 4:06 p.m., the hearing was      adjourned.)
     //
     //                        REPORTER'S CERTIFICATE
     FCC DOCKET NO.:      N/A
     CASE TITLE:   FCC MERGER EN BANC          
     HEARING DATE: December 14, 1998
     LOCATION:            Washington, DC
         I hereby certify that the proceedings and evidence      are contained fully and accurately on the tapes and notes      reported by me at the hearing in the above case before the      Federal Communications Commission.
     Date:   __________           ___Elaine Kim________________
                                   Official Reporter
                                   Heritage Reporting Corporation
                                   1220 "L" Street, N.W.
                                   Washington, D.C. 20005
                       TRANSCRIBER'S CERTIFICATE
         I hereby certify that the proceedings and evidence      were fully and accurately transcribed from the tapes and      notes provided by the above named reporter in the above case      before the Federal Communications Commission.
     Date:   __________            ___Rose Kulb__________________
                                   Official Transcriber 
                                   Heritage Reporting Corporation
                       PROOFREADER'S CERTIFICATE
         I hereby certify that the transcript of the      proceedings and evidence in the above referenced case that      was held before the Federal Communications Commission was      proofread on the date specified below.
     Date:   __________            ____Lorenzo Jones_____________
                                   Official Proofreader
                                   Heritage Reporting Corporation